July 8, 1975
Page 21437
Mr. MUSKIE. Mr. President, as chairman of the Senate Budget Committee, I have undertaken from time to time, with Senator BELLMON and other members of the committee, to call the attention of the Senate to the fiscal implications of pending legislation. We believe it is important for Members to understand how the votes they cast today will affect Federal spending this year and in future years, and how that spending compares to the congressional budget resolution we adopted in May of this year. S. 677, the Strategic Energy Reserve Act of 1975, has major spending implications. Although the first year costs may not be significant, its future year costs will be immense. S. 677 is a good example of what we in the Budget Committee call a wedge – a bill with minimal expenditures in the first year but with increasingly larger costs in future years, all adding up to a significant sum of money that the Federal Government must ultimately pay out.
I favor passage of this legislation as an integral part of a national energy policy which frees us from the threat of international blackmail by foreign oil producing countries. But I believe we should pass it with our eyes open as to its spending implications. We must recognize that its costs may crowd out other alternative spending proposals which may come before the Congress this year.
S. 677 authorizes a 7-year program to develop strategic petroleum reserves which would provide a readily deliverable supply of oil in the event of another embargo. The reserves would be capable of replacing energy imports for at least 90 days and would be administered by the Federal Energy Administration. To stockpile the reserves, S. 677 authorizes the purchase of crude oil on the open market, the use of royalty crude from Federal lands including the Outer Continental Shelf, and the use of oil from the naval petroleum reserves if such reserves are opened up for production. The bill calls for the Federal Energy Administration to submit a report within 6 months on specific storage reserves for electric utilities, a coal storage reserve, and industry storage reserves.
A factor extremely important to Maine is that the bill also provides for establishment of special regional petroleum product reserves in areas like New England where 25 percent or more of local needs for heating oil and gasoline are met by imports which would be reduced in case of a boycott.
Thirty-eight percent of our oil is now imported. The Arab embargo of 1973 demonstrated the U.S. susceptibility to political leverage by the oil-exporting nations and reminded us that in regard to petroleum, at least, we are no longer an island unto ourselves. There is a clear case for allocating some Federal funds to give us flexibility in case of a new embargo.
S. 677 does not specify the required level of funding but authorizes "such sums as are necessary" with the expectation that the Committee on Appropriations will provide whatever funds are needed.
The precise costs of a strategic petroleum reserve can vary considerably, depending upon the exact size of the reserve created, the kind of oil stored, the type of storage facility provided and the source of the oil that is stored.
The kind of reserve that S. 677 contemplates will likely have a capacity of 500 millions of barrels and will store crude oil instead of refined products. Many will be located in salt domes along the gulf coast. The cost of preparing these salt domes and of developing associated facilities to accommodate a crude reserve of this size will be approximately $600 to $900 million spread over several years. But the major cost of the strategic reserve is the oil itself. Were the oil that will be stored actually purchased on the open market, the cost of the required petroleum would be roughly $5.5 billion.
However, the strategic reserve may well be filled from the oil in the naval petroleum reserve – NPR – which already belongs to the people of the United States, in which case a direct billion dollar expenditure can be avoided. But we must remember, and some people seem to forget, that "the opportunity costs" of the naval petroleum reserves are equally great. By using the petroleum of the naval reserve for the strategic reserve, the opportunity to use the oil in a different manner is foreclosed. For example, use of the same oil in commercial production could provide the Federal Government with income of $5.5 billion. To truly appreciate the costs associated with earmarking the naval petroleum reserve oil for the strategic reserve, we must realize that we are losing a potential Federal income of $5.5 billion. If we sold this oil instead of storing it, this $5.5 billion could either reduce total Federal expenditures or pay for new programs.
Thus the bill we are considering today will "cost" us well over $6 billion over its life; yet the first year outlays, possibly in fiscal year 1976, are unlikely to be more than $150 million. The committee report on S. 677 envisions several scenarios that it believes would result in higher fiscal year 1976 spending. But I believe, particularly now that we are already into the new fiscal year, that such higher expenditures in fiscal year 1976 are unlikely.
Nevertheless the bill is a significant wedge and every Member of the Senate should realize that S. 677 is in fact a multi-billion-dollar item which must be paid for in future years.
When Congress adopted its budget resolution in May, it established targets for total Federal spending and revenues in fiscal year 1976. The statement of managers accompanying the conference report on the budget resolution contained spending targets for the functional categories into which the overall spending is divided.
S. 677 falls within the natural resources, environment and energy function of the budget for which the budget resolution contemplated $11.6 billion, $1.5 billion above the $10.1 billion allotted to this function in the President's adjusted budget. The Budget Committees allocated these additional funds in large part because of a conviction that energy independence and diversification require a significant commitment of new resources this year. Clearly, the $150 million S. 677 will cost in fiscal year 1976 is pertinent to this commitment.
The $10.1 billion requested in the President's budget is required to meet ongoing commitments in the natural resources, environment and energy function. The additional $1.5 billion provided by the resolution is slowly beginning to be spoken for, and this is an important fact for the committees with jurisdiction in this area to note. In addition to S. 677 there are other bills at various stages in the legislative process that must be taken into account. S. 598, the 1976 authorization for ERDA, S. 586, the coastal State offshore oil impact legislation, S. 327, the land and water conservation fund amendments and other bills all involve expenditures that must be accommodated. within this $1.5 billion. We have not yet exceeded this functional target, but we no longer have the full amount to use. And, of course, with several committees authorizing programs within the natural resources, environment and energy function it becomes increasingly important for these committees to consider the budgetary impact of not only their own actions but also of the actions taken by the other committees as well.
In conclusion, Mr. President, let me state three points about S. 677 that are critical from a budgetary point of view: First, the bill will require considerable outyear costs and thus constitutes a significant wedge; second, the bill's real costs are far more than the $600 – $900 million facilities expense. They include a $5.5 billion outright purchase of oil or the $5.5 billion loss of revenues through opportunity costs that would result from using the NPR's to stockpile the reserve; and third, S. 677 by itself is within the functional target of the budget resolution, but the additional $1.5 billion provided by this resolution for natural resources, environment and energy is slowly being accounted for.
Mr. President, on balance, I plan to vote in favor of this bill. The goal of energy independence – and the special goal in this case of protecting ourselves from the disastrous effects of an embargo – are compelling. But Members of the Senate should be aware that the costs of this legislation are likely to be very high over its life, and can be affected substantially by the exact means in which the legislation is carried out.