Federal Financial Interventions and Subsidies in Energy Markets 2007

Excerpts from Energy Information Administration / Executive Summary

Executive Summary

Background

In May 2007, Senator Lamar Alexander asked the Energy Information Administration (EIA) to
develop an analysis of Federal energy subsidies focusing on subsidies to electricity production.
Senator Alexander also specified that the analysis should be limited to subsidies provided by
the Federal government, those that are energy-specific, and those that provide a financial
benefit with an identifiable budget impact. Federal energy subsidies and interventions
discussed in the body of this report take four principal forms:

Direct Expenditures. These are Federal programs that directly affect the energy
industry and for which the Federal government provides funds that ultimately result in a
direct payment to producers or consumers of energy.

Tax Expenditures. Tax expenditures are provisions in the Federal tax code that reduce
the tax liability of firms or individuals who take specified actions that affect energy
production, consumption, or conservation in ways deemed to be in the public interest.

Research and Development (R&D). Federal R&D spending focuses on a variety of
goals, such as increasing U.S. energy supplies, or improving the efficiency of various
energy production, transformation, and end-use technologies. R&D expenditures do not
directly affect current energy production and prices, but, if successful, they could affect
future production and prices.

Electricity programs serving targeted categories of electricity consumers in
several regions of the country. Through the Tennessee Valley Authority (TVA) and
the Power Marketing Administrations (PMAs), which include the Bonneville Power
Administration (BPA) and three smaller PMAs, the Federal government brings to market
large amounts of electricity, stipulating that “preference in the sale of such power and
energy shall be given to public bodies and cooperatives.” The Federal government also
indirectly supports portions of the electricity industry through loans and loan guarantees
made by the U.S. Department of Agriculture’s Rural Utilities Service (RUS).