3. Fossil feedstock limitation: We consider H.R. 9723 far too narrow in scope, limiting the commercialization program to fossil fuel feedstock only. Our proposed program would include other domestic energy resources, such as waste material or biomass. 4. Recourse provisions: Full recourse against the underlying assets of the borrower would seriously deter participation of many parties, especially pipeline companies whose net worth is less than the cost of the synthetic fuel plant. 5. Default payments appropriated from Congress: Obtaining a specific appropriation to pay the party protected by a Federal guarantee could delay actual payment a year or more and thus impact availability of financing and interest rates. Our recommended revision to section 103 would provide authority for ERDA to borrow from the Treasury to pay immediately the lender in case of default. A single appropriation for borrowing authority is contemplated. ERDA would seek specific appropriations then to repay the Treasury. 6. Limiting loan guarantee applicants to U.S. citizens: The intent of this program is to develop a synthetic fuels program for domestic consumption from domestic resources. However, the law should not prohibit foreign capital from being sought or exclude a foreign company with desirable technology from applying for a loan guarantee, as long as the basic objective of domestic consumption from domestic resources is maintained. 7. Coordination with States in which a facility is located: As I already mentioned above, we believe that our proposed environmental protection strategy in the procedure I have outlined will provide effective coordination. 8. Patent policy: Most inventions made by a borrower under this program would be marginal improvements of an already patented first generation process. Subjecting them to full ownership in the United States, with a possibility of waiver, fails to recognize that a Government loan guarantee does not provide the same incentive and governmental participation as do ERDA R. & D. contracts. We recommend that patent provisions be considered in implementing regulations. In concept, ERDA's basic policy will be to insure that in the case of default on a guaranteed loan that the Government has full authority to operate the plant or dispose of it. For successful facilities, when appropriate, we shall require that rights be licensed to interested parties on equivalent competitive terms and at a reasonable cost. Finally, previous communications with members of the committee have disclosed other concerns about implementation of the President's program or the use of section 103 loan guarantee authority. I'd like to briefly address the stated concerns, some of them, as follows: 1. ERDA's internal capability to manage the synfuel information program is being analyzed by an internal task force. I reviewed yesterday this task force's work in progress and believe that we will be ready to proceed upon enactment of the program, including authorization of a new Assistant Administrator and additional personnel. 2. We are transmitting to Congress today, I hope, proposed legislation to authorize appropriations for price guarantees and construction grants. This would implement statutory authority already contained in the Federal Nonnuclear Energy Research and Development Act of 1974. We shall request price guarantee authority not to exceed $4.5 billion and construction grant authority not to exceed $600 million, both sums for the life of the 350,000-barrel-per-day information program. Together with the $6 billion authorization for loan guarantees, these legislative proposals encompass the requirements of the synfuels information program. They are based on very conservative, and I think even pessimistic, estimates of future contingencies. The chairman's letter of October 14, 1975, questioned the possible applicability of the Buy American Act. As the letter pointed out, debate on H.R. 880, the Electric Vehicle Research, Development and Demonstration bill, considered a similar matter. It was determined that the Buy American provision was not related to loan guarantee provisions of the Electric Vehicle bill, but rather to ERDA procurement of vehicles for demonstration purposes under contract authority. Finally, Mr. Chairman, considerable concern has been expressed regarding the future of a synthetic fuels commercialization program that begins in ERDA and is later transferred to a newly created Energy Independence Authority. As Mr. Zarb previously testified before this committee, it was not the President's intention in proposing the Energy Independence Authority to halt or delay implementation of the synthetic fuels commercialization program. In the process of working out final EIA legislation, proper provision will be made for an orderly transfer. Meanwhile, the 350,000-barrelper-day synfuels information program would, in any case, be initiated in ERDA. In short, we believe that passage now of section 103 and the other authorizing legislation is not inconsistent with proper congressional consideration of the EIA proposal. Moreover, we believe that a delay in authorizing the synthetic fuels program would lose irretrievable time, halting progress in creating a viable environmental protection strategy and obtaining State and local government, industry and public input on the proposed program, necessary to get that started. And, as I and other administration witnesses have testified previously, initiation of this program is a major national priority. We know that much remains to be done. We are confident that we know how to proceed effectively. The loan guarantee authority of section 103 is a necessary first step, and we urge your favorable action. That concludes my prepared testimony, Mr. Chairman. I would be happy to respond to any questions from you and other members of the subcommittee. I might also add that a few weeks ago we presented alternative language to section 103, as passed by the Senate. I like to submit at this point some amplification of that alternative language, which explains it further and makes some minor technical changes in it. Mr. HAYES. Without objection we will accept that submission, Mr. Fri. [The document referred to is as follows along with Mr. Fri's summary and detailed responses:] UNITED STATES ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION October 30, 1975 Honorable Olin E. Teague Chairman Committee on Science and Technology U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: There is attached for the consideration of the Committee a draft of amendments to section 103 of the version of the ERDA Authorization Bill for FY 1976 which was passed by the Senate and is now before a Committee of Conference. ERDA recommends that these amendments be adopted. A number of these amendments are technical in nature and are intended to improve the administration of the loan guarantee program which would be authorized by section 103. The most significant of these technical amendments is new subsection (k) which would set up in the Treasury a revolving fund to facilitate the handling of revenues and payments of an administrative or loan default nature. This authority would provide the necessary confidence to prospective lenders about the Administrator's ability to pay should a guaranteed loan be in default. Under the proposed arrangement, any deficiency in the revolving fund would be covered by providing the Administrator with authority to obtain funds by issuing notes or other obligations to the Treasury and use those funds to make payments. The extent of this authority to issue notes would be specified in an Appropriation Act, in conformity with the Budget Reform Act. It would be available without fiscal year limitations. The Secretary of the Treasury would be authorized, under provisions which are the same as in other Covernment loan guarantee programs, to obtain the funds as a public debt transaction. Notes issued by the Administrator to the Secretary of the Treasury would then be repaid by appropriations which the Administrator would seek from the Congress. Most of these technical amendments have previously been submitted during the appearances of ERDA witnesses in the synfuel hearings held by your Committee and Subcommittees. They are submitted herewith as convenience to the Committee. There is also included a major new amendment, subsection (1), which would authorize the Administrator to provide a significant measure of assistance to certain communities which would experience a major increase in population as a direct result of the construction and operation of a synthetic fuels commercial demonstration facility. It is noted that Senate Report No. 94-332, 94th Congress, 1st Session, states on page 87 that the loan guarantee authority of section 103 includes in "project costs" subject to guarantee any costs incurred in "community planning and development." Under this concept, such costs would be paid by the private entity constructing and operating the facility, and the Administrator would have to deal with that entity with respect to such matters. It is believed desirable to authorize the Administrator to provide community impact assistance directly to the local governments which would be affected by a particular new facility, rather than exclusively through the owner and operator of that facility. Proposed new subsection (1) would carry out the recommendations of the Synthetic Fuels Interagency Task Force to the President's Energy Resources Council for specific measures of community impact assistance for the synthetic fuels commercial demonstration program. These measures, and the analysis which supports them, have been provided to the Committee under Tab "H" of the Fact Book on the Synthetic Fuels Commercialization Program dated October 27, 1975. The method of assistance found to be most desirable is a Federal guarantee of the tax revenue stream of the new synthetic fuels plant to a local taxing authority for debts incurred by that authority in constructing basic new public capital facilities in support of a major increase in population caused by that new plant. Under proposed subsection (1) the Administrator would determine the eligibility of a community for assistance on the basis of a projected major increase in population directly resulting from the synthetic fuels plant and a need for additional public facilities to support that increase. Well-developed communities with significant existing populations and supporting facilities, which could absorb a new plant without a major increase in population, would not be eligible. Special arrangements for equitable sharing of the revenue stream would be made where more than one taxing authority would be affected. The Administrator would promulgate regulations on eligibility after consulting with governments likely to be affected by the program and would make the final decisions on eligibility. No project would be approved unless adequate state/local planning has occurred and adequate provision has been made for financing. The total debt against which tax payments would be guaranteed for each individual community would be measured in accordance with regulations providing up to $4,000 per capita (up to $5,500 per capita in remote, undeveloped areas) multiplied by the population increase attributable to the new plant, and adjusted by subsequent increases in costs of construction and the extent of public facilities and the density of population in existence before the plant is constructed. The Administrator would guarantee an annual tax revenue stream from the plant to the eligible taxing authorities up to the annual amount sufficient to amortize over 20 years the debt incurred to provide 75 percent of costs of constructing basic public facilities, i.e., water, sewer, waste treatment, roads, schools, hospitals, and public safety (fire and police). Additionally the guarantee could include interest costs on debt incurred by a taxing authority with respect to new public facilities before the new plant starts operation. Operating expenses would not be eligible for guarantee. The growth of population, together with construction of private facilities to support that growth, should provide an adequate tax revenue to cover costs not subject to guarantee. Since the revenue stream to pay principal and interest on the local bonds would be subject to Government guarantee, a provision has been added, in conformance with Treasury policy, to assure that the interest on the bonds is not tax-exempt. However, the Administrator would be authorized to pay the interest differential between tax-exempt and taxable debt as determined by the Secretary of the Treasury. This differential would be paid from the revolving fund set up by the new subsection (k) mentioned above, and appropriations would be authorized to reimburse the fund. The taxing authority would agree to earmark sufficient tax revenues from the plant to amortize the debt by annual installments over a 20 year period. Debt obligations for public facilities would have to be issued within five years of the date the Administrator enters into an agreement for the plant. The Administrator would be authorized to redeem those bonds for which the debt has been guaranteed, if, for example, the plant does not prove successful. Funds for this purpose would be drawn from the revolving fund. The Administrator's issuance of guarantees, payment of interest differential, and redemption of bonds would be subject to the concurrence of the Secretary of the Treasury. The Administrator would |