Welcome, everyone. I will say right of the bat I am at a bit of a disadvantage in not actually being able to see the slide, but presumably my hard copy will suffice. So again, welcome. I’ll try to give a brief overview of the budget proposal that has gone to the Congress. OK, thank you. Does this work? There we go.
So just to start off, showing here how, just in the past nine months, the President has made a number of policy statements, putting forward priorities that address, quite directly, key mission responsibilities and focus areas for the Department of Energy. Just kind of reminding you first – there’s a quote in terms of last June, putting forward the Climate Action Plan, which is clearly one that has very, very strong influence and responsibilities for us going forward here at the Department of Energy, and then more recently in the State of the Union, emphasizing the commitment to this “all of the above” energy strategy and how it is working. It has brought us closer to energy independence, even as we have reached CO2 emissions that are essentially as low as they have been in two decades. So it’s a commitment to climate and it’s still a commitment to this “all of the above” energy approach.
Secondly, next in that little list is some excerpts from his speech in Berlin, also last June, emphasizing again two areas that are of course central to what we do: one, maintaining a strong deterrent, maintaining reliability and safety of our nuclear stockpile as long as we have nuclear weapons, and committing very strongly to the President’s agenda really initially put forward in Prague in 2009, very early in his administration, to look at securing and, when possible, eliminating nuclear weapons-usable materials around the world.
And finally, in July last year as well, the President committed to a management agenda and directed the Cabinet to really place an emphasis on strong management, having agencies carry out their missions for the American people in ways that are good at delivering services, that are effective and efficient. And as we will discuss, we have organized, in fact, reorganized the Department – and I’ll come back to this a bit later on – along these very three lines.
I want to introduce now, sitting up here in front, the people who are heading these three lines of business. I will say that – many of you know – we have 10 nominees waiting for confirmation, but in the meantime I have to say we have a terrific team who are running these various organizations. Mike Knotek is the deputy undersecretary for energy and science.
So there – I will say it now – what we did is we merged what used to be two different undersecretary roles. We believe having energy and science together is much more effective. And I’ll demonstrate that a little bit later on in terms of some of the cross-cutting initiatives we have and also in terms of what we’re trying to do, for example, in re-examining and strengthening the way we work with our National Laboratories.
David Klaus is the deputy undersecretary for management and performance. This is the, if you like, new undersecretary slot, and it’s emphasizing that directive of the President’s to really have a very, very strong focus on management. We’ll discuss this a little bit later on. We all know that there have been a lot of successes in terms of what we do in terms of major projects. We also have had – obviously – some challenges, and I’ll come back and touch upon those. A focus on management and performance from the project aspects to the way we manage our, what you might call, backroom functions is absolutely critical.
On my left here, Bruce Held is the acting administrator of the National Nuclear Security Agency, NNSA, and an undersecretary for nuclear security. And Bruce has been in this role since I guess July of last year. I’m also going to just – not introduce all of them, but here we have, in many of the seats here, the heads of the program, of various program elements, and during the question period we will feel quite free to call upon not only the people here but also those who head the various programs.
I also want to particularly introduce and single out Alison Doone and Chris Johns back there, who – Alison is our acting CFO. And with Chris, they have done a tremendous amount of hard work putting these budgets together over these last months. So thank you for that.
OK, so as I said, these areas line up with the President’s priorities, and we’ve made them line up with our organization as well. So let me say a little bit first about high level kind of budget for the Department as a whole, and then we will go into each of those three areas, not in a comprehensive discussion of all those budgets. You’ll have the chance to read the document in great detail eventually, but at least to point out some of the noteworthy areas that I’d like to emphasize.
The first point is that the top-line budget request is $27.9 billion. This is a 2.6 percent increase above the FY ’14 enacted level. And of course I note that the FY '15 budget in the budget agreement, the congressional budget agreement, is essentially flat. So 2.6 percent we think is actually a strong vote of confidence by the President, again, because it aligns with those priorities, particularly around clean energy, climate and nuclear security.
Now, the President, I think as you know, also said that while the budget submission meets the congressional budget cap, that the view is that we really should be investing more than that in key priorities. And consequently, in addition to the budget submission, which includes the $27.9 billion for the Department of Energy, there is an additional Opportunity, Growth and Security Initiative, which the President has put forward, fully paid for. So the argument is that with a variety of approaches, including addressing tax loopholes, et cetera, that this could be an increment to the budget cap that would accomplish additional priorities and would be fully offset.
For the Department of Energy, there’s various ways of breaking it out, but here, as you see, there’s about $1.6 billion in that additional initiative, with just over a billion dollar in the energy climate arena – as you can see there, 355 million dollars for climate resilience and 684 million dollars for other energy initiatives. We’ll come back to that in a bit. And so roughly a billion dollars for energy and roughly 600 million dollars for nuclear security.
Not on here – I’ll mention this and come back later as well –in addition there’s an energy security trust fund on the mandatory side at $200 million per year for 10 years. And as we’ll see, that has a focus on advanced transportation, vehicles and fuels. So that’s another piece that the Department of Energy would be – well, we’re obviously heavily engaged in.
If we look still at this kind of very high level kind of macro budget, this is just the pie chart that, again, focuses on these three areas: energy and science, nuclear security, management and performance. You can see these budgets here – 9.8 billion dollars, 11.9, et cetera, billion dollars, are not exactly the budgets managed by the undersecretaries but, let’s just say, very, very close.
So it gives you an idea as well as to how, in this organization, the financial resources are distributed, how the responsibilities are distributed for spending those funds, assuming of course that the Congress appropriates them in this way. But as you can see, energy and science, roughly 10 billion (dollars); nuclear security, roughly 12 billion dollars; and management and performance roughly 6 billion dollars.
So now what I’ll do is I’ll now just say in a little more detail what some of the elements are of these various lines, or directorates, if you wish, we could call them.
So first I’ll start with the energy and science, the $9.8 billion request that we had on that pie chart. Here – I don’t want to read all of these, but as you can see, in the energy line, first of all, of course we have our applied energy programs, but of course we also have ARPA-E. And we shouldn’t forget Energy Information Administration, our new Energy Policy and Systems Analysis, International Affairs – has a security role but probably even more so an energy role – our loan programs and our PMAs.
So I just wanted to just emphasize the diversity of programs and responsibilities that we have in the energy sector. And then, of course the Office of Science, we could have broken out all the suboffices, but in at just over $5 billion. This is where, again, you see in these two other boxes the additional requests, one for the Opportunity, Growth and Security Initiative and one for the mandatory funding side, the Energy Security Trust Fund. And again, I’ll come back to these. I should say again, the Energy Security Trust Fund is the proposal – it’s for $200 million for 10 years, paid for out of royalties on the mandatory side.
So now – actually this I think we’ve already said – in energy and science we’re obviously talking Climate Action Plan, we’re talking “all of the above” energy, and we’re talking about promoting and sustaining U.S. leadership in science and technology innovation. But let me move to the next slide and I’ll say a little bit more about some of the programs and some of the crosscuts.
So first of all, EERE -- Energy Efficiency and Renewable Energy – there are, of course, as you know, it’s a large program. The budget of $2.3 billion, I believe it is – I don’t have it in front of me but, Dave, it’s 2.3 billion dollars, right? 2.3 billion dollars, which would be about a 24 percent increase, spans sustainable transportation, renewables, manufacturing and efficiency.
A few things to point out: As many of you know, when I started my tenure in this position, I made a very, very strong emphasis about energy efficiency as a focus area. And as you can see in this budget, when we add up the various pieces of energy efficiency, we are proposing a – we are proposing a 39 percent increase. So very, very strong focus, whether it’s buildings and transportation, in the new manufacturing initiatives, industry, energy efficiency. Across the board this is a very, very strong focus.
And obviously that’s complemented by other activities such as the weatherization program, such as the accelerated pace that we have had in issuing new energy efficiency standards, as an example. So again, we have our strong technology development programs, but many other responsibilities as well for promoting, in this case, energy efficiency.
Now, advanced manufacturing has gotten a lot of attention. And you heard the President in the State of the Union talk about what he wanted to do there, including, by the way, in the supplementary initiative, if you like, having a strong focus on creating more of the advanced manufacturing institutes. We announced one following the President’s announcement last week, I think it was – last week or two weeks ago. I forget. There were two DOD awards, a new one on advanced composites for the Department of Energy. The FY '15 budget submission, we will want to go ahead with at least one more of those institutes funded essentially at $70 million over five years with at least a one-to-one matching from the proposers and their states.
On renewables, obviously we will continue, so this is, again, not – we have a continuing program, solar for example, with SunShot, et cetera, but this is just emphasizing, again, some of the newer things as we intend to go ahead with our three offshore wind projects, to get that kicked off; a new geothermal program – and also just to say that we will be implementing, given the success of the request for the Defense Production Act action, to allow us to move forward on our DOD, DOE, USDA advanced-biofuels project.
Vehicles, again, will be a major focus, and let me just say, in the energy security trust fund now, the one that I’ve mentioned now a couple of times, that will be specifically for advanced transportation infrastructure and R & D focused on reducing oil dependence in the transportation sector.
So that’s some of the issues, some the highlights or noteworthy areas in the EERE budget.
If I turn to fossil energy, we will, of course, continue to have strong focus on carbon-capture utilization storage. Now, I’ll be straightforward. Compared to the FY ‘14 budget that was implemented by the Congress, there’s a reduction in FE overall – not with respect to last year’s request. It’s a strong program. But here we want to emphasize that in addition to the work that will be directly funded out of FE in the FY ‘15 request, in terms of new capture systems, for example, CO2 storage infrastructure, et cetera, I do want to remind one that the program continues to execute on the $6 billion committed to the large-scale CCUS demonstration projects and, in addition, we have the up to $8 billion loan guarantee program focused on fossil fuels that reduce CO2 emissions. So, again, this is a major program in coal and fossil fuels more generally.
As an aside, on the loan program just note that just in the last few weeks we celebrated the opening of the Ivanpah – world’s largest solar-thermal plant, in California – and closed the loan on the Vogtle nuclear reactors. We have this fossil fuel program, and we will be expecting to do more with the loan program going forward, very much reflecting the all-of-the-above energy approach that we have been talking about.
I’ll just mention a few things in natural gas that – it’s not a huge program -- but we’ll be substantially raising the level of play on things like gas hydrates. Lot of international interest, a lot of desire to collaborate with us on that. And, you know, this is the kind of thing that we can maybe dream about, that perhaps this is the kind of start that we had, you know, 30 years ago in the first work that led to the unconventional gas developments that we have now seen mature so dramatically in the last five or six years. We don’t know, but we want to start that work in terms of the experiments and the understandings about gas hydrates.
We will continue, and in fact emphasize, an interagency R & D collaboration on shale gas – largely a focus on the environmental performance in terms of production. And also, for the first time, we are proposing to move to a demonstration of natural gas CCS because, certainly if we look decades ahead for natural gas, as with coal, to be a major player in a very low-carbon world will require CCS technology here as well.
I’ll just mention a couple of other things, which are not in the budget, but of relevance to this whole agenda. For example, with the National Petroleum Council, we have them, and I think they are very enthusiastically beginning to look at fuels resilience issues. With SEAB, the Secretary of Energy Advisory Board, I expect their report at the end of March, their next meeting, on FracFocus, dealing with the issue of what’s in fracking fluid, et cetera.
So just, again, I want to emphasize that in addition to the technology programs, lots of things going on here connecting to the current situation with hydrocarbons.
On nuclear energy, the budget is roughly flat from the ’14 appropriated amount. What I would say is: Two of the real focus areas, well, one is continuing to focus on kind of next-generation nuclear reactors, continuing the technical support for the two awards made for SMRs, for example, and funding the continuation of the very first DOE hub, the one at Oak Ridge on modeling and simulation of nuclear systems, one that we feel – obviously, since we are proposing to continue it – has been extremely successful.
But in addition, really a focus on developing more of the technology and the processes that we need to advance long-term nuclear waste management approaches, the approach largely based around the blue ribbon commission report, and then, subsequently, the administration’s nuclear waste strategy going ahead.
The Office of Electricity has a substantial increase, over 20 percent, in the proposal. And this is an emphasis really on two areas, I would say, broadly speaking. One is the grid of the future, including a strong focus on resilience. I’ll come back to this, because while the Office of Electricity in many ways leads this, it actually involves a number of other programs in a crosscut that we are putting forward for this year, and that will include, as noted here, things like microgrids and grid-scale energy storage.
But it also involves our growing focus on emergency response. We have seen lots of issues over this last winter with extreme weather. Of course, we saw it with Sandy, going back to 2012. But obviously we are also concerned about cyberattacks. Just today, in the Wall Street Journal was the second installment on the issue of physical security of the grid and substations and transformers.
So again, I’m not covering everything, but grid of the future, as we’ll see, crosscutting many offices, big piece in OE, and this issue of emergency response will be a key focus area for us to be growing in FY ‘15 and beyond. The request includes a request for funds for, in fact, a resilience operations center.
Just a few other energy points to make: ARPA-E continues, we believe, to be very successful, and we are asking for a 16 percent increase there, which will include a substantial piece for what we call an open solicitation, just looking for the best ideas coming in from anywhere, anytime, roughly speaking, and I’m sure finding some real gems in there.
EIA – Energy Information Administration – I really want to emphasize how important that is to what the Department does, but it’s also how important it is to the energy markets, and, so we are, again, asking for an increase there, in particular to do things like upgrade their energy infrastructure, but also to develop the new products for the evolving markets.
An example of this last year was well productivity as a new tool, and so the EIA will certainly, we hope, be moving forward with some new products.
EPSA I mentioned, Energy Policy and Systems Analysis. Now this was the office set up over this last year with a major responsibility as executive secretariat for the Quadrennial Energy Review. There’s also a significant increase in here. The increase is once again focused on this grid modernization program. So this will be -- a lot of the analytics and modeling around that – just another piece of what I mentioned in the context of the Office of Electricity as a broader Departmental grid program.
And we also have consolidated our tribal energy programs and are proposing an expansion of funding.
And finally, for energy and science –I’ll do cross-cuts as well – the science request has, of course, a number of features; I’ll mention a few. One revolves around the historic, I think, strength and responsibility of the Department in the development of large-scale computational capability – of course, at NNSA, the defense programs has also played a major in that over the years. The Office of Science is now playing an increasingly important role, I would say, in developing the tools, but of course has played an important role for a long time in terms of the applications to many science grant challenges, like climate modeling, like computational material science.
And in particular, science will lead -- with NNSA also heavily engaged -- really an increased focus on reaching the exascale. And I always want to emphasize that it’s not so much hitting exascale on the button that’s important, the path to exascale will be tremendously productive, and will keep, I think, this country in a very important leadership role in terms of the application of those tools to science, to defense and to industry.
There will clearly be an ongoing commitment to the leading edge facilities that Office of Science funds – just to mention two going forward out of many; the heavy ion accelerator at Michigan State – in fact, I think it’s being dedicated on – the 17th I believe it is, Pat – correct? And then I mention also here the coherent light source phase II – just examples, again, of, as I think you all know is this unparalleled set of cutting edge research tools that serve 28(,000), 29,000 users annually.
Sustaining commitment to energy frontier research centers – and I might say, as an aside, again, with SEAB, we are taking a look at how we can – well, A, evaluate, but B, move on to improve hubs – EFRCs, bioenergy centers. ARPA-E we feel have been a tremendous success, and that’s why we are moving forward again with a strong program. The fusion bullet I will not read, because I am recused from fusion, but someone else will answer anything on that issue.
And finally, in energy and science, cross-cutting initiatives – I have said several times that we have tried to put an emphasis now on a set of areas – mostly in energy and science, but also involving NNSA in several places that have multiple office engagement. I mentioned the grid, for which I have already mentioned the Office of Electricity and EPSA, but EERE has a strong role, and actually, our intergovernmental office will have a role as well, because, of course, a lot of this ends up with the states.
Subsurface science and engineering – I won’t go through all of it, but, when you think about it, so much of what we do in the energy business involves subsurface science and engineering, whether it’s CO2 sequestration, unconventional production, nuclear waste, geothermal – we could go on and on. So we’re bringing together what have been a set of disparate programs and trying to get some coherence and value added.
I had mentioned exascale already – supercritical CO2 is another one that spans three offices, looking for what could be an extremely interesting high-efficiency technology for multiple thermal plants, and cybersecurity – although I think yours has a mistake. I think it says EM; I think it should have said Office of Electricity, so we’ll have to correct that. Dave (Huizenga), are you doing cybersecurity particularly? I don’t think so. But your neighbor is – right. So this is – but NNSA, the CIO – the chief information officer – Office of Electricity and Science all engaged in that. So that we think, is exciting, frankly, and we’re giving a much stronger emphasis to working across our programs to add value.
OK. Let me shift to nuclear security – 11.9 billion dollars – this is plus four percent, and again, you see both the budget within the cap and the contribution from the additional initiative. Let me focus first on the weapons activities. I mean, we should always start out by reminding ourselves that when all is said and done, our key responsibility here is, in fact, to certify a safe and reliable stockpile without testing – again, as long as we have nuclear weapons.
And we all know that there’s a major challenge here. The interagency process – the Department of Defense, Department of Energy, National Security Council, OMB – first of all, I believe that process has worked very well this year to come together and affirm that we must commit – even if it involves a little stretching out here or there – but we must commit to the so-called three plus two strategy as a way to continue a safe and reliable stockpile while reducing the numbers and types of weapons as we go forward in what is really going to be, like, a 20-year journey from where we are.
This budget is up – it’s a 7 percent increase. That was not easily come by in these constrained, capped times – because you all know, as well, the Department of Defense, with their strained budgets, but it was unanimous that we had to make this investment in order to stick to this program in all of its areas – the life extension programs, the rebuilding of infrastructure, the continuation of the science and engineering base that we will need for certification in the long term.
So that’s what we’re doing there, and it’s a major commitment, and it will include finishing the life extension of the W76 and moving forward on-schedule or essentially on-schedule for the B61 and the W88 370, which will sustain the triad as our core nuclear deterrent posture.
Naval reactors has also been building up a set of major needs in terms of nuclear propulsion. We all know the critical role that nuclear propulsion plays in the Navy – both submarines and aircraft carriers, and again, so this is a significant request, and I might say the Department of Defense has stepped in here and made this a high priority.
Nuclear nonproliferation, I’m afraid, is not such a great story, to be honest. It’s, frankly, disappointing. We have a substantial reduction this year, but this was what happens with the capped budget and the very tough choices that we had to make. However, I do want to emphasize that we believe this will continue to be a very robust program. It’s a program that’s had a lot of success over these last years, following the Prague agenda; 11 countries plus Taiwan eliminating all the HEU and/or plutonium. We will continue to be doing that in FY ’15. We will continue to be working on things like conversion of research reactors, and I should emphasize – there are various things here that you can look at -- but I should emphasize that more than half of this reduction is from our response to the considerable cost increase of the MOX project.
I’m not going to duck it. I mean, you all know it’s a huge project. From what we can see now with the current approach, we’re talking about a $30 billion plus life-cycle budget across all the components of what it takes to do MOX, to dispose of the 34 tons. We remain completely committed to the disposal of those 34 tons of weapons plutonium, but with this budget, we are going into a standby mode, and we are looking at options, which includes the question of, is there a way to get a substantial cost reduction in the MOX approach?
So, again in this 20 percent drop, over half of that is from the MOX program. Nevertheless, I mean – I really wish we could have found more resources for the other parts – the critical other parts of the program in terms of nuclear materials, security and elimination, but again, we will make this, still a robust program in FY ’15.
And finally, if I turn to the management performance line, as I said earlier, we moved environmental management from an affiliate of NNSA into a mainline responsibility for the undersecretary for management and performance, as well as a lot of the other functions you see here, like CFO and human capital officer, CIO, et cetera. This is not, strictly speaking, for that undersecretary line, but – I won’t go through it again. We did – how we reorganized the undersecretaries – we established the Energy Policy and Systems Analysis group.
But I will also say that we have partly achieved, particularly on the security side, and we are in the middle of reorganizing the entire health, safety and security functions, with a major responsibility for the undersecretary of management and performance, although with an independent assessment capability continuing to reside in the office of the Secretary. And so that reorganization will continue to, we think, better align our responsibilities and authorities. And of course, we will be supporting diversity, small businesses and Native Americans. I mentioned earlier the consolidation of the Indian energy programs.
We have other initiatives going on – we are working – these are not budgetary issues as such, but strong emphasis on rebuilding the strategic partnership with the national laboratories. We are doing things like looking at efficiencies, cost reductions in human resources, in IT services, and we have strengthened management of cyber and instant management control. I should have also added on here – and I forgot – last summer we formed a project management group, bringing together project management experience across the entire Department, looking for best practices and seeing how we can institutionalize more effective enterprisewide project management.
EM specifically in 2015 – obviously, continuing the cleanup at 16 sites, but I really want to also single out that as many of you know, we are in the process of negotiating a new framework for the Hanford Waste Treatment Plant, which we believe will be a very effective approach to vitrifying the Hanford tank waste. We have still ongoing challenges at Oak Ridge and Portsmouth and now Paducah. We have to think about eventually moving to D&D there. And we will be continuing to make, we think, excellent progress at Savannah River and Idaho as well.
So that’s basically what I wanted to say, and so now back to the beginning. This is our charge from the President, basically. We have a lot to do. And this FY ’15 budget proposal will allow us to make very substantial progress on all of those priorities.
And so with that, thank you for your attention, and we’re going to open up for questions. And again, I will probably manage the questions more than answer them. So please.