Archive

Department of Interior

Recommendations and Actions

DOI13: Improve the Federal Helium Program

BACKGROUND

For at least two reasons, the helium program provides an excellent opportunity for the federal government to review its performance. First, the helium program has fulfilled the congressional mandates to foster a private helium market, to ensure the availability of helium for the various federal agencies that require helium for their operations, and to conserve helium for the long term. Having done so, a basic question arises as to whether the government has a legitimate ongoing role in helium. Second, because of the helium program's unusual budgeting mechanism and its interrelationship with the private market, the federal government is presented with broader questions about its helium operations and policies.

Identifying a sound strategy for improving the helium program requires a careful analysis of several issues. The Helium Act of 1960 authorizes the Department of the Interior (DOI) to conserve, buy, store, produce, and sell helium to meet federal and other needs. The objectives of the act were to conserve helium for future use, provide a sustained supply of helium to meet federal needs, and foster and encourage individual enterprise in the development and distribution of helium. The Bureau of Mines (BOM) continues to meet these objectives.

In fiscal year 1992, the helium program employed 226 people, primarily in Amarillo, Texas. BOM owns and operates one helium extraction and purification plant, a helium cylinder and trailer filling facility, a crude helium reservoir, a metering and maintenance station, and a 425-mile connecting pipeline. The reservoir and pipeline are used for the federal program and by private industry to manage seasonal variations in demand. The current assets of the helium program also include a reserve of 32 billion cubic feet of crude helium, about a 10-year world supply.

Three distinct factors--the helium debt, the production of pure helium, and the helium reserve and storage facility--must be considered in determining the future policy of the program. The debt was incurred in accordance with provisions of the Helium Act requiring BOM to borrow from the Treasury to purchase helium for the government reserve. The Act requires that this debt and accrued interest be repaid to the Treasury by 1995 from helium sales revenues.

However, revenues over time have been less than expected and the debt had grown to approximately $1.2 billion at the end of fiscal year 1992. Of this amount, more than $1 billion was interest. As long as the debt is an issue, it is difficult to make an objective decision about the program. The General Accounting Office (GAO), the Office of Management and Budget, and the Interior Inspector General agree that the debt is a paper transaction which could be forgiven with no impact on the deficit. Debt forgiveness is a bookkeeping transaction that would remove BOM's responsibility for the debt from government financial records; the federal debt would remain unchanged.

According to GAO, "It is no longer realistic to expect the debt to be repaid by the statutory deadline of 1995 and,,,canceling the debt would not adversely affect the federal budget.''[Endnote 1] A precedent for canceling the debt exists in the case of the Defense Production Act of 1950 when the borrowing authority under the act was exceeded primarily by accumulated interest. Congress canceled the outstanding indebtedness and put the programs under the act on an appropriation basis.

A second factor is the production of refined helium. The Helium Act requires federal agencies to make major purchases of helium from BOM, and most of the resources of the helium program are dedicated to production. The helium program receives no direct appropriations as production costs are covered by appropriations to other federal agencies for helium purchases. Approximately $23 million was appropriated to buy helium in fiscal year 1992. Of that amount, $15 million funded operations of the helium program, $4 million paid freight costs, and $4 million was returned to the Treasury to repay the debt.

Although industry maintains that it can meet federal helium needs at no increase in cost to the government, BOM and GAO both anticipate a net increase in outlays for helium if it is purchased from private industry. The BOM estimates that it can increase efficiency and reduce costs by 10-15 percent by eliminating certain free or underpriced services such as cylinder filling, maintenance, and testing.

The use of the reservoir and existing helium reserve is the third important factor bearing on the future of the helium program. The reserve of approximately 32 billion cubic feet is about 10 times the current annual world demand for helium. The federal government could derive additional income from the sale of surplus helium from the reserve in quantities small enough not to disturb the market. In addition, private industry stores about two billion cubic feet of helium in the reservoir. Fees for the use of the reservoir and the pipeline by industry are currently less than the cost of maintaining these facilities. Long-term contracts for this use will expire beginning in fiscal year 1995, providing an opportunity for upward adjustment of fees.

ACTIONS

1. The Helium Act of 1960 should be amended to cancel the outstanding principal and interest of the helium debt.

Debt forgiveness will eliminate a paper transaction and will not increase the deficit since the debt is already included.

2. Coincident with debt elimination, BOM should reduce prices.

Price reduction will result in lower outlays by federal customers and an equal reduction in revenues returned to the Treasury by BOM. Current BOM refined helium prices are about 15 percent above the private sector. Price comparisons and adjustments should be made annually.

3. The BOM should reduce costs and increase efficiencies by discontinuing operations such as small cylinder filling, maintenance, and testing, and other non-revenue producing operations.

This would result in a reduction of up to 30 full- time equivalents (FTE) and produce annual savings of approximately $1 million. DOI will continue to make adjustments in the program to increase operating efficiency and to reflect changes in the helium market, subject to further evaluation of the future role of the government in helium.

4. BOM should increase fees charged to private industry for storage, transmission and withdrawal of privately owned helium stored in the government reservoir, increasing revenues by $1 million.

5. BOM should increase sales of crude helium from the reserve to private businesses as market conditions permit.

At current prices, it is estimated that an additional $4 million to $6 million annually in revenue could be realized through the sale of 300 million cubic feet of crude helium to private industry.

IMPLICATIONS

Implementation of these recommendations would make DOI helium operations more efficient and cost- effective. About 30 jobs would be lost, operating costs would be reduced by 10 percent, income would increase by $4 million to $8 million, and some non- income-producing operations would be eliminated.

FISCAL IMPACT

The proposed recommendations would result in a net increase in revenues of approximately $6 million annually starting in fiscal year 1995. Additional revenues are attributed to operational efficiencies, higher pipeline service fees, and the sale of 300 million cubic feet of crude helium to the private sector at a price of $20 per thousand cubic feet.

Appropriations to federal agencies for helium purchases would decline by $2 million as a result of pricing helium at $48 per thousand cubic feet. This reduction in outlays results in an equal reduction in revenues returned to the Treasury by BOM, an amount that has been deducted from gross anticipated increases in revenue to arrive at the net increase figure.

Some restructuring costs associated with staff reductions will be incurred during fiscal year 1994, but it is expected that full savings will be realized in fiscal year 1995. Similarly, pipeline fees will be raised as current contracts expire with the major benefits occurring in fiscal year 1995 and thereafter.

     Budget Authority (BA), Outlays, and Revenues
	       (Dollars in Millions) 
 
 Fiscal Year
 
	  	 1994  1995  1996  1997  1998  1999   Total
 
 BA	   	 -2.0   -2.0    -2.0    -2.0    -2.0    -2.0   -12.0
 
 Outlays  	-2.0    -2.0    -2.0    -2.0    -2.0    -2.0   -12.0
 
 Revenues	  5.0     6.0      6.0     6.0     6.0      6.0     35.0
 
 Change in FTEs 
	   	-30      -30    -30     -30     -30    -30      -30
 

Endnote

1. U.S. General Accounting Office, Mineral Resources, Meeting Federal Needs for Helium, GAO/RCED-93-1 (Washington, D.C.: U.S. General Accounting Office, October 30, 1992), p. 32.

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