United States Synthetic Fuels Corporation 2121 K Street, N.W. Washington, District of Columbia 20586 Telephone: (202) 822-6600 TESTIMONY OF VICTOR A. SCHROEDER, VICE CHAIRMAN AND PRESIDENT BEFORE THE SENATE COMMITTEE ON GOVERNMENT AFFAIRS SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT Mr. Chairman, Members of the Subcommittee: I have prepared my written testimony to be as responsive as possible to the questions noted in your letter of July 7, 1983. I recognize the importance of Congressional oversight concerning the use of public funds and intend this opportunity to review the way in which we have approached the management of a new organization striving to carry out an unprecedented mission. This morning I would just like to mention a few key points that seem particularly important in the context of this hearing. But before beginning, I would like to commend the Subcommittee staff on the highly professional manner in which they have conducted themselves at the Corporation. The practices and procedures we have established and implemented at the U.S. Synthetic Fuels Corporation reflect a conscientious and determined effort on the part of myself and others to draw from the federal and the private sectors the best management elements in each, in order to accomplish a mission which I am convinced is of lasting long-term importance to the country. I have always been keenly aware of the Corporation's unique status as a federal entity which is intended to operate largely in a private sector mode. As a result of our experience, I believe we can indeed provide constructive information to this subcommittee and others which seek to promote more efficient operating methods and practices in government institutions. When I first came to the Corporation in the Spring of 1981, there was little organization and many problems. Chairman Noble has discussed these in his testimony, and so I will not repeat them in mine. Suffice it to say, as one who had always worked in private industry where one hires quality people, delegates authority, and demands accountability, I recognized immediately that the Corporation's first need was for management at the top. The small staff in place was intelligent and diligent, but they were totally without direction. I immediately commenced to provide a system of organization to fix responsibility and promote efficiency. Under the Energy Security Act only the Board of Directors can establish a formal organization for the Corporation, and there was to be no functioning Board for another six months. But in the spring and summer of 1981 Chairman Noble and I did address at length questions concerning the best organization structure for the Corporation, and its immediate staffing requirements. We both realized that a formidable task lay ahead. Ed Noble asked me to serve as President of the Corporation, subject to Board approval. In this role I would function as his principal assistant and advisor on all policy matters. This would encompass the development as well as the implementation of policy, and it would also include overall responsibility for the effective dissemination of policy information. In addition to my policy role in support of the Chairman, as President I was to hold full responsibility for the operations of the Corporation. Each vice president would report to me; my job would be to assure that each unit was performing properly, and also that all units were functioning in an integrated and supportive manner. Clearly, the position of President with its dual responsibilities for policy and operations was a very heavy charge. I knew I would need some very capable back-up fairly early in the process and decided this could be best provided by an executive vice president, who would hold responsibility for the day-to-day operations of the Corporation, under my overall direction. In September 1982 Mr. Jimmie R. Bowden became the Corporation's Executive Vice President, and in October 1982, by written memorandum, I delegated to him extensive authorities, powers, and duties. I chose a matrix structure of organization for the Corporation because of its unique mission. Our primary job was the awarding of financial assistance to synthetic fuels projects which, in the judgment of the Board, would further the purposes of the Energy Security Act: that is, speed up the development of a commercial synthetic fuels industry in the United States. The Board must make the final judgment on an award, but to make that judgment responsibly, directors would need a tremendous amount and variety of information that would include technological, financial, management, marketing, environmental, programmatic, and legal aspects of every project under consideration. These component elements would have to be known and assessed, so that strengths and weaknesses in each area could be balanced against each other, before the Board could render an informed decision. Matrix organization would provide staff integration and allow this kind of sophisticated analysis to be done on a routine basis. Appropriately, the matrix system was first fully implemented in the Projects area. I worked especially closely with the Senior Vice President for Projects to put together a number of Project Teams. Each Team consists of a Team leader and three or more additional members drawn from the different disciplines within the Corporation. Thus, individual staff members are assigned duties both within and across functional lines. While ultimately responsible to his/her own vice president, staff members work in a cooperative fashion outside of their immediate unit to further the overall work of the Corporation. Such an approach allows individual talents to be more fully utilized and at the same time contributes to a sense of unity and common purpose within the Corporation as a whole. A Team is assigned to each project proposed to the Corporation, and that Team works with that project until the Board makes a final decision. While an individual Team member may change, or a Team's size may alter according to its workload, overall Team continuity is maintained, and this permits the Board to receive more complete and consistent analysis. A matrix approach has also been used in the Corporation's programmatic work. Late in 1981 a senior staff Task Force, composed primarily of the vice presidents and chaired by me, was established, along with a working group at the staff level. This Task Force was analogous on the programmatic side to the Teams we had set up in the Projects area. The first issue addressed by the Task Force was the reconciliation of the production goal requirements and the diversity objectives set out in the Energy Security Act. This effort was intense, and we spent many long, hard hours grappling with the various interpretations and possibilities one could derive from readings of the Act and its legislative history. The Board was given periodic reports on the progress of this work and in July and August, 1982, adopted specific programmatic policies and a third general solicitation based on recommendations of the Task Force. Our programmatic work has always been evolutionary in nature and has incorporated project experience as it proceeded. For instance, as a result of experience with the first and second solicitations, we were beginning to get some response from industry concerning our solicitation and evaluation procedures, but this information was fragmentary. So in the spring of 1982 I asked our director of industry relations, along with a few others, to conduct a planned industry survey. Basically, this survey indicated that potential sponsors were looking for greater flexibility in process and a fuller statement of intention from the Corporation. At the same time the Board was beginning to identify its programmatic objectives in terms of preferred resources and dollar estimates for their development. These efforts came together in the Corporation's third solicitation, issued August 19, 1982 which: 1) Was limited to the preferred resource bases of 2) 3) Carried notice that "it is the present intention Allowed a project to begin preliminary financial In addition, I directed staff to make every effort to be as definitive and responsive as possible to project sponsors during negotiating, debriefing, and other sessions. 24-125 0-83--6 The Task Force approach was continued into the fall of 1982 as new issues arose. By this time staff had become fully accustomed to the matrix approach, and so some of its more structured aspects could be eliminated, particularly in terms of regularly scheduled meetings. Rather, small groups of two or three could meet informally and then reach out to others as necessary. Task Force membership became both more inclusive and less specific as the concept was extended to a number of major policy issues that needed addressing. Task Force efforts in the fall of 1982 turned to the development of targeted solicitations and to the Corporation's outreach initiative. Both of these efforts grew out of Board decisions in the summer of 1982; and each was a major undertaking that required close management supervision. In January 1983 the Corporation issued its first targeted solicitation, for western oil shale projects. In April we issued a second, for Gulf Coast lignite gasification projects; and in June we issued a solicitation for eastern and midwestern bituminous coal gasification projects. With respect to the outreach initiative, we have held three large sessions with the full Board of Directors and senior executives from major energy, chemical, construction, banking and investment companies. These briefings have taken place in Houston, New York City, and Tulsa. In addition to these large sessions, individual Board members and senior management in the Corporation, principally myself, the Executive Vice President, Senior Vice President for Projects, and Vice Presidents for Finance and for Technology and Engineering, have met variously with major industry representatives concerning their possible participation in one or more synthetic fuels projects. Finally, relative to the Corporation's second major area of responsibility -- development of a comprehensive strategy for submission to Congress we are also employing the matrix approach. The Policy Development Group is, in effect, the "team lead" for developing options and recommendations for consideration by the Board. Since last fall the Policy Development Group has been working on a schedule and parameters for the strategy, and increasingly in recent months staff from other groups, notably Technology and Engineering, Projects, Finance and Legal Services, have been involved in the development process and early work products. Such cooperation will intensify as the actual work of strategy development grows during the next year. The recommended comprehensive strategy, and Congress response to its submission, will determine the overall plans and organization for the Corporation after 1984. In any case, the project awards made this year and next will require some modest ongoing financial monitoring. To summarize, then, my duties as Vice Chairman and President are twofold, covering both policy and operations. I have overall responsibility for the operations of the Corporation, and in this I have been aided immeasurably by the full support and assistance of the Executive Vice President. We work together closely and are proud that today the Corporation enjoys good cooperation from industry and substantial support in Congress. Since the May 1983 Board meeting, the Executive Vice President has taken over the chief operating officer duties for a period of 90 days. At the end of this period, the Board will re-evaluate this arrangement. The Corporation has issued six competitive solicitations to date, has evaluated well over 100 individual project proposals, and anticipates issuing its first assistance awards within the next few months. In fact, finalization of our initial award is one item on the Board's agenda for tomorrow's meeting. On the policy side my duties include support of the Chairman in the decision-making process, implementation of all decisions made by him or the Board of Directors, and the public communication of policy as appropriate. In fulfilling these responsibilities I have worked closely with our Vice President for External Relations, and I have been particularly available to members of Congress who wish to discuss the status and progress of the Corporation. I believe these one-on-one sessions are highly beneficial in furthering understanding of the Corporation's work. During the past few months I have devoted much more of my time to meeting with members of Congress, and I expect this to intensify in the months ahead as financial awards and project monitoring activities increase. Because a detailed accounting of administrative expenses has been given at the staff level, I will limit myself here to a few specifics which I hope will be helpful. The Corporation is authorized to incur annual administrative expenses to a total of $35 million, adjusted for inflation, and drawn from our initial appropriation. It should be noted, however, that we estimate that, at the end of fiscal year 1983, we will have actually used only about 24% of the total accumulated administrative expenses authorized for the first three years. We are also authorized up to $10 million each year for generic studies, but expect to have used less than 10% of these funds by the end of this fiscal year. On the operations side, we are not required to seek annual appropriations, but the Energy Security Act does require the Corporation to submit an operating budget to Congress each year. Appropriations committees of both Houses have held hearings each year, and the Corporation's budget and project activities are regularly examined by those committees with jurisdiction. |