Review of the Federal Energy Administration's Coal Conversion Program

Published by the Government Accountability Office on 1977-09-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                           DCCUMENT hESUME
 03410 - [A26337523
 [Review of the Federal Energy Administration'c Coal Conversion
 Program]. EMD-77-66; E-178205. September 16, 1977. 5 pp.

 Report to Sen. Henry M. Jackson, Chairman, Senate Committee
 Energy and Natural Resources; by Elmer B. Staets, Comptrolleron

 Issue Area: Energy: Rcle of Fossil Fuels in Meeting Future
 Contact: Energy and Minerals Div.
 Budget Function: Natural Resources, Environment, and Energy:
     Energy (305).
 Organization Concerned: Federal Energy Administration.
 Congressional Relevance: Senate Committee on Energy and Natural
 Authority: Energy Supply and Environmental Coordination Act
     1974 (P.L. 93-319). Clean Air Act Amendments of 1977 (P.L.
     95-95). Energy Policy and Ccnservation Act (P.L. 94-163).
     National Energy Act; H.R. 8444 (95th Cong.). P.L. 95-70.
     977 (95th Cong.).                                         S.

          little has been accomplished by the Federal Energy
 Administration's (FEA's) coal conversion program in its 3
 of operation. Few orders prohibiting existing powerplants
 major fuel turning installations from burning natural gas   and
 petroleum products as a primary energy source have been
 final, and the FEA Administrator has stated that oil and made
 savings resulting from the program have been negligible. aas
 Findings/Ccnclusicns: A variety of problems appear to have
contributed to program delays. FEA, under the   Energy Supply and
Environmental Coordination Act, must make detailed site-specific
economic and environmental analyses before ordering utilities
and major fuel burning installations to burn coal. The program
has been hampered by personnel turnover, and a 6-month lapse
authority caused delays and uncertainties in the administration  of
of the program. There appeared tc be a lack of commitment
issue orders to major fuel burning installations. Disagreements
between PEA and the Environmental Protection Agency continue
lessen the effectiveness of the coal conversion program.
addition, the difficulty in many parts of the country in
coal in compliance with environmental laws an4l regulationsburning
hampered the program's effectiveness; and the large capital has
investments required for new coal burning facilities or
convert existing facilities back to burning coal is a barrier
increased coal use. (sC)                                          to
                       C0MpRORLLER     GENERAL Or THE UNITED gtATE
                                     WAsmImtON   . O.,   t305

                                                                SEP 1 6 q77
Ol    'B-178205

CO    The Honorable Henry M. Jackson
      Chairman, Committee on Energy
        and Natural Resources
I .   United States Senate
      Dear Mr. Chairman:
              Your recent letter requested that we provide       your Committee
                                            the  Federal  Energy   Administration's
      with information on our review of                   with   your  Request and
      (FEA) coal conversion program. Inaccordance  you  a  brief  letter  discussing
      subsequent discussions we are providing          we  consider   important  when
      our efforts to date and identifying issues
      considering coal conversion legislation.
                                                                      Act of 1974
              The Energy Supply and Environmental Coordination
                                                           FEA to issue    orders
                       93-319), as amended,andauthorizes
       (ESECA) (P.L.existing                    major  fuel   burning  installations
       prohibiting             powerplants
       (MFBIs) from   burning natural  gas or petroleum products as a primary
       energy source. FEA may also require      a new powerplant or MFBI to be
       designed and constructed with the capability       to use coal. The au-
                                                         on June 30, 1977. However,
       thority to issue orders under ESECA expired  95-70) legislation extending
       the President has signed into law (P.L.December       31, 1978. The enforce-
       the coal conversion authority through December 31, 1984.
       ment authority under the ESECA expires
               As of August 31, 1977, FEA had issuedwhich248 preliminary orders or
                                                    of          38 have been made
       notices to new ard existing powerplants      preliminary    orders or notices
       final. For new and existing MFBIs, 114
        had been issued, of which none have been made final.
                                                                       are essentially
               Problems and issues identified during our review your Conmmittee in
        the same as those brought out in hearings beforeLittle has been accom-
        recent months on coal conversion legislation.          three years of opera-
        plished uy FEA's coal conversion program in its
                            have been made  final, and thefrom Administrator,   FEA,
        tion. Few orders  oil  and gas savings  resulting         the  program  have
         has stated that
         been negligible.


        Our work identified the following problems which
  contributed to program delays.                         appear to have

        --FEA under ESECA, must make detailed site
                                                   specific economic
          and environmental analyses before ordering
          MFBIs to burn coal. This has proven to be utilities and
          consuming and expensive process.           a very time

       -- The program has been hampered by personnel
          example, in three years of operation under turnover.    For
          program has had three directors.           ESECA the

       -- A six-month lapse of authority caused delays
          ties in the administration of the program.    and uncertain-
          FEA's authority to issue orders to new and existingESECA,
          plants and existing MPBIs expired June 30, 1975.       power-
          authority was not extended until December 22,       This
          the Energy Policy and Conservation Act (P.L. 1975, when
          became law.                                   94-16'0)

       -- There appeared to be a lack of commitment
          to MFBIs. No orders were issued to MFBIs tolntil
                                                        issue orders
          According to a program official only one person June 1977.
          signed tu the MFBI area during the first two     was as-
          coal conversion program's operation, although years  of the
          was budgeted for 27 and 53 positions for fiscalthe  program
          and 1976 respectively.                           years 1975

      --Disagreements between FEA and the Environmental
        Agency continue to lessen the effectiveness       Protection
        conversion program. Closer coordination and  of  the  coal
        eration is needed between the two agencies    better   coop-
        number of utilities and MFBIs are to receiveif  the  maximum
        burn coal.                                    orders to

       In addition to these problem areas, our work
following issues, which in our view, need to         identified the
effort to mandate the increased use of coal.  be addressed   in any
added significance in view of the administration's    issues  take on
Plan 1/ which emphasizes the burning or' coal        National  Energy
and MTBIs.                                    by electric  utilities

1/ GAO issued a report to the Congress entitled
                                                 "An Evaluation of the
   National Energy Plan", EMD-77-48, July 25, 1977.
   GAO agreed with the plan's basic concepts but      In that report
   recommendations and suggestions for improving  provided  some
                                                  the plan.

Compatibility of energy and
environmental policies
     The effects that increasing coal use will have on the environment
must be a major cc"-ideration in any coal conversion program. The dif-
ficulty inmany paer. of the country in burning coal in compliance with
environmental laws and regulations has hampered the program's effective-
     In addition, the Clean Air Act Amendments of 1977 (P.L. 95-95),
contain provisions that could restrict the siting of new coal-fired
facilities and increase the cost of burning coal. These provisions
        --the new source performance standards requiring
          fossil fuel-fired boilers to use the best tech-
          nological continuous emission controls, and
        --requirements preventing the significant dete-
          rioration of air quality where such air quality
          is presently cleaner than existing ambient air
          quality standards.
     To deal with the problems that will accompa,,y increased coal use,
the administration is calling for a major expansion of the Federa'
coal research program. Much of the increase, however, is going -or
such programs as synthetic fuels from coal and the fluidized-berd
combustion system, with less emphasis going to finding immediate solu-
tions to the environmental problems associated with the direct burning
of coal.
     The fact that EPA forced some utilities to burn oil and gas instead
of coal in the early 1970's has made utilities arid industry understand-
ably reluctant to recommit themselves to coal. Compatible energy and
environment policies are essential if utilities and industry are to
intelligently plan for the future and commit their f+;ancial resources
in accordance with national energy and environmental goals.
Coal conversion costs
     The large capital investments required for new coal burning
facilities or to convert existing facilities back to burning coal is

B-1 78205

a barrier to increased coal use, despite any ultimate savings that
might accrue due to lower fuel costs with coal. According to FEA,
powerplants that were issued orders or notices under ESECA will
require $32.3 billion in capital for new coal-fired plants and con-
version of existing plants to coal. Costs for industrial coal-fired
boilers run 2 to 4 times as much as oil- or gas-fired boilers indicat-
ing a great need for capital. Also, forced conversion to coal by
industry may be harmful financially to a company if a competitor, for
various reasons, is not also forced to convert. Electric utilities
may be reluctant to spend large sums of money to convert to coal
because of difficulty and delay in obtaining the requisite "ate in-
creases from State regulatory commissions, and because of the ease
of passing on to consumers the higher oil and natural gas prices
through the fuel adjustment surcharge.
     Financial incentives included in coal conversion legislation
currently before the Congress are designed to accelerate the conver-
sion process and increase the number of companies willing or able to
convert. S. 977 provides for compensation, loans, and loan guarantees
for facilities converting from natural gas or oil to coal or othe;r
fuels. The National Energy Act--H.R. 8444--as passed by the House
includes provisions for a tax on users of oil and natural gas, and tax
Physical limitations
     Itmay be physically impossible and totally impracticable to
require utility and industrial facilities, designed originally to
burn oil or gas, to convert to coal. These facilities are signifi-
cantly different from those designed to burn coal, in such areas as
boiler capacity, fuel storage facilities, and coal and ash handling
equipment. For example, boiler capacity might be reduced as much as
60 percent if oil- or gas-designed boilers were converted to coal.

     We plan to continue monitoring the coal conversion program in
light of the stated commitment of the President and interest in the
Congress in increasing the use of coal. Particular attention will be
given to assessing the effectiveness of that part of the program deal-
ing with industrial coal conversion since little has been accomplished
by FEA in this area. In addition, we have two ongoing reviews which
address issues related to coal conversion. The first review, which is
nearing completion, will provide a report containing a compendium of
information on the current status and the prospects and uncertainties
of U.S. coal development. The report will identify major issues and


alternatives associated with coal supply and use. The second review,
now getting started, will examine the impact of environmental controls
on the electric utility industry and identify opt4ons--if any--which
would facilitate expanded use of coal in an environmentally safe
manner. We plan to send copies of these reports to you.
     We hope this information is useful to you. We will be happy to
discuss these reviews with you in more detail if you desire.

                                 SinAy     youus

                                 Comptroller ,eneral
                                 of the United States