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 General. Issue Area: Energy: Rcle of Fossil Fuels in Meeting Future Needs (1609). 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 Pesources. Authority: Energy Supply and Environmental Coordination Act of 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 years of operation. Few orders prohibiting existing powerplants major fuel turning installations from burning natural gas and or 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 to issue orders to major fuel burning installations. Disagreements between PEA and the Environmental Protection Agency continue to lessen the effectiveness of the coal conversion program. In 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 to 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 t4 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. EMD-77-66 B-178205 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- Under 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 These 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. 2 B-178265 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- ness. 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 are: --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 3 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 credits. 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 4 B-178205 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
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)