Financial and Regulatory Aspects of Converting Oil-Fired Utility Boilers to Coal

To encourage utilities to convert their oil fired boilers to coal and to overcome their financial difficulties in the process, the President has proposed "oil backout" legislation which would provide the utilities with Federal grants. GAO was asked to: (1) explain the reasons for inconsistency among the various lists of powerplants which could be converted from oil to coal; (2) determine if reconversion and the proposed Federal grant program would overcome such problems; and (3) review the Anheuser Busch Company's experience in obtaining an exemption from the Powerplant and Industrial Fuel Use Act to determine if the experience indicates any regulatory problems.

GAO identified eight lists of powerplant conversion candidates. When compared, the lists show numerous differences. However, the differences are not a cause for concern since each list was compiled for a different purpose. GAO reviewed 14 of the 26 utilities targeted for grants by the Senate and found that Federal funding would have varying effects on their plans to convert 25 boilers from oil to coal. Six of the 14 utilities are planning to convert 25 boilers from oil to coal regardless of Federal funding. Five of the utilities remain opposed to the conversion of 13 boiler units because they contend that conversion would not be cost-effective or practical. Three utilities were completing studies to determine the feasibility of converting. The review showed that there are a number of advantages to converting the 25 boiler units. Most units have an estimated life after conversion of 20 years or more, and the projected fuel savings are substantial. Ratepayers should benefit from the fuel cost reductions for long periods. Also, 1.8 billion barrels of oil could be saved over the life of the units. About 350,000 barrels of oil per day could be saved if all 80 units on the Senate list converts. Anheuser Busch cited expenses of over $1 million in obtaining the exemption. GAO found that the costs and time were excessive. However, no other company will face the same changing regulatory conditions because the Anheuser Busch case occurred while regulations were being developed.