GAO was asked to examine (1) existing Federal tax incentives for all types of energy production and conservation and their effectiveness in achieving their respective goals, and (2) the ability of U.S. electric utilities to undertake future energy research, development, and demonstration (R&D) activity in light of the current constrained Federal budget policy. Specifically, GAO reviewed Federal research and development efforts in atmospheric fluidized-bed combustion, pressurized fluidized-bed combustion, solar thermal energy conversion, large-scale wind machines, fuel cells, and municipal solid waste and provided a briefing on whether the utility industry would be able to pick up the proposed Federal research and development cutbacks.

In its review, GAO found that the electric utility industry does R&D, but will not undertake demonstrations on its own in atmospheric and pressurized fluidized-bed combustion, solar thermal energy conversion, and fuel cells because of financial problems, risks associated with demonstrations, and the large investments required. Consequently, it is likely that commercialization will be delayed or perhaps not occur. Additionally, GAO found that, in looking at the rationale for cutting back on R&D in these technologies, a definitive policy towards utility industry R&D is needed. More specifically, the Federal policy to fund long-term, high-profit research does not appear to be compatible with the unique characteristics and needs of the utility industry. GAO believes that R&D priorities must be established to assure the most effective use of limited funds, and individual projects need to be carefully evaluated before they are discontinued. Cancellation of such R&D efforts on any other basis can result in commercialization of promising technology being delayed or lost.