Capital Cost Associated With the Trunkline Liquefied Natural Gas Lake Charles Facility

In response to a congressional request, GAO reviewed costs associated with the liquefied natural gas (LNG) facility constructed near Lake Charles, Louisiana.

The cost of constructing the LNG facility was about $589 million, an increase of about 258 percent over the estimate approved by the Federal Power Commission in 1977. The construction company reported that these cost increases were due to modifications of the plant design to ensure safety, efficiency, and compliance with State and Federal regulations, as well as labor problems and general inflation. When the first regular LNG shipments were received in December 1982, the cost had increased about 129 percent over estimated costs. Negotiations with the Algerian LNG supplier resulted in a renegotiated price for July through September 1983 and a 40-percent reduction in purchased quantities for April 1983 through November 1984. GAO noted that any adjustments will have a significant effect on the delivered price of natural gas. The Federal Energy Regulatory Commission (FERC) regulates the setting of rates that interstate pipelines charge their customers and has been active in negotiations with the supplier. FERC has monitored cost overruns, is conducting an ongoing audit of all costs associated with the facility, and has expressed concerns about project expenditures. GAO noted that FERC can exclude unreasonable costs from the base rate and order the construction and management company to refund the excess payments.