Synthetic Fuels

Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) control, ownership, and divestiture of the Great Plains Coal Gasification Project after the original owners defaulted on their $1.54-billion DOE-guaranteed loan for project construction and start-up.

GAO found that: (1) the DOE-appointed contractor generally produced gas exceeding the plant's design capacity, with revenues totalling about $658.3 million and exceeding expenses by about $110.3 million; (2) in August 1988, DOE selected a buyer that agreed to waive production tax credits, made the highest offer, and had the strongest long-term project operations commitment, for an estimated net present value of $600 million; (3) DOE should have reduced its estimated value by about $397 million to account for the waived production tax credits, project cash which already belonged to DOE, and DOE-provided working capital; (4) DOE also provided $30 million from project funds to the new owner for modifications so that the plant could meet sulfur emission requirements; (5) under the sales agreement, DOE provided $120 million of project funds for establishing an environmental trust fund, a cash reserve trust fund, and working capital; (6) the sales agreement also required the owner to report to DOE about its compliance with sales terms; (7) DOE paid $1.2 million to a firm for its assistance in selling the project, but the firm contended that the fee should have been $3.4 million; and (8) economic analysis indicated that the new owners could run out of cash in 1991 or 1992, depending on future gas prices, although the owner was committed to continued long-term plant operations, since the project's closure would mean it would lose net annual revenues of about $37 million.