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POWER PLANTS: CONVERTING TO COAL

ISSUE BRIEF NUMBER IB750'-I6

AUTHCR:
Behrens, Carl E.
Environment and Natural Resources Policy Division
Trumbule, Robert 13.

Environment and Natural Resources Policy Division

THE LIBRARY OF CONGRESS
CONGRESSIONAL RESEARCH SERVICE

MAJOR Issu E5 isxsmn

DA1-.3 ORIGIRATED 9_§;Qgg_‘z_5_
DATE UPDATED Q_6_g_1_§g§9_

FOR ADDITIONAL INFORMEITION CALL 287-5700

06 19

cas- 1 IB75046' UPDATE-06/18/80

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Between 1960 and 1973, more new fossil fuel-fired power plants were
designed to burn oil or natural gas than to burn coal. During the same
period, some 400 existing utility boilers originally designed to burn coal
were converted to oillor natural gas.

After the oil embargo of 1973-74, power generated from oil products became
more expensive than that from coal. However, oil use by utilities, after
declining in 1974 and 1975, continued to rise for the next three years, until
the sharp increase in prices in 1979 stimulated another reduction.

Two legislative measures, the Energy Supply and Environmental Coordination
Act (ESECA) of 1974 anfi the Powerplant and Industrial Fuel Use Act (PIFUA) of
1978, were passed by the Congress to force utilities to reduce consumption of
oil and natural gas. Besults from these measures have been unclear. The
Carter Administration has proposed legislation which would go further than
ESECA and PIFUA by naming specific generating plants to be prohibited from
burning oil or gas, and by authorizing Government grants to utilities to
convert plants from oil or gas to coal or other alternate fuel.

Several points are at issue. Is further legislation necessary; fir will it
be effective, in leading utilities to burn less oil, when the economics of
oil-fired electric power generation are leading them in the same direction?
What are the environmental consequences of substituting coal for oil,
Narticularly in the Northeast, and how much should these consequences be
imeliorated? Are the proposed grants necessary or sufficient, and how should
they be administered? 1

§A§§§BQQfl2-A§2.EQLl§X-A§AL!§l§ ‘

At the end of World War II, U.S. electricity was generated primarily from
coal (52%) and water power (35%). Coal consumption for electricity
generation was about 72 million tcns. In the 35 years since, coal
consumption for electricity generation has increased to 530 million tons, but
coal's share of the electricity fuel market.has declined from 52% to 47%,
while water power now accounts for only 12% of total electricity. Much of
the new generating capacity since 1945 has been fueled by oil or natural gas,
with a recent assist from nuclear power, which reached 12% of the total in
1979.

This shift from coal to oil and gas as the fuels of choice was the
consequence of economics. Low-cost natnral.gas and oil, either domestic or
imported, were cheaper and cleaner than coal, easier to ship and handle, less
labor-intensive, emitted fewer particulates, and left no ash for disposal.
Coal as a fuel managed to hold its own in those parts of the country near the
mines; but even in those areas, it began to lose ground late in the 1960s.
Between 1965 and 1972, some 400 power plant.boilers, largely along the East
Coast, switched to oil, particularly -imported oil. The shift_ was most
nronounced in the New England States, which, by 1973, were 94% dependent upon

11. But the shift was also strong in urban areas where air pollution
control requirements put further constraints on the use of coal. For new
generating capacity, nuclear energy began to assume an increasing role. In
the early 1970s, plans for future generating capacity called for dramatic

c:ns- 2 7 1375046 UPDATE-06/18/80

shifts to nuclear power generation. As a result, the ,coal industry
stagnated.

The embargo and the increase in oil prices was followed in 1974 and 1975
by a decline in the proportion of electricity generated by oil, with the

, difference being filled by new nuclear power units coming on tline. The

proportion increased again in 1976 and 1977, however, and declined only
slightly in 1978. The amount of oil consumed in 1977 and 1978 for
electricity generation was greater than in 1973. when the price of oil rose
sharply again in 1979, oil use by utilities dropped to about the 1973 level.

Consumption of coal for electricity generation, meanwhile, declined
slightly in 197a, increased steadily through the next three years and then
declined in 1978 because of a long miner's strike. The 1979 oil crisis,
combined with a decline in nuclear production following the accident at Three
Mile Island power station, led to a sharp increase in coal use. Thus, until
1979 the changed economics of oil and cnal.generation had less effect than
might have been expected. Part.of this muted effect may have arisen because
of price variations. The utilities‘ cost of oil, which had more than tripled
from 1972 to 1974, rose only about 10% in the next 4 years. Meanwhile, the
cost of coal increased steadily; oil was 2.7 times as expensive than coal in
1974, but only about 139 tines as expensive in 1978.

Another significant factor may have been new generating capacity. In 197fl
and 1975, almost as much capacity came on line with oil as its declared
primary fuel as did capacity designed to burn coal primarily. In the next
four years, new oil-burning capacity fell off sharply, while completion of
coal—burning generating stations increased.

Both these factors not only may explain the steady use of oil in the
period from 197M through 1978, but also.indicate that oil use may continue
the decline it began in 1979. with new oil-fired capacity down since 1975,
other sources of electrical energy will.increase their role, particularly as
older oil—burning plants are retired or reduced from baseload units to
peaking facilities.

The price factor is not as clear. Although the sharp increase in oil
prices in 1979 sent the oileto-coal price ratio up to 2.u, that relationship
may change once again as the inflationary effect of the oil-price increase is
reflected in general inflation and higher costs to coal producers. On the
other hand, a sizeable difference in price between coal and oil seems almost
certain in the future, making for pressure to burn coal whenever possible.
Furthermore, the 1979<fincrease demonstrated once again the extreme volatility
of oil prices —— a point that my have been forgotten during the years when
they stayed relatively stable. Since unpredictability and unexpectedly sharp
increases are extremely difficult for utilities to absorb under present
economic conditions, the lesson of 1979 may lead many to depend much less on
oil than if considerations of price were the only criterion.

Qil:§a<.=h2I.12...LeQ§;a2;<.>I.1

An additional stimulus to reduced oil consumption by utilities is th*
legislation passed by the Congress since the 1973 oil crisis. Under thi
legislation, the Federal Energy Administration -- now the Department of
Energy —— ordered numerous powerplants to stop burning oil and gas. However,
the process of making these orders effective has been lengthy and uncertain.

CRS- 3 IB75046 UPDATE-06/18/80

In order to speed up the process, and to make, it financially possible for
utilities to convert existing oil-burning plants to coal and otherwise reduce
ail consumption, President Carter submitted "specifications" for new
oil-backout legislation to the Congresscon nar. 6, 1980.

The first legislation aimed at reducing oil consumption by utilities was
the Energy supply and Environmental Coordination Act (ESECA) of 1974 (P.L.
93-319). FEA's authority to order conversions to coal under ESECA expired
June 30, 1975, but was extended by Title I of the Energy Policy and
Conservation Act (EPCA), P.L. 94-163, to June 30, 1977, and broadened to
permit PEA to order new powerplants and major fuel burning installations
(HFBI), primarily industrial steam-generating facilities, to burn coal.
(Previously, PEA could order that they have the capability to burn coal but
could not require that coal be burned.) ESECA was extended again (to Dec.
31, 1978) by P.L. 95-70 (July 21, 1977).

ESECA was replaced by the Powerplant.and.Industrial Fuel Use Act (FUA) of
1978 (P.L. 95-620), a part of the National Energy Act. FUA prohibits,
subject to specified exemptions, any new electric powerplant from using oil
or natural gas as primary fuel, or from being constructed without the
capability to use coal or another alternate fuel. It also prohibits existing
plants from burning natural gas after Jan. 1, 1990, and gives the Secretary
of Energy authoity to prohibit existing plants that ever had the capability
to burn coal or an alternative fuel from burning oil. The prohibitions for
existing plants also are subject to exemptions specified in the legislation.

Under ESECA, prohibition orders were issued for 107 units totalling 1h,000
megawatts of electrical capacity (Hie). Of these, prohibition orders on 23
tnits with 2,300 Hie capacity were made<effective as of the end of 1979,
orders on 36«units totalling 5,800 Hie capaity were outstanding, and orders
on 48 units totalling 6,000 Mwe capacity were rescinded. In 35 of the Q8
rescinded orders, the units were “voluntarily” converted to coal or other
alternate fuels, according to the Department of Energy, while in 9 units
insurmountable environmental problems led to the rescinding of the order. It
is not clear how many of these plants would have been converted in the
absence of ESECA orders.

. In 1979 DOE issued proposed prohibition orders under FUA for 21 units,
totalling 6,800 Hie. None has yet been made effective.

The processing of ESECA orders took an average of more than two years for
those plants for which the prohibitionswwere made effective, according to an
independent study. some of the prohibition orders still pending have been in
process for almost 5 years.

Under the legislatimm proposed by the Administration, a two-phase program
would lead to a reduction in oil consumption by utilities of 400,000 barrels
per day by 1985 and a reduction in oil and gas consumption of 1 million
barrels of oil equivalent by 1990. These goals would be met by adding two

h new features to existing oil-backout legislation. In order to make it

possible for utilities to make oilrto-coal conversions, or to build

alternative capacity allowing the retirement of oil-burning plants, Federal

grants totalling $10 billion would be made for partial payment of the capital

costs of such activities. In addition, action on petitions for exemptions
ould be accelerated.

The 1985 goal would be reached by ordering the conversion of 107
generating units, some of which had already been named under ESECA or FUA.

cns- u IB75046 UPDATE-0 6/ 18/80

These units, listed in the legislation, would be prohibited from burning oil
or gas 90 days after enactment of the legislation, unless. a petition for
exemption was filed within that time. DOE would be required to issue a final
order either granting or rejecting the petition within 180 days of receiving
it (with provision for extension by the secretary) . Grants totalling $3.6
billion would be available to meet part of the capital costs of converting
the 107 listed units. An additional $100 million would be available for
coal-cleaning facilities, and $300 million for equipment to reduce emissions
from existing coal-burning facilities that already met air quality standards.

The further savings in oil and gas consumption by 1990 would be met by
making grants totalling $6 billion to help utilities displace those fuels in
plants not capable of conversion. A system of "fuel displacement plans" for
the utilities involved would be drawn up to determine how the money would be
granted.

;§§ue§-;nvo1ved in Pr9129-e9.Le9i§lat:i2u

1. 2_II_§___];ggi.§;§_1;.j._9_1_1___I;gc__e_§§g;y3 A major issue involved in Phase I of the
oil—backout plan is whether it is necessary -- that is, whether the savings
in oil consumption under the plan would not be largely achieved without it,
either voluntarily by utilities because of economic factors that make coal
more attractive than oil as a boiler fuel, or as a result of Federal actions
authorized by existing legislation.

Contributing to the argument that the additional measures are unnecessary
is the fact that most of the units included in the prohibition list have
already been issued prohibition orders under ESECA or FDA, and a -significani
number are either already burning coal or are being converted to do so. In
favor of the proposed program is the argument that the existing legislation
is slow and uncertain, and that conversion is slowed because utilities cannot
raise the capital needed. Grants and accelerated procedures would serve to
realize oil savings quickly, savings which would be reflected immediately in
low rates for consumers as the lower fuel costs of coal were passed through
to then, it is argued. ‘

2. §;:g;1_1_:_s__g_r_‘]_._qa_1_1._-s_;?_ Another issue is the question of alternative methods
of funding the Phase I conversions, assuming that utilities need financial
aid in order to carry them out. One suggested alternative is federally
mandated rate restructuring that would favor conversions. Another is that
the conversions be supported by Government loans, rather than grants -- a
method that has been criticized on the grounds that it would increase the
general indeptedness of the utilities and make it more difficult for them to

raise capital for needed construction.

A variation on the loan approach is the concept of a "refundable
contribution," which the utility would pay back to the Government only if
fuel cost savings occurred. Repayment could take place annually, based on
the actual fuel cost savings, with part of the savings being passed through
to the consumer. Such a system, it is argued, would allow for repayment
without burdening utilities with more debt.

3. P;-1_a§g__I;_g_1_E_1§g<_:1_:';_'L_1_rg1_1_ess; The Phase II program involves more Federa
grant money than Phase I to achieve less precise goals, since it involves
reducing a utility's iioverall oil concumption rather than conversion of

specific oil-burning plants. Proponents argue that this approach is

015- 5 11375046 UPDATE‘-06,/18/80

necessary because somerareas of the country use large amounts of oil for
electricity generation in plants that are not capable of conversion to coal.
Almost one-quarter of the total oil usad to generate electricity in the
United States is consumed in California, for example, but no California
plants are included in the Phase I "coal-capable" list.

In effect, this part.of the program consists of compensating utilities for
using existing oil-generating capacity and providing needed power from other
sources. Proponents of the program argue that it is the most effective way
to reduce oil consumption in areas where coal-capable facilities do not
exist. nopponents suggest that a trend away from oil use by utilities already
is in motion, and that the acceleration to be derived from the Phase II
grants is less efficient use of public funds than other energy programs might
be.

4. §ggi;ggmggta;_ggg§tign§g A major question involved in the proposed
oil—backout legislation is its effect on air quality. The conversion of
powerplants to coal burning will increase pollution levels, especially in the
Northeast, although by how much is open to question. For example, EPA
estimates that sulfur oxide emissions would increase by 330,000 tons per
year, while yearly nitrogen oxide levels would go up by 200,000 tons.
Although this amounts to an increase in total powerplant emissions of perhaps
less than 1%, increases in the Northeast would be on the order of 15-20%,
according to the latest EPA figures. 6

DOE and industry estimates of increased pollutant levels are much lower;
For example, DOE estimates that sulfur emissions would rise by 220,000 tons
per year, while industry's estimate was only 50,000 tons. The Edison
‘lectric Institute estfimates that emissions in the Northeast will increase by
0.8% to 2.8% because of Phase I. One of the key reasons for industry's low
estimate is their belief that many of the units scheduled for conversion will
not do so due to their age.

older plants dominate the list of plants for which conversion to coal
would be required under the proposed legislation. Eighty-eight of the 107
plants on the List for General Prohibition are 15 years old or older and 73
of these are 20 years old or older. The House Commerce Committee reports
that 18 are so old or small that they are already scheduled for rapid
phaseout, while the Edison Electric Institute estimates that 27 will not
convert due to their age. Other estimates range as high as 40% not
converting for reasons of age or other complications. From an air quality
standpoint, both EPA and DOE agree that conversion of these older plants
could take place without violating environmental standards.

This can be accomplished because powerplants that are not new are
regulated under State Implementation Plans which, in general, permit much
higher levels of emissions than do New Source Performance Standards. For
example, the latter permit only 1.2 pounds of sulfur dioxide per million
Btu's of heat input for a coal-fired utility boiler. Under State
Implementation Plans, however, emission.standards for an existing plant of
the same size typically might be six to eight times higher.

The legislation as {moposed by the Enesident, and as incorporated in S.
2470 and H.R. 6930, uses three approaches to ameliorate environmental impacts
rom increased coal burning.

First, a modest amount of money is provided for grants to clean coal prior
to its use. Section 606 of S. 2070 provides grants to accelerate the

CRS- 6 IB750ll6 UPDATE-06/18/80

construction of coal preparaticn facilities for purposes of reducing the
sulfur content of coal} $100 million would be made available to pay up to
205 of qualifying capital costs including those associated with construction
of the facility; land; necessary water right; on-site coal storage, handling
and cleaning equipment; and coal loading and on-site transportation
facilities.

Second, money would be authorized to install pollution control equipment

on converting facilities. Under section 603 of S. 2!-I70, "Grants to Assist

Certain Powerplants in Achieving Compliance," at least some of the $3.6.

billion available could be used for 'on—site capital costs required to comply
with air pollution control and other applicable environmental requirements
directly related to the conversion." DOE estimates about $1 billion of these
funds will be spent on pollution control.

The third approachcfis less direct in that it would provide money for
installation of pollution control equipment on existing coal burning
powerplants already in compliane with clean air standards. This is an
attempt to’at least paxtially compensate for increased emissions expected
from converting plants. Specifically, section 605, "Grants for Design and
Installation of Advanced Sulfur Removal Systems for Existing Powerplants,P
provides $300 million "for the purpose of paying all or a portion of the
capital costs of the design and installation of advanced sulfur removal
systems for existing electric powerplants.” These systems would include wet
and dry scrubbers, chemical cleaning of coal, and advanced combustion
techniques designed to reduce emissions. The latter presumably could include
fluidized bed combustion. .

Environmentalists and other critics view this conversion plan wit‘
considerable concern. 1

Although they recognize that the plan prohibits violation of ambient air
quality standards, nevertheless they believe the increased levels of
pollutants, especially oxides of sulfur and nitrogen, will worsen an already
serious and apparently growing acid rain problem. (See Issue Brief 80022 --
Acid Precipitation: A Serious and Growing Environmental Problem.) Should
there be significant increases in sulfur emissions, there will most probably
be an increase in acid precipitation. Host of the plants scheduled for
conversion are in the East, precisely the area where the acid rain problem
apparently has been getting worse. Furthermore, the proposed conversion
comes precisely at a time when the United States and Canada have entered into
discussions on means to reduce acid rain. The Canadian government has
expressed concern over what it perceives as a proposed U.S. action which
possibly could increase the amount of acid-rain-producing pollution by
10-15%.

Another reason for environmental concern is failure of the proposed
legislation to specify cleanup of converting plants. Although grants would
be made available to converting plants for this purpose, it is unlikely that
much cleanup will occur since these plants will fall under the less stringent
requirements of State Implementation Plans. Also, older plants often
physically have no room to place large pieces of pollution control equipment.

Finally, critics doubt the efficacy of that portion of the plan which
attempts to partially compensate for increased emissions from converti;
plants by reducing emissions from existing coal-fired facilities. In their
opinion, it seems unlikely that a utility already burning coal in compliance
with air pollution standards would voluntarily agree to clean up its

CRS- 7 1B75ou6 UPDATE~06/18/80

operation. Perhaps the lure of financial aid to construct a scrubber would
be enough, but that seems somewhat unlikely, unless the assistance covered
most, if not all the dosts. Furthermore, in their opinion, the funding
provided in this portion of the propcsed legislation may be inadequate‘.
Assuming that 60% of the approximately 21,000 megawatts of proposed capacity
actually converts, there will be increased emissions from plants producing

I about 12,000 to 13,000 megawatts of electricity. But at $150 per kilowatt

for a scrubber, the maximum capacity that could be scrubbed for $300 million
is about 2,000 megawatts. Actually full scrubbing would most likely not be
required in every case so undoubtedly the $300 million would go somewhat
further towards clean--up. Also, the giants would not have to fund entire
projects. Nevertheless, questions about the adequacy of this funding remain.

L§§£§.1.-A119!

the Administration's "legislative guidelines" have been incorporated in
two bills, H.R. 6930, introduced by fir. staggers on Mar. 26, 1980, and S.
2470, introduced by Senator Ford on Mar. 214, 1980. Hearings were held on
H.R. 6930 on Apr. 2, 18, and 21 by the Energy and Power Subcommittee of the
Committee on Interstate and Foreign Commerce, and on Apr. 23 and 25 by the
Subcommittee on Energy Regulation of the Committee on Energy and Natural
Resources. H.R. 6999, introduced by Mr. Perkins on Apr. 1, 1980, is similar
to H.R. 6930, but it eliminates all the exemptions from prohibition orders
which are included in the Fuel Use Act and retained in the Administration ‘s
oil backout plan. I

H/A

04/00/80 -- Hearings by Senate Energy and Natural Resources
Committee on S. 21170, and by House Interstate and
Foreign Commerce Committee on H.R. 6740, legislation
embodying Administration oil-backout program.

03/06/80 -- President Carter submitted "legislative specifications“
to reduce oil and gas consumption by electric utilities
by 000,000 barrels of oil equivalent per day by 1985
and 1 million barrels by 1990.

11/09/78 -- President Carter signed Powerplant and Industrial
Fuel Use Act (FDA) of 1978 (P.L. 95-620).

00/20/77

12/22/75

12/08/75

06/22/74

10/00/73

12/00/70

CBS- 8

President Carter submitted his energy proposals to

icongress.

President
Bct (P.L.

Ford signed Enrgy Policy and Conservation
94-163) , amending ESECA.

S. 622 (11.11. 7014) was reported from conference.
Congress enacted ESECA, Energy Supply and Environmental
Coordination Act, designad to reduce dependence upon

imported oil by converting power plants able to burn coal
to the use of coal.

Oil embargo and resultant energy shortages focused attention
upon the utilities industry trend away from coal to oil
for fuel.

Enactnent of Clean Air Amendments of 1970 led to increased
use of xfil in place of coal for power generation in order
to neet sulfur oxide and.particu1ate emission control
requirements.

'__‘,_1‘._ _‘...—y -1