Synthetic Fuels:

Comparative Analyses of Retaining and Selling the Great Plains Project

RCED-88-172: Published: Jun 10, 1988. Publicly Released: Jun 22, 1988.

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In response to a congressional request, GAO performed cash-flow analyses to determine the: (1) value to the government of retaining the Great Plains coal gasification project; (2) estimated price to equal the project's retention value if the Department of Energy (DOE) sold the project; and (3) effect of federal tax provisions on the budget if DOE sold the project at prices ranging from $250 million to $700 million.

GAO found that: (1) from 1988 through 2009, the project would generate about $6.9 billion in total revenues and incur about $5.4 billion in total operating expenses, which would result in future net revenues of about $1.5 billion; (2) at a $1.029 billion sale price, a private investor would earn about $621 million in income before taxes, owe about $188 million in future income taxes, and be entitled to about $697 million in production tax credits; (3) because the production tax credits would exceed the federal income taxes by about $509 million, and the negative net proceeds would total about $460 million, the present value from selling the project for $1.029 billion would total about $569 million; and (4) the sale of the project would affect the federal budget during the next 22 years, since it would trade the net revenues it would receive from continued ownership for the net sale proceeds and tax revenues it would receive, resulting in an increase in the federal deficit.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DOE compared both the value of retaining the project and the effect of production tax credits on the federal budget. The actual sale price exceeded the retention value and DOE got the new owner to waive the production tax credits.

    Recommendation: The Secretary of Energy should, in determining a fair price for the Great Plains project, consider the financial value of the project under continued federal ownership and the effect of production tax credits on the federal budget.

    Agency Affected: Department of Energy

 

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