Analysis of DOE's Estimate of the Sale Value of the Great Plains Project
RCED-89-36: Published: Oct 21, 1988. Publicly Released: Oct 21, 1988.
- Full Report:
In response to a congressional request, GAO reviewed the Department of Energy's (DOE) proposed sale of the Great Plains Coal Gasification Project to: (1) evaluate the DOE $600-million sale value estimate for the project; (2) compare the sale value with the initial estimated market value; (3) determine whether DOE implemented GAO recommendations in an earlier report on the project; (4) ascertain how DOE would use the project's cash reserve fund; and (5) determine the Rural Electrification Administration's (REA) role in approving the sale.
GAO used two recognized economic forecasters' methodologies to generate present value calculations, and found that: (1) DOE should reduce its $600-million estimate by about $397 million due to the production tax credits the buyer agreed to waive, the project's cash reserve, and funds DOE agreed to provide to the buyer to establish a new corporation; (2) the net present value of the buyer's offer exceeded the initial market value by anywhere from $75 million to $230 million; (3) in accordance with a GAO recommendation, DOE considered the project's financial value under continued federal ownership and the effect of production tax credits on federal budget when it negotiated the sale; (4) DOE plans to use $30 million from the project's cash reserve fund for environmental problems, $75 million as a reserve trust fund for plant operations, and $15 million for working capital for the new corporation, leaving a balance of $15 million for transfer to the Treasury; and (5) REA believes that the sale of the project would not meet legislative criteria that would necessitate its approval of the purchase.