Clean Coal: DOE's Decision to Restructure FutureGen Should Be Based on a Comprehensive Analysis of Costs, Benefits, and Risks
Published: 2009-02-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Coal-fired power plants generate about one-half of the nation's electricity and about one-third of its carbon dioxide (CO2) emissions, which contribute to climate change. In 2003, the Department of Energy (DOE) initiated FutureGen--a commercial-scale, coal-fired power plant to incorporate integrated gasification combined cycle (IGCC), an advanced generating technology, with carbon capture and storage (CCS). The plant was to capture and store underground about 90 percent of its CO2 emissions. DOE's cost share was 74 percent, and industry partners agreed to fund the rest. Concerned about escalating costs, DOE restructured FutureGen. GAO was asked to examine (1) the original and restructured programs' goals, (2) similarities and differences between the new FutureGen and other DOE CCS programs, and (3) if the restructuring decision was based on sufficient information. GAO reviewed best practices for making programmatic decisions, FutureGen plans and budgets, and documents on the restructuring of FutureGen. GAO contacted DOE, industry partners, and experts.
section_title: What GAO Found
paragraphs: The original FutureGen program and the new restructured FutureGen program attempt to use CCS at coal-fired power plants to achieve near-zero CO2 emissions and to make CCS economically viable. However, they take different approaches that could affect CCS's commercial advancement. First, the original program aimed at developing knowledge about the integration of IGCC and CCS at one plant; in contrast, the new program could provide opportunities to learn about CCS at different plants, such as conventional ones that use pulverized coal generating technology. Second, the original program was operated by a nonprofit consortium of energy companies at one plant, while the new program called for CCS projects at multiple commercial plants. The new, restructured FutureGen differs from most DOE CCS programs. The new FutureGen would develop and integrate multiple CCS components at coal-fired plants (including CO2 capture, transportation, and storage underground). Other programs concentrate on only one CCS component and/or a related component (e.g., capture or capture and compression). However, Round III of DOE's Clean Coal Power Initiative (CCPI) is a cost-shared partnership with industry that funds commercial CCS demonstrations at new and existing coal-fired plants. The new FutureGen is most like CCPI in that both fund CCS commercial demonstrations at several plants to accelerate CCS deployment and require that participants bear 50 percent of the costs, but DOE expects the new FutureGen to have more funding for commercial demonstrations than CCPI. Moreover, the new FutureGen targets a higher amount of CO2 to be captured and stored (at least 1 million metric tons of CO2 annually per plant) than CCPI (300,000 metric tons). Contrary to best practices, DOE did not base its decision to restructure FutureGen on a comprehensive analysis of factors, such as the associated costs, benefits, and risks. DOE made its decision, largely, on the conclusion that costs for the original FutureGen had doubled and would escalate substantially. However, in its decision, DOE compared two cost estimates for the original FutureGen that were not comparable because DOE's $950 million estimate was in constant 2004 dollars and the $1.8 billion estimate of DOE's industry partners was inflated through 2017. As its restructuring decision did not consider a comprehensive analysis of costs, benefits, and risks, DOE has no assurance that the restructured FutureGen is the best option to advance CCS. In contrast to the restructuring decision, DOE's Office of Fossil Energy had identified and analyzed 13 options for incremental, cost-saving changes to the original program, such as reducing the CO2 capture requirement. While the Office of Fossil Energy did not consider all of these options to be viable, it either recommended or noted several of them for consideration, with potential savings ranging from $30 million to $55 million each.

section_title: Letter
paragraphs: Key scientific assessments have underscored the urgency of reducing  Key scientific assessments have underscored the urgency of reducing  carbon dioxide (CO) emissions to help mitigate climate change. Given the  carbon dioxide (CO, many of these scientific assessments have  significant quantities of CO from other gases emitted in power plants;  involves separating CO; compressing it into a liquid form; transporting it (for  capturing the CO at the storage site for a long period of time.  presence of the CO emissions  Developing CCS is particularly important since total world COIn 2003, the Department of Energy (DOE) announced its FutureGen  program as a $1 billion venture, partnering with the electric power  industry to design, build, and operate the world’s first coal-fired, zero- emissions power plant. In 2005, the FutureGen Industrial Alliance  (Alliance), a nonprofit consortium of some of the largest coal producers  and electric power companies in the world, formed to join DOE in this  effort. The Alliance agreed to fund 26 percent of the program, and DOE  agreed to fund the remaining 74 percent—of which DOE anticipated  receiving funding contributions for about 8 percent of the program’s total  cost from foreign government partners. The agreement was subject to  renegotiation and renewal or continuation by both DOE and the Alliance  at various stages. In addition to FutureGen, DOE has other clean coal  programs with CCS components. For example, Round III of the Clean Coal  Power Initiative (CCPI) seeks cost-shared partnerships with industry to  fund commercial CCS demonstration at coal-fired power plants.
FutureGen was originally conceived as a research and development  project to integrate CCS with another developing technology—integrated  gasification combined cycle (IGCC)—in a single power plant at  commercial scale. In IGCC power plants, coal is gasified to produce a  synthesis gas (syngas), consisting primarily of hydrogen, carbon  monoxide, and CO. In a process called precombustion CCS, the CO as a concentrated gas stream at high pressure that may  be captured and stored more easily and cheaply than CO that must be separated  from other gases before storing. Construction on FutureGen was  scheduled to begin in 2009, and operations were to begin in 2012. In that  year, FutureGen was to begin capturing, storing, and monitoring the stored  CO for 2  more years. In addition, the FutureGen plant was being designed to serve  as a living laboratory host facility for emerging clean coal research  programs, including DOE’s ongoing coal research program, to help  develop advanced technologies that could (1) improve CCS and IGCC, and  (2) advance research in other areas, such as hydrogen fuel cells.
By mid-2007, partly because of cost escalations for building power plants  around the world, DOE had become increasingly concerned about  potential escalating costs for FutureGen. For example, the price of  cement, large quantities of which are required for building power plants,  had increased by about 30 percent from 2004 to 2006, and certain labor  costs for building power plants had increased by over 25 percent, or  almost twice the rate of general inflation, from 2001 to 2007. In October  2007, to address these concerns, DOE began renegotiating its share of  program costs with the Alliance. In December 2007, after DOE finished  conducting the extensive environmental analyses required by the National  Environmental Policy Act of 1969 (NEPA) Further, DOE had advised the Alliance not to  announce a site selection until the Record of Decision had been issued, as  contemplated by the cooperative agreement. Subsequently, in January  2008, DOE announced that it would not continue its cooperative  agreement with the Alliance and that it was going to take a different  approach to FutureGen. DOE stated that this decision was based on  concerns over potential cost escalations and the need to more quickly  advance commercial technology.
Pub. L. No. 91-190 (1970). Under the act, federal agencies must evaluate the likely  environmental effects of their activities using an environmental assessment or, if the  activity likely would significantly affect the environment, a more detailed environmental  impact statement. restructured FutureGen, DOE would fund several projects proposed by  industry, including entities such as electric power companies, to add CCS  to commercial power plants. The plants would begin using CCS by the end  of 2015; and, as planned under the original FutureGen, they would be  required to capture, store, and monitor the stored CO for 3 to 5 years, and  to continue monitoring the stored CO However,  with both the original and restructured FutureGen, a nonfederal source  must pay at least 50 percent of any demonstration component’s cost. In  October 2008, DOE received a small number of applications for the  restructured FutureGen; however, some of these applications are for  proposals outside of the restructured FutureGen’s scope. DOE is currently  assessing proposals received and had stated it expected to announce a  selection of projects by December 2008; however, as of the beginning of  February 2009, it had made no decision. DOE requested supplemental  information from restructured FutureGen applicants which will be  reviewed prior to any selection decision.
While IGCC is a promising technology for generating electricity from coal,  currently, coal-fired electricity is almost exclusively generated in existing  pulverized coal-fired power plants. In these plants, pulverized coal is  combusted in air to boil water, which raises steam that, in turn, is routed  to turbines to generate electricity. The CO that results from burning coal  is exhausted in the flue gas at atmospheric pressure.
subsections: section_title: Background
paragraphs: Global emissions of greenhouse gases, such as COproduction of some crops and livestock productivity, and a decrease in the  availability of fresh water in certain parts of the world. electricity, often referred to as the energy penalty or parasitic power, is required for  capture and compression.
Oxyfuel combustion: Oxyfuel combustion, which is in its developmental  stages, is a technology that is being developed for using coal to generate  electricity that could reduce CO emissions. According to DOE, oxyfuel  combustion could be applied to existing pulverized coal-fired plants.  Oxyfuel combustion burns coal using pure oxygen diluted with recycled  CO and  water vapor, with some excess oxygen, facilitating the capture of the CO is not necessary under this approach, the CO. However, depending on the  level of excess oxygen and other trace components, some additional gas  cleanup may be required to make the CO would be transported, likely via pipeline, to  a storage site and injected at depths of over 800 meters (or about 2,600  feet) into underground geologic formations (such as depleted oil  reservoirs and saline formations), thought to be conducive for isolating the  CO leakage and the ownership of CO must be monitored to ensure it does not  escape into the environment.
On February 27, 2003, the President announced FutureGen as a cost- shared project between DOE and industry to create the world’s first coal- fired, zero emissions electricity and hydrogen production power plant. The  production of hydrogen was to support the President’s Hydrogen Fuel  Initiative to create a hydrogen economy for transportation. The original  FutureGen plant was planned to operate at a commercial scale as a 275  megawatt IGCC facility that would capture and store at least 1 million  metric tons of CO Pursuant to the agreement, the  Alliance was to design, construct, and operate the FutureGen plant, and  DOE was to provide project oversight, conduct the environmental  analyses required by NEPA, and coordinate the participation of foreign  governments. The project was to run through November 2017 and  operate as the cleanest fossil fuel-fired power plant in the world. After  completion of the formal project, the FutureGen plant was expected to  continue operating for the typical lifespan of a power plant—usually 30 to  50 years—generating electricity and providing a platform for energy  research. On January 30, 2008, DOE announced that it had decided to take  the FutureGen program in a different direction. DOE stated that it would  demonstrate CCS at multiple commercial-scale power plants, including  retaining the integration of CCS and IGCC. DOE referred to this new  approach as the restructured FutureGen program. In June 2008, in a  funding announcement for the restructured program, DOE stated that it  expected it would have about $290 million available through fiscal year  2009 for its share of funding for the program. (See app. II for an overview  of DOE budget authority and obligations for FutureGen.)
section_title: The Goals of the Original and Restructured FutureGen Programs Are Largely Similar, but the Programs’ Different Approaches May Lead to Different Results
paragraphs: The overall goals of the original and restructured FutureGen programs are  largely similar in that both programs seek to produce electricity from coal  with near-zero emissions by using CCS, and to make that process  economically viable for the electric power industry. However, the  programs outline different approaches for achieving their goals, which  could affect the commercial advancement of CCS differently in several  ways.
subsections: section_title: With a Few Key Exceptions, the Goals of the Original and Restructured Programs Are Largely Similar
paragraphs: Both the original and restructured programs aim to establish the feasibility  and economic viability of producing electricity from coal with near-zero  emissions by employing CCS. The programs’ goals for storing CO and  limiting other emissions, such as mercury and sulfur, are also similar;  except that the requirement for the amount of carbon to be captured has  been reduced from 90 percent in the original program to 81 percent in the  restructured program (see table 1).
Knowledgeable stakeholders told us that this decrease in carbon capture  is of modest significance and that a goal of 81 percent is still very  ambitious and costly. DOE received similar feedback in responses to its  request for information from the public about its plan to restructure  FutureGen. Eighteen of the 49 respondents indicated that the 90 percent  goal would be too restrictive for industry participants because of the  additional energy required to capture and compress CO However, the restructured program, a DOE commercial  demonstration project, seeks to accelerate the commercial deployment of  CCS (that is, generating and selling electricity to earn profits) by  implementing CCS at one or more commercial facilities by 2015— approximately five years earlier than the original program’s commercial  operations could begin. The original program, a DOE research and  development project, would begin generating electricity in 2012, a few  years earlier than the restructured FutureGen; but, it could not begin  operating as a profit-seeking commercial facility until after the nonprofit  Alliance sells it, which is currently anticipated to occur in 2020.  Knowledgeable stakeholders told us that the restructured program’s time  line for the commercial deployment of its project(s) might be ambitious  because legal and environmental issues related to siting and permitting, in  particular for CCS, could slow implementation. They also stated that the  required NEPA analyses, which must be completed prior to beginning  construction, could take up to 3 years. In contrast, DOE had completed its  NEPA analyses for the original FutureGen. Moreover, the governments of  the two states—Texas and Illinois—where the four finalist sites for the  original FutureGen were located, had agreed to assume liability for the  injected CO. DOE officials told us that, unlike the original program, a  primary goal of the restructured FutureGen was to facilitate the siting and  permitting process for CCS by implementing multiple projects in different  locations.
section_title: The Different Approaches for Achieving Goals Could Have Different Impacts on the Commercial Advancement of CCS
paragraphs: Because of the different approaches for achieving their goals, the original  and restructured FutureGen programs could have different impacts on the  commercial advancement of CCS (see table 2).
The type of information gained from the programs may vary. First, the  original program would have developed knowledge about CCS at IGCC  plants, while the restructured program could allow for opportunities to  learn about CCS at both IGCC and other types of coal plants.  Knowledgeable stakeholders whom we contacted stated that DOE could  benefit by taking advantage of the opportunity under the restructured  FutureGen program to learn about CCS at multiple types of plants. They  explained that opportunities to learn from multiple plant sites in different  regions with various technologies would provide a wide range of  knowledge about the implementation of CCS in various contexts.  Similarly, 30 of 49 respondents to DOE’s request for information about the  restructured program indicated that it would be beneficial if the  restructured program were to include both IGCC and other types of coal  plants. In addition to other organizations, such as the National Academy of  Sciences, we have noted that the benefits of learning about CCS  technologies are also applicable to existing pulverized coal-fired plants,  since they account for an overwhelming share (about 99 percent) of the  world’s coal-fired power plants. However, one of the intended benefits of  the restructured program—providing opportunities to learn from multiple  plants about various technologies—may not be fully realized since DOE  received only a small number of applications. If an application for IGCC  has not been received or is not selected, the loss of an IGCC plant with  integrated CCS capability is significant because, according to the draft  strategic planning document for the restructured program, demonstrating  this technology is a key solution for reducing atmospheric CO emissions  from coal-fired power plants. Comments submitted to DOE and  knowledgeable stakeholders we interviewed indicated that the carbon  capture goal for the restructured program was too restrictive for  commercial facilities. One stakeholder stated that the restructured  program goals might be overly optimistic about what commercial projects  are willing to do. As a result of receiving only a small number of  applications, the restructured program is not as likely to develop as broad  a base of knowledge as it could have if more applications were received.
Second, it is unclear whether the original FutureGen program or the  restructured program could have advanced the broader roll out of CCS  more quickly across all of industry. According to DOE documents, the  restructured program is intended to begin deploying CCS at one or more  commercial facilities in 2015, approximately five years earlier than the  original program’s commercial operations (that is, generating and selling  electricity) could begin. The original program, a DOE research and  development project, would have begun generating electricity in 2012, a  few years earlier than the restructured FutureGen, but it could not have  begun operating as a profit-seeking commercial facility until after the  nonprofit Alliance sold it, which was anticipated to occur in 2020.  Moreover, unlike the restructured program, the original FutureGen would  have included a wide variety of industry partners (including foreign  government partners, which are absent from the restructured program).   In addition, more industry partners could have joined the Alliance and its  11 members over the course of the original program. As a result of its  wider participation, the original FutureGen could potentially have  advanced the broader roll out of CCS across all of industry and  internationally, instead of at only a few commercial facilities, more quickly  than the restructured program. DOE officials told us that the original  program would likely improve the global advancement of CCS more  quickly than the restructured program due to its various international  partnerships. They stated that DOE is developing an approach to recoup  the loss of international involvement that resulted from restructuring  FutureGen.
Third, the restructured program will not serve as a living laboratory host  facility for technologies emerging from energy research and development  programs aimed at the goal of near-zero emissions and for gaining broad  industry acceptance for these technologies. The original FutureGen plant  was to be designed with the ability to test various technologies that are  scalable to full size, such as fuel cells, advanced gasification, and  membrane air separation systems. Without the opportunity to test these  emerging research and development technologies, the restructured  FutureGen might result in a slower advancement of CCS than the original  program may have yielded. According to the cooperative agreement  between DOE and the Alliance, emerging technologies, such as fuel cells,  could have been tested at the original program’s living laboratory host  facility. In a September 2007 presentation to DOE’s Deputy Secretary,  NETL noted the impact of removing the living laboratory, saying it would  “significantly delay the availability of the technology for commercial  deployment” and have a “significant programmatic impact.” DOE officials  told us that they have not yet determined where these technologies will be  tested.
section_title: The Restructured FutureGen Differs from Most of the Other DOE Carbon Capture and Storage Programs, but It Is Similar to CCPI in Several Ways
paragraphs: DOE manages a portfolio of clean coal programs that research and  develop CCS technology or demonstrate its application. Focusing on  commercial coal-fired power plants, the restructured FutureGen would  integrate key components of CCS, such as CO at the storage location. However,  the restructured FutureGen is similar in some ways to Round III of CCPI,  but CCPI’s goals are more modest than those of the restructured  FutureGen and, hence, may be more achievable for industry partners. The  other CCS programs include the (1) Regional Carbon Sequestration  Partnerships, (2) Innovations for Existing Plants Program, (3) Advanced  Turbines Program, (4) Advanced Integrated Gasification Combined Cycle  Program, and (5) Round III of the Title 17 Incentives for Innovative  Technologies Loan Guarantee Program (Loan Guarantee Program). Four  of these five CCS programs do not integrate all key components of CCS  and concentrate on developing one or two related components of CCS,  such as CO storage, or CO Round III  of CCPI seeks to demonstrate, at a commercial scale, advanced coal-based  technologies that capture and store carbon, or put CO emissions to  beneficial reuse, such as to enhance oil recovery. The proposals for  Round III of CCPI were due to DOE by January 15, 2009, and DOE expects  to announce its selections in July 2009. , is added to the reservoir after secondary recovery in order to  increase production. The purpose of EOR is to increase oil production, primarily through  an increase in temperature, pressure, or an enhancement of the oil’s ability to flow through  the reservoir. may be more realistic or attainable for commercial partners, more  proposals may be submitted to CCPI than the restructured FutureGen. For  example, two officials from electric utility companies said that, despite the  potentially greater amount of funding available through the restructured  FutureGen ($1.3 billion, subject to future appropriations) than CCPI ($440  million, subject to future appropriations), their companies would apply for  CCPI over the restructured program because they could meet CCPI’s  goals.
subsections: section_title: The Restructured FutureGen Differs from Most Other DOE CCS Programs
paragraphs: from coal-fired power  plants, including possibly capturing 500,000 metric tons of CO storage in deep oil-, gas-, coal-, and saline-bearing  formations. Phase II, the Validation Phase (2005-2009), is implementing 25 small-scale  geologic storage tests. Phase III, the Deployment Phase (2008-2017), is a continuation of  the Phase II small-scale tests, but at a much larger scale. other sources, such as ethanol production plants. The injection of CO  capture and compression technologies to assist existing coal-fired power  plants. Through this program, DOE is providing $36 million in funding for  15 projects to develop new and cost-effective CO  capture: membranes, solvents, sorbents, oxyfuel combustion, and  chemical looping.
The Advanced Turbines Program focuses on creating the technology base  for turbines that will permit the design of IGCC plants with CCS that can  operate at near-zero emissions, thereby facilitating CO capture. The program aims to develop advanced gasification  technologies to enable CO separation, capture, and sequestration  into near-zero atmospheric emissions configurations that can, ultimately,  provide electricity with less than a 10 percent increase in cost.
Finally, Round III of the Title 17 Incentives for Innovative Technologies  Loan Guarantee Program will provide up to $8 billion in loan guarantees  for energy projects that satisfy three criteria: avoid, reduce, or sequester  air pollutants or greenhouse gases; employ new or significantly improved  technologies, compared with commercial technologies in service at the  time the guarantee is issued; and provide a reasonable prospect of  repayment. Initial applications for Round III of the program were due to  DOE in December 2008. We recently reported on DOE’s progress in (1)  issuing final regulations to govern this program, (2) taking actions to help  ensure that the program is managed effectively and to maintain  accountability, and (3) determining whether there were inherent risks due  to the nature and characteristics of this program that may affect DOE’s  ability to make the program pay for itself and support a broad spectrum of  innovative energy technologies. Table 3 summarizes the comparison of  DOE programs supporting CCS.
section_title: DOE Did Not Support Its Decision to Restructure FutureGen with Sufficient Information on Costs, Benefits, or Risks
paragraphs: According to our recent work and best practices, a decision to terminate  or significantly restructure an ongoing program should typically be  informed by timely and sufficient information on the costs, benefits, and  risks of such a decision. While DOE had reason to be concerned about the  escalating costs of the original FutureGen, it made its decision to cancel  that program and replace it with the restructured FutureGen based, in  large part, on a comparison of cost estimates that were not comparable.  That is, it compared one estimate that was in current dollars with one that  was in constant dollars. In restructuring FutureGen, DOE did not  sufficiently analyze the costs, benefits, and risks of canceling the original  FutureGen and replacing it with a significantly restructured program. A  comprehensive analysis could have helped DOE determine how the costs,  benefits, and risks of the restructured FutureGen compared with those of  the original FutureGen. Because it did not conduct such an analysis, DOE  cannot be assured that the restructured program is the best option to  accelerate the widespread commercial advancement of CCS more quickly  than the original program. Other options, rather than dramatically  restructuring the program, were possible that could have preserved some  of the benefits of the original program, including ensuring the integration  of IGCC and CCS at the FutureGen facility. For example, FE identified and  analyzed 13 other options for incremental, cost-saving changes to the  original program, such as reducing the COvary from location to location, and technology costs and designs, such as  for turbines, vary depending on the specific manufacturer and vendor.
The March 2007 renewed cooperative agreement listed approximately $1.8  billion as the current estimated cost of the project. However, senior DOE  officials soon began to express concerns about escalating program costs,  and they directed FE officials to develop recommendations for controlling  costs. In September 2007, FE officials presented several recommendations  for incremental changes to control costs to the Deputy Secretary of  Energy; they also noted various measures already in place for controlling  costs, such as monthly progress reports and a risk management program.  Importantly, none of the recommendations indicated that DOE should  cancel the original program and restructure FutureGen; moreover, FE  officials told us that they did not prepare any analysis or recommendations  for senior DOE officials that resembled what was to become the  restructured program.
According to DOE, following this presentation, senior DOE officials  directed FE to negotiate with the Alliance new cost sharing arrangements  under the cooperative agreement, which was scheduled for continuation  in June 2008. The Alliance agreed to meet to renegotiate the terms of the  cooperative agreement. Over the course of several meetings, the parties  discussed various funding scenarios and exchanged proposed term sheets.  Subsequently, however, the Alliance and DOE did not reach agreement. In  December 2007, the Alliance sent a letter to DOE stating that it preferred  to proceed under the existing cooperative agreement until FutureGen’s  costs and risks could be assessed with input from the preliminary design  report and cost estimate that were due by June 2008.
Also in December 2007, the Secretary of Energy briefed senior presidential  advisers that the estimated cost of FutureGen had nearly doubled—from  $950 million to $1.8 billion—and that costs were expected to continue  rising. In addition, according to the briefing documents, DOE planned to  end its partnership with the Alliance and was developing a new strategy  for FutureGen that would cap the government’s financial exposure. The  briefing documents explained that DOE’s new approach for FutureGen  would fund only the CCS-related technology associated with multiple  commercial IGCC plants, rather than the entire construction of a single  plant with CCS. Around this time, according to DOE officials, senior DOE  officials directed FE to develop the restructured FutureGen program. In  response, these officials told us, many high-level offices within DOE  collaborated on developing a draft strategic planning document for the  restructured program. According to these officials, the draft strategic  planning document that they finalized in January 2008 was the first  complete document about the restructured FutureGen. On January 30,  2008, DOE publicly announced that it was restructuring FutureGen to  provide a ceiling on federal contributions and that the restructured  program was a more cost-effective approach. On this same day, DOE  notified the Alliance that it was restructuring FutureGen and would not  continue its cooperative agreement with the Alliance. DOE informed the  Alliance that it was restructuring FutureGen in response to serious  concerns over substantial escalation in projected costs, including what the  agency concluded would be the likely continued escalation of the costs.  DOE officials also stated that they disapproved of the Alliance’s decision  to announce the selection of a project site before DOE issued its NEPA  Record of Decision. According to DOE, prior to the site selection  announcement and without knowledge of the Alliance’s choice of site,  DOE had asked the Alliance not to go forward with the announcement and  further advised the Alliance against making an announcement until the  Record of Decision had been issued. DOE officials also said that, in their  negotiations on measures that could limit DOE’s financial exposure, they  lost confidence in the ability of the Alliance to fund its share of the project  cost.
Although comparing cost estimates can provide valuable insight about the  impact of escalating costs on a project, DOE based its decision to  restructure FutureGen, in large part, on a comparison of cost estimates  that were not actually comparable. That is, in 2004, DOE had estimated  that the cost of the original FutureGen would be $950 million in constant  2004 dollars. In contrast, the Alliance’s 2007 estimate of about $1.8 billion  was in current dollars, which reflected inflation over the course of the  program from 2005 through 2017. In explaining his decision to restructure  FutureGen to senior presidential advisers, the Secretary of Energy  indicated that the projected program costs had “nearly doubled,” from  $950 million to $1.8 billion. However, comparing constant dollars, which  exclude inflation, with current dollars, which reflect inflation, is  misleading. Our calculations show that the Alliance’s current dollar  estimate of roughly $1.8 billion is equivalent to approximately $1.3 billion  in constant 2005 dollars—an increase in total program costs of about $370  million, or about 39 percent—not a near doubling of costs.
In addition, the cost estimates by DOE and the Alliance were prepared  early in the project and, as a result, were based on conceptual designs for  FutureGen, including power plant case studies and a blanket 10 percent  increase incorporated into the Alliance’s estimate to allow for the first-of- a-kind nature of some of the plant’s components and integration issues.  However, neither estimate considered costs for specific types of  technology or a specific location. If DOE had waited approximately 6  months for the Alliance’s technology-specific and site-specific cost  estimate, due by June 2008 as part of its preliminary design report, before  deciding whether to restructure the program, it would have had the benefit  of more current and complete information, including the latest  information on escalating costs, when making decisions about how to  move forward with FutureGen. In addition, regarding FutureGen’s total  cost, the March 2007 cooperative agreement stated that DOE and the  Alliance recognized that many uncertainties—such as plant design, site  selection, and market conditions—still existed in developing a firm cost  estimate.
In May 2008, the Secretary of Energy testified before Congress that  FutureGen was conceived as a $950 million venture and that its estimated  cost had increased to roughly $1.8 billion; however, the Secretary’s  prepared statement did not indicate that the first estimate was in constant  dollars, while the second was in current dollars. The Secretary also  testified that DOE believed its costs would continue to escalate. We  requested that DOE provide us with the analysis that supported DOE’s  anticipated escalation. In October 2008, DOE officials told us that the  ongoing cost escalations were unprecedented and that they had looked  internally across various indexes, including the Bureau of Labor Statistics,  to get a sense of prospective escalation. However, they stated that they did  not have any written or comprehensive analysis. They added that they did  not prepare a position paper, study, or generate any analysis examining  current or future escalation for the decision to restructure FutureGen.  Moreover, economic forecasting organizations, such as DOE’s Energy  Information Administration, have found that significant cost escalations,  such as those for building power plants over the past several years, do not  typically continue in the long run.
subsections: section_title: A Comprehensive Analysis Could Have Helped DOE Determine How the Costs, Benefits, and Risks of the Restructured FutureGen Compared with Those of Other Options
paragraphs: DOE did not prepare a comprehensive analysis comparing the relative  costs, benefits, and risks of the original and restructured FutureGen  programs before making the decision to replace the original program with  the restructured FutureGen. On two different occasions, DOE officials told  us that the agency did not prepare such an analysis. These officials told us  that the Secretary of Energy’s May 2008 congressional testimony included  the agency’s official explanation for why it decided to restructure  FutureGen. In September 2008, we asked DOE to provide us with  additional information, including the agency’s official position on why it  decided to restructure FutureGen, all the factors upon which DOE based  the decision, the extent to which the decision was based on documented  supporting analysis, and a copy of any such analysis. In January 2009, after  we sent a draft of this report to DOE for review and comment, DOE  responded to our request for additional information, stating that the  detailed analysis supporting its decision to restructure FutureGen could be  found in the draft strategic planning document for the restructured  program and that this document discussed the factors considered by DOE  in making the decision to restructure FutureGen. However, as previously  discussed in our findings, the draft strategic planning document was not  completed in time to inform the decision to restructure FutureGen. In  addition, we do not consider the draft strategic planning document to be  comprehensive because it did not assess:    1.  whether costs for the original FutureGen would escalate substantially  2.  the relative costs, benefits, and risks for all of the types of plants for  which the restructured FutureGen was eligible to receive proposals,  such as conventional pulverized-coal and oxyfuel combustion plants,  but only contemplated proposals for IGCC plants; 3.  the risk that industry respondents might not propose an IGCC plant for  4.  the risk that industry respondents might not propose enough viable  projects for the restructured FutureGen; 5.  the costs, benefits, and risks of making incremental changes to the  original FutureGen alongside the relative costs, benefits, and risks of  the restructured FutureGen; and  6.  any potential overlap between the restructured FutureGen and other  DOE programs.
A comprehensive analysis could have supported DOE’s decision making in  several ways. First, it could have helped DOE assess the risk that industry  respondents to DOE’s request for applications under the restructured  FutureGen might not propose an IGCC plant. DOE received public  comments indicating that such an outcome was possible because IGCC is  not yet prevalent in the industry—only two commercial IGCC plants  currently operate in the United States—and other technologies may  provide better opportunities to meet the restructured program’s  requirements, among other reasons. Applying CCS at existing,  conventional pulverized coal-fired plants is important because those  plants comprise almost all operating coal-fired plants in the United States  and abroad. However, according to DOE, IGCC plants integrated with CCS  are important for reducing CO emissions in the future. Both DOE’s press  release announcing the restructured program and the updated draft  strategic planning document, dated July 1, 2008, that DOE provided  Congress indicated that the restructured program would include IGCC.  The funding announcement for the restructured FutureGen highlighted the  important contribution that an IGCC plant integrated with CCS would  make toward the nation’s energy needs, such as providing continued fuel  diversity for generating electricity and mitigating dependence on more  expensive and less secure sources of energy. As late as May 2008, the  Secretary of Energy indicated in congressional testimony that the  restructured program would likely include IGCC, stating that advances in  technology and the market, in addition to regulatory uncertainty, would  provide incentives for industry to begin deploying commercial-scale IGCC  plants with CCS.
In addition, a comprehensive analysis could have helped DOE assess the  risk that industry respondents might not propose enough viable projects  from which DOE could then assess and make multiple selections. Such an  analysis could also have helped DOE assess whether the new cost-share  arrangement would provide sufficient incentive for enough proposals to be  selective. In the draft planning documents and press release announcing  the restructured program, DOE stated that it restructured FutureGen, in  part, because market conditions had changed in such a way that DOE  could fund multiple industry projects and accomplish even more  widespread commercialization of CCS and related information sharing  across the industry than what would have been accomplished by the  Alliance’s consortium of 11 coal producers and electric power companies.  However, DOE only received a small number of applications and some  proposed projects were outside the restructured FutureGen’s scope. As a  result, widespread commercialization and information sharing seem less  likely than under the original program. DOE also asserted that the  restructured program would hasten the time frame for full-scale  commercial operation of CCS. However, even if DOE accepts all  applicable applications, the restructured program could implement CCS  sooner than the original program at only a few commercial sites rather  than, as stated before, on a more widespread and international scale.
Finally, DOE also could have used a comprehensive analysis to help  compare the relative costs, benefits, and risks of the restructured  FutureGen with those of making incremental and other changes to the  original program in order to control or offset costs. For example, prior to  the decision to restructure FutureGen, FE identified and analyzed 13  options for changes to the original program, such as reducing the COrecommended or noted that DOE should be willing to consider several  options with potential savings from $30 million to $55 million each. Some  of these scenarios were broached during negotiations with the Alliance in  the fall of 2007.
section_title: Conclusions
paragraphs: According to DOE, electric power industry, academic, and other officials  and experts, for the foreseeable future, coal, which is abundant and  relatively inexpensive, will remain a significant fuel for the generation of  electric power in the United States and the world. However, coal-fired  power plants are also a significant source of CO and other emissions  responsible for climate change. Hence, for at least the near-term, any  government policies that seriously address climate change will need to  have a goal of significantly reducing CO, and would accept technologies other than IGCC. The restructured  FutureGen left open the possibility of successfully applying CCS  technology to existing conventional, pulverized coal-fired power plants— an important goal in its own right, since those plants account for almost all  of the coal-fired generating capacity in the United States and abroad.  However, there are already existing programs to address CCS at existing  plants, and the decision to remove the FutureGen program’s specific focus  on cutting edge technology (IGCC) at new plants was not well explained.
In at least two ways, DOE’s decision, which affected potentially up to $1.3  billion in federal funding, was not well considered. First, the decision was  made on the basis of a flawed comparison of life-cycle costs for the  original FutureGen, in that DOE compared an estimate of constant dollars  to an estimate of inflated dollars. Second, the decision was not based on a  systematic and comprehensive comparison of the costs, benefits, and risks  of the original FutureGen versus the restructured FutureGen. An  expanded analysis of the costs, benefits, and risks of the original  FutureGen compared with a range of modifications to the program could  have included incremental changes to the original FutureGen program that  could have preserved some of its original goals and benefits while  mitigating costs. Such an analysis might also have detailed the risk that  DOE would receive only a small number of applications and that those  applications might not include IGCC. The analysis could also have  considered whether DOE’s $1.3 billion contribution for total program  funding presents the best option for advancing the overall goals of CCS in  both existing and future plants.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that important decisions about the FutureGen program  reflect an adequate knowledge of the potential costs, benefits, and risks of  viable options, and to promote the attainment of the goals of the program  while protecting taxpayer interests, we are making the following two  recommendations to the Secretary of Energy:  1.  Before implementing significant changes to FutureGen or before  obligating additional funds for such purposes, the Secretary of Energy  should direct DOE staff to prepare a comprehensive analysis that  compares the relative costs, benefits, and risks of a range of options  that includes (1) the original FutureGen program, (2) incremental  changes to the original program, and (3) the restructured FutureGen  program.  2.  In addition, the Secretary should consider the results of the  comprehensive analysis and base any decisions that would alter the  original FutureGen on the most advantageous mix of costs, benefits,  and risks resulting from implementing a combination of the options  that have been evaluated.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of Energy for review  and comment. DOE did not comment on the recommendations and  conclusions of the report; however, it provided technical and clarifying  comments, most of which we have incorporated, as appropriate. For  example, we revised the report to reflect DOE’s comment that it had  reached its decision to restructure FutureGen, based on concerns about  increasing costs associated with constructing the original FutureGen  project and that it had attempted to negotiate a more favorable cost  sharing agreement with the Alliance. However, DOE added that it had  stopped those negotiations because it believed that the Alliance would not  be able to financially partner with DOE to complete the project. We also  revised the report to reflect information provided by DOE about the role  of IGCC in the original and restructured FutureGen efforts, the type of  knowledge likely to be disseminated by the original and restructured  FutureGen efforts, and budget and appropriation data for FutureGen,  beginning in fiscal year 2004. DOE’s comments are reprinted in appendix  III, along with our responses.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the Secretary  of Energy, the DOE Office of the Inspector General, and interested  congressional committees. This report also will be available at no charge  at GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-3841 or gaffiganm@gao.gov. Contact points for our Office  of Congressional Relations and our Office of Public Affairs may be found  on the last page of this report. GAO staff who made major contributions to  this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: We examined (1) the goals of the original and restructured FutureGen  programs, (2) the similarities and differences between the restructured  FutureGen and other Department of Energy (DOE) carbon capture and  storage programs, and (3) the extent to which DOE used sufficient  information to support its decision to restructure the FutureGen program.
To examine the goals of the original and restructured FutureGen  programs, including the results of the different approaches for meeting  these goals, we reviewed relevant appropriations and agency documents,  including budget justifications from fiscal years 2005 through 2009; the  program plan for FutureGen that DOE submitted to Congress in 2004; the  cooperative agreement between DOE and the FutureGen Industrial  Alliance (Alliance), and its subsequent renewals; DOE’s draft strategic  planning documents and funding announcement for the restructured  program; and public responses to DOE’s request for information about the  restructured FutureGen and its funding announcement. We also reviewed  congressional testimony about FutureGen and related topics by officials  from the Alliance; DOE, including the Secretary of Energy; and other  knowledgeable stakeholders, such as academic and industry researchers.  In addition, we met with and reviewed documents provided by officials  and researchers from DOE, the Alliance, industry, nonprofit research  organizations, and academia. In particular, we interviewed DOE officials  from the Office of Fossil Energy’s (FE) National Energy Technology  Laboratory (NETL) and Office of Clean Coal. Finally, we conducted semi- structured interviews with knowledgeable stakeholders from the electric  power and coal industries, nonprofit research organizations, and  academia, among others. During the interviews, we discussed the goals,  approaches, and anticipated results of the original and restructured  FutureGen programs. Our method for conducting these interviews,  including how we selected the knowledgeable stakeholders, appears in the  next paragraph.
We conducted semi-structured interviews with 14 knowledgeable  stakeholders from the electric power and coal industries, nonprofit  research organizations, and academia, among others. We selected a  nonprobability sample of stakeholders and stakeholder organizations  using a “snowball sampling” technique, whereby each stakeholder we  interviewed identified additional stakeholders and stakeholder  organizations for us to contact. Specifically, we identified the first three  stakeholders to interview from previous, related GAO work and a group of  contributors toward key scientific assessments of climate change and  clean coal technology.
Massachusetts Institute of Technology, The Future of Coal: Options for a Carbon- Constrained World (Cambridge, MA, 2007) and IPCC, IPCC Special Report on Carbon  Dioxide Capture and Storage (Montreal, Canada, Sept. 2005).
Plan; the program plan for FutureGen that DOE submitted to Congress in  2004; DOE’s draft strategic planning documents and funding  announcement for the restructured program; and relevant laws. We met  with and discussed these programs with officials from NETL and FE’s  Office of Clean Coal. We also conducted semi-structured interviews with  knowledgeable stakeholders from the electric power and coal industries,  nonprofit research organizations, and academia, among others. During  these interviews, we discussed the relationship between the restructured  FutureGen and DOE’s other CCS programs. Finally, we reviewed public  responses to DOE’s request for information about the restructured  FutureGen and DOE’s funding announcements for the restructured  FutureGen and Round III of the Clean Coal Power Initiative.
To examine the extent to which DOE used sufficient information to  support its decision to restructure the FutureGen program, we reviewed  documents from DOE and the Alliance, including cost estimates; the  cooperative agreement and subsequent updates to it; letters,  presentations, and proposals documenting the renegotiation of terms for  the cooperative agreement; proposed incremental changes for controlling  costs; and the draft strategic planning documents and funding  announcement for the restructured program. We also reviewed  congressional testimony about FutureGen and related topics by officials  from the Alliance; DOE, including the Secretary of Energy; and other  knowledgeable stakeholders, such as academic and industry researchers.  We met with and discussed the information used to support the decision  to restructure FutureGen with officials from NETL and FE’s Office of  Clean Coal. In addition, we discussed and reviewed analyses of the costs  for building coal-fired, electric power plants with officials and researchers  from industry, academia, and government, including DOE’s Energy  Information Administration. Moreover, we discussed these costs during  semi-structured interviews with knowledgeable stakeholders from the  electric power and coal industries, nonprofit research organizations, and  academia, among others. We also reviewed public responses to DOE’s  request for information about the restructured FutureGen and its funding  announcement. Finally, we reviewed our recent work and guidance on  best practices for cost estimation, program management, and  programmatic decision making, as well as guidance from DOE and the  Office of Management and Budget.
We conducted this performance audit from June 2008 to February 2009, in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Budget Authority and Obligations for FutureGen
section_title: Appendix III: Comments from the Department of Energy
paragraphs: The following are GAO’s comments on the Department of Energy’s letter  dated February 4, 2009.
subsections: section_title: GAO’s Comments
paragraphs: 1.  We modified our report to address DOE’s concerns about our  discussion of the 13 options for incremental changes. 2.  We modified our report to add clarifying information on Round III of  the Clean Coal Power Initiative.  3.  We added clarifying information about the timing of the site selection  announcement and the release of DOE’s NEPA Record of Decision. 4.  We revised the footnote to state that, according to DOE, not less than a  50 percent nonfederal cost share will be required for all of the  restructured FutureGen’s stages. 5.  We have revised the report to remove the referenced discussion.  6.  We made DOE’s editorial correction.  7.  The report does not state or imply that the location of the site was the  reason for the program’s restructuring, but rather states that DOE’s  restructuring decision was based on a desire to contain costs in a time  of increasing cost pressures. However, we revised the report to clarify  that the Alliance announced its site selection decision before DOE’s  Record of Decision was released—which has not happened, as of the  date of this report. 8.  DOE clarifies that under the restructured program, IGCC plants are  expected to have a nominal capacity of 300 megawatts, but non-IGCC  projects need only be at a scale sufficient to prove commercial viability  and be designed to produce and capture 1 million tons of CO per year.  We revised the report to reflect this information.  9.  As suggested by DOE, we revised table 2 to reflect that the original  FutureGen program focused exclusively on IGCC.  10. As indicated in our response to comment 5, we have revised the report  to remove the referenced text.  11. We made appropriate revisions to the report to reflect that Round III of  the Clean Coal Power Initiative focuses on carbon sequestration. 12. We revised table note “d” to table 3, to state that DOE’s cost sharing is  generally capped at 80 percent. 13. We revised the report to clarify that senior DOE officials directed FE  to negotiate new cost sharing arrangements under the cooperative  agreement with the Alliance. 14. We revised the report to use the word “continue” in place of “renew”  wherever it would more accurately reflect the various stages of the  cooperative agreement.  15. Our draft report did not insinuate or state that DOE did not favor the  Mattoon, Illinois, site or that DOE’s restructuring decision was based  on a disapproval of the Alliance’s site selection announcement. Rather,  our report states that DOE’s decision was based on a desire to limit its  exposure to increased costs. However, as suggested by DOE, we  clarified the report by adding that DOE had instructed the Alliance to  not announce the site selection before DOE could release the Record  of Decision. 16. We agree with DOE and revised the report to clarify that DOE lost  confidence in the ability of the Alliance to fund its share of the project  cost, rather than that DOE lost confidence in the Alliance members or  their representatives. 17. We revised the report to clarify that both DOE’s press release  announcing the restructured program and the updated draft strategic  document, dated July 1, 2008, that DOE provided Congress indicated  that the restructured program would include IGCC. 18. DOE provided information regarding the official basis for restructuring  the FutureGen program and its budget authority, obligations, and  expenditures that we incorporated into our report, including table 4  and its table notes. We also included in the report an additional  assessment of documents, to which DOE referred as providing the  basis for its decision to restructure FutureGen.  19. Regarding the tables in appendix II of the draft report, DOE provided  updated FutureGen appropriations information for fiscal years 2004  and 2007 and certain calculations for the fiscal year 2006 FutureGen  budget. In response, we merged tables 4 and 5 from the draft to create  one table in the final report, and we adjusted the figures and  calculations for the data that DOE provided.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Ernie Hazera (Assistant Director),  Nancy Crothers, Cindy Gilbert, Chad M. Gorman, Angela Miles, Karen  Richey, Michael Sagalow, and Jeanette M. Soares made key contributions  to this report. Harold Brumm, Jr., and Timothy Persons also made  important contributions.