Economic and Other Implications of Switching from Coal to Natural
Gas at the Capitol Power Plant and at Electricity-Generating	 
Units Nationwide (01-MAY-08, GAO-08-601R).			 
                                                                 
Elevated concentrations of greenhouse gases--carbon dioxide,	 
methane, nitrous oxide, and several synthetic chemicals--in the  
atmosphere resulting from the combustion of fossil fuels and	 
other sources have the potential to cause significant changes in 
the earth's climate. These potential impacts include shifts in	 
sea level and weather patterns and could pose threats to coastal 
and other infrastructure. Concerns about the potential impacts of
climate change have led the Congress to consider legislation that
would place binding, nationwide limits on greenhouse gas	 
emissions, and the House of Representatives' leadership has	 
initiated efforts to decrease emissions attributable to its	 
operations. Nearly all of the greenhouse gas emissions from House
operations consist of carbon dioxide and are associated with	 
electricity purchased from utilities and the combustion of fossil
fuels in the Capitol Power Plant (CPP), which provides steam and 
chilled water for heating and cooling the Capitol building and 23
surrounding facilities. The Architect of the Capitol (AOC)	 
operates CPP. In June 2007, the Chief Administrative Officer	 
(CAO) of the House of Representatives released the Green the	 
Capitol initiative (the initiative) at the direction of the	 
Speaker and the Majority Leader. Among other goals, the 	 
initiative calls for the House of Representatives to operate in a
carbon-neutral manner by the end of the 110th Congress (December 
2008). Based on an AOC estimate, the House's share of the cost of
achieving the fuel-switching goal would total $2.75 million in	 
fiscal year 2008. The Omnibus Appropriations Act for that year	 
appropriated $85.3 million for CPP. The House Appropriations	 
Committee Explanatory Statement directs $3.27 million of this	 
amount to the Green the Capitol initiative. In addition to the	 
House's efforts to implement the Green the Capitol initiative,	 
the Congress is considering proposals that would create 	 
nationwide limits on greenhouse gas emissions from		 
electricity-generating units and other sectors of the economy.	 
Within this context, the House Committee on Appropriations	 
directed GAO to determine, in consultation with the Department of
Energy, (1) the expected increase in natural gas use for House	 
operations and the associated costs at CPP that would result from
the Green the Capitol initiative, and (2) the ability of existing
U.S. coal-burning, electricity-generating units to switch to	 
burning natural gas and the associated economic implications.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-601R					        
    ACCNO:   A81946						        
  TITLE:     Economic and Other Implications of Switching from Coal to
Natural Gas at the Capitol Power Plant and at			 
Electricity-Generating Units Nationwide 			 
     DATE:   05/01/2008 
  SUBJECT:   Natural gas					 
	     Coal						 
	     Energy costs					 
	     Fuel prices					 
	     Fuels						 
	     Energy consumption 				 
	     Cost analysis					 
	     Natural gas prices 				 
	     Fuel supplies					 
	     Electricity restructuring				 
	     Electric power generation				 
	     Energy conservation				 
	     Energy management					 
	     Energy planning					 
	     Energy supplies					 
	     Greenhouse gases					 
	     Coal prices					 
	     Industrial facilities				 
	     Carbon dioxide					 
	     Capitol Power Plant (DC)				 
	     Green the Capitol Initiative			 

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GAO-08-601R

   

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GAO-08-601R: 

May 1, 2008: 

The Honorable Mary L. Landrieu:
Chair:
The Honorable Lamar Alexander:
Ranking Member:
Subcommittee on Legislative Branch:
Committee on Appropriations:
United States Senate: 

The Honorable Debbie Wasserman Schultz:
Chair:
The Honorable Tom Latham:
Ranking Member:
Subcommittee on Legislative Branch:
Committee on Appropriations:
House of Representatives: 

Subject: Economic and Other Implications of Switching from Coal to 
Natural Gas at the Capitol Power Plant and at Electricity-Generating 
Units Nationwide: 

Elevated concentrations of greenhouse gases--carbon dioxide, methane, 
nitrous oxide, and several synthetic chemicals--in the atmosphere 
resulting from the combustion of fossil fuels and other sources have 
the potential to cause significant changes in the earth's climate. 
These potential impacts include shifts in sea level and weather 
patterns and could pose threats to coastal and other infrastructure. 
Concerns about the potential impacts of climate change have led the 
Congress to consider legislation that would place binding, nationwide 
limits on greenhouse gas emissions, and the House of Representatives' 
leadership has initiated efforts to decrease emissions attributable to 
its operations. Nearly all of the greenhouse gas emissions from House 
operations consist of carbon dioxide and are associated with 
electricity purchased from utilities and the combustion of fossil fuels 
in the Capitol Power Plant (CPP), which provides steam and chilled 
water for heating and cooling the Capitol building and 23 surrounding 
facilities. The Architect of the Capitol (AOC) operates CPP. 

In June 2007, the Chief Administrative Officer (CAO) of the House of 
Representatives released the Green the Capitol initiative (the 
initiative) at the direction of the Speaker and the Majority Leader. 
[Footnote 1] Among other goals, the initiative calls for the House of 
Representatives to operate in a carbon-neutral manner by the end of the 
110th Congress (December 2008). Carbon-neutral, as defined in the 
initiative, means that operations produce no net contribution to 
greenhouse gas emissions. The initiative outlines several strategies to 
achieve the goal of carbon neutrality, including operating CPP with 
natural gas instead of coal to meet the needs of the House. (Natural 
gas generates about half as much carbon dioxide as coal when burned but 
costs about four times more for a comparable amount of energy 
input.)[Footnote 2] Based on an AOC estimate, the House's share of the 
cost of achieving the fuel-switching goal would total $2.75 million in 
fiscal year 2008. The Omnibus Appropriations Act for that year 
appropriated $85.3 million for CPP. The House Appropriations Committee 
Explanatory Statement directs $3.27 million of this amount to the Green 
the Capitol initiative.[Footnote 3] 

CPP produces steam using a combination of seven boilers--two boilers 
that primarily burn coal, but could also burn natural gas, and five 
boilers that burn fuel oil or natural gas. These boilers burn fuel to 
convert water to steam that, in turn, provides energy primarily for 
space heating but they do not generate electricity.[Footnote 4] The 
total capacity of these boilers is over 40 percent higher than the 
maximum capacity required at any given time, and the plant has the 
flexibility to switch among the three different fuels or burn a 
combination of fuels. The percentage of energy input from each fuel has 
varied from year to year, with an average fuel mix of 43 percent 
natural gas, 47 percent coal, and 10 percent fuel oil between 2001 and 
2007. The overall amount of steam required depends on numerous factors, 
including weather, the adoption of voluntary and federally mandated 
energy-efficiency and conservation measures, and the addition of new 
buildings (such as the Capitol Visitor Center, scheduled to open in 
late 2008). 

In addition to the House's efforts to implement the Green the Capitol 
initiative, the Congress is considering proposals that would create 
nationwide limits on greenhouse gas emissions from electricity- 
generating units and other sectors of the economy. Many of these 
proposals would involve the use of mechanisms that create an economic 
incentive for emitters to decrease their emissions by limiting the 
overall allowable quantity of emissions or by placing a direct price on 
each unit of emissions. Because the combustion of fossil fuels results 
in greenhouse gas emissions, efforts to limit emissions could lead to 
overall shifts in the prices and demand for different types of fuels. 
For example, the Department of Energy has projected that limits on 
greenhouse gases would shift the nation's demand for fossil fuels by 
decreasing the demand for coal and increasing the demand for natural 
gas. In 2006, production of electricity from coal totaled 49 percent of 
the nation's net generation, followed by 20 percent from natural gas, 
19 percent from nuclear power, and 7 percent from hydroelectric power, 
with lesser quantities produced from other renewable sources, 
petroleum, and other fuels. These percentages have remained relatively 
stable in recent years with a slight increase in natural gas generation 
and a slight decrease in generation from coal. In principle, all coal 
units could be physically switched from coal to natural gas with 
varying degrees of modification. It would also be possible to build new 
gas-fired power plants to replace coal-fired power plants. These 
modifications or replacements would require different amounts of 
investment in the power plants themselves, as well as related 
infrastructure. Legislative proposals that would impose limits on 
greenhouse gas emissions from the electricity sector raise important 
questions about the potential supply and demand for different fuels 
under different scenarios, as well as about the ability of existing 
generating units to switch from burning high-emitting fuels, such as 
coal, to lower-emitting fuels, such as natural gas. Moreover, such 
proposals prompt questions about the overall economic benefits and 
costs that would accrue. 

Within this context, the House Committee on Appropriations directed us 
to determine, in consultation with the Department of Energy, (1) the 
expected increase in natural gas use for House operations and the 
associated costs at CPP that would result from the Green the Capitol 
initiative, and (2) the ability of existing U.S. coal-burning, 
electricity-generating units to switch to burning natural gas and the 
associated economic implications. 

To respond to the first objective, we first reviewed two studies 
prepared for the House CAO. One study was an analysis prepared by AOC 
that served as the basis for the fuel-switching funding estimate in the 
Green the Capitol initiative presented by CAO to the House leadership. 
The other study was a subsequent analysis prepared by the Department of 
Energy's Lawrence Berkeley National Laboratory (LBNL). We then 
determined the average annual quantity of each fuel (measured in 
British thermal units or Btu) consumed by the plant between 2001 and 
2007. Next, we calculated the proportion of the plant's steam output 
consumed by buildings operated by the House of Representatives, which 
we estimated was 29 percent based on the total square footage of 
buildings served by the plant. We assumed that the fuel-switching 
approach outlined in the initiative required that this proportion of 
the plant's output be derived entirely from natural gas. The remaining 
71 percent would continue to reflect the plant's historical average of 
43 percent natural gas, 47 percent coal, and 10 percent fuel oil. We 
did not assume a change in the quantity of fuel oil that would be 
burned by the plant because of technical considerations at the plant 
that require the use of fuel oil as a back-up fuel. We then calculated 
the incremental cost of achieving an adjusted fuel mix. We made this 
calculation assuming that, beginning in 2008, the demand for the 
plant's output would decrease by 1 percent annually from the 2001 
through 2007 baseline due to energy efficiency legislation and 
additions to the Capitol complex. We then estimated future CPP cost per 
unit of fuel for the period from 2008 through 2012 using historical 
data on AOC's fuel expenditures and projections of fuel prices for the 
industrial sector from the Annual Energy Outlook of the Energy 
Information Administration (EIA) within the Department of Energy. We 
adjusted EIA's projected fuel prices to account for historical 
differences in the average prices paid by industrial users of these 
fuels and the prices paid by AOC. All of our cost estimates are in 
constant 2006 dollars. In preparing our estimates, we consulted with 
AOC staff, officials representing the House CAO, and the Department of 
Energy (including LBNL and EIA). We also reviewed relevant studies 
prepared by these agencies. 

To respond to the second objective, we analyzed available data from the 
Department of Energy and other sources. We also obtained information 
from key stakeholders identified in discussions with the department 
that represent the electricity generation, natural gas, and coal 
industries using written interview questions. Enclosure I provides a 
more detailed description of our scope and methodology. We conducted 
our audit work between October 2007 and April 2008 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. 

Summary: 

According to our analysis, implementing the Green the Capitol 
initiative's fuel-switching directive to decrease carbon dioxide 
emissions from the CPP should lead to a 38 percent increase in natural 
gas use over the average annual quantity consumed between 2001 and 
2007. We estimated that the fuel switching should cost about $1.4 
million in fiscal year 2008 and could range from between $1.0 and $1.8 
million depending on actual fuel costs, among other factors. Our cost 
estimates are less than the $2.75 million AOC budgeted for this purpose 
in fiscal year 2008, largely because we employed a different 
methodology than AOC when it prepared its estimates and maintained 
certain assumptions that AOC did not. Specifically, AOC based its 
estimates on a scenario in which the plant would eliminate its use of 
coal altogether and burn natural gas exclusively, for a total cost of 
$7.78 million. Of this total cost, AOC estimated that $2.75 million 
represented the portion that could be applied to the House, based on 
the number of square feet of building space served by the plant. In its 
estimate, AOC also did not account for the fact that the Ford House 
Office Building obtains steam from the General Services Administration 
rather than from CPP. As a result, AOC's plans to fulfill the Green the 
Capitol initiative involve increasing natural gas use by 48 percent, an 
increase that far exceeds the initiative's fuel-switching 
recommendation. In contrast, our analysis focused on estimating the 
incremental cost of adjusting the plant's fuel mix such that the 
portion of its output that serves buildings operated by the House 
(about 29 percent on a square footage basis) would consist entirely of 
natural gas. This equates to increasing the level of natural gas from 
43 percent to 60 percent of the historical fuel mix, a net difference 
of 17 percentage points and a 38 percent increase in overall natural 
gas consumption. Importantly, the plant's existing natural gas boilers 
have the capacity to accommodate this increase in natural gas use and 
CPP would not have to eliminate its use of coal altogether. Looking 
ahead, we estimate that the incremental cost of maintaining the 
adjusted fuel mix will range between $4.7 million and $8.3 million over 
the 2008 through 2012 time period, depending on fuel prices, the 
plant's output, and other factors. However, an important uncertainty 
with our estimates stems from the fact that AOC does not have complete, 
reliable information on the efficiency of its seven boilers in 
converting fuel into steam or on the full costs associated with the use 
of each fuel, taking into account factors such as fuel transportation 
and handling, and fuel-specific pollution control devices. As a result, 
AOC does not have all the information it needs to make fully informed 
decisions about operating the plant as efficiently or cost-effectively 
as possible. While the increased use of natural gas and decreased use 
of coal will increase costs above a business-as-usual baseline 
scenario, the initiative would likely generate other important 
benefits. These benefits include decreased emissions of carbon dioxide 
and pollutants that cause smog and acid rain, as well as potential 
reductions in the plant's operating costs associated with the 
transportation, storage, handling, and treatment of coal and related 
waste streams. 

With regard to the ability of U.S. coal-burning, electricity-generating 
units to switch to natural gas, according to available data and key 
stakeholders, the ability of these units to switch is limited by high 
natural gas prices, supply constraints, and existing infrastructure. In 
addition, increasing the nation's use of natural gas for electricity 
generation could result in adverse economic consequences. Natural gas 
currently costs about four times more than coal per British thermal 
unit and has shown a relatively higher rate of price increases and 
volatility over time relative to coal, according to EIA. In addition to 
higher fuel costs, supply constraints limit the practicality of 
replacing electricity generated from coal with natural gas. The United 
States has limited capability to meet the growing demand for natural 
gas with domestic production and would need to become increasingly 
dependent on international supplies of natural gas if there was 
widespread switching to natural gas from coal. Even taking imported 
natural gas into account, key stakeholders doubted whether natural gas 
supply could meet the demand if plant operators decided to pursue fuel 
switching. Fuel switching to natural gas also poses challenges related 
to existing infrastructure, including limited pipeline and storage 
capacity and technical and regulatory barriers to the conversion of 
existing coal plants. Large-scale fuel switching would require 
substantial investments in pipeline and storage capacity and new 
terminals to process imported natural gas--all of which would require 
regulatory approval. With respect to the conversion of existing coal- 
burning plants, stakeholders said that it would be more feasible and 
cost-effective to construct new natural gas units or dispatch excess 
capacity at existing natural gas units than to convert a coal plant 
because of technical and economic factors, among other reasons. For 
example, retrofitting an existing coal unit to burn natural gas would 
require significant capital expenditures, while also potentially 
decreasing the unit's overall efficiency in converting fuel input into 
electricity. Because of these technical and other issues, large-scale 
shifting demand for electricity production from coal to natural gas 
would increase electricity prices, residential and commercial heating 
costs, and fuel costs for certain industries that consume large 
quantities of natural gas, including chemical and fertilizer 
manufacturers. Because of these and other concerns, key stakeholders 
said that switching coal plants to natural gas has occurred 
infrequently in the past and is not likely to occur in the future. 

We are recommending that, before adjusting the Capitol Power Plant's 
fuel mix beyond the level directed by the Green the Capitol initiative, 
the Acting Architect of the Capitol consult with AOC's oversight 
committees in the Congress and evaluate the economic and environmental 
tradeoffs associated with the use of each fuel at the plant, taking 
into account the efficiency of the plant's boilers, related fuel supply 
systems, and pollution control equipment. 

We provided a draft copy of this report to the Acting Architect of the 
Capitol for review and comment. AOC provided comments via electronic 
mail. AOC officials said that they agreed with our cost estimate under 
the high fuel price scenario but expressed concerns about the potential 
level of resources that would be required to respond to our 
recommendation. We subsequently met with AOC officials who said that 
they were concerned that implementing our recommendation would require 
them to collect exact information on the efficiency of its boilers and 
fuel supply systems. Based on this discussion, we adjusted the wording 
of the recommendation to clarify that this was not our intent. AOC also 
provided a number of technical clarifications regarding the plant's 
operation and their cost estimates for fuel switching, which we 
incorporated into our report as appropriate. 

Fuel Switching at the Capitol Power Plant Is Expected to Require a 38 
Percent Increase in Natural Gas Use at a Cost of about $1.4 Million in 
Fiscal Year 2008: 

Based on available data and key assumptions about the plant's operation 
and future fuel costs, we estimated that fulfilling the Green the 
Capitol initiative's fuel-switching directive would require the plant 
to increase its natural gas use by 38 percent relative to its baseline 
level of fuel consumption between 2001 and 2007. As a portion of the 
plant's total fuel mix, natural gas would increase from about 43 
percent of overall energy input to about 60 percent of input. Using 
information from the AOC on its fuel expenditures and fuel price 
projections from EIA, we estimate that implementing the fuel-switching 
directive could range in cost from $1.0 to $1.8 million in fiscal year 
2008. 

Because our calculations involve projections and assumptions about key 
variables, the estimates are inherently uncertain and actual 
expenditures may vary depending on changes to these variables. Key 
variables and assumptions underlying our estimates include the 
following: 

* Baseline fuel consumption and steam production. We estimated the 
quantity of additional natural gas required to fulfill the initiative's 
fuel-switching goal for the year 2008. We assumed that the fuel- 
switching approach outlined in the initiative required that 29 percent 
of the plant's output be derived entirely from natural gas. The 29 
percent figure is based on an estimate of the House's share of the 
total square footage of buildings served by the plant. The remaining 71 
percent would continue to reflect the average fuel mix over the 2001 to 
2007 time period.[Footnote 5] Using an average, as opposed to a single 
year's level of production, provides a more realistic picture of the 
plant's historical operation. We held the amount of fuel oil constant 
because of technical considerations at the plant that require using oil 
as a backup fuel. 

* Boiler efficiency. We assumed that each of the seven boilers at the 
power plant converts fuel into steam with equal efficiency. We made 
this assumption based on research conducted by an independent 
consultant to GAO, a previous analysis conducted by Ross Associates (a 
consultant to AOC), and discussions with AOC staff. Overall, we found 
that AOC does not have complete, reliable information on the efficiency 
of its seven boilers in converting fuel into steam or on the full costs 
associated with the use of each fuel, taking into account factors such 
as transportation, handling, and pollution control. As a result, AOC 
does not have all the information it needs to make fully informed 
decisions about operating the plant as efficiently or cost-effectively 
as possible. While the available data suggests that our assumption is 
reasonable, the lack of complete, reliable data on efficiency of each 
of the boilers and related fuel supply equipment represents an 
important uncertainty with our analysis. 

* Fuel costs. To estimate the cost of each fuel in fiscal year 2008, we 
used fuel price projections from EIA' s Annual Energy Outlook 2008, 
which we then adjusted to account for historical differences in the 
prices paid by AOC versus the average price paid by industrial 
consumers.[Footnote 6] 

Figure 1: Projected Change in CPP Fuel Use: 

[See PFG for image] 

This figure contains two pie-charts depicting the following 
information: 

Projected Change in CPP Fuel Use: Before fuel switch: 
Coal: 47%; 
Natural gas: 43%; 
Fuel oil: 10%. 

Projected Change in CPP Fuel Use: After fuel switch: 
Coal: 31%; 
Natural gas: 60%; 
Fuel oil: 10%. 

Note: Due to rounding, percentages do not add up to 100 percent in both 
charts. 

Source: EIA. 

{End of figure] 

Our Estimates Are Substantially Lower than Previous Estimates and the 
Level of Funding AOC Budgeted for Fuel Switching at the Plant: 

Our estimated costs of increasing natural gas use at CPP to meet the 
initiative's fuel-switching directive fall well below a previous 
estimate prepared by AOC. Specifically, AOC estimated that the cost in 
fiscal year 2008 would total about $2.75 million. In fiscal year 2009, 
AOC is requesting a much lower amount--1.22 million--to complete the 
fuel switch. In its own analysis, LBNL estimated the total cost for 
fiscal year 2008 at about $1.88 million. 

The discrepancy between our estimates and those developed by AOC and 
LBNL stems from variations in the methodologies each party employed. 
Specifically, AOC's analysis involved a scenario in which the plant 
would burn only natural gas and eliminate the use of coal and fuel oil 
altogether. This analysis estimated that switching the entire plant to 
natural gas would cost a total of about $7.8 million in fiscal year 
2008. Based on this analysis, AOC then estimated that the cost of fuel 
switching under the initiative would equal approximately 35 percent of 
the total cost of switching the entire plant. The 35 percent figure was 
based on the assumption that the House consumed that proportion of the 
plant's total output, based on the number of square feet of building 
space served by the plant. This yielded an estimate of $2.75 million to 
switch fuels in fiscal year 2008. To fulfill the initiative's fuel 
switching directive, AOC officials said that they planned to increase 
natural gas use from 42 percent of fuel use to 62 percent. According to 
our analysis, this would increase natural gas use beyond the 
initiative's goals. 

The analysis conducted by LBNL estimated the total cost at $1.88 
million in 2008, a substantially lower figure than the previous 
estimate developed by AOC. Key differences between our methodology and 
the methodologies employed by AOC and LBNL follow: 

* We based our cost estimates on EIA fuel price projections for fiscal 
year 2008 and used AOC historical cost data from 2001 through 2007 to 
estimate the actual cost of the fuel after delivery. In contrast, AOC's 
analysis used an average of their natural gas costs from 2005 through 
2007, which may have inflated the cost estimates, since there were some 
very high natural gas price spikes during these years. LBNL used 
natural gas prices from fiscal year 2007. 

* We assumed that House buildings use approximately 29 percent of the 
steam generated by the plant, based on data from AOC's 2006 Annual 
Report to Congress. We excluded the Ford House Office building from our 
analysis because it obtains steam from General Services Administration 
rather than from the plant. In contrast, AOC and LBNL included the Ford 
Building, which resulted in estimates of 31 percent and 35 percent, 
respectively. 

Estimated Annual Fuel-Switching Costs Are Expected to Range from $1.2 
to $1.4 Million between 2008 and 2012: 

In addition to estimating the costs for fiscal year 2008, we projected 
the costs of maintaining the adjusted fuel mix over the 2008 through 
2012 time period. Specifically, we estimated that CPP would spend 
roughly $1.2 to $1.4 million per year over the next 5 years. This 
amount could run as high as $1.8 million in fiscal year 2009 or as low 
as $823,000 in 2012, depending on fuel prices. Table 1 summarizes the 
potential future costs of maintaining an adjusted fuel mix at CPP and, 
because of uncertainties about fuel price projections, includes low and 
high fuel price scenarios. 

Table 1: Projected Cost of Maintaining Adjusted Fuel Mix, 2008 through 
2012: 

Fiscal year: 2008; 
Low fuel price scenario: $1,002,632; 
Baseline scenario: $1,385,488; 
High fuel price scenario: $1,768,343. 

Fiscal year: 2009; 
Low fuel price scenario: $1,045,606; 
Baseline scenario: $1,435,660; 
High fuel price scenario: $1,825,714. 

Fiscal year: 2010; 
Low fuel price scenario: $952,500; 
Baseline scenario: $1,316,872; 
High fuel price scenario: $1,681,244. 

Fiscal year: 2011; 
Low fuel price scenario: $868,061; 
Baseline scenario: $1,210,391; 
High fuel price scenario: $1,552,721. 

Fiscal year: 2012; 
Low fuel price scenario: $823,029; 
Baseline scenario: $1,151,236; 
High fuel price scenario: $1,479,443. 

Fiscal year: Totals; 
Low fuel price scenario: $4,691,828; 
Baseline scenario: $6,499,647; 
High fuel price scenario: $8,307,465. 

[End of table] 

Similar to our fiscal year 2008 estimate, these projections rely on a 
number of assumptions which, if changed, would substantially affect the 
overall cost. In addition to the assumptions cited above, the following 
factors and assumptions could affect the accuracy of our estimates: 

* Fuel demand. We estimated that the demand for the plant's steam would 
decline by 1 percent annually relative to a baseline level of demand 
equal to that we derived by averaging the annual demand for fiscal 
years 2001 through 2007. We based the 1 percent annual decline in 
demand on two important and partially offsetting considerations:
- Additions to the Capitol Complex, including the Capitol Visitor 
Center, are expected to increase the plant's steam demand by 1 percent 
each year through 2025.
- The Energy Policy Act of 2005 requires a 2 percent reduction in 
energy use per year for federal buildings. Because over a quarter of 
House energy use is for heating, the act's implementation may 
significantly reduce steam demand over time. 

* Fuel costs. We used fuel price projections for the U.S. industrial 
sector from EIA for the years 2008 through 2012 and adjusted them to 
reflect our estimate of the historical difference between these prices 
and the AOC per-unit cost of each fuel. Because of the uncertainty of 
fuel price projections, we constructed a low-price scenario and a high- 
price scenario for the years 2008 through 2012 based on measures of 
variability in the historical prices of these fuels. 

Of these variables and assumptions, those associated with future fuel 
prices pose the greatest uncertainty. As we have previously reported, 
prices may depend on a variety of factors, such as supply, demand, 
available infrastructure, market conditions, and severe weather 
events.[Footnote 7] Since 1999, market conditions generally have 
fostered an upward trend in natural gas prices that, according to EIA, 
will continue until 2009. Starting in 2010, EIA expects natural gas 
prices to decline until approximately 2016. 

Other important considerations can affect demand for the plant's 
services, including planned or future investments in energy efficiency, 
weather, and changes in energy or environmental legislation. Because of 
the uncertain and potentially offsetting effects of these factors on 
demand for the plant's services, we did not address them in our 
estimates. 

Fuel Switching Would Reduce Carbon Dioxide Emissions at an Average Cost 
of about $139 per Ton; Other Benefits May Also Accrue: 

Based on our cost projections for fiscal year 2008, we estimate that 
the fuel switch would yield carbon dioxide reductions of about 9,970 
metric tons[Footnote 8] per year at an average cost of $139 per ton. 

We developed this estimate using our $1.4 million cost estimate as a 
base price and applying EIA's carbon dioxide conversion factors for 
coal and natural gas. (The world's largest carbon market, the European 
Union's Emissions Trading Scheme, currently prices a metric ton of 
carbon at approximately $37.) Additional information on the cost- 
effectiveness of the fuel-switching strategy relative to other carbon 
dioxide abatement options would help inform future decision making on 
fuel switching and related investments intended to decrease emissions. 
In April 2007, we recommended that legislative branch agencies 
establish a schedule for conducting energy audits and implement 
selected projects as part of a plan to reduce emissions.[Footnote 9] 
Such audits have the potential to identify projects that compare 
favorably to fuel switching. 

In addition to reducing carbon dioxide emissions, decreasing the 
plant's reliance on coal may yield other environmental and health 
benefits. While coal currently costs less than natural gas, coal's 
combustion generally produces more carbon dioxide and air pollutants 
compared to natural gas. These pollutants, in turn, pose a variety of 
adverse health effects. For example, nitrogen oxides may exacerbate 
existing conditions such as asthma, and particulate matter has been 
linked to heart attacks and chronic bronchitis. Furthermore, acid rain 
may occur when the sulfur dioxide produced in the combustion of coal at 
the plant reacts with other chemicals in the atmosphere to form 
sulfuric acid. Burning less coal may also help Washington, D.C., and 
neighboring jurisdictions in their efforts to achieve compliance with 
federal air quality standards. Currently, the city is noncompliant for 
ground-level ozone and fine particulate matter. Finally, fuel switching 
has the potential to reduce costs associated with the transportation, 
storage, and handling of coal and related waste streams. In addition, 
coal storage, handling, and related air pollution abatement require the 
use of electricity, a major source of carbon dioxide, nitrogen oxide, 
and mercury. As a result, increasing the plant's reliance on natural 
gas may also yield reductions in such emissions from the power plant 
and the electricity generating units that provide the plant with 
electricity. 

The Ability of U.S. Electricity-Generating Units to Switch from Coal to 
Natural Gas Is Limited, and Fuel Switching Could Cause Adverse Economic 
Consequences: 

Relatively High Natural Gas Prices Limit the Potential for Fuel 
Switching from Coal: 

According to industry stakeholders, switching from coal to natural gas 
for electricity generation is generally not economically feasible due 
to the relatively high price of natural gas compared to coal, as 
illustrated in figure 2. 

Figure 2: Average Cost of Fuels for the Electric Power Industry, 1995 
through 2006: 

[See PDF for image] 

This figure is a multiple line graph depicting the following data: 

Average Cost of Fuels for the Electric Power Industry, 1995 through 
2006: 

Year: 1995; 
Cents per million Btu, Coal: 132; 
Cents per million Btu, Natural gas: 198; 
Cents per million Btu, All fossil fuels: 145. 

Year: 1996; 
Cents per million Btu, Coal: 129; 
Cents per million Btu, Natural gas: 264; 
Cents per million Btu, All fossil fuels: 152. 

Year: 1997; 
Cents per million Btu, Coal: 127; 
Cents per million Btu, Natural gas: 276; 
Cents per million Btu, All fossil fuels: 152. 

Year: 1998; 
Cents per million Btu, Coal: 125; 
Cents per million Btu, Natural gas: 238; 
Cents per million Btu, All fossil fuels: 144. 

Year: 1999; 
Cents per million Btu, Coal: 122; 
Cents per million Btu, Natural gas: 257; 
Cents per million Btu, All fossil fuels: 144. 

Year: 2000; 
Cents per million Btu, Coal: 120; 
Cents per million Btu, Natural gas: 430; 
Cents per million Btu, All fossil fuels: 174. 

Year: 2001; 
Cents per million Btu, Coal: 123; 
Cents per million Btu, Natural gas: 449; 
Cents per million Btu, All fossil fuels: 173. 

Year: 2002; 
Cents per million Btu, Coal: 125; 
Cents per million Btu, Natural gas: 356; 
Cents per million Btu, All fossil fuels: 152. 

Year: 2003; 
Cents per million Btu, Coal: 128; 
Cents per million Btu, Natural gas: 539; 
Cents per million Btu, All fossil fuels: 228. 

Year: 2004; 
Cents per million Btu, Coal: 136; 
Cents per million Btu, Natural gas: 596; 
Cents per million Btu, All fossil fuels: 248. 

Year: 2005; 
Cents per million Btu, Coal: 154; 
Cents per million Btu, Natural gas: 821; 
Cents per million Btu, All fossil fuels: 325. 

Year: 2006; 
Cents per million Btu, Coal: 169; 
Cents per million Btu, Natural gas: 694; 
Cents per million Btu, All fossil fuels: 302. 

Note: Average cost is not adjusted for inflation. 

Source: GAO analysis of EIA's data. 

[End of figure] 

Currently, natural gas costs about four times more than coal per 
British thermal unit. Due to its higher cost, substituting natural gas 
for coal would increase operating costs for electricity-generating 
units. Natural gas fuels about 20 percent of electricity production in 
the United States and, according to one stakeholder, accounts for 55 
percent of the electric utility industry's entire fuel expense ($50 
billion out of $91 billion). In addition, natural gas has shown a 
higher rate of price increases over time relative to coal, according to 
EIA, and as illustrated in figure 3, natural gas prices have been 
volatile in recent years. The market for natural gas has been 
susceptible to extreme price swings when unexpected changes occur in 
the market, such as weather-related spikes in demand or supply 
constraints caused by hurricane damage. 

Figure 3: Natural Gas and Coal Costs at U.S. Electric-Generating 
Plants, 2001 through 2007: 

[See PDF for image] 

This figure is a multiple line graph depicting the following data: 

Natural Gas and Coal Costs at U.S. Electric-Generating Plants, 2001 
through 2007: 

Date: January 2001; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.223; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 9.207. 

Date: April 2001; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.239; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.637. 

Date: July 2001; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.225; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 3.743. 

Date: October 2001: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.21; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 2.715. 

Date: January 2002: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.26; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 3. 

Date: April 2002: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.25; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 3.64. 

Date: July 2002: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.25; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 3.41. 

Date: October 2002: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.25; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 4.04. 

Date: January 2003: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.26; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.15. 

Date: April 2003: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.29; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.22. 

Date: July 2003: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.28; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.3. 

Date: October 2003: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.28; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 4.81. 

Date: January 2004; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.29; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.17. 

Date: April 2004; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.34; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.57. 

Date: July 2004; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.37; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.08. 

Date: October 2004; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.41; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.84. 

Date: January 2005; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.46; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.5. 

Date: April 2005: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.54; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 7.11. 

Date: July 2005: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.52; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 7.34. 

Date: October 2005: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.58; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 11.55. 

Date: January 2006; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.67; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 9.11. 

Date: April 2006; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.71; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 7.13. 

Date: July 2006; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.68; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.48. 

Date: October 2006; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.7; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 5.51. 

Date: January 2007; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.75; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.78. 

Date: April 2007: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.78; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 7.54. 

Date: July 2007: 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.77; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.85. 

Date: October 2007; 
Cost of coal receipts at electric-generating plants, Dollars per 
million Btu: 1.78; 
Cost of natural gas receipts at electric-generating plants, Dollars per 
million Btu: 6.82. 

Source: GAO analysis of EIA's data. 

[End of figure] 

Constrained Natural Gas Supply Limits Fuel Switching from Coal: 

In addition to the relatively high price of natural gas, the ability of 
coal-fired, electricity-generating units to switch fuels is constrained 
by the available supply of natural gas. According to industry 
stakeholders, the United States already faces serious supply problems 
without a potential increase in demand due to fuel switching. According 
to industry stakeholders and available EIA data, U.S. natural gas 
production peaked in 1973, and the average productivity of natural gas 
wells in the United States has declined for the past 35 years due to 
diminishing output of older wells and lower yields and higher depletion 
rates from more recent discoveries. EIA projects that natural gas 
production will not increase in the lower 48 U.S. states over the next 
20 years. According to industry stakeholders, the United States has 
already found and used its easily recoverable natural gas and finding 
new gas requires drilling deeper and in more inaccessible locations, 
raising production costs. One stakeholder said that it is increasingly 
difficult to keep output constant because about one-third of U.S. 
natural gas production has to be replaced every year. Thus, the United 
States has limited capability to meet growing demand for natural gas 
with domestic production. 

Consequently, widespread fuel switching at electricity-generating units 
would increase demand for natural gas beyond the capabilities of 
existing and projected supply. Stakeholders noted that the United 
States would require nearly twice as much natural gas supply by 2030, 
as currently projected by EIA, if the United States were to replace all 
coal-fired plants with natural gas. According to one stakeholder, 
replacing even one-half of coal-fired generation after 2015 with 
natural gas would lead to an overwhelming demand. Industry stakeholders 
said it is not possible to increase supplies by this magnitude, 
especially in light of a trend toward increased global demand and 
consumption. 

Because of limited domestic supplies, meeting additional demand would 
require imports from Canada, pipelines from Alaska, or liquefied 
natural gas (LNG) from overseas suppliers.[Footnote 10] According to 
one stakeholder, imports, primarily from Canada, have steadily grown to 
comprise about 10 to 15 percent of U.S. supply. However, Canadian 
exports are declining as a result of decreased drilling and increased 
domestic demand. EIA identifies this as a significant problem facing 
the U.S. natural gas market, according to one stakeholder. In addition, 
prospects for an Alaskan pipeline and other pipelines are unclear, 
creating further supply concerns for the U.S. market. 

With widespread fuel switching, the United States would be more 
dependent on imported LNG, according to industry stakeholders. The 
EIA's Annual Energy Outlook 2007 projected major increases in LNG 
imports into the United States. According to one stakeholder, all of 
the natural gas required by large-scale fuel switching with LNG by 2015 
would require more than 50 percent of the global supply. Another 
stakeholder estimated that LNG supplies would be insufficient for the 
United States to fully switch from coal to natural gas unless the 
United States captured at least 90 percent of the world LNG market, 
which seems highly unlikely because of the significant projected growth 
in natural gas demand in the rest of the world. 

Fuel Switching for Electricity-Generating Units Would Require 
Investment in New and Existing Infrastructure: 

Switching from coal to natural gas would require investment in new 
infrastructure and changes to existing infrastructure, including 
pipeline and storage capacity and generation technologies employed at 
existing coal plants. In theory, all coal units can be physically 
switched from coal to natural gas, but stakeholders said this practice 
would not occur broadly due, in part, to inadequate existing 
distribution networks and storage capacity, including pipelines. 

According to stakeholders, burning natural gas at an existing coal 
plant would require a pipeline with the ability to meet the plant's 
fuel supply requirements. If not, a new gas pipeline would have to be 
sited, permitted, designed, and constructed. Almost all coal-fired 
boilers use some natural gas to ignite and regulate combustion, but 
they require relatively small amounts of natural gas with 
correspondingly small supply pipelines. Thus, existing coal-fired units 
would have to enhance their supply pipelines to switch to natural gas. 
As a result, according to stakeholders, a major fuel-switching program 
would require a nationwide natural gas infrastructure construction 
program. This would require expansion of interstate and intrastate 
pipelines to transport increased volumes of natural gas. Furthermore, 
existing plants and local natural gas distribution systems would have 
to increase their storage capacity. Local storage can help buffer 
variations in demand, and addressing local storage requirements could 
pose challenges, according to stakeholders. Increased reliance on 
natural gas would also require other new infrastructure, such as LNG 
terminals. 

Even with sufficient supply and storage capacity, stakeholders said 
that it would be more feasible and cost-effective to construct new 
natural gas units or dispatch excess capacity at existing natural gas 
units instead of fuel switching. Converting a coal-burning plant to 
natural gas would involve significant capital costs and result in a 
less efficient plant with higher operating costs. At a minimum, an 
existing boiler designed for coal would need a new combustion system 
and a new heating surface to account for the differences between coal 
and gas combustion, according to stakeholders. Because a gas-fired 
steam generator is designed differently from a coal-fired boiler, 
burning natural gas in a coal-fired boiler would result in a loss of 
efficiency, which could decrease the amount of electricity produced by 
the unit. According to one stakeholder, a decrease in capacity of 10 to 
12 percent is a reasonable estimate. As a result, certain stakeholders 
said that it would be more economically efficient in terms of capital 
and fuel costs to tear down an existing coal unit and build a new 
natural gas unit instead of retrofitting an existing coal unit to burn 
natural gas. In addition, industry stakeholders said that some coal- 
fired units cannot switch fuels because natural gas is not available, 
existing technology cannot be modified, or the system reserve is so low 
in the area that shutting down the coal plant for conversion to natural 
gas would result in brownouts or blackouts. One stakeholder stated that 
modifying a coal unit to burn natural gas would take the unit out of 
service for 4 to 6 months. 

In the few instances in which the industry has switched from coal to 
gas, existing plants have not been retrofitted to burn gas; instead, 
existing gas-fired units have displaced generation from marginally cost-
effective coal-fired units rather than retrofitting existing plants to 
burn gas. Industry stakeholders said that many natural-gas- fired power 
plants were constructed in the late 1990s and early 2000s, leading to a 
large amount of underutilized capacity at plants constructed during 
this boom. According to one stakeholder, it is likely that, instead of 
fuel switching at coal plants, utilities would dispatch these 
underutilized natural gas units and run coal units less aggressively. 
EIA data describing the average capacity factors of different 
generation options demonstrate that significant excess capacity exists 
at natural-gas-fired plants. Capacity factor, in general terms, 
measures how intensely and frequently a generating unit is 
run.[Footnote 11] According to EIA, the average capacity factor for 
natural gas units is much lower than capacity factors for other 
generation options, such as nuclear and coal. As illustrated in figure 
4, nuclear and coal-fired generation have the highest average capacity 
factors for 2006 at 89.6 percent and 72.6 percent, respectively. As a 
result, coal and nuclear capacity serve base load energy 
requirements.[Footnote 12] In 2006, average capacity factors for 
natural gas units ranged from 38.5 to 10.7 percent, depending upon the 
specific type of natural gas unit. Accordingly, there is potential to 
increase the utilization of existing natural gas units. Furthermore, 
the fact that there is excess capacity at existing natural gas units 
demonstrates the economic and other barriers to using natural gas for 
electricity production. 

Figure 4: Average Capacity Factor by Energy Source, 2006: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Average Capacity Factor by Energy Source, 2006: 

Source: Nuclear; 
Percent: 89.6%. 

Source: Coal; 
Percent: 72.6%. 

Source: Other renewables; 
Percent: 45.6%. 

Source: Hydroelectric; 
Percent: 42.4%. 

Source: Natural gas/combined cycle; 
Percent: 38.3%. 

Source: Petroleum; 
Percent: 12.6%. 

Source: Natural gas/all other types; 
Percent: 10.7%. 

Source: Energy Information Administration, Form EIA-806, "Annual 
Electric Generator Report;" Form EIA-906, "Power Plant Report;" and 
Form EIA-920, "Combined Heat and Power Plant Report." 

[End of figure] 

In the event that the owners or operators of a plant decided to switch 
from coal to natural gas, changes to infrastructure, including 
pipelines and individual electricity-generating units, would require 
regulatory approval, which can be costly and time-consuming to obtain. 
Certain stakeholders said that it may take years to complete all of the 
mandatory permitting requirements before constructing pipelines. One 
stakeholder had significant reservations about whether the industry 
could obtain the required permits and rights-of-way for such an 
undertaking. However, this stakeholder also said that the natural gas 
industry may acquire rights-of-way by eminent domain rights, which 
could help address pipeline-siting and construction challenges. 
Stakeholders also identified air quality issues as a concern in 
retrofitting a coal plant to burn natural gas. Modifying the equipment 
at an existing coal plant could trigger permitting requirements and 
necessitate the purchase of additional air pollution control 
technologies. Several stakeholders said that modifying air permits 
would not be difficult, but that it would take time for the regulatory 
agencies to review the applications and issue revised permits. 

Fuel Costs and Electricity Prices Could Increase As a Result of Fuel 
Switching, among Other Adverse Economic Consequences: 

Fuel switching and related pressure on available natural gas supplies 
could increase the price of natural gas, increasing energy costs for 
residential, commercial, and industrial consumers for both natural gas 
and electricity. Because energy costs account for a relatively large 
share of overall costs or because they are heavily dependent on natural 
gas, for some residential and industrial consumers, any price increases 
can present significant difficulties. According to industry 
stakeholders, higher natural gas prices would affect millions of 
residential consumers who cook and heat their homes and water with 
natural gas. In 2006, we reported that the effect of higher wholesale 
natural gas prices on consumers depends largely on the degree to which 
the consumers or their suppliers may have purchased gas on the spot 
market--which reflects current wholesale prices--or may have taken 
steps to reduce their exposure to these prices.[Footnote 13] The effect 
of higher prices also depends on the consumer's sensitivity to price 
changes. Some consumers, such as low-income residents and certain high- 
energy intensive industries, are more sensitive to price changes than 
others and appear likely to experience the greatest impact. 

As we reported in 2006, high natural gas prices adversely affected 
industrial consumers. In particular, industries that rely on natural 
gas, such as chemical and fertilizer manufacturers, could face 
increased fuel costs. Other affected industries could include iron, 
steel, automobile manufacturing, glass, aluminum, plastics, paper and 
machinery, according to industry stakeholders. High fuel costs could 
make these industries less competitive internationally, according to 
stakeholders. Recent high natural gas prices forced some industrial 
consumers to shut down production facilities, and further cutbacks 
could occur if prices are high in the future. 

According to industry stakeholders, increases in the price of natural 
gas could also lead to electricity price increases. In the late 1990s 
and early 2000s, the combination of low gas prices and the fact that 
natural gas produces less air pollution than coal led to the 
construction of many new natural gas plants. However, these plants are 
currently underutilized because gas prices have risen substantially in 
recent years. Requirements to utilize these plants instead of coal 
plants could lead to higher electricity costs for consumers because 
some producers would be able to pass on their increased operating costs 
to consumers. 

Potential Benefits of Fuel Switching Include Reductions in Emissions 
and in Some Operation and Maintenance Costs, and Improvements in Local 
Environmental Benefits: 

Switching from coal to natural gas could decrease airborne emissions of 
carbon dioxide and air pollutants that cause adverse health effects, 
including nitrous oxide, sulfur dioxide, and particulates. Natural gas 
is the cleanest fossil fuel to burn in terms of air quality and carbon 
emissions, emitting up to 60 percent less carbon dioxide than coal when 
burned, according to industry stakeholders. However, stakeholders said 
that the magnitude of these benefits would depend on the source of the 
natural gas and other factors, such as plant efficiency. For example, 
one stakeholder said that increased reliance on LNG would result in 
smaller carbon dioxide emission reductions relative to coal than those 
through production and consumption of domestic natural gas because of 
the carbon dioxide emissions associated with the processing and 
transportation of imported LNG. In addition, utilities switching from 
coal to natural gas could gain public relations benefits from emission 
reductions, as well as a potential advantage associated with early 
action toward compliance with any future emissions reductions policies. 

Fuel switching from coal to natural gas could also decrease some 
operations and maintenance costs, in addition to lessening the physical 
impact on the surrounding environment. For example, fuel switching to 
natural gas would decrease the costs of storing coal on site and 
grinding it in preparation for combustion. In addition, according to 
one stakeholder, natural gas infrastructure has less of an impact on 
the surrounding environment because plants are modular and have smaller 
footprints than coal-burning facilities. Also, natural gas is delivered 
by pipelines, which are less visible than the infrastructure required 
for transporting and storing coal, particularly in urban areas, because 
they are often buried. 

Conclusions: 

Burning natural gas instead of coal at CPP and at electricity- 
generating units nationwide as part of efforts to reduce greenhouse gas 
emissions involves important tradeoffs related to economic, 
environmental, infrastructure, and fuel supply considerations. While 
CPP can adjust its fuel mix to burn more natural gas, doing so at 
existing electricity-generating units nationwide poses substantial 
challenges because of fuel supply constraints, infrastructure that 
would require modification, and economic considerations. 

With respect to fuel switching at CPP, AOC's plans to purchase more 
natural gas than necessary under the Green the Capitol initiative 
raises questions about the efficient use of appropriated funds. 
Specifically, we estimated that fuel switching at the plant should cost 
between $1.0 and $1.8 million in 2008, well below the $2.75 million 
budgeted for this purpose. Key uncertainties with our estimates include 
the future price of each fossil fuel burned at the plant and the lack 
of complete, reliable information on the overall efficiency of the 
plant or its seven boilers. Based on our estimates, substituting 
natural gas for a portion of the coal used at the plant would achieve 
reductions in carbon dioxide emissions at a cost of about $139 per ton 
of emissions. We believe that any decisions to exceed the level of fuel 
switching called for by the initiative should take into consideration 
the sense of the Congress with respect to achieving greenhouse gas 
reductions at the plant, as well as the economic and environmental 
tradeoffs associated with the use of each fuel. 

Recommendation for Executive Action: 

We are recommending that, before adjusting the Capitol Power Plant's 
fuel mix beyond the level directed by the Green the Capitol initiative, 
the Acting Architect of the Capitol consult with AOC's oversight 
committees in the Congress and evaluate the economic and environmental 
trade-offs associated with the use of each fuel at the plant, taking 
into account the efficiency of the plant's boilers, related fuel supply 
systems, and pollution control equipment. 

Agency Comments and Our Evaluation: 

We provided a draft copy of this report to the Acting Architect of the 
Capitol for review and comment. AOC provided comments via electronic 
mail. AOC officials said that they agreed with our cost estimate under 
the high fuel price scenario but that they were concerned about the 
potential level of resources that would be required to respond to our 
recommendation. We subsequently met with AOC officials who said that 
they were concerned that implementing our recommendation would require 
them to collect exact information on the efficiency of its boilers and 
fuel supply systems. Based on this discussion, we adjusted the wording 
of the recommendation to clarify that this was not our intent. AOC also 
provided a number of technical clarifications regarding the plant's 
operation and their cost estimates for fuel switching, which we 
incorporated into our report as appropriate. 

We are sending copies of this report to the appropriate congressional 
committees. We are also sending this report to the Architect of the 
Capitol and the Department of Energy. We will make copies available to 
others upon request. In addition, this report will be available at no 
cost on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact Terrell Dorn at (202) 512-6923 or [email protected] or Frank Rusco 
at (202) 512-3841 or [email protected]. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in enclosure II. 

Signed by: 

Terrell Dorn, Director:
Physical Infrastructure Issues: 

Signed by: 

Frank Rusco, Director:
National Resources And Environment: 

Enclosures: 

[End of section] 

Enclosure I: Scope and Methodology: 

To respond to the first objective, we reviewed two analyses prepared 
for the House of Representatives' Chief Administrative Officer (CAO), 
including an analysis prepared by the Architect of the Capitol (AOC) 
that served as the basis for the fuel-switching funding in the Capitol 
Power Plant's (CPP) fiscal year 2008 appropriation, and a subsequent 
analysis prepared by the Department of Energy's Lawrence Berkeley 
National Laboratory (LBNL). We then developed our own analysis based on 
data provided by AOC and U.S. Energy Information Administration (EIA). 
Part of our analysis was consistent with LBNL's approach. The primary 
differences are that we extended LBNL's analysis to future years based 
on projections of fuel use and prices. 

In conducting our analysis, we relied on fuel input data from AOC that 
had been provided to LBNL via AOC's "Utilities Guru" database. In its 
analysis, LBNL had converted the fuel quantities from physical units to 
thermal units (expressed in millions of British thermal units). Next, 
we estimated the portion of steam produced by CPP that is used to heat 
House buildings. To do this, we divided the total square footage of 
House buildings by the total square footage served by the plant, based 
on data from the AOC's 2006 Report to Congress.[Footnote 14] We 
excluded the Ford House Office Building from our analysis because its 
steam is supplied by General Services Administration, not CPP. The 
resulting calculation indicated that approximately 29 percent of the 
plant's steam output is attributable to the House of Representatives. 

Because the initiative recommends that CPP use natural gas to meet the 
energy needs of the House, we assumed that the House's 29 percent of 
steam would be provided by natural gas only. We added to this an amount 
of natural gas equivalent to 71 percent of the total natural gas used 
had the fuel switching not occurred. This last step ensures that the 
amount of natural gas is "additional" to what would have occurred in a 
business-as-usual scenario. We based our business-as-usual scenario on 
the plant's historical average of 43 percent natural gas, 47 percent 
coal, and 10 percent fuel oil over the period from 2001 through 2007. 
We left the amount of fuel oil used unchanged because the plant's 
operations require the use of fuel oil as a back-up fuel. These 
calculations enabled us to approximate the level of natural gas 
required to meet the initiative's directive in fiscal year 2008. 

To calculate the incremental cost of the new fuel mix in fiscal year 
2008, we estimated the total cost of fuel under the Green the Capital 
scenario and subtracted our estimate of fuel cost under the business- 
as-usual scenario. For both scenarios, we multiplied the quantities of 
fuels needed by our estimates of the average cost of fuel per unit. We 
based our estimates of the average cost per unit for each fuel on 
fiscal year 2008 price projections from EIA. We escalated the EIA- 
projected prices by percentage "premiums" based on estimated 
relationships between average U.S. fuel prices in the industrial 
sector, as reported by EIA, and AOC's annual average fuel costs per 
unit over the period from 2001 through 2007. 

We assumed that each boiler at the plant converts fuel into steam with 
equal efficiency based on a review of available data from an 
independent consultant to GAO and from Ross Associates, a consultant to 
AOC. We also requested information from AOC on the efficiency of its 
boilers on three occasions between November 2007 and January 2008. In 
January 2008, AOC referred us to the Ross Associates analysis. In April 
2008, AOC provided data on the combustion efficiency of its coal 
boilers and two of the four boilers that can burn oil or natural gas, 
which it collected during February 2008. Because AOC did not make us 
aware of this analysis or provide any results until after we had 
completed our work, time constraints precluded us from assessing its 
reliability or including it in our analysis. A review of the data 
suggests that it would not have made a material difference in our cost 
estimates. 

As part of our analysis, we projected the AOC's per unit costs of 
natural gas, coal, and fuel oil for CPP for the period from 2008 
through 2012. To estimate a baseline level of fuel consumption for the 
years 2008 through 2012, we started with the average fuel consumption 
by CPP during fiscal years 2001 through 2007. We then applied a 1 
percent decline in demand each year, beginning in 2008. The 1 percent 
estimate is based on two partially offsetting factors: 

* Additions to the Capitol Complex, including the Capitol Visitor 
Center, are expected to increase the plant's steam demand by 1 percent 
each year through 2025. This estimate was obtained from a 2004 report 
developed by an AOC consultant. 

* The Energy Policy Act of 2005 requires a 2 percent reduction in 
energy use per year for federal buildings. Because over one-quarter of 
House energy use is for heating, the act's implementation may 
significantly reduce steam demand over time. 

Next, we estimated the incremental cost of the fuel mix under a Green 
the Capitol scenario over what the cost would be without a policy 
change, for each year between 2008 through 2012. To do so, we used EIA- 
projected fuel prices for the industrial sector escalated with our 
estimated AOC cost premiums. These calculations produced a baseline 
cost scenario for each year, ranging from a high of $1.44 million in 
fiscal year 2009 to a low of $1.15 million in fiscal year 2012. 

We also conducted sensitivity analyses around our baseline estimates 
using a low-price and a high-price scenario for fiscal years 2008 to 
2012. EIA has not yet published new low-and high-price projections 
because of their recent revision of the Annual Energy Outlook 2008. To 
estimate low-and high-price projections, we adjusted the EIA 
projections of fuel prices for the industrial sector using measures of 
variability of these prices in the last few years. Specifically, we 
calculated the coefficient of variation[Footnote 15] of monthly prices 
of coal, natural gas, and distillate oil in the U.S. industrial sector 
over the period of December 2003 through November 2007.[Footnote 16] 
The coefficient of variation for the monthly prices for this period 
were: 18.2 percent for the price of natural gas, 6.5 percent for coal, 
and 17.2 percent for fuel oil. For the-low price scenario, we reduced 
EIA's price projections for each of the three fuels by the 
corresponding percentage, while for the high-price scenario, we 
escalated the price projections by the same percentages. 

All of our cost estimates are in constant 2006 dollar values. In 
preparing our estimates, we consulted with AOC staff, officials 
representing the House CAO, and the Department of Energy (including 
LBNL and EIA). We also reviewed relevant studies prepared by these 
agencies. 

To respond to the second objective, we analyzed available data from the 
Department of Energy and other sources. We also obtained information 
from key stakeholders identified in discussions with the department 
that represent the electricity generation, natural gas, and coal 
industries using written interview questions. These key stakeholders 
included the American Gas Association (AGA), Edison Electric Institute 
(EEI), Electric Power Research Institute (EPRI), Interstate Natural Gas 
Association of America (INGAA), National Coal Council (NCC), National 
Mining Association (NMA), and Natural Gas Supply Association (NGSA). We 
conducted our work between October 2007 and April 2008 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. 

[End of enclosure] 

Enclosure II: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Terrell Dorn, (202) 512-6923 or [email protected]: 

Frank Rusco, (202) 512-3841 or [email protected]: 

Staff Acknowledgments: 

In addition to the contacts named above, Elizabeth Beardsley, Janice 
Ceperich, Tonnye Conner-White, Elizabeth R. Eisenstadt, Philip Farah, 
Mark Gaffigan, Michael Hix, Hannah Laufe, Jessica Lemke, Jon Ludwigson, 
Susan Michal-Smith, SaraAnn Moessbauer, Joseph Thompson, and Sara 
Vermillion made key contributions to this report. 

[End of enclosure] 

Footnotes: 

[1] Chief Administrative Officer of the House of Representatives, Final 
Report, Green the Capitol Initiative (June 21, 2007). The Green the 
Capitol initiative establishes the goal of carbon neutrality for the 
House of Representatives only, whereas CPP also serves the Senate and 
additional congressional buildings. 

[2] According to the Department of Energy's Energy Information 
Administration, the amount of carbon dioxide emitted from burning 
pipeline natural gas is 117.08 pounds per million British thermal units 
(Btu) of energy. The amount generated from burning coal ranges from 
205.3 pounds to 227.4 pounds per million Btu and depends on the 
specific type of coal burned. 

[3] Consolidated Appropriations Act, 2008, Committee Print of the House 
Committee on Appropriations on H.R. 2764/Public Law 110-161 
(Legislative Text and Explanatory Statement), 153 Cong. Rec. H15479, 
H15741 (Dec. 17, 2007). According to a House Appropriations Committee 
summary of the initial House-passed legislative branch appropriations 
bill, the Green the Capitol initiative funding in the earlier bill 
included "...$2.7 million to shift from coal to cleaner burning natural 
gas for heating needs, $520,000 to switch to 100 percent renewable wind 
power for electrical needs, $500,000 for an ethanol gas station for 
House automobiles, and $100,000 for energy efficient compact florescent 
light bulbs." (See [hyperlink, 
http://appropriations.house.gov/press_releases_2007.aspx], follow link 
under "August.") 

[4] In addition to space heating, these boilers provide energy for 
other minor services, including humidification and food services. The 
House of Representatives purchases electricity from an external 
provider. 

[5] The plant's coal boilers underwent a number of renovations and 
repairs, including a grate replacement, in 2005 and 2006. This may have 
decreased the amount of coal that the plant would have otherwise burned 
in those years, leading to a lower average baseline level of coal use. 

[6] The difference between AOC's per unit cost of a given fuel and the 
corresponding average U.S. price of the same fuel in the industrial 
sector can be due to various factors, including transportation costs. 

[7] GAO, Natural Gas: Factors Affecting Prices and Potential Impacts on 
Consumers, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-420T] 
(Washington, D.C.: Feb. 13, 2006). 

[8] A metric ton is equal to 2,205 pounds, while a short ton, a 
measurement used in the United States is equal to 2,000 pounds. 

[9] GAO, Legislative Branch: Energy Audits Are Key to Strategy for 
Reducing Greenhouse Gas Emissions, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-516] (Washington, D.C.: Apr. 25, 2007). 

[10] EIA defines LNG as natural gas (primarily methane) that has been 
liquefied by reducing its temperature to -260 degrees Fahrenheit at 
atmospheric pressure. LNG and other liquefied petroleum gases are 
liquefied through pressurization for convenience of transportation. 

[11] The EIA definition of capacity factor is "the ratio of the 
electrical energy produced by a generating unit for the period of time 
considered to be the electrical energy that could have been produced at 
continuous full power operation during the same period." 

[12] EIA defines base load capacity as the generating equipment 
normally operated to serve loads on an around-the-clock basis. 
According to EIA, a base load plant usually houses high-efficiency, 
steam-electric units, which are normally operated to take all or part 
of the minimum load of a system, and which consequently produce 
electricity at an essentially constant rate and run continuously. These 
units are operated to maximize system mechanical and thermal efficiency 
and minimize system operating costs. 

[13] GAO, Natural Gas: Factors Affecting Prices and Potential Impacts 
on Consumers, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-
420T] (Washington, D.C.: Feb. 13, 2006). 

[14] The buildings used by the House of Representatives that were 
included in our analysis are: Cannon House Office Building, Longworth 
House Office Building, Rayburn House Office Building, East and West 
underground garages, and the House Page Dorm. Our analysis also 
includes 50 percent of the U.S. Capitol building and CPP. 

[15] The coefficient of variation is defined as the standard deviation 
divided by the mean. 

[16] At the time of writing, December 2007 was the last month for which 
prices of these fuels were available from EIA. 

[End of section] 

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