Initial planning for a huge plant to convert coal to fuel oil - which would cost of more than $1 billion to construct - could begin in the near future.

Dynalectron Corp. President Charles Gulledge, speaking to stockholders yesterday at the firm's annual meeting in Tysons Corner, said the Department of Energy may act favorably during the July-September quarter on a proposal to study the economics, markets, financing and environmental problems associated with such a coal conversion facility.

A group led by a subsidiary of Ashland Oil Co. and including a Dynalectron subsidiary, Hydrocarbon Research, presented a proposal to DOC for such a study last year and Gulledge yesterday said a $6 million contract may be approved.

Ashland and other companies want to study in depth the feasibility of building a 50,000-barrel-per-day commercial plant for converting coal to fuel oil, using a process called "H-Coal" that has been developed by Dynalectron since 1964, in anticipation of worldwide energy dislocations.

Currently, Dynalectron is about to begin starting up this month a demonstration of the H-Coal process at a 600-ton-per-day coal liquefaction plant at Catlettsburg, Ky. - the largest such pilot plant in the United States.

The Catlettsburg plant is estimated by the government to cost $296 million, including a two-year operational evaluation period through 1981. It is being funded by DOE, Dynalectron, Kentucky, Ashland, Continental Oil Co., Mobil Corp., Standard Oil Co. of Indiana and the Electric Power Research Institute.

Because of continued and growing dependence on imported petroleum, there is new interest in the Dynalectron process, which can use a wide range of coals and lignites to produce either low-sulfur fuel oil or a premium grade synthetic crude oil for refining into jet fuel and gasoline.

The McLean company's stock was fifth most active on the American Stock Exchange yesterday, closing up 3/8 at 5 3/8 on a volume of 70,200 shares. Dynalectron Chairman Jorge Carnicero, in a discussion prior to yesterday's stockholders meeting, forecast another round of price increases by oil-producing nations within a month and said he expects Saudi Arabia to cut back on its production levels.

In addition to the H-Coal developments, the diversified technical services and electrical engineering company experienced a significant rebound in profitability during the first quarter, Gulledge said yesterday.

For the first time in 14 years Dynalectron had a net loss last year, of $1.5 million compared with earnings in 1977 of $2.7 million. Sales rose 2 percent to $290 million but were more than offset by losses in construction of wastewater treatment plants and reduced profitability in electrical contracting.

Gulledge said yesterday that operations during the first quarter of 1979 improved in "most areas," with overall earnings of $201,000 (3 cents a share) compared with a year-earlier loss of $420,000, as sales rose to $75 million from $67 million.

Environmental and electrical contracting divisions remain problem areas, with "mixed" results in the recent quarter. Gulledge said new management teams at troubled divisions may take some time to get their operations turned around but he vowed to dissolve businesses that don't produce in the near future.

Responding to a question by stockholder Wesley Young, who complained that Dynalectron profits over the years have not shown the same continuous and substantial increases as revenues, Gulledge said that the company's directors were focusing on that issue.

At a meeting yesterday, Gulledge said, the directors reviewed a five-year plan to increase the company's return on assets and established that goal as a "number-one priority and focus of attention at the moment."

Asked about the company's elimination of an annual dividend payment earlier this year, Gulledge said that under bank lending agreements no payouts can be made after a year of losses. But he forecast that the company will return to profitability in 1979 and that declaration of future dividends will "not be a major problem." The firm paid 7 cents a share in 1978 and 6 cents in 1977 on common stock.

One new director, Edwin Phillips, was elected by the stockholders yesterday. He had been appointed last January and he succeeds Luis F. Corea, who reached mandatory retirement age and stepped down from the board yesterday after 22 years. Philips is president of Westcoast Transmission Co. Ltd., a natural gas pipeline firm in Vancouver, B.C. CAPTION: Picture, Dynalectron President C. G. Gulledge, left, and Chairman Jorge Carnicero. By Ken Fell - The Washington Post