The Department of Energy disclosed yesterday that the consortium of gas pipeline companies building the nation's first large-scale synthetic fuels plant expects to ask for $1.4 billion in federal loan guarantees to keep the project going.
In July DOE conditionally approved a $250 million guarantee to allow the sponsors, headed by American Natural Resources Co., to begin construction of the Great Plains coal gasification plant this summer. One of the conditions was that the consortium line up permanent financing for the project, which is supposed to produce 137 million cubic feet of gas daily by 1984.
But now, DOE said, private lenders will not commit funds to the plant, which is under construction in Beulah, N.D., until settlement of a suit challenging an order from the Federal Energy Regulatory Commission that the consortium could require gas customers to pay for any investment in the plant even if it were never completed or was abandoned. General Motors Corp., a major gas consumer, the Ohio Consumers' Counsel and others filed the suit.
One high DOE official said the much larger loan guarantee likely would be okayed if that were the only way to keep construction going.
The situation came to light when DOE issued a draft of a solicitation for proposals from private companies seeking up to $6 billion worth of purchase agreements, price guarantees or loan guarantees for new synthetic fuels plants. Up to $1.5 billion in loan guarantees would be made under the Federal Non-Nuclear Research and Development Act, the same source of funding DOE intended to use for the $250 million loan guarantee already conditionally approved for the Beulah plant.
But DOE cautioned prospective applicants for loan guarantees that the $250 million commitment had been made to the Great Plains project, which also might take almost all of the $1.5 billion in loan guarantee money.
"Great Plains has undertaken discussions with DOE concerning the possibility of increasing the loan guarantee commitment to an amount equal to the total project debt [about $1.4 billion] and indicated that their loan guarantee application may be amended for such purpose," the draft solicitation said. "If DOE decided to accept such amendment and issued additional guarantees to Great Plains, the availability of loan guarantees from DOE under this solicitation for other projects could be substantially reduced or totally eliminated."
The problem on the suit is that "we cannot predict the timing," Thomas L. Blair, of DOE's general counsel's office, said. It likely will be sometime next year at the earliest, he explained.
Blair said Great Plains officials had told DOE they were in the process of amending their application to ask for the larger guarantee. DOE probably would act fairly quickly on such a change, Blair said, since most aspects of the project, such as whether cost estimates are reasonable, already are being analyzed in connection with the $250 million conditional commitment.
Acting Under Secretary of Energy Worth Bateman said 3,000 companies were sent copies of the draft solicitation and were asked to respond within one week if they thought any changes should be made. DOE intends to send out the formal solicitation by Sept. 15 and has set a deadline of Dec. 1 for all applications.
DOE was operating on this "fast track," Bateman said, because "we are moving as quickly as we can and as seriously as we can to get this industry going." DOE is determined to make the synthetic fuels industry "a reality," he added.
The department has until next June 30 to commit the funds, at which time its authority in this area is supposed to pass to the new Synthetic Fuels Corporation created by Congress this year. The White House has yet to name a chairman or members of the board for the corporation.
So far, DOE has agreed to fund about $200 million in feasibility studies and cost-sharing arrangements with 110 groups, mostly for projects involving production of alcohol for use with gasoline as gasohol. It also has made available another $300 million worth of similar proposals, among which it will choose this fall.
Of the new $6 billion, $3 billion comes under amendments to the Defense Production Act and will involve contracts with the Defense Department for actual production of synthetic fuels for defense use.
The new proposals will have to be for commercial-scale projects that will produce at least 10,000 barrels but no more than 100,000 barrels of liquids if coal is the basic source of material.
Assistant Secretary for Resource Applications Ruth Davis said DOE will favor those projects that are "in a state or readiness," construction of which could be begun immediately after approval of the proposal.