Oil and Natural Gas Use in Electric Utility Industry Letter to the Speaker of the House and the President of the Senate Transmitting Proposed Legislation.

Dear Mr. Speaker: (Dear Mr. President.)

I am transmitting herewith proposed specifications for legislation to reduce the use of oil and gas in the electric utility sector by one million barrels per day by 1990. This proposal would meet that target by establishing a two-phase program designed to displace 750,000 barrels of oil per day and the natural gas equivalent of 250,000 barrels of oil per day by 1990, through provision of federal financial assistance and streamlining certain regulatory requirements. Funding for this program will come from revenues raised by the Windfall Profits Tax.

The electric utility industry, which now consumes about three million barrels per day of oil and natural gas equivalent, is a prime target for an accelerated national effort at reducing our dependence on imported fuel. No other sector of the economy can achieve as great a near-term savings of oil and gas, particularly through conversion of existing facilities to coal, and expanded energy conservation measures.

Congress has recognized the desirability of efforts to shift oil and gas-fired utilities to coal and other alternate fuels. Beginning in 1974 and most recently in 1978, Congress enacted regulatory programs designed to facilitate this shift; however, the results have not been satisfactory. Regulatory and financial impediments prevented achievement of the necessary acceleration of oil and gas replacement-action which would otherwise be justified to reduce cost to utilities and ratepayers. Unless a Federal program is developed to overcome these financial and institutional barriers, oil and gas consumption will not be substantially reduced and could actually increase in the near-term in the electric utility sector.

The program I am proposing today consists of two parts. Phase I is designed to accomplish a greater number of powerplant conversions in an earlier time frame than could be accomplished under current law. Conversions of powerplants covered by Phase 1 of this proposal would save as much as 400,000 barrels of oil per day by 1985.

Specifically, a number of powerplants currently using oil that are capable of converting to coal or other alternate fuels would be prohibited by statute from continued use of oil. $3.6 billion would be available for grants to be awarded by the Secretary of Energy to pay for a portion of the capital costs associated with converting designated facilities to coal or an alternate fuel. Consumers would benefit both from lower capital requirements for utilities and from reduced fuel costs after conversions.

While exemptions from conversions would be available as they are under the current law, the process for their consideration would be substantially accelerated. The bulk of the powerplants affected by Phase I are located in New England and the Middle Atlantic States.

One major issue has not been resolved-the problem of increased air pollution loadings and increases in acid rain that will result from these coal conversions. We have recently come to understand that sulfur dioxide and nitrogen dioxide emissions from power plants travel great distances and are a principal cause of acid rain. Since environmental damage caused by acid rain is already serious, I am becoming increasingly concerned with the problem, particularly since many of the powerplants covered by Phase I are located in areas affected by acid rain.

In my message to Congress on the Environment in August 1979, I cited acid rain as one of the emerging environmental issues requiring national attention. The conversions covered by my proposal can be made consistent with Federal ambient air standards and all existing State Implementation Plans under the Clean Air Act. However, we cannot ignore the problems of acid rain.

I call upon the Congress to address with me in this session this important new concern and hope the appropriate committees in Congress will commence hearings on this as soon as possible.

In order to help offset emission increases from conversions and to increase the availability of coal resources, up to $400 million in Phase I grant funds would be reserved for use in programs to reduce emissions from existing powerplants where appropriate. This program would include loan guarantees for coal cleaning and preparation facilities and grants for advanced sulfur dioxide removal systems such as scrubbers and chemical cleaning of coal.

Phase II is designed to achieve oil and gas displacement of approximately 600,000 barrels per day by 1990. Six billion dollars in grant funds would be available to assist utilities in identifying and implementing projects designed to reduce consumption of oil and gas. A principal purpose of Phase II is to encourage reliance on energy conservation as a means to reduce oil and gas usage. Utilities would submit fuel displacement plans, including displacement targets (based on a specified base period usage). Plans would include assessments of: (1) financial feasibility; (2) environmental impacts; and (3) cost effectiveness of practicable alternatives to oil and gas use. Oil and gas displacement could be achieved through a strategy which emphasizes a program of energy conservation, conversion to alternate fuels (including coal, nuclear, synthetic fuels), and renewable resources. Each utility would have access to a portion of the Federal grant funds. Funds would be awarded if the plans are determined to be cost-effective by state authorities, following public hearings, and the Secretary of Energy determines that the plan is likely to achieve the displacement target established by the utility. Funds under this phase are expected to be used primarily by utilities in the Southeast, Southwest, and California.

This program will provide significant economic and national security benefits through accelerated oil and gas displacement effort. The Federal assistance I am proposing is a sound investment in the Nation's energy future. The earlier action is taken, the sooner the benefits to the Nation as a whole, and to consumers can be realized. For these reasons, I urge Congress to give prompt consideration to this legislative proposal.

Sincerely,

JIMMY CARTER