A Veterans Administration (VA) hospital is to decide which type of boiler fuel system will most efficiently provide the required steam energy output for heating, laundry, and sterilization purposes. The current boilers were installed in the early 1950s and are now obsolete. Much of the auxiliary equipment is also old and in need of repair. Because of these general conditions, an engineering recommendation was made to replace the entire plant with a new boiler plant building that would house modern equipment. The cost of demolishing the old boiler plant would be almost a complete loss, as the salvage value of the scrap steel and used brick was estimated to be only about $1,000. The VA hospital's engineer finally selected two alternative proposals as being worthy of more intensive analysis. The hospital's annual energy requirement, measured in terms of steam output, is approximately 145,000,000 pounds of steam. As a rule of thumb for analysis, 1 pound of steam is approximately 1,000 Btu, and 1 cubic foot of natural gas is also approximately 1,000 Btu. The two alternatives are as follows.
• Proposal 1. Replace the old plant with a new coal-fired boiler plant that costs $1,770,300. To meet the requirements for particulate emission as set by the Environmental Protection Agency, this coal-fired boiler, even if it burned low-sulfur coal, would need an electrostatic precipitator, which would cost approximately $100,000. The plant would last for 20 years. One pound of dry coal yields about 14,300 Btu. To convert the 145,000,000 pounds of steam energy to the common denominator of Btu, it is necessary to multiply by 1,000. To find the Btu input requirements, it is necessary to divide by the relative boiler efficiency for the type of fuel. The boiler efficiency for coal is 0.75. The price of coal is estimated to be $55.50 per ton.
• Proposal 2. Build a gas-fired boiler plant with No. 2 fuel oil, and use the new plant as a standby. This system would cost $889,200 and have an expected service life of 20 years. Since small household or commercial gas users that are entirely dependent on gas have priority, large plants must have an oil switch-over capability. It has been estimated that 6% of 145,000,000 pounds of steam energy (or 8,700,000 pounds) would come about as a result of the switch to oil. The boiler efficiency with each fuel would be 0.78 for gas and 0.81 for oil, respectively. The heat value of

natural gas is approximately 1,000,000 Btu/MCF (thousand cubic feet), and for No. 2 fuel oil, it is 139,400 Btu/gal. The estimated gas price is $9.50/MCF, and the price of No. 2 fuel oil is $1.35 per gallon.
(a) Calculate the annual fuel costs for each proposal.
(b) Determine the unit cost per steam pound for each proposal. Assume that i = 10%.
(c) Which proposal is the more economical?