This is the first Quarterly Report for this project. The background and technical justification for the project are described, including potential benefits of reducing fuel moisture, prior to firing in a pulverized coal boiler. A description is given of the equipment and instrumentation being used for the fluidized bed drying experiments. Results of fluidization and drying tests performed with North Dakota lignite, having a 6.35 mm (1/4 inch) top size, are presented. The experiments were performed with a 381 mm (15 inch) settled bed depth, with inlet air and in-bed heater surface temperatures of 44.3 C (110 F), and with the superficial air velocity ranging from 0.2 m/s to 1.4 m/s. Drying rate is shown to be a strong function of air velocity, increasing seven-fold from 0.2 m/s to 1.4 m/s. Increases in velocity from 0.75 m/s (minimum fluidization velocity) to 1.4 m/s resulted in a doubling of the drying rate.