ML19260B129

Proposed Findings of Fact & Conclusions of Law Corresponding to Applicants' Request for Lwa.Need for Facility Not Established Under Principles of Substitution Theory

ML19260B129
Person / Time
Site:	05000471
Issue date:	11/05/1979
From:	MASSACHUSETTS, COMMONWEALTH OF
To:	Atomic Safety and Licensing Board Panel
Shared Package
ML19260B121	List: ML19260B120 ML19260B126 ML19260B128 ML19260B129
References
NUDOCS 7912070156
Download: ML19260B129 (22)

Text

EXHIBlT A UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION

)

In the Matter of )

)

BOSTON EDISON COMPANY, ~~ --et al. )

) Docket No. 50-471 (Pilgrim Nuclear Generating )

Station, Unit 2) )

)

)

COMMONWEALTH OF MASSACHUSETTS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW CORRESPONDING TO APPLICANTS' REQUEST FOR A LIMITED WORK AUTHnRIZATION.

1. On chronology and orelininary matters, the Commonwealth adopts the Applicants' Proposed Findings Nos. 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 17, 18 and 19.

THE NEED FOR POWER 1

2 '. The Board admitted the following "need for power contentionL" of the intervenors :

Commonwealth Contention 6 The need for the electrical generating capacity ,

of Pilgrim 2 has not been properly established because the Aoplicants have not developed a mode' adequately considering the effects of the following on demand:

(a) Voluntary curtailment of consumption of

_ electricity by the public; (b) Elasticity of demand; (c) Peak Load pricing to flatten demand; and (d) New standards for improved ~ building insu-lation, heating, lighting and air-conditioning.

1517 Ogn uu 7 912 070 /II(h

Cleeton Contention H Applicants and Staff have not adequately demonstrated the need for additional powa- in that the projected needs are inaccurate and con'ervation has not been seriously examined.

Ford Concention M The Applicants have not adequately demonstrated the need for the Pilgrim 2 facility.

3. Evidence was received on these subjects over an unusually extended period of time, starting in October 1975 ,

and ending in June l's77. The Applicants, Staff and Commonwealth of Massachusetts all presented a number of witnesses and cross-examined extensively. The Commonwealth introduced testimony through Professor Henrik Houthakker (Tr. 2329-2456), Carl Stein, an architect (3297-3406, 3425-3517). John Neely of the Massachu-setts Energy Facilities Siting Council (Tr. 3518-3542, 3550-3646) and a panel consisting of Paul Levy, economist, and Henry Lee, Director of the Massachusetts Energy Policy Office.

4. There was a spread of some one and a half years be-tween the time evidence was first presented on these subjects and the Applicants' request for an LWA, during which time electricity dema.nd forecasts continued to change. Therefore, both the Applicants and Staff presented supplemental testimony on the need for power in June of 1977, which evidence " updated" and substan-tially changed evidence offered previously in late 1975. The Staff's updated testimony appears at Tr. 8146-8196. The Applicants'

~

updated testimony appears at Tr. 7865-7988, 8000-8144, 8566-8592.

5. The Appeals Board has held that a genuine need for the power projected to be produced by a nuclear facility must be 1517 007

n shown in order to establish that there are genuine benefits to be gained from the project; the need for power, in short, con-stitutes the benefit portion of the cost-benefit analysis which NEPA mandates, In the Matter of Vermont Yankee Nuclear Power Corp., Vermont Yankee Nuclear Power Station, ALAB-179, RAl-74-21 (February 28, 974).

The Appeals Board has held:

"At the outset inquiry must be made into whether there exists a genuine need for the electricity to be produced. This inquiry involves not only an analysis of existing generating capacity and of projections of expected growth, but also con-sideration of the possibility that measures to curtail censumption will be initiated. In this regard, appropriate attention must be given to energy conservation considerations, insofar as they affect the likelihood that predicted demand will in fact occur. At the same time, however, cognizance can be taken of the effect which a shortage of fossil fuel, or a need to divert that fuel to other uses, might have upon demand for non-fossil fueled generating sources." Id. p.

175.

6. The Appeals Board has also held that "need for power" may be established on the so-called " substitution" theory, by demonstrating that a particular facility is needed to substi-tute nuclear generation for fossil fuel generation on the Applicants' system.

In the Matter of Niagara Mohawk Power Corp.,

Nine Mile Point Nuclear Station, Unit 2, ALAB-264 (April 8, 1975).

The " substitution" theory as applied to this crse will be dis-cussed later, but it should be noted now that we believe that the substitution theory does not obviate the basic requirement estab-ment established in Vermont Yankee, supra, for a showing that the particular facility under review is needed,'whether for reliability 1517 010

l reasons or " substitution" reasons. This is because NEPA mandates an individualized analysis for each facility:

"What is involved is a case-by-case deter-mination of the most advantageous energy option in a particular factual situation." (In the Mattel- of Public Service Co. of New Hampshire, Seabrook Station, Units 1 and 2, ALAB-422 (July 26, 1977).1

7. The trend clearly established during the pendency of this proceeding is that the forecasts of electricity demand growth both for the Boston Edison Service Territory and for the region covered by the New England Power Pool (NEPOOL) have con-sistently and dramatically decreased. To trace this trend, one need only compare the demand forecasts contained in the Staff's FES, dated September 1, 1974, with the most recent forecasts presented in June 1977. At the time of the FES, the Applicants and NEPOOL were projecting a ten-year annual growth rate of 7.5% in electricity consumption and 8.1% in winter peak demand growth. The Staff's estimate of 6.7% annual growth in peak de -

mand was somewhat more conservative. (FES, Ch. 8, and in partic-ular, Figure 8.3 on p. 8-5.) It should be noted that these fore-casts followed the so-called " energy shortage" precipitated in large part by the Arab oil embargo of 1973 and purported to account for the effects thereof and for energy conservation and pricing effects.

(E.g., FES pp. 8 8-8 and Tr. 2656.)

8. From the figure of 8.1% annual growth in peak de-mand, NEPOOL decreased its forecasts until by 1977, its forecast was some 33% below that of 1974, at only P.2%. (Staff Supplemental 1517 011

se Testimony of Feld & Nash, Post Tr. 8150, p. 2.)

9. NEPLAN, the planning staff of NEPOOL, produces its ten-year peak demand growth forecasts by aggregating the fore-casts of all of its many and varied member companies and adjust-ing for transmission losses and seasonal diversity. NEPOOL does not check these individual forecasts for accuracy or impose a uniform methodology. (Tr. 2717-2718, 273L Tr. 7946.) There are many dit.c. ant methodologies used by the member companies (Tr. 2731).

10. The relationship between the demand growth of the lead applicant, Boston Edison Company (BECo) owning 60% of Pilgrim 2, and the demand growth of the area represented by NEPOOL as a whole is uncertain. For one thing, NEPOOL as a whole experiences peak demand in the winter, while BEco, serving metro-politan Boston, is a summer peaker (Tr. 2725). The New England region as a whole is extremely diverse with respect to most of the economic and social factors affecting the demand for electricity, including per capita income, price per Kwh of electricity, market saturation f appliances, concentration of population, and distri-bution of load among the residential, commercial and industrial sectors. (Tr. 272C-2727.) The Applicants' own witness, Bourcier, testified that there is no reason to believe that BECo's load growth would parallel the NEPOOL forecasts. (Tr. 2736-2737.)

In s,hort, BECo's forecast represents about 15% of the NEPOOL fore-cast, but one does not validate or corroborate the other. (Tr.

2736-2737.) Since Pilgrim 2 is intended to serve primarily Southern New England and Metropolitan Boston, the Commonwealth 1517 012

was concerned about the exclusive reliance by the Applicunts on NEPOOL's region-wide forecasts and the Board shared some of these reservations.

11. At the hearings in June 1977 it was brought out by the Commonwealth that the NEPOOL agreement has recently been amended to alter the relationship between and among the members of NEPOOL. (Commonwealth Exhibit No. 15 for identification (Tr. 7928-7944 ff.). This amendment had the effect of modifying the way in which the " capability responsibility" of each member of NEPOOL is calculated. Although one of the Applicant's wit- <

nesses, Mr. Bigelow, opined that the POOL-mandated capability responsibility is not relevant to capacity planning, another witness, Mr. Daley, Manager of BECo's Research and Planning De-partment, testified that BECo's capability responsibility to the Pool "certainly" is a relevant consideration in planning capacit; additions. (Tr. 8030, see also Tr. 6060, 1.7-13).

12. Capability responsibility is, in essence,a measure of how much capacity each member utility must own in order to avoid being penalized by NEPOOL. (Tr. 7944) It provides a formula by which members can predict what their future obligation to NEPOOL will be. (Tr. 7954) The most recent mnendment was adopted precisely because over-forecasting by cer tain members of NEPOOL in the past had resulted in raising the capability responsibility of other members who had forecasted correctly.

There was "a flaw in the NEPOOL agreement, a formula under which a specific member of the Pool, even if he hit his forecast right on the button, might end.up with a capability responsibility different than what he had 1517 013

4

-y-planned for because of crrors in other Pool members' forecasts."

(Applicants' Witness .gelow, Tr. 7932-7933.)

13. The letter of transmittal submitted by NEPOOL to the Federal Power Commission in explanation of the amendment to the NEPOOL agreement also stated that "use of various forms of peak load pricing or other load management methods by some Participants could significantly alter what might otherwise be the historically predictable contribution to total pool lord by such Participant systen. . (Tr. 7933, Comm. Ex. 15 for identif-ication.)

14. We believe that the NEPOOL amendment has signif-icance to this case insofar as it ten'ds to support the Common-wealth's doubts about the reliability of the New England-wide forecasts and their applicability to discrete sub-areas of New England, particularly Metropolitan Boston and Southern New Eng-land. It would seem that NEPOOL has acknowledged that its aggregate forecasts have, in essence, contained economic c'isin-centives to low, but accurate, growth forecasting, and skewed capability planning on the high side. As NEPOOL states to the FPC, this practice is no longer justifiable. (Tr. 7933) 15.

The Staff's role on the need for power issues has generally been to review the Applicant's conclusions as against various conclusions presented in the literature on the subject.

The Staff's witnesses, Thompson and Nash, presented in December 1975, were not qualified to do more than " evaluate forecasts which are already available in the literature." (Testimony of 1517 014

/

Darrel Nash, post Tr. 3110, p. 5. See, also, Tr. 2963.) The witness Nash's testimony compared the Applicants' growth figures with a series of national forecasts in the literature. He recog-nized that there would be economic, social and demographic factors which would affect both the BECo territory and the New England region differently than the nation as a whole. Hcwever, when questioned, for example, about one significant factor, housing starts, the witness did not know whether either BECo or New England housing start were higher or lower than the average national figures (Tr. 3123-3124).

16. The Comaonwealth presented the testimony of Hendrik S. Houthakker, Professor of Economics at Harvard, and a member of the President's Council of Economic Advisers under Presidents John-son and Nixon. (Post Tr. 2330.) Professor Houthakker calculated three cases for electrical demand growth in the Southern New Eng-land states, based on an equation he developed to project the effect of alternative price assumptions upon the residential con-sumption of electric power. Case II, which postulated a 100% in-crease in the deflated marginal price of electricity between 1974 and 1980, projected a growth rate in consumption in Massachusetts of 2.3% annually from 1972-1980, and 4.7% from 1980-1990. Case III, which postulated a 200% increase in marginal price, projected a growth rate of -0.5% between 1972-1980 and 3.5% in the period between 1980 and 1990. In Professor Houthakker's opinion, what will actually occur, in terms of price increases and growth projections, will fall between Case II and Case III. (Tr. 2412-2413. )

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17. Professor Houthakker stated:

"In summary, there cannot be nuch doubt that price increases should be given consider-able weight in the planning of new investments in electric power facilities. The widespreal notion that electricity demand must grow steadily at some high rate might have been valid in the past when deflated marginal prices were generally falling. However, this notion is likely to serious overinvestment, and hence to financial difficulties for electric utilities, in periods when the histor-ical price performance is reversed."

(Houthakker Test., post Tr. 2330, p. 6.)

18. With respect to the price of electricity, the evidence was that it has increased steadily and dramatically in the past five years. (Tr. 2660 el seq.) Yet, the BECo forecast the did not include an assumption with respect to what the impe 't o:

' price of electricity to its customers will be in the future.

(Tr. 2657)

19. Althr.agh Professor Houthakker's projections seemed low in comparison to the other forecasts presented early in these proceedings, the Applicants and Staff have steadily revised theirs downwards towards the Houthakker figures. They are now closer to the Houthakker figures than they are to their own original pro-jections. (B.E.Co. Exhibit NP-21, contained in Applicants' Supplemental Direct Testimony, Post Tr. 7927.)

20. The Commonwealth also presented the testimony of Mr.

John Neely, General Counsel to the Massachusetts Energy Facilities Siting Council. (Admitted, Tr. 3518.) The Massachusetts Energy Facilities Siting Council is required by state law, inter alia, to review and approve or disapprove the long-range energy demand fore-casts of all utilities operating in Massachusetts. (Neely Testimony, 1517 UIL

p. 3.) Mr. Neely, along with the staff of the Siting Council, has reviewed a number of such forecasts in his professional capacity (Tr. 3527, Tr. 3530-3532.) The testimony which he of-fered was composed of his own opinions, not an official judgment of the Siting Council.

21. In general, Mr. Neely critiqued the Applicants' forecasts. He stated first that the FPC's reliability criterion of one day loss of load every 10 years has never been justified on a cost-benefit basis, and that a reserve margin a few per-centage points less than that would likely be a net economic benefit. This is because the economic benefits from not paying the carrying costs on 400 or 800 MW of generating capacity in New England would outweigh the economic costs of more frequent loss of load, particularly considering that the great majority of blackouts result from equipment failure and not insufficient generating capacity. (Neely test. , p. 4.) Most customers never notice the impact on service of a small reduction in the reliability criterion.

22. Mr. Neely testified further that the New England Load & Capacity Forecast -- NEPOOL's 10-year forecast used by the Applicants as discussed above -- has adopted since 1974 a new method of reporting future capacity which understates planned capacity additions because only those planned units which fall in the

" Authorized" category are counted as " Capacity" for the year in question, although other units may well be added by that time.

In previous years, units " planned" and "under study", were also listed as " capacity." For example, in the April 1, 1975 Load &

1517 ui,

l Capacity Report, the only " Authorized" u.its listed after 1979 are nuclear. Because of much shorter lead times, not a single baseload fossil, intermediate or peaking unit is " Authorized" to begin service during the last 6 years of the 10-year forecast.

While it is " virtually certain" that some such units will be operating by 19851 t he change in reporting method used by NEPOOL between 1974 and 1975 meant that over 6,000 megawatts of power (listed as capacity additions in the 1974 NEPOOL Load & Capacity Report did not show up in the 1975 summary beca'ise they were

" planned" or "under study" rat.'er than " authorized." This is extremely sigrificant. (Neely Test, at 15-17.)

23. Cross-examination by the Commonwealth of the Ap-plicants' witnesses developed this point further. Orr , 2743-2771, particularly 2750, 2751.) Applicants' witness Stein, ex-plaining the NEPOOL forecast, stated his belief that most of the 6000+ megawatts listed as " planned" and "under study" would be built. (Tr. 2753) In fact, if those units were added in to the NEPOOL capacity figures, the Applicants' own exhibits would show no deficiency in New England in the relevant years without the addition of Pilgrim 2. (Tr. 2759) At any rate, it is clear that the NEPOOL Load & Capacity Reports cannot reliably be used to ,

establish the need for Pilgrim Unit 2. The figures for capacity additions can and have been manipulated to support almost any conclusion. The most recent example of this was brcught out on cross-examination of the Applicants' Supplemental Direct Testimony.

Central Maine Power has announced its intention to build a coal unit at Sears Island to be operational within tha most recent 1517 010

NEPOOL forecast period, but that unit is not listed in the Load

& Capacity report because it is not yet NEPOOL " authorized."

(Tr. 7963, 7965.)

24. Mr. Neely further testified that economic conditions in New England will, in his opinion, hold demand growth in this region to a slower rate than what is predicted to occur as a national average, that the Commonwealth is taking positive steps to encourage the use of alternate energy systems, such as solid waste burning, and that BECo has underestimated the potential for conservation. (Neely Test., pp. 11, 12, 17.)

25. Finally, Mr. Neely's testimony cast substantial doubt on the validity of the " substitution" theory as applied to Pilgrim 2. This aspect of his testimony will be discussed later.

26. Other evidence presented by the Commonwealth on the potential effects of energy conservation also tended to deflate the Applicants' projections of demand growth. Carl Stein, a licensed arthitect in New York State specializing in energy con- ,

servation projects, testified in substantial detail concerning the magnitude of reductions in New England's electrical energy demands which could be achieved by conservation measures applied to build-ings in the residential and commercial sectors. All of his figures are based on modifications which can be made using completely standard technology at low dollar cost. (Testimony of Carl Stein, Post Tr. 3299.) Only methods whose costs will be paid for by savings in energy costs were considered in Stein's testimony.

(Id. at 5.) Mr. Stein's conclusion was that, even accepting the NEPOOL projections of growth in the number-of customers between 1975 1Ei7 01?

and 2000, a serious energy conservation program could essentially stabilize energy demands at present levels. (pl. at 3, 4.)

27. After this testimony of the parties, including the Applicants' first panel on Need for Power, the Board was not satisfied that the Applicant had made the requisite showing of the need for Pilgrim 2. It therefore requested the Staff first orally and then in writing to provide a witness who could make an "inde-pendent" and qualified analysis of these issues. In a letter of January 8, 1976, Chaitman Coufal requested of staff counsel as follows:

"Please provide an expert witness from the Federal Power Commission who can testify gener-ally on the need for power in the Applicant's service area, and so far as it relates to the application here, to the need for power in the New England araa, with specific reference to the years during which the Applicant provided evi-dence on the need for the proposed Pilgrim 2 unit." (Tr. 6058)

28. The Staff never provided such evidence. It did offer the testimony of Mr. Fields of the FPC, an electrical engin-eer who discussed tne validity of the FPC reliability criterion (Post Tr. 6080), but Staff Counsel acknowledged that his testimony did not analyze the rate of growth of demand in New England gener-ally or in the BECo service territory, and that the Staff was unable to provide such a witness. (Tr. 6058-6061) The Chairman noted that the testimony did not fully answer the Board's request. (Tr.

6060-6061.) In fact, the witness stated that, since November 1973, his Bureau of the FPC has not attempted to forecast demand on a national or regional basis. (Tr. 6368) The deficiency in the record with respect to need for power issues has not been corrected.

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29. In June of 1977, the Applicants and Staff presented

" updated" testimony on the need for power issues. This testimony showed that, since BECo filed this application in 1974, both its own and NEPOOL's demand growth forecasts have consistently been revised downward. (Tr. 7904) In fact, NEPOOL now projects 7700 megawatts less demand will be needed in 1985 than when this pro-ceeding commenced. (Tr. 8162-8163) Further, the present pro-jections are that demand growth will be even slower in the period after 1985. (Tr. 7896-7898)

30. The Applicant presented the results of three differ-ent demand growth studies -- one done internally by BECo, one by its consultant, hational Economics Research Associates (NERA) and its consultant Gilbert Associates. The Gilbert projections, the lowest of the three, were st 'mitted by BECo to the Massachusetts Energy Facilities Siting Council in its long-range demand fore-cast required by state law. (Tr. 7899, BECo Exhibits NP-21, NP-28, NP-29, included in Applicant's Supplement Direct Testimony, Post Tr. 7927). The Gilbert projections for the 10-year period 1976-1986 are as follows: (BECo Exhibit NP-21)

Sales Peak high 4.36 4.22 low 3.04 2.92

31. In the June 1977 hearings, the Staff presented the testimony of Messrs. Feld and Nash (Post Tr. 8150). In this testi-mony, the Staff presented the results of electricity demand growth studies performed by tne FEA, the Oak Ridg6 National Laborator7 i51 r a0zi

(The "Chern" report) and M.I.T. (id. at 2-3). The summary re-sults of the staff analysis is presented in Table 4 of the Feld-Nash testimony.

32. The witness stated that the Oak Ridge (Chern) model, on which he retied, is a model that forecasts on a state basis and attempts to account for economic factors and for the availability of alternate fuels. (Tr. 8154, 8183-8187).

33. Table 4 of the Feld-Nash testimony uses as its base the capability figures provided in the NEPOOL Load & Capacity Fore-cast, applies the 3 forecasts (Oak Ridge, NEPOOL, and FEA) and calculates the reserve margin on the NEPOOL system under the 3 forecasts without Pilgrim Unit 2.

34. It was established on cross-examination that the announced coal-fired unit to be built by Central Maine Power at Sears Island by 1984 or 1985 is not included in the capability figures used in Table 4. (Tr. 7963, 7964, 8166)

35. It was further established,that Montague Unit 2 --

1150 megawatts -- is projected to come on line in January 1988, but this Unit, too, is not listed in the capability figures because of NEPOOL's method of reporting planned capacity additions, dis-cussed above. (Tr. 8170) If only Montague Unit 2 is added, the Oak Ridge projections of reserve margin on the NEPOOL system without Pilgrim Unit 2 would be as follows:

1983-84: 30.9%

1984-85: 30.0%

1985-86: 22.8%

1986-87: 25.8%

1987-88: 24.3%

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Thus, there is no genulne need for Pilgrim Unit 2 in any of the forecast years, uxtending into the late 198C's.

36. There are other factors which lend us to lend credence to the demand projections on the low side of the range presented in this case. None of the models fully take into ac-count the effects on electricity demand growth of strong govern-mental action, particularly some of the mandatory measures proposed by President Carter in the National Energy Plan, released April 29, 1977. Doctor Weiss, the Applicants' witness, freely admitted that new, mandatory government programs will affect electricity sales.

However, he had made no attempt to quantify the effect. (Tr. 8044, 8050-8051) The National Energy Plan represents an unprecedented increase in the level of proposed governme nt action aimed at conservation. (Tr. 8046). The Staff witness Feld agreed that the effect of these measures would be to further slow the rate of growth of electricity demand. (Tr. 8160-8161) Finally, the Com-monwealth's witness Neely testified that long-term conservation measures were not adequately reflected in the Applicants' fore-casts, which generally treat all non-price-related conservation as a one-shot phenomenon directly resulting from the Arab oil embargo. (Neely Test. pp. 12, 13)

37. With respect to the validity of the 23% reserve margin, it bears mentioning that the necessity for greater reserve margins (at the beginning of this proceeding, NEPOOL's required reserve was about 21% (Tr. 7961) is directly related to the addi-tion of large nuclear units to the system. Because of the higher forced outage rates for such units over smaller units and 1517 023

fossil-fired units, their addition to the system necessitates greater reserves. (Tr. 6129, 6144-6145 , 7960)

38. Finally, peak-load pricing, one of the mandator) measures contained in the National Energy Plan, could signif-icantly alter demand growth. (Tr. 7933-7934, 7971-7977.)

Peak-load pricing is incentive time-related billing which en-coarages customers to use off-peak electricity. (Tr. 7975)

All of the NEPOOL projections of demand growth are of peak demand growth, since capacity additions must be planned on the basis of peak demand. Thus, slowing the rate of growth of the peak has possibly the greatest potential of all of the " conservation" measures for affecting the need to add new capacity to a system.

39. Although the Applicants' witness Bigelow gave his opinion, based on his " impressions of what [he] thinks people's habits >re likely to be" (Tr. 7973) that peak-load pricing would not be very effective, he was not familiar with a peak-loading pricing experiment in the NEPOOL area - Connecticut - which demon-strated the effectiveness of such pricing inducements on peak usage even under extr.eme weather conditions. (Tr. 7967-7968, 8137-8138.) Mr. Bigelow had based his conclusions on " statements what [he] receivr.d verbally from operating people in the New York

• area" and had no other evidence to indicate that the peak is not sensitive to pricing. (Tr. 7968) The Commonwealth's witness, Mr. Neely, testified that experience in New England belies Mr.

Bigelow's impressions. In 1974, the first full year of soaring electric prices and substantial conservation, the annual load factor for all New England was 64.2% -- the best for any recent 1517 U24

year. Although sales in 197 4 were 4% higher than 1972, the -

annual peak in 1974 was 5% lower than in 1972. (Neely Test.,

pp. 10-11.)

40. Based on the foregoing, the Board finds that Pil-grim 2 will not be needed in any of the forecast years through 1987-88 on reliability grounds. Therefore, if there is a need for this facility at all, it must be found in a valid application of the " substitution" theory.

41. It should be strocccd that the applicability of the substitution theory must be proven on a case-by-case basis.

The Applicant cannot sustain his burden of proof on this matter by vague allusions, for example, to the " uniqueness" of the New England region with respect to its dependence on oil, particularly in this case, where the Commonwealth introduced evidence showing that substitution is not a net economic or environmental benefit.

The Applicant must show that on its particular system, or the NEPOOL system, the substitution of nuclear generation for other capacity already existing on the system, would be a net benefit for its customers.

42. The evidence produced by the Applicant on this sub-ject was the testimony of Messrs. Bigelow and Sweeney. (App . 's Supplemental Test., Post Tr. 7927, pp. 8-21, 27-30) Much of Mr.

Bigelow's testimony was purely conclusory, with no basis in fact, and was stricken by the Board. The Board specifically invited the Applicant to re-offer the testimony in acceptable form, but the invitation was declined. Tr. 7915-7918) 43- Both Mr. Bigelow and Mr. Sweeney concluded that the operation of Pilgrim 2 would be an economic benefit even if the 1517 025

power were not needed, because of fuel cost savings. No witness ever named any specific oil-fired plant that would be retired.

Only Mr. Sweeney actually provided a dollar savings figure and that was based on fuel costs alone. The carriing costs of paying for the capital required to build the nuclear unit were not figured in to the calculation, even though capital costs represent 80%

of total nuclear generating costs. (App.'s Supp. Test. Post Tr. 7927, pp. 28-29; Tr. 7981, 8000.) By itself, this figure is not meaningful.

It should also be noted that the Applicants' testimony was confusing and inconsistent on the subject of potential nuclear fuel costs. At one point, a witness used a figure of 3.8 mills per Kwh while another witness on the same panel used 7.1 mills per Kwh for the same period. (Tr. 8016). The Applicant also calculated the purported advantage of nuclear by ausuming only a 5% annual escalation rate for nuclear fuel after 1988, although past trends show much steeper cost escalations. Those were supplied to the wit-ness by other persons and he did not know what underlying facts were assumed. (Tr. 8018-8019)

44. The Commonwealth produced evidence on this subject through Mr. John Neely and through Paul Levy, economist, and Henry Lee, Director of the Massachusetts Energy Policy Of fice , who intro-duced an official report of that office entitled "The Economics of Nuclear Power: A New England Perspective. (Post Tr. 4 9 62. )

45. Mr. Neely performed a calculation using the carrying costs cf capital for excess capacity installed on the NEPOOL system from 1973-1975. It showed that $112,000,000 annually were required i517 u2u

e to pay for these unneeded projects. In his opinion, fuel cost savings offset only a small part of this; the net economic result was a loss. (Neely Test., pp. 6-7 and Appendix A.) This clearly demonstrates that the Applicants cannot rely simply on projected fuel cost savings to claim that Pilgrim 2 is a benefit. They have left out a crucial part of the economic equation. In addition, overinvestment in expensive capacity diverts capital from an already hard-pressed economy. (Neely Test., p. 8)

46. The Lee-Levy testimony confirms and corroborates Mr. Neely's conclusions. (Lee-Levy Test., Post Tr. 4962) It is important to note that the official report they introduced was a New England perspective on the economics of nuclear power and specifically recognizes the region's dependence on oil. The report analyzes all of the factors, in luding economic and environmental, involved in building new capacity. It was not done for any of the parties in this case or to prove any ideological point. Its most significant conclusions, in terms of the substitution theory, are that all new baseload capacity in the 1980's will cost more than previously published estimates and that, if these plants are built as scheduled, " inordinate amounts of capital will be civerted to the construction of power plants and away from other sectors of the economy, and the cost of electricity will rise to levels that will be beyond the budget of some classes of residential, commercial, and industrial customers." (Id. at p. 3)

The report concludes further:

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"It is important to adopt policies and pricing structures that discourage the growth in electricity demand and that promote a more efficient use of both existing and new genera-ting capacity. These policies should be aimed directly at slowing down the rate of construc-tion of new power plants.

(pd. at 3, emphasis added.)

This conclusion, which is supported in detail and ap-plied directly to New England in the report, directly counters the premise that the substitution theory applies to this case.

It is not a net benefit to New England residents to construct a baseload nuclear plant that is not required on reliability grounds.

47. The report traces the rapidly escalating capital costs of nuclear power, from $134 Kw in 1967 to $700+ Kw in 1974.

It should be noted here that projected capital costs of Pilgrim 2 have already inflated at a more rcpid rate than that. In only one and one-half years - from October 1975 to June 1977, the pro-jected capital costs for Pilgrim 2 rose from $856 Kw to $1346 Kw.

The present figure of $1346 Kw as estimated by the Applicant is higher than the upper bound assumption provided in the Applicant's testimony in 1975. (Tr. 8065-8066.) And the trend shows no in-dication of changing (Tr . 8069.) Both the AEC/NRC and the util-ities have a consistent record of substantially undr estimatirg ,

the capital cost of nuclear power. (Lee-Levy Test. , pp. 9-10)

48. The Board agrees with the conclusion of "The Econ-omics of Nuclear Power: A New England Perspective", that average generating costs for all new capacity in 1983 could well be double today's generating costs. (ld. at 43.) We note further that the Applicant's own witness, Bigelow, also agreed wi.th this. (Tr. 8002-8003.) We believe that the following conclusion.is justified by the 1517 028

record in this case:

Of all the measures mentioned above, the ones with the greatest potential and overall benefit to society are the more efficient utilization of ex-isting and new facilities through load management and increasing power plant reliability.

(Lee-Levy Test., p. 44.)

49. Nothing in Mr. Gotchy's testimony on the health effects of the coal versus uranium fuel cycles offered by the Staf f change </. our opinion. (Post Tr. 8358) First of all, as the St'ff clearly stated in a conference call among the parties, the testimony was not offered in response to any of t:le contentions of the parties, but was a new FES section being added in all pending cases as a policy matter. The analysis of coal v. uranium is not relesant to the substitution theory as applied to this case, since most non-nuclear baseload capacity in New England, for which Pilgrim 2 could substitute, is oil-fired, not coal.

50. Based upon the foregoing, the Board finds that the need for Pilgrim 2 has not been established under the principles of the so-called " substitution" cheory. The Applicants have not shown that bringing Pilgrim 2 into service will be a net benefit to BECo or NEPOOL customers.

ALTERNATE ENERGY SOURCES

51. Commonwealth Contention #3 is as Ecllows :

"The Applicants and the Staff have not given adequate or accurate consideration to solar power, wind power, the use of fossil fuels, the high-temperature gas-cooled reactor or the burning of solid waste [see Tr. 832]

as alternate sources of power."

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