ML19312C544

Responds to Five Requests by Intervenors Re Purchase of Financial Interest in Proposed Plants.Denies All Requests

ML19312C544
Person / Time
Site:	Oconee
Issue date:	09/01/1967
From:	Horn C DUKE POWER CO.
To:	Harris J PIEDMONT CITIES POWER SUPPLY, INC.
References
NUDOCS 7912160102
Download: ML19312C544 (5)

Text

.,

'- n

>c qq -cr 5.* I .. . .

g DUKE POWER GOM PANY irm i t LEGAL D EI*A RTM ENT GirAnnorTE, N. G. 28uo wi LLi4 = i. war O.s m. oWNCAN LENNQN CAR 6 McR N. sm. sown o. wicus t A a C O W 8e 5 t 6 stCet' Ant & Asst.0cestmak CousettL Cn.f r tesA4 Couwst6 WCf PetSiet='. r'maaect.6 4tettak Cau8ettL w C NDCLL R. wlL40tM G E O RG E W. F E R G U S O N, J R.

WILLI AM M.ORIGO St ryt C. G RI F rit H. J R.

M AROLO O. COL EY. J R.

G EORO C M,tMORPC assistseet stataa6 CouesstL September 1,1967 c3 1O f e

Det1E113 '

Mr. Jack R. Harris, c. O City Attorney, City of Statesville, O cco 51%7D"F"-

2 Suite 207, Spainhour Building, ['

g .. .n Statesville, North Carolina, 28677 'The mm W8

a

( .',

Dear Mr. Harris:

m On Tuesday, August 29, 1967, at the public hearing conducted by the Atomic Energy Commission Atomic Safety and Licensing Board at Walhalla, South Carolina, in which the Cities of Statesville, High Point, Lexington, Monroe, Shelby and Albemarle, and the Towns of Cornelius, Drexel, Granite Falls, Lincolnton and Newton, were permitted to intervene in opposition to the granting of a construction permit to Duke Power Company for its Oconee Nuclear Station, you, as one of the attorneys representing these cities, in your opening statement to the Boaro made cer-tain requests of Duke Power Company which require an answer from the Company.

As soon as I returned to Charlotte, I conferred with the other officials of Duke Power Company in order to obtain Duke's official position on your requests. Set forth below are your requests, as quoted from the transcript of the hearing, Duke Power Company's answer to those requests, and its reasons therefor.

"I would like to say that the ultimate strategic goal sought by Piedmont Cities Power, Inc. , and the eleven Piedmont Electric Cities which sponsor Power Supply in the legal battle which has just begun may be shortly stated."

" Number one, Power Supply requests and demands of Duke Power Company the offer of an opportunity to purchase for the benefit of sponsors a 47a undivided gu soIN A

• • .s ..,

Mr. Jack R. Harris September 1,1967 interest as tenants in common without right of partition in the ownership and capacity of the presently proposed Oconee Nuclear Station Units 1, 2 and 3. " [Tr. P. 215]

" Number two . . . Power Supply thrs requests and

demands of Duke the offer of an opportunity to invest in Oconee for the benefit of sponsors a total of approximately l

$12,700,000. " [Tr. P. 216]

j .

" Number three, Power Supply further requests and demands of Duke the offer of an opportunity to invest said total for the benefit of sponsors in the following annual installments: 1967, $110,000; 1968, $1,213,000; 1969, $3,539,000; 1970, $3,543,000; 1971, $3,024,000; 1972, $1,184,000; 1973, the sum of $73,000. " [Tr. P. 216]

" Number four, the eleven Piedmont Electric Cities thus seek an opportunity to own 60 percent of their current power supply and would remain dependent on privately- ~

owned purchased power from Duke and its great system of

fossil, atomic, and hydro stations for the remaining 40

percent of their total currently power supply. " [Tr. P. 216]

l

" Number five, the eleven Piedmont Electric Cities thus seek a saving in what they pay Duke for purchased power at current rates of $1. 5 million annually for a total saving over the forty-year commerciallicense period of $60 million."

[Tr. Pp. 216-217]

! Duke Power Company's answer to each of these five " requests and demands" is "No", for the following reasons.

1. The eleven cities you represent provide only 2. 2% of Duke Power Company's total revenues and account for only 3. 5% of its total kilowatt hour sales. To permit these customers to single out the Power Company's newest (and, it is anticipated, its most economical) generating

, plant and buy power from it, or own a portion of it and receive power from it at cost, would amount to an unreasonable discrimination against the remainder of the Power Company's customers, who would then have to bear the greater cost of the Company's older plants wnich must remain in service

• ' * *- we w w -m, -r . 4 . ,e 6 , .- m,--

Mr. Jack R. Harris September 1,1967 for twenty-five to thirty years. This would be an unjust preference to the eleven cities and would violate a fundamental principle of public utility regulation. We feel that fairness requires us to pass on the economies of large scale operation and the economies of nuclear energy to all of our customers, not to a favored few.

2. With an average cost of 6. 9 mills per kilowatt hour in 1966, the North Carolina municipalities are already enjoying the lowest rate in Duke Power Company's rate structure, and the lowest wholesale power rate in the two Carolinas.

3. We are of the opinion that the decision of the North Carolina Supreme Court in McGuinn v. Hich Point, 217 N. C. 449, 8 S. E. 2d 462, 219 N. C. 56, 13 S. E. 2d 48, (holding that the City of High Point could not construct and own a hydroelectric generating plant outside its service area) prohibits the eleven Piedmont cities, or a corporation owned by them, from owning all or any part of a generating plant in another state.

4. You are aware that the Atomic Energy Commission can not issue a commercial license for a power reactor under Section 103 of the Atomic Energy Act until the Commission has first made a finding in writing under Section 102 of the Act that this type of reactor "has been sufficiently -

developed to be of practical value for industrial and commercial purposes".

You are also aware that the Atomic Energy Commission has consistently, (and as late as December 1966, when Duke's application was on file) refused to make a finding of practical value until the economic competitiveness of nuclear power reactors with conventional fuel plants has been demonstrated i by actual operating experience, so that the only type of license which can be obtained today is a license under Section 104 b of the Atomic Energy Act for

" production facilities involved in the conduct of research and development activities leading to the demonstration of the practical value of such facilities for industrial or commercial purposes". However, even if Duke Power Com-pany could obtain a commercial license under Section 103 of the Act, as ycu contend it should, neither the "non-exclusive" provisions of a commercial license, nor the provisions for antitrust clearance by the Department of Justice would give the eleven North Carolina cities any right to own a portion of a generating plant financed, constructed and owned by an investor-owned company.

5. The asserted "right" of the cities to own a portion of one of Duke Power's generating plants assumes by inference that State and Federal re.gulation of their wholesale power rates is ineffective. This is not the case.

The cities' current low rate for wholesale power is proof that both the North Carolina Utilities Commission and the Federal Power Commission have been

. 1

a , m l

l

. Mr. Jack R. Harris September 1,1967 vigilant in the regulation of wholesale power rates, and are fully capable of assuring that the cities receive their fair share of whatever economies may result from the generation of electricity with nuclear energy.

We do not know how you estimated the anticipated " savings" to the eleven North Carolina cities over a forty-year period as stated in your fifth request. However, any savings which may result from the construction and operation of the Oconee Nuclear Station are subject to the following contingencies, among others:

(1) The Oconee nuclear generating units are over four times larger in electrical capacity than any nuclear units now in service in this country, so both construction costs and cost of operation are 'oased on estimates and remain to be proven.

(2) The cost of reprocessing spent nuclear fuel for re-use is presently unknown. There is only one commercial reprocessing plant in the country today, but by the mid 1970's all commercial reprocessing must be done by private industry. Nuclear fuel in the Oconee reactors must be replaced every three years.

(3) The cost of mined uranium is increasing. Duke has nuclear fuel commitments for six years of operation for Oconee Units 1 and 2 and three years for Oconee Unit 3. ,

(4) The yield on AAA corporate bonds is currently around 6%,

having risen from 4-1/2% in the past two years. The cost of preferred stock capital has risen proportionately. A nuclear plant and its fuel supply have much higher capital costs than a coal-fired steam plant.

(5) Your projected savings to the cities apparently did not take into account the cost of transmitting power to the cities. The Duke Power transmission system is scheduled for extensive enlargement in the early 1970's. This wi11' result in a considerable increase in the Company's investment in transmission facilities, and in the cost of operating them.

Despite these contingencies, Duke Power Company feels that it is a sound business venture to invest over $340 million in a nuclear plant which should, with research and development on certain componentr, actually demonstrate to the Atomic Energy Commission ind to the aublic, the economic value of a nuclear power plant, and at the same tima earn a profit and achieve savings for an of our customers.

O

_.__-m________________:.____ ___O _ _ _ _ __ _ _ __ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _

Mr. Jack R. Harris l September 1,1967 Even if the Atomic Energy Commission should tomorrow change its rules and begin issuing commerciallicenses under Section 103 of the Act, there is not sufficient time left for Duke Power Company to go through the licensing procedures again and still bring Oconee Unit 1 into service in time to meet the 1971 summer peak demand for electricity in the Piedmont Carolinas. ,

In order that Duke Power Company's answer to your five requests may be made a part of the record in the license application proceeding, I am sending copies of this reply to all parties of record and to each member of the Atomic Safety and Licensing Board, together with a request to the Board that it be made a part of the record.

Very truly yours,

,- . o 3

' h -)) k Carl Horn, Jr. ,

Vice President, Finance, and General Counsel

'~'"'

l O

S

^_._

• _ . , . .-

.. . me-. *.