ML19329F250

Deposition of SE Feld (NRC) Re Need for Facility.Pp 1-35

ML19329F250
Person / Time
Site:	Midland
Issue date:	11/05/1976
From:	Feld S Office of Nuclear Reactor Regulation
To:
Shared Package
ML19329F251	List: ML19329F250 ML19329F256 ML19329F257 ML19329F258 ML19329F259
References
NUDOCS 8006230769
Download: ML19329F250 (36)

Text

C) 1 UNITED STATES OF AMERICA' NYCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of CONSUMERS POWER COMPANY Docket Nos.

50-329 50-330 (Midland Plant, Units 1 & 2)

NRC STAFF TESTIMONY OF 'SIDNEi E. 'FELO ON~~

~

NEED FOR FACILITY f

e

+

8006230 7[f

l This testimony addresses the need on the part of the Michigan Electric Coordinated System (MECS) for Midland, Units 1 and 2, in the 1981-1982 timeframe. The analysis will show that, based on Consumers Power's (CP) and Detroit Edison's (DE) latest forecasts and capacity plans, the l

reserve margin in the summer of 1981, with Midland units delayed.one year, will fall below that deemed necessary by the MECS to maintain I

reliable service. Furthennore, the staff will demonstrate that based c5 l

CP's latest projection of 1Gh sales, there exists an affinnative indication for the addition of baseload capacity on the CP s'ystem.

Underlying these analyses is ' cur ability to accept CP's and DE's fore-casts as' reasonable measures of future growth and inherent in'this

acceptance is a recognition that conservation has been given adequate weight in these forecasts. Based on a review of the assumptions embedded in the utilities' forecasts, a review of independent' forecasts and studies of the MECS service area, and consideration of the Federal Energy Admin-istration's (FEA) regional forecast, the staff concludes that the utilities' forecasts are reasonable representations of likely future growth and they do, in fact, factor in the impact of conservation.,The following testimony provides support for this conclusion.

CONSUMERS POWER & DETROIT EDISON SERVICE AREAS Consumers Power is one of two major electric utilities servicing the State of Michigan. As of 1975, it provided electricity to a population of approx-j imately 3.3 million people extending over a wide geographic area (lower PeninsulaofMichiganexceptSoutheasternportion)consistingmainlyof J

rural areas and dispersed urbanized cente'rs. Major cities within the service area include Grand Rapids, Fitnt, Kalamazco, Lansing, and Battle Creek. The industrial demand for electricity is concentrated in the automobile industry with General Motors alone accounting for about one-third the Company's total industrial electric energy sales. Other important industries in the service area include primary metals, pnannaceuticals, machinery, oil refining, paper

'and paper products,and food products.

i w

,.r-y y.

..p-

~

i

' Ne second major electric utility'in Michigan is the bei;roit' Edison 2'

Company. Their service area extends over approximately 7600 square miles in the more urbanized and industrial area of southeast Michigan.

Its customers number about 1.6 million, and the population served is about

~

5 million.

l.

'P-"

I.'.

The two utilities comprise the Michigan Electric Coordinai;ad'Sjstiem'and

[.~

jointly service approximately 90% of Michigan's electrical needs.l~The '

~

^

constitute a highly integrated system and in additionlo joint planning

~ '

efforts, they actively coordinate their transmission and generating equipnient to meet the electrical needs of Michigan's lower peninsula.

Because Consumers Power is an integral part of this larger system, the staff concludes that a determinat' ion of need for Midland must be viewed in the context of the combined capacity and combined demands of both Detroit Edison and Consumers Power.

i I

Forecastina Demand The staff recognizes the uncertain nature of forecasting and that there is i

no standard forecasting methodology to which one can turn as a' reliable guide for predicting the future. Prior to 1973 few envisioned the oil embargo and the succession of bewt1dering events aggravated by the embargo:

)

fuel shortages; double-digit inflation; a prolonged economic recession; j

sharp rises in the price of electricity and alternate energy sources; and j

the implementation of conservation programs throughout the country. Yet, in the uncertain environment of 1971, the applicant prepared a forecast j

and the staff evaluated those projections of 1Gh sales and peakload demand and deemed them reasonable. Today, it is abundantly clear that those forecasts overstated future growth for the period 1971 through.1975.

1Governor's Advisory Ccmission on Electric Power Alternatives, Final Report..

Facts and Recamnendations, Vol. IV, Lansing, Michigan, August,1976, p.4.

I

L V

~

In 1971, when the applicant submitted its ER for the Midland units, it was forecasting a growth rate in peak demand of about 7.6% per annum for the years 1970 thru 1980. Their Gh sales forecast was a.lso about 7.6%-

per year over the same time period. These forecasts were strongly influenced by the actual growth experience in the previous decade in which total sales for Consumers Power grew at 7.6% per annum (1961-70), with residential sales growing at 6.4%, Connercial sales at 9.1%, and Industria-1. sales at 7.81.--

a

'~

Similarly, Detroit Edison was likewise forecasting a relatively high growth--

~

rate back in 1971 based on its historic growth pattern. :.. -

But becaitse of the factors identified above, growth in~ the 1970's did not.

keep pace with historical levels. Between 1970 and 1975, Consumers Power's KWh sales grew at a rate of about 4% and peak demand at only 3.9% per annum.

In addition, actual declines in sales were registered in 1974 and 1975, and a decline in peak demand occurred in 1974. Clear)y.. factors such as conservation, an economic recession, higher prices for electricity, and to sane extent, more moderate weather, all contributed to this decline in growth.

4

. -l-However, it should be noted that the preliminary results for 1976 suggest that growth is once again on the increase among the nation's electric utilities. For example, over the first seven months of 1976, the production of electricity by all U.S. utilities has been 6.7% above the same period last j

year.2 Similarly, over the first eight months of 1976, Wh sales on the CP system are up about 7.4% and for DE, sales are up 7.9%.3 In the midst of deci,jning" growth in the MECS'the two utilities have over the last few years continually revised their forecasts downward. For example, 2Energy Resources Council, President's Eneroy Program, Monthly Progress Report, August,1976.

3 East Central Area Reliability Council (ECAR-)

1975-76 KWh Consumption by Ultimate Customer.

f

~

ou mo e

, ~. -

.-,-..r..

-y--

9 4

I CP's latest forecasted growth rate is approximatley 35% below that fore--

casted in 1972. The forecasts under consideration today, at this hearing, are CP's 1976 forecast of sales and peak demand of 4.9% per annum between

~

1975 and 1984, and DE's 1976 forecast of 4.8% growth in sales and 5.25

')

growth in peak demand between 1974 and 1984; It is the staff.'s. belief i

~

thit-these' moderate growth rates do in fact take conservation.as well as : -

~ other inhibiting factors on growth into account and reasonably reflect theu :

likely growth over the time period under examination.. -- : '

.+-

~

y

.7::

Clearly, adjustments to MECS's capacity plans were necessary to reflect the recent ex'perience and these lower growth projections.. In the last' few years, the response to capacity planning has been rather dramatic. For example, in 1974, Consumers Power announced the deferral of 2773 We and the can-ce11ation of 2300 MWe. Detroit Edison deferred 5779 MWe and cancelled 1150 MWe. Thus, the total amount of capacity either deferred or cancelled was 12,002 MWe, at a time when the two ccupanies' total installed generating capacity was approximately 14,000 MWe.

In addition, the Midland units themselves are now rescheduled to come on line about 4 years later (1981-82) than initially planned back in 1971 (1977-78).

Need for Additional Capacity Table 1 presents the ut'lities latest summer peak demand forecasts and i

capacity plans for the years 1981 thru 1983. The table identifies two cases: Midland units on-line as scheduled (available for sumer of '81 and '82); and Midland units delayed one year (available for sumer of '82 and '83).

In the event Midland is not delayed, the reserve margin (net 5

capability as a percentage of peak demand) is projected to be approximately 20% over all three years, however with a one year delay, the reserve falls to 14.2 and 18.1 percent in 1981 and 1982 iespectively.

It should be noted that based on the applicant's reliability analysis,a reserve margin of about 20% is needed on the MECS to maintain a' reliability criterion of one day in tin yeafs'loN 'i loi'd Whidfi is i ridShiiiii'd standard throughcut the o

electric utility industry.

i l

.. ~ - - -

5-Michigan Electric Coordinated System (C.P. and 0.E.)

TA8LE 1 Sumer Peak, capacity and Reserve Margins.-

1981 thru 1983 i

.Y Peak Demand" Met Capability (We)b Reserve Margin (We)

. as % af. peak demand Midland Midland

' Midland E..

on-line delayed on'-line-Midland ~

delayed u.. - :A as scheduled one year ar scheduled -

one-year.

1981 1512'7 18084 17273 19.5 14.2 1982 15891 19220 18760 20.9 18.1 1983 16653 19896 19896 19.5 19.5

• SOURCE: Consumers Power Ccmpany Environ' mental' Report Supplement, October 25, 1976, Table 1.1-1.

bSOURCE: Consumers Poweir Company Environmental Report Supplement, October 26,1976, Tables 1,1-6 and 1.1-7..

Note: Staff accepted the data presented in these tables with the following exceptions:

1 - we assume Palisades will not be out during the 1981-82 period.

2 - the only sales of capacity that the staff has taken decount'of are the Luddington sale to Consolidated Edison cf 624 We and the sale of

~

~

_22.0_We of Fenni 2 to municipalities. Although othei sales are pro-

...__jected by the Applicant and may well materialize, no deduction _fr.am_

capacity has_,b_een made fcr them.

3 - Thet _sjtaff has taken account" of a T.47'We deritingTf dapacity for ~-~

~

(CP) and 143 We for (DEJ during sumer peak load due to higher cooling medium temperatures,in samer. See ER Supplement, p.1.1-20.

m ye -

w em.

6.

f i Need fer Baseload Capacity The staff also evaluated the need for baseload capacity on the CP" system.

~

Essentially, this consisted of a quantitative comparison of projected t=5.lcad Ja nd and baseload capacity for the year-s-M81-thru 1983.

.. All units designed and operating as baseload units were identified. by

~ thin' appifcant. For example, in 1981, with Midland 2 in servi ~ e, the CP

.1 P.

c system wi11[have 7682 MWe of capacity of which 4698 We will be baseloadli'

^

~ ~ ~ - ~

for a percint' age share of total capacity of about 61%. Without Midland 2 on-line, the baseload portion would approximate 57%. As of September 30, 1976, CP'- baseload portion approximated 592 wnten suggests that the addition.of'htdland 2'would not alter significantly CP's historic relative dependence on baseload capacity.

~

Baseload demand has been estimated by the staff as a function of forecasted KWh sales.

It may be noted that national,1y approximately 85 to 90% of the KWh's generated during the year are at loads equal to or less than the average

~ ~ foad. For i:P the staff has estimated that 88.2"r of its KWh -sales occur over-- ---

this range of'their load duration curve.4 The staff assumes that these KWh's will be generated by those units in the system that are the most economical to operate, usually the large units. The remainder of the electrical energy will be generated by peaking or cycling units. Taking 1981, the year the first unit is expected to go on-line, the applicant forecasts an energy level of 29,835,000 MWh. 87.5%(midrangebetween85and90)ofthisisabout 26,106,000

,MWh At.a capacity factor of 65% for baseload units, this would require 4585 MWe in baseload capacity.

4That load equal to or less than the average load for the CP system is a function of its load duration curve which can be approximated by a fifth degree polynomial whose coefficients are closely related to just two quantities--the ratio of the minimum load to the maximum load during the period, and the ratio of the average load to the maximum load. The pre-caeding method is discussed in International Atomic Energy Agency, " Market Survey for Nuclear Power in Developing Countries," September,1973, and.

l connents to that article, Nuclear Technology, " Letters to the Editor," letter j

by Artha Jean Snyder, Vol. 24, November,1974, p. 260. These ratios were cal-culated'for the CP system based on 1975 results as reported in CP's FEC' Annual Report, Fonn No.12 Schedules 12 and 13. The results indicate that 88.2% of the total KWh's generated occur at loads at least equal to the average load.

u-9 w

s--

r

+.4>

.-,---w,

'e v-uy--

+ - -----

$yar--*m

7-

+-: -

Table 2 presents the baseload capacity and demand estime.tas for CP for the years 1981 thru 1983. Based on this analysis, a delay of one year will result in shortages in baseload capacity of about 700 MWe and.125 MWe in_,

1981 and 1982 respectively. With Midland on-line as scheduled, surpluses

. of between 84 and 335 MWe will occur in the 1981 to,1983. pert,od.

. :.c i.:.

. TABLE 2 - NEED FOR BASELOAD CAPACITY - CONSUMERS POWER.

,;g Y

BASELOAD CAPACITY BASELOAD DEMAND BASELOAD MARGIN-EXCESS With' With OR (DEFICIT)

E Midland Midland

-With With A

on line delayed 1 year Midland Midland R

as scheduled on line delayed 1 ye -

as schedulec e

1981 4698 3887 4585 113 (698) 1982-5158 4698' 4823 335 (125) 1983 5158 5158 5074 84 84 p

e 9

e e

e g

==.a ure*

. = = =

+-+eme

...sy.

,e

,p-p

A third factor which is relatively important in considering the applicant's

~

need to add the proposed nuclear plant to its system is the desirability

- of adding non-fossil capacity to reduce fuel consumed by gas-and oil -

fired units now forming about 27% of CP's total.systen capacity.. Tot.the-extent that this substitution can occur, it will increas.e;.the-avail. :1 ab'lity of these more versatile fuel resources for otfier uses for which i

-tMre is-r available substitute. Shifts of this nature are consistent with national energy objectives as set forth by'the Federal. Energy Administration and the Federal Power Commission, and are also beneficial

.in reducing our nation's balance of payment deficit.

- ^

The foregoing analyses suggest that the Midland units are needed as scheduled to maintain reliable service for the MECS custaners, to meet the ne=d Ter baseload capacity on the CP system, and-to-pennit-CP-to 1imit-its dependence on scarce fossil fuels in accordance with national energy policy.

However, for the most part, these analyses are dependent on two important e

assumptions:

r..

1) that the capacity estimates in the 1981-83 time frame will materialize; and

---2)--~that the growth forecasts envisioned by CP ad_DE_wi1Llikewise materialize and are reasonable in light of the potential for conservation savings.

System Capability - 1981-83 Capacity planning on the CP and DE systems has undergone dramatic revisions irr the last few years in response to changing demand and financial conditions.

The capacity data appearing in Tables 1 and 2 represent the latest plans (as of mid-1976) available to the staff. The staff believes that the estimates used herein are conservative because the potential for futura delays and deferrals in capacity are ignored even though they are very much a reality whereas the addition of capacity not planned for at this time is highly unlikely becidse of the large' lead time typically reqdired.

N

= *ee m e -

w emmmee e===

,r..---e,

--- -,, - -,r-

i

~

For examole', the capacity plan ' presented'here assumes that - - ---

t six units, excluding Midland 1 and 2, with a total net. summer capacity of 4459 MWe will ecme on-line between 1977 and 1983 as scfieduled..Given i

the frequency with which construction has Been delayed in.recent years, -

this must be characterized as a very optimistic assumptt_on. :Furthemoren-,,,

'it-e P 'i u:

it does not take into account the'possible repairs to* Palisades whi_ch --,

rept esent a potential derating of CP's capacity of approximately 680 MWe. u,--

- i

'during the 1981-82 period. Also, it assumes that gas and ofi-supplies-

- u-

- ~

-will'be adequate to allow CP to meet the future demands-that will be.

u placed on its gas-and oil-fired capacity. Out of a total. capacity of-7682 MWe in 1981, oil-and gas-fired units will account for about 1800 and 400 MWe's respectively. And finally, it does not reflect CP's present plans to sell portions of Midland 1 and 2, and Campbell 3 which, if consumated, would further reduce CP's net system capability in 1981 and 1982.

Independent Assessment of Demand The staff has had an. opportunity to review two independent forecasting i

l analyses that project growth in electricity demand on the MECS. 'Since they are solely concerned with growth in the CP and DE service areas and because they are the products of analyses performed under the auspices of the government of the state of Michigan, their inclusion here appears warranted.

In addition, the staff has also considered the FEA's latest forecast for the east north central region. Although..this. forecast._fs not as precise geographically '(evaluates growth in a five' state regien),

it!isincludedhiereasaseco'd'ryreferencichehron-the' preceeding na E' ch"of the analysesNil' be discussed and t!ieir results will

~

analyses.

a 1

be compared with those made by CP and DE.

l 9

l a

MICHIGAN PUBLIC SERVICE CCFMISSION In December of 1974 the Michigan Public Service Commission (MPSCl released A report entitled Evaluation of the Consumers Power and DeSoit Edison

~

l 1974 Load Growth Forecasts..The document prepared.By a project team

~~

-......within the MPSC, responded to a request by the Comissf6ner t6':

~ ~ "

~ ~ '

l t..,,

-; * ~ -

Provide an independent evaluation of the electric' demand -..

.n. ;..

.. ~

~

evaluating electric demand requirements.gsfon*s use in

- : ~- :

load factors and forecasts for the Commi The thrust of the report is a detailed evaluation of the 1974 forecasts prepared by CP and DE. After a careful analysis of each of the assumptions underlying growth in the residential, comercial, and industrial sectors, as well as a detailed investigation of the impact of conservation, sub-stitution, growth in the economy, and the future behavior of the load factor, the report concludes that:

1) The forecasting methodologies used by both CP and DE seemed reasonable and were consistant with generally accepted approaches used. by. utilities __ __-

across the country. Furthennore, they were depicted as containing a high degree of analysis and statistical support although specific areas of improvement were identified;6 and 2)

In the opinien of the PSC project team; the CP and DE 1974 forecasts underestimated future peak demand. This conclusion was based primarily

"- ~

'on the project team's belief that the utilities overstated conservation savings and understated growth in the Michigan economy.7 5

5 Michigan lublic' Service Commiss' ion, Evaluation of the Consumers Power and Detroit idtson 1979 Load Growth Forecasts, Staff Study 1974-4, December, 1974, p. 1 - 9.

~

6 8

Ibid., p. 2-1, 2-2 and 3-7.

7Ibid., p. 2-1, 2-11.

l

t Although the project team did not develop an independent: forecast: pee se':: :~".

they did produce a reforecast range by substituting alternative assumptions

- within the Companies' forecast methodologies.

It should be emphasized that this-is not to say that the Companies' forecasts are necessarily incorrect,. -

'or that the project team's are correct. ftather, they indicate :the-general

~

i

' ' " ' ~

direction in which the project team' believes the actual-values may.be u:-.a:

relative to the Company estimates.

= ~ ~ -

u

-...... w

- - - The key parameteFs used in CP's and DE's 1974 forecast methodologie.s a$e!- ; 7

~

i :--

depicted in Tables 3.and 4 respectively. For each parameter, t5ree - '

. estimates, are presentM. The first is the ecmpany's,own estimate which was used to generate their 1974 forecasted growth rate in eTectricity 1

demand. The latter two values represent the high and low values that the project team assigned to the same parameters based on their research and

~

knowledge. These estimates were then incorporated into the forecasting model to derive high and low estimates of electrical growth in the CP and

~

-i DE systems.

It is interesting to note, that in several instances,; CP's value for a particular parameter was even less than the MPSC's low value for the.:ame parameter.

For example, whereas in 1974 the applicant assumed an average use per residential domestic customer of 7800 10dh by 1982 and a rate of growth in GNP of 2.3%, the MPSC's low estimates were 810010dh's and 3% respectively. The project team's estimates for electrical growth for the year 1982 appear in Table 5.

Represented are projected ICdh sales and peak demand for CP, DE, and for the-MECS-(GF and DEcombined).

In each instance, high and low values are depicted. These estimates are contrasted with the Companies' latest (1976) forecasted results.

.4 Table 5 lsuggests that CP's forecastIs are consistently conservative, even when contrasted to the MPSC's low forecast. For DE, the Company's forecasts are consistently below the high-end of the project team, however, are apparently not as conservative as the project team's low forecast with respect to peak demand. Here, the Company's own forecast is about 700 MWe greater than the project team's low value. With respect to the MECS, the I

n

--.n--

-12.-

TABLE 3 MPSC S*.JPPORTING ASSUMPTICNS FOR REFORECAST Based on Projectichs by 1982.

1 Consumers Pcwer 4-

=

MPSC

~ ~

'MPSC

'ORECAST CATEGORY 1974 FORECAST HIGH ESTIMATE LOW EST!!'.--

Residential Sales

~'

2-

~

I NGmber of Custemers

-..- - # ::c 1,275,500 1,.304.,600_ --

1,.265,007

. Marginal Scace 40%

+

. _.... Heating. Saturations

.50%,..

s.'-

...... 7 0 %.:

2

-' ~. Average Use Per Residen-tial Domestic Custcmer 7,800 KWH

-' [7.00 KWE.

• ~.8,100:.

"8

^

. Average Use Per Space

~

Heating Custcmar 19,200 KWH 19,900 KFd 18,900.I

-Commercial Sales t;.15 %

7.37%

-Industrial Sales

.. 5.17%

. Sales to GM,

lg 2.2%

1 5%

. Sales to Other Industrial

.. Rate of Growth in GNP 2.3%

- 4.0g 3,og

- Rate of Grcwth in Usage Per Unit FRD 0%

2.97.

1,11

-Load Factors

. Space Heating Lcad Factor 45%

.45%

45%

.. Net System Load Factor

'654

~

63%

67%

P SOURCE: Chart 4.26 C, MPSC Study.

9 8

1 4-80

- * ~ ~

~'

1

.. _._. -1 3.

6

~

~

9 TABLE 4

~,q6 MPSC SUPPORTING ASSUMPTIONS FOR REFORECAST R25GEr,;:-----....-.

-el~1I!

2 Detrcit Edison 2ase-

__/

~

MPSC MPSC

,, ;gECAST CATIGORY 1974 FORECAST HIGH ESTI:GTE LOW ESTI:GTE F

I~~~

~T'~~

ensidential Maximum Demanc

'.. Number of Customers 1,759,000 1.,.719,,000, 1,700,000

- - =....:.--.,

. Air Conditien'ing

,:~ ::

Saturations 46%

50%

-42%

..Rcom

.. Central 23%

," !25%,

.21%,

- -. - - +...

~

+80%

80%-

.. Marginal Space 63.5%

Heating Saturations

. Average Use Per Custome Tem =erature' Sensitive Lead

~

..Recm Air Conditioning 500 2-~

-- 6 00..

400 3,200 3,200 2,800.

.. Central Air Ccndition-ing

.. Electric Space Heating 14,000 14,000 -

12,000

. Average Use Per Cus-c=er

' 6,600 Non'-Temperature Sensi-6,804 7,600 tive Lead

. Residential Lead Facter 54.4%

50%

50%

-Ccmmercial Maximum Demand 4.2%

. Commercial Growth Rate 4.6%

5.0%- _ _ _ _

..Cemmercial Lead factor 46.6%'

44%

47%

-Industrial Maximum Demand

. Rate of Grewth in GNP 3.5%

4.0%

3.0%

.. Industrial Lead Factor 77.5%

72.1%

77.5%

SOURCE: Char t 4.15 C, MPSC Study

, _, _4 -4 3

-14

- - =

n

-.. Table 5 - 1982 Wh Sales and Peak. DemanMICP,Dna ma,s--

Companies' Forecasts vs. MPSC Range

=- ~

~

1982 KWh SALES

~'

I'

^

Company Forecast (1976)

'MPSC RANGE....

MKWh r i? ; M100t - -

- --HIGH, -. - LOW

. 5, :.- 1. : -

b-b Consumers Power 31386a

, 38737 34494 C

d d'

Detroit Edison 48423 57443 49937 MECS (CP & DE) 79809 96180-

- - 84431 1982 PEAK'DE4AND'

~

Company Forecast (1976)

MPSC RANGE MWe MWe HIGH.

LOW b

b Consumers Power 5840" 6734 6354 _

d

- 9337d Detrail Edison 10051" 11222 MECS (CP & DE) 15891 17956 15691

~ '

a - Consumers Power Company Environmental Report Supplement,' October' 26, l976, Tables 1.1-1 and 1.1-3

-b - MPSC Study. Chart 4.268, p. 4-79 c - Latest forecast submitted 10/18/76 by CP on behalf of DE - Note, since DE only forecasts total output,1982 sales were estimated by applying growth rate in total output (1975-82) to actual sales in 1975.

1975 sales = 32,419 MKWh and 1975-82 growth = 1.49 d - MPSC Study, Chart 4.15B, p. 4-42 m.

e

• 64' W

w.

m

.m.e 4

~

-15,'

T-

' Comp'anies' c'ombined. tak demand is approximately 2000 MWe beloie.the 'com-c':

J mission's high forecast and about 200 MWe above their low forecast. On ~

l' balance, one must conclude that relative to the MPSC fore;ast range, the Companies' combined 1976 forecasts are a conservative, reflection'of likely--

electric growth in its region.,

.: u-H s:.

~'

• ~

Governor's Advisory Comission on Electric Power Alternatives (GACEPA) r In Auvusi.,1976 the GACEPA released a study which, : on; othe: thing:,

provided the state with an econometric model to forecast electricity demand in the CP and DE systems.8 The model u'tilized quarterly data over a ten year period (1965-74) with the exceptiert of the industrial sectors which were developed on 19 years of annual data. Using this data base and regr'ession analysis it derived estimating coe'fficients for key explanatory variables. The model was fairly disaggregated in that it forecasted sales by najor' customer class (residential, comercial, and industrial)' and within the industrial sector attempted. to forecast by the Department of Comerc'e's Standard Industrial Classification Code (SIC). This attempt itT filftfier disaggregation was statistically effective-with-respect to the l

CP forecasting model but produced excessively downward biased forecasts for the DE model.9 Consequently, the forecast for the DE industrial class

~

was ultimately perfomed on an agorecated basis.

Once the causal variables and estimating coefficients were defined, the Advisory Comission Staff postulated future levels for all. causal vai fab'les.

.i Three distinct scenarios for the growth levels of. causal variables were developed.10 8Governor's Advisory Comission on Electric Power Alternatives, Final Report... Facts and Recomendations, (Vol IV) Lansing, Michigan, August 1976.

9Governor's, Advisory Comission on Electric Pcwer Alternatives, Forecastino Electric Energy Demand in Michigan, Vol II, Lansing, Michigan, Feoruary,.

1976, p. 29.

10Advisory Comissions Final P.eport, pp.14-15.

\\

" ' TThe high-growth case assumes that causal variablestwill

+;

t--

grow at the same annual average growth rate which obtained

' in Michigan during the period 1969-73, a period:of strong 4:

economic growth.

.: :P -

~:~~-

. +:- -

s; :

The medium-growth case assumes that the levels of causal

-.-1

. :- - variables will grow at the annual average rate that obtained

, _ __. g.

in Michigan during the period 1965-74, a period which saw

..., t both high and low cycles of economic activity in tfWstate.

~

- ~

..g..

.s-The low-growth case assumes that Michigan causal variables.

will move at the same rate forecast for the nation by Chase..

Econometrics (this forecast includes a recession.in 1977-78).

Given these postulated levels, the model forecasts the following-average annual growth rates in sales and demand through 1985 (see Table 6).

TABLE 6

~

GACEPA' FORECASTdD GROWTH RATES IN SALES AND PEAK DEMAND 1975-1985 High Medium Low Consumers Power 7.54%

5.26%

3.70%

Detroit' Edison 5.49%

4.17%

3.33%

MECS (CP & DE) 6.59%

4.59%

~3.47%

weighted average

.u

,.,.m..

-=.

.__z.

The Advisory Commission adopted its staff's medium forecasts. When weighted by the size of the two companies 1975 peak demand, the MECS average annual

[

compound growth rate in peak demand is 4.59 percent, unless vigorous con-

.servation measures are taken. However, the Comission noted that shortages i

l

17

~

of basic fuels that are readily transportable to and users (nstuid1 gas, fuel oil, propane) could result in a shift to greater expansiori of electricity use and thus they recomend using the staff's medium rate of growth with allowance for minor upward adjustment in case of error.Il ---

Addressing the question of need for new capacity on the CPAndME s9s't'imi' a:

',... ",[ -'

by 1985 the Advisory Comission concludes that:12 t_

e,

.3 c The national recession which hit Michigan's economy with the force of a depression in 1974 and 1975 di.d have the effect of provid!ng a " breather" in the state's growing electric needs. Also, this Comission's forecast at present projects a lowered rate of growth in demand through 1985. ~

~

Nevertheless, we forecast the need for 5077 We of new construction in the combined Consumers Power-Detroit Edison service area by 1985, assuming only a 15% installed reserve capacity.

If the reserve is 20% (which both Detr6f t Edison and Consumers Power assert is necessary to maintain bulk i

power reliability), then the necessary construction by 1985 would be 5908 MWe.

The present expressed plans of both companies provide for

)

7231 We construction by 1985', which would more than meet the needs which we forecast. However, construction has 'not i

yet resumed on enough capacity to warrant certairity that.

Michigan's needs will be met.

If additional delays of one to two years are incurred on plants now tentatively scheduled for completion in 1983 and 1984, then the state's 1985 needs at 20% reserve would not be inet.

1TIbid pp. 20~-22.

12Ibid. *pg. 9.

nw m~

1 f

~

I

(

~ ~

i

' Table 7 contrasts the companies' and the GACEPA' peak-demand projections 5

for the year 1982. The GACEPA medium forecast, which was identified-

~ ' ' '

by the Advisory Commission as probably 'being slightly. biased downward, :- - c !

is accepted by the staff as a basi's for comparison. The Alfvisory --

Consission's peak demand growth rates are' applied to the 1975 peak for CP i

' and DE'in order to obtain projected peak demands in 1982 and the comparisarr - '

is performed for CP, DE, and the MECS (CP & DE).

?-

~

"~

'-* l TABLE 7 1982 PEAK DEMAND FOR CP, DE, AND'MECS - COMPANIES' FORECASTS VS,. GACEPA'S MEDIUM FORECAST 1982 PEAK DEMAND

~

Company Forecast (1976)

GACEPA Medi0m Forecast MWe MWe Consumers Power 5840

~6004 i

Detroit Edison 10051 9609 MECS(CP&DE) 15891 15613 Relative to the Comission's medium forecast, CP's own forecast is conservative by about 165 MWe, whereas DE's own forecast is overstated by about 440 MWe.

In total, the MECS forecast is about 280 MWe greater than that forecast by the Comission's econometric model. Recognizing

)

[

that this is only a 1.8 percent discrepancy in estimated 1982 peak

~

demand'and that the Consission acknowledges that their medium forecast

~

~

' ~

may understah growth,' one must candlude.that relative to the Advisory r..

Consission's findings, the companies.' forecasts are reasonable measures

'of future growth.

1 9

-,o M*

s.

e.

ey yg

-,s

d 19

' FEDERAL ENERGY ADMINISTRATION REGI0tiAL MODEL The most comprehensive atte.pt at an econometric model concerned-with --

.. future. energy growth was presented about a year ago by. the-U.S.. Federa1.-- :

1.

.' EnerSy. Administration (FEA) in their " Project Independences Report.d More recently, a refinement of the FEA model was reported' in"'Netional.

Energy Outlook (February, 1976).14 One impact of this reffnement was :: '_;. 3-a reduction in FEA's projections. Furthermore, this report providid results on a regional basis.

In a'11, the nodel provides three projections of futiere national electric energy consumption: 1) the refe'renck case.

which does not assume passage of any energy conservation actions but does

(

include the conservation effect of higher energy prices; 2) the conser-vetion-case, which represents the reference case as modified by conserva1iio'n

actions and load management programs; and 3) the electrification case, which incorporates into the reference case certain measures aimed at substitutir.g coal and electricity in place of oil and natural gas in the-commercial, industrial, and residential sectors. Under the reference case, wM oil at $13/ barrel, electricity consumption is predected to grew nationally at 5.4 percent per year between 1974 and 1985. Under the c~ nrvation and electrification cases, electricity consumption is pro-facted to grow at 4.9 percent and 6.4 percent, respectively.

t :.

-- : -..- 2._.2

" Project Independence Report," Federal Energy Administration, Superintendent:

'of Documents, U.S. Gov't Printing Office, Washington, D.C., Stock. Number 4118-00029.

14" National Energy Outlook," Federal Energy Administration, FEA-N-75/713, February 1976.

l 1

. 20.

These national results simply constitute an aggregaticn of estimates prepared on a regional basis and in actuality elasticities and projected changes'in the independent variables exist for each of-the.nine-census

~

regions in the U.S.

In addition, for each region, el,ectricity consumption is7 forecasted by. major customer class: residential, commereja1. anii,,,,,[,

~

industrial. Consequently, based on the distribution of} ales,among m' jo,r, ]

• • ~T3 a.

4

~

~cus'tomer classes, one can use the regional results to} estimate growth

"~~2 j

+----" irr ' electricity consumption in a specific service area., This3,rocedure

,~ ' ',,,,

requires one to accept the assumption that the struct6ral'coeffic3ents

~ ~~

'e - 'F' and their projected growth rates that were developed on 5}egional, basis n

~

I are representative of specific service art:as within the region.

The FEA forecasts energy sales for the time period 1974-85 by major Census Region. The relevant geographic area is the East North Central I

Region which encompasses the States of Michigan, Wisconsin, Illinois,,

i Indiana, and Ohio. The forecasted growth rates for this region under the reference scenario are 8.15 percent for the residential sector, 3.90 3

)

percent for the commercial sector, and 2.65 percent for the industrial sector.15 Sales to others will be assumed to grow at the same rate as i

the average of the three major classes. The staff assigned weights to each of the growth rates based on the present distribution of electiicity by customer class in the system. This assumes that these proportions will remain relatively unchanged over the forecast period. This approach produces an annual compound growth rate in electricity sales through 1985 of 4.79 percent for CP, 4.55 percent for DE, and 4.66 percent for MECS.

The calculations appear in table 8.

Ifbid., page C-28, Table 13a.

F

=r- - -

w^--,

---+

w--

_21_.

TABLE 8

- : - -' e: -- :

t-DERIVATION OF CP'S, DE'S, AND MECS' GROWTH RATE IN ELECTRICITY.t:

~ " ~ '

SALES, 1974-1985, USING REGIONAL FEA MODEL b

Percent of*

Forecasted

. :-Contribution td ;i-

Customer CTass Total Sales Growth Rate (%)

5.ervice Area Growth Rate :

~~

Cons'mers Power

- ' ' : 12 = - :

~I:

T u

1: 1 :-<

..........2. 59 " ~ ~ ~ ~ ' '

'"~

m,... Residential 31.7' 8.15

.. Comme.r. cia.l.

22.3 3.90 O.2i7 *

~#

~

~ ~ ~ ~

.Industri.at.

40.9 2.65

'.. '. ~. ~. ~ 1.'08 ~.....,....;

~

. Other 5.1 4.90

' 0'. 2 5 ',. ~. ~ ~ ~ ~....

c.

. Total 100.0

4. 79...

Detroit Edison Residential 29.8 8.15 2,43, Commercial 17.3 3.90 0.68 Industrial 51.0 2.65 1.35.

Other 1.9 4.90 0.09 Total 100.0 4.55 Michigan Electric Coordinated System (CP & DE)

C Total 4.65 a - 1975 sales distribution as reported to ECAR b - National Energy Outlook, p. C-28, Table 13a, Residential, Commercial, and Industrial forecasts for East North Central region. Other is the average of the above three.

,c' - average of total growth rate for CP and DE weighted by total 1975 sales.

i l

l

.22 -

1

~

~ The forecasts of electricity sales become the basis on whicf peak load',*

~

demand is projected. That is, once electrical energy growth is projected,

' ~. '

['

.the analyst must make a determination as to the likelihood of whether peak::--

~

load will grow faster or slower.

In most instances; utilities are fore ~

4 casting faster growth for peak load than for electricity consumption.

.: :_- +-

. ;This is true for DE, although CP assumes equal growth,between sales and..

, peak demand.. Historically, peak load has grown considerably faster than,.

m ergy sales. For example, for all U.S. utilities, between 1963 and 1973.

electrical energy consumption grew at 6.9 percent.per year and non-coincident peak load grew at 8 percent per year.

The FEA regional results cited above reflect the FEA's reference. scenario.

Presently, this is the only scenario for which results are reported on a-

~

regional basis. An important assumption underlying the reference case is the continued deterioration of the load factor with peak ' load growing a modest one-half percent faster than electrical consumption.16 Thus, the FEA regional forecast indicates that peak load in the relevant service areas will grow at approximately 5.29 percent, 5.05 percent, and 5.15

~

percent for CP, DE, and the MECS respectively (or one-half percent faster than the gmwth in energy sales). Applying these growth rates to the appropriate 1974 peak demands enables one to obtain estimated 1982 peak demands which are based on the FEA's regional model. These values are presented in Table 9 and contrasted with the companies' cwn latest fore-casted values.

TABLE 9 1982 PEAK DEMAND FOR CP, DE, AND MECS - COMPANIE5' FORECASTS :._-

VS. FEA'S EAST NORTH CENTRAL FORECAST-REFERENCE SCENARIO 1982 Peak Demand FEA East North Central Company Forecast (1976) Forecast-Reference Case We We CONSUMERS POWER 5840 6206 DETROIT EDISON 10051 9809-MICHIGAN ELECTRIC CO-15891 16015 ORDINATED SYSTEM IIIbid. page 239

- 2T-0nce.again, the company forecasts appear reasonable. Relative t'o the.

~

...... _ m

~

'"FEA forecast, CP's 1982 estimate understates peak demadd id'T982'by'Ibout-~~ ~ ~

360,MWe,and DE overstates growth by about 240 MWe. Mori;importantlyi'the ~

. net effect for the coordinated system (MECS) is an understatement on the ~

~

_.part of the companies by about 100 MWe.

~~

n -- ;

n.e : :. --

c-i

_..Jhus,_ based on the three independent. analyses reviewed'by the staffi'wk I

.g. conclude that the Companies' forecasts provide reasona$te estfinates'ofr~ O..

. projected. growth in the MECS service area.

In the resif5fng'sectionPof*C *

.u.

~

~~

this testimony the staff will attempt to determine whdtfiir'oFnot tfiiseR"

~~

forecasts give adequate weight to future conservation 4avings in'the service;"'

I

~

area.

~T

~

~~

CONSERVATION Since late 1973, this country has developed numerous phgrams in an effort to conserve our scarce energy resources. The conservation of electric energy has been an integral part of this endeavor. All levels of govern-ment, as well as the electric utilities themselves, have initiated policies encouraging the " wise use of electricity.

Essentially,.these programs are designed to discourage physical and economic waste korder to reduce current use rates.

The applicant is actively involved in promoting conservation measuras among its customers. For example, as of 1970, promotional advertising was abolished and advertising campaigns and educational piograms were limited almost exclusively to encouraging conservation.

In addition, the applicant discontinued the sale of electric appliances in 1972.T7 To;a. large. extent, -- -

a utility's conservation program -- as it relates to consumers - Ican be"

~~

little more than informational in nature. Once the consumer.is made aware of the seriousness of the problem and the means to correct wssteful use, it is up to the consumer to effect a change. However, a. utility can also --

practice conservation within its own operations and CP has done this. The applicant's internal uses of electricity have been cut by almost 30 percent.8 l

I7 l

C.P. 's Environmental Report Supplement, October,1976, p.1.1-2..

18 Ibid., p. 1.1-5

- : s :--

Our-ability to separate out and quantify conservation's i.mpa.c.t..rel_a_tiv__e__:.

s.

. to higher prices, a sluggish economy, and various' other factbrs is very [,

r :--

. difficult. Technically, conservation--that is, ' conservation apart from. " "'

.. v :-any response to changes in relative prices of electric.i.ty and'oth..er gobds and services-represents a shift in consumer demand curves rather than a"'

movement along the demand curve. The shift would be' 5E to chabgdb~1kkrlb-[

+ 2:utable to taste preference factors such as a new conservatio.n ethic rather

.n -

7: - e.:- m thart real inc'ome effects.

In explaining the absence of"s.ighTfica'nt growth ~~

~

=irriadh sales since 1974, we cannot at present resolve'~thi ~rilcti' e Fole 6f-~ ~ ~~

v

-s = - -- :

_. ;- g - - ~;. - - -- : c --

nonprice-related conservation because so many other fa.ctors were changing

~

rap-idly during this time period. And even if data problems were sur...

mountabTe, semantic differences would remain. At one extFem4, some w6uld'.

probably argue that all savings in KWh of electricity would have been realized even in the absence of rising real electricity prices, the economic slump, and mild weather, as consumers became aware of the poten-tials for such savings. At the other extreme, some would argue that all savings are economically motivated. The truth, as it often does, probably lies somewhere in between these two extreme viewpoints.

~

_The applicant has made several attempts to identify the~conservatian response that has already occurred between 1973 and 1976. In ai1975

~

survey of comercial and industrial firms, ordered by' the: Michigan Public Service Comission, the company has ascertained that most firms have re-duced lighting levels, that about 20 percent have red'uced ventilation energy, and that, 'in certain instances, electric water heater temeM';res have

..been lowered, equipment has been shut down during work ~. eaks., and thermb~- -

. s. tats have been lowered in winter and raised in sumer.g~

i -

2 rn-

......-.Q__n...,

' Th'e applicant's, an'alysis' of conservation savings among residential and.

~

comercial customers in its service area generally indicates. a dimini-shed.._.

~

response over time.

In the winter following the energy crisis. these.,

IIIbid., p.1.1-8.

I

. ~. _

_._ ~.. _.__._,

' -c g

~

L

+ :-

3 'I !" ' C

4. 2 customers reduced consumption by about 4.5 percent.,Howevir,'in iub2

. sequent heating seasons, absolute increases were registefed'.' One' F exception to this pattern is energy use among residentiil electric '

2 space heating customers. Here, declines in winter eneFgy'Ose have:per-20 c

.e m7 m

-..... sisted-each year, although at a decreasing rate.

'c. + e -

- : - - - + : e r ; :

-t-,g-;.

r.-. y gThe appl.icant - states that these conservation responsiFhavi; bisn;fac't6Fhd5'

-- inta its. latest forecast via the inclusion of the sloiiuowh'in gF6sth F E=

exper.ienced over these latest years. More specifically,"the hpplicintt h'a'b "

2 identified several parameters, u' sed in its forecast, thit'hiM'beeipidjdstid :"

to. reflect future conservation savings.

For example, ih the residential -' :i sector, the growth in average use of electricity by risidential doinestic customers is now projected at one-half the rate that 6ccurred during the 1960s,. The present fo: ecast also assumes that 10 percent 6f new, elec

' ~

trically heated' homes will have heat pumps by 1980.

In: the industrial

+

sector, conservation is reflected by the assumption that the ratio ' f

~

o electricity sales per unit of the forecasted Federal Reserve Bank (FRB)

Ma'nufactures Index will level off in contrast to the historical exp,erience in which this ratio has increased at about 4.6 percent per year.

In the comercial sector, the applicant simply states that conservation will c6n-tribute to a significant reduction in growth from historic levels but does' not identify how this has been factored into its model'.'

In 1974 the Michigan Pub 1ic Service Comission carefulli examined the

~

CP and. DE forecasting methodologies and assumptions. - An important conclu-sion of this report was that the companies did factor 46nservition into

j their forecasts and in the opinion of the MPSC staff, did so in sddh a w&i'

~

as to overstate its likely impact on future. growth..After reviewing the

• s forecast assumptions unde by both utilities, it was the_ project team's opinion that:

....the impact of the energy crisis and projections of slow economic growth on future demands for electricity have been overstated. As a result, both uti-lities' forecasts of 20Ibid., p. 1.1-7.

.~,

. _ ~... _

~.

maxinam demands are lower than what might be reasonably projected if the potential impact of these factort:were -n;:e:

assessed differently.21 1..c c ---

. c. - - -

1:-

g _

With respect to residential demand, the opinion of the. project-team.-was -

that:.

- ::5: iz :

. i: -

._....,..,,... _-_"..the impact of conservation pressures on residential

~

_. ' ' ~ customers to cut back on their electric usage would: nota -

r :r _-c

~

be as significant as both Detr.oit Edison and Consumers ;e.=- t-e. r+

Power. assumed in the 1974 forecasts."22

- 3:-

=--

u e : :e: :- :-::

e:

+.-.

5-

.. 5

'Specifically, the project team questions..."...the drastic decrease.in--

the. growth of average use..."23 which CP has since. identified as reflecting-

~'

conservation savings. The project team felt that..."mless of a reduction seems warranted"24 based upon the following reasons:

Voluntary conservation will not continue at 1974 levels-for the ' duration of the forecast period. The Company's recent monthly reports support this.

- Appliance efficiencies increased as a result-crf.the

.+:

energy crisis will n'ot immediately affect average use because of the comparatively long term turnover for-major appliances.20 With respect to industrial growth and the specific conservation-assumption --

...... ~

that the ratio of sales to unit of FRB index would' level off; the-project.

" Growth in sales per uni.t of output-isi:for.:

' team concluded that:

. similar reasons, unlikely to cease."gg The team reasoned that:--

21MPSC Study, p. 2-4.

22Ibid., p. 2-11.

23Tbid.,p. 4c73:

24Ibid.

25 Ibid.

26Ibid., p. 4-76.

l I

l

~

27-

~

- u.z - - :--

,1?

T.-

C S 2 ' '.E i ':

T

I '"

5: 3:

- :-ns

" Efficiencies of operations will be offset by environmentas

~ ~~

requirements as is the case in sales to General Motors.

,~~

From this analysis, it is the project team's opinion thhY:' '

'r "'~

the company's forecast of sales to other industri&T customers is very low.'g7 Ci'CI" "

.u..:...

1. n

. ca r-

~

With respect to comercial growth, the project team acknow1' edged 'coh' Ci"-

M sideration of conservation within the applicant's forecast ind+fouhd ':-

~

its comercial projection reasonable.28 In the aggregate, the MpSC project team repeatedly reached the opinion' that the companies are understating futura growth becadse-they'are giving too much weight to conservation savings over theiforicast period.

Yet, in spite of this criticism, the. applicant's present forecasted growth rate in peak demand is even less that that being forecasted in 1974.

The staff believes that much uncer'tainty surrounds estimates of future conservation savings. We recognize that several existing studies

~ ~

indicate that the technical potential of electric energy conservation is indeed considerable. However, one must distinguish between potential energy savings and achievable savings. The staff ~ believes that in order for.

important gains to occur, government sponsored incentives, mandates, and legislation must be forthcoming, and in their absenc~e, thedmpact 1~

,},'

of' conservation on future electrical use and demand w'iTTTik~ely Econ; -

I siderably less than the maximum technical potential.

=r "I~

~

+..:

26Ibid., p. 4-76 27

~

Ibid.

28Ibid., p. 4-74, 75.

e.eer*

t

-t'**

. w ee.

mm e -

e.

.w-v

--w,-

m-

---

w-w w

-yww,n---,e-www' e

-g-

-M

i l

However, one study suggests that even with important technological break-

)

throughs, government subsidies, and large conservation investment, the i

~

more dramatic forecasted conservation savings may not be realized. The, -...

FEA has projected annual kWh growth through 1985 under a conservation.

. :- l 2 "~~'

1 scenario which includes:

thermal efficiency standards for new buildings,.

appliance standards and labeling, an insulation tax credit, Tan (trdustrial : t::-:

energy conservation program, and increased dispersed solar $fpment.'

e-The program has been characterized as an aggressive one, with the comitment

• 2'2 ~, ** oT$250 billion over a ten year period in conservation' Thvestm ntrircitle r-C e

~I'2

• ~~ "en~ergy markets. The difference in the results generat~ed thicugh this" 1-'-'

scenario vs. the FEA reference case is a reduction in the growth rate'ofs:--

electric utility dutput of 0.5 percent per year.over the p4Fiod 1974-85.

Thus, given government incentives, and the expenditures ' f hugh sums of o

money for technological developments, growth in kWh sales is not eliminated,-

=,

~

but simply lowered by one-half a percentage point a y~ ear, which ~results in -

~

~

a fall-off in sales of about 9 percent relative to the FEA reference case. - -

In the opinion of the staff, the foregoing discussion provides support for the applicant's position that conservation is adequately accounted for in I~*

itis present forecast. And in the event savings shoiald exceed present esti mates, the staff feels that countervailing forces exist which~ may offset an increased conservation res'ponse.

l

.~.. - -

• * :f i ii. ; !

T- - ~- -

.e l

~.

' 'i:~ - ~ :" f SUBSTITUTION

--, - -. :. g,, 7 Since the new emphasis on energy conservation has risliFted pWndfpaTTf - ::' '

, from the energy crisis, it is equally important to fn~qufre;'as~ to Mh'a0 7-

~

2

extent will the future substitution of electrical energi foY fueTs in"--

~ ~ ' ~ ~

~.shor~t supply -- namely, oil and natural gas -- tend e increase the.m

~

dAmand for electrical power and thus offset the impacts'nf:conservetfort :

.u:

" ~~" measures.

v n ' =r:-+.2: :-

m~c. '

• a

~.

- =-

~

" ' ' " Rec 5gnition of this' positive stimulus to future electtical -demand has.

e-been frequently noted in the literature. Preliminary: data :already in- - "+ -

dicate shifts by consumer groups due to price and supply consideratfuns - - m associated with natural gas. For example, for the residential sectori.- -

for the first six months of 1973, the sale of gas ranges was down 0.6u perce:1t from the year before while electric ranges were up 12.6 percent over the same time period. Water heater sales suggest a similar trend;

.. gas' water heater sales up 1.2 percent versus electiic water heater sales up 18.4 percent. For gas and electric dryers, sales of electric models increased 17.5 percent versus an increase of 5.5 percent for gas units.

And in the spaceheating category, gas fired units were down 9.3 percent

- l vers ~us a 15 percent increase for electric models.

In 197.4g-the-Electric Energy A~ssociation predicted that for the first time more -thart half the 2

newly built homes in the United States would be heated electr.ically.9 Recently, the 50th American Assembly held a symposium attended by 62 experts from government, industry, and the academic comunity where the following general consensus was reached:

For U.S. eTectric power demand, it wis felt that although growth would probably be less than the historic growth rate, it was unlikely to be less than 5 to 5.5 percent in view of the need to substitutt electrical energy for some present uses of oil and gas du 295ee for example, " Energy Crisis Alters Power-Use Pattern," Electric World, January 1,1974 and Sanford Jacobs, "More Homes are Using Electric Heat,"

Wall Street Journal, February 18, 1974.

30The American Assembly, Columbia University, Report of the Fiftieth American Assembly, April 22-25, 1976, Arden House, Harriman, New York.

1

--m-.

,+.._ _., - - -

-m._,-.

3 ~,

s

,~ y g

Natural Gas - National Perspective

,, i,-. ( -

't i

-' As~ early as 1969, it was recognhed by the Federal Power. Commission!s.

(FPC) Bureau of Natural Gas that the nation would be facing difficulties.

C

of supply emerging during the period 1969-73.31 The shortage indeed;...

~

appeared such that by 1971-72 the major pfpeline companies and.distribg_,

~" '

2M i utors in most parts of the country were forced to refuse requests for.. n

~

additional gai service from large industrial customers..and many new i

customers. By 1970, ninety-five percent of the proven reserve inventory C~

U

wa's= already comitted to gas sales contracts and was therefore unavailable-:.-

- for sales to new customers.or foi increased volumes te_old.cystemers......

- Availability had decrea' sed to such an extent that it became necessary for. ;.,

the FPC to curtail service'on interstate pipelines and to. issue guidelines and priorites in meeting comitments to gas customers}2 Natural Gas - State of Michigan

~

~

In 1970, gas. requirements in the state of Michigan wehe approaching one trillion CF. Today, because of curtailments on the major interstate pipelines servicing Michigad, the available supply approximates 900 bil-lion CF, or a short-fall from 1970 requirements of about 10 percent.

s '

a result of this shortage most Michigan gas distributoYhave not~ hooked

~*

up new comercial and industrial customers since 1970. Today, only one distributor continues to service new non-residential customers but does

~

so on a selective basis. Thus, the 10 percent short-fall in supply may.

be misleading because it does not take into account most of the grcwth..

in gas requirements that would have occurred in the co;mercial and in-,, ~ _

dustrial sectors between 1970 and 1976.

~

~~

~

l_,.

+ = r--

In recent years, the applicant has observed some minor conversions to electricity o,n the part of CP customers.33 For example, in the-industrial

- sector during the last 6 to 8 years conversions to electric furnaces have t

31 Federal Power Comission, " National Gas Supply and Demand 1971-1990,"

Staff Report No. 2, Bureau of Natural Gas, Washington;-D.C., F=Lrwy--

1972.

32 38 F.R.1503 (January 15, 22, 1973).

33 Consumer Power 'Compad,' Environmental Report Supplement, October 26, 1976,

~

pp.1.1-14 & 15.

~31-resulted in the addition of about 200 MWe. Recently, a na.tural gas.r.-

i t

[

..-- : pipeline company replaced gas engines with electric motors resulting

-- in a small electric load of about 2200 KWe. In addition,'CP ha received

~~

s

~

. numerous inquiries from industry, including one from one of[ltb largat

[;

--n:.

~ _,

, customers, to discuss contingency plans calling for ennve5 ions to,,.

-: _ a 3:.5:- electricity. New comercial and industrial buildings'iiid'pHvht'e res% ~ -. --

--r 2:

-dances are also installing electric heat with much greater frequenc:y.

-,. r 2-

--For _ example, since 1970, the number of homes heated w}ith el'edtrf{ity(,

e-r< ---

--has more than doubled (18.6 thousand vs. 39.4 thousandTiin~the CP sys' tem.

.u uE a.

~

~'

..;The results to date indicate that although electricity isincreasin~g fts' marke't share relative to other energy sources, the tr[an' sit' ion is slow i'n

~ l coming. The Governor's Advisory Comission on Electric Power Alternatives,,

acknowledges that the substitution stimulus in Michigan is really not effec- '

tive at the present time anci attributes.this to the fact that increases in

-l the price of natural gas have 'not yet' matched those of hthe:- fuen. Mc=6;c, l they conclude that' shifts out of nitural gas should pick up momentum in-the - l

~

next decade and ultimately predominate over those factors such as con-servation which-tend to reduce growth in electricity demand.#

~

Specifically, they identify the following substitution factors. as. items.

35 that will increase the future demand for electricity. in Michigari

. Natural gas, historically the space-heating fuel of i.hdice, will become, less available and/or much more.

expensivait in real dollars. As natural gas becomes -Jess,,--.

~

~~~'

~

available and/or more expensive, space-heatinp 4nstalla;tions :n,,.

will turn to oil and electricity.

. New and more efficient forms of electric heating 'and cooling, such as the heat pump, are being developed and put into widespread comercial and residentia'l use. 'As such developments make electric heating and cooling more kvernor's Advisory Comission on Electric Power Alternatives, Final Report--Facts and Recomendations, State of Michigan, Lansing, Michigan,.

August,1976, pp.19-22.

35 Ibid., pp. 19-20.

w.

--e--

r-

---

w

--w-w-

e---

w. - - -,,,

-p+.ey--.g

-.g+*-c-er

^

~.;.,

32-i

~1 desirable, they will increase its use in newand,-to some-( 3::-- --

~

' ~~~~~~

~51-extent, replacement applications.

-:, - -i

-s m:

. The low capital cost of electric resistance heating makes:- '

it attractive to builders of both single-famiWand multiple:

dwellings.

(Over 50% of dwelling units comple'teffit reEen't 1--

j

, [],[,,

_j, _,

years contain electric heating.)

il ~ r '

+ 22 T 1

33 --.. ;

-q;

. Uncertainty of future price and availability. of, natural ga_s

--..t - ~ 7 -

and petroleum-based fuels has led to increasQ ejpierime,ntation

~

m --

5. ---

and commercial development of devices which run on electric power..

y.

36 Another study also acknowledges the importance of substitution on

~

future. electric demand and identifies these shifts as being long-term,

in nature. The authors of this study conducted a suryey of the major energy consuming manufacturing industries in the United States to determine the effect of potential short-falls of fossil fuels on future industrial electric energy requirements.

The 15 most energy intensive manufacturing groups were selected, repre-senting over 90 percent of the energy consumed by the industrial sector i

in the United States. Ten companies from each of these groups were selected for interviews and in all,142 companies and approximately'25 trade associations, electrical equipment manufacturers, and electric utility industry representatives were contacted.

-:~'

3:--

0f the 142 companies surveyed, 80 percent indicated that they expec),a.

f l

short-fall of certain t;ypes of fossil energy and 61 percent pMn:siinifi( ~,

cant changes in their energy mix during the next ten years and have deveToped contingency plans. Of those companies expecting to make.

energy use changes in the imediate future, most anticipate greater-re-

~

11ance on oil, apparently due to the ease of conversion. However, although 36 Potential Fuels Shift--A Survey of Contingency Planning by Manufacturing Industriee in the United States, A Report by Store & Webster Manufacturing Cp3ultants, Inc., for the Edison Electric Institute, May,1976.

c--

V w=i=

-i-we,c

-a.

+e-+-v' ew e-w-

---

wa e

---+9%

mv-varew w

9

- e1; oil will remain the dominant alternate fuel for the two to five y. ear.

.. -=-

_imediate period, increased shifts to electricity and to new coal' " ~

T~i

~'

laphlications are anticipated. This study concluded that....."ovePthe 1c.3g term, the number of companies is.i.ng_ coal and electricity is ex! 'P pNted to increase significantly.37

. e s::v-

+

" '~ ~Ind6strial activity in the state of Michigan is concentrated in theJower-

'*15*

"2~7&iiinsula where CP's and DE's service areas are located. According f.o -. r_.. 2

~" '~"i the Census of Manufactures, the 1972 manufacturing activity in those-3,

counti,es serviced by MECS accounted for over 95 percent of total:manu-

~

facturing payrolls and value added.

Furthermore, those manufacturing

~

activities that predominate in Michigan also happen to berthe most energy.

intensive.-For example,' the 15 most energy intensive industries, as

' identified in the preceeding survey, account for over 95 percent of-Michigan's manufactures value added.

+, -

~

~

The staff has attempted to calculate the potential level of conversions and translate this to its effect on the growth in electricity in.the MECS's service area. The FPC's Bureau of Natural Gas has adopted a -

i

'polict which includes reallocation of available natural gas.away from3-

+...

ri' ' : low' pHority use together with conversions to alternate-fuels for:alb- : - - -

~

fnterstate gas supplies.

Industrial use, of which manufacturing is a -

' subset, has been designated a, low priority by the FPC. Approximately----

90 percent of the natural gas consumed in Michigan enters the. interstate supply' system and thus comes under the authority of the FPC. 'Just viewing manufacturing activity, one can demonstrate that electricy growth, via natural gas substitution, can be significantly expanded.

1-37 Ibid,,p.4.

• -*w 6h ees eme,

p - a aume seri. -

eaw.

g, y+-g.

3 7--.

,-,y, e-

,w-+

g-m er e.-e'sw w-

, s 1.

i

. \\,

_..,.3 In summary, the staff believes that the existing shortage of. natural. ;...,

: gas:in the state of Michigan and the uncertainty of future supply offers.

significant growth potential in new electric loads in the MECS service.

area over the forecast period and beyond. However, it 5ust be emphasized

+s-

g..

e.

+-

that just as with conservation savings, there is no guarantie that sub.

t-

-ei-:.

. e := : n stitution's full potential will be realized. Rather, its inclusion here appears warrented to simply identify a potential off-setting influence e

-. to conservation.

... 3 g_ --

e :e

~~

i

)

t l'.

i

\\

\\

~

.e :.

+-

5 :-

+ 1:-

O

=

... _,