ML19329F256

Deposition of Ah Meltz (NRC) Re Financial Costs of Delay. Ah Meltz Prof Qualifications Encl

ML19329F256
Person / Time
Site:	Midland
Issue date:	11/05/1976
From:	Meltz A NRC
To:
Shared Package
ML19329F251	List: ML19329F250 ML19329F256 ML19329F257 ML19329F258 ML19329F259
References
NUDOCS 8006230773
Download: ML19329F256 (7)

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UNITED STATES OF AMERICA _ '

NUCLEAR REGULATORY COMMISSIONn',-,,,,.,

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'BEFORE THE ATOMIC SAFETY AND LICENSING BOARD

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in-In the Matter of i

.:r. :::. CONSUMERS POWER COMPANY Docket Hos.350-329 : 3 -.; r :-,,--- --

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NRC STAFF TESTIMONY OF ARNOLD H. MELIZ..... _,

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0N THE FINANCIAL COSTS OF DELAY (EXCLUDING REPLACEMENT POWER) ~

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Gilber.t.S. Keeley, the Project Manager for Consumerf Yo,w,er.....

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Midland nuclear plant, filed an afftdavit dated October.2,2,.j976

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(Affidavit of Gt1bert S. Keeley on Behalf of Consumers. Power: Company) ce:-

in support of " Response of Consumers Power Company" to the October 13,

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1976 letter of the Commission. A portion of this afftaivi{ deals with

'-'the delay costs associated with suspending construct!on for3ftva months-s and nine months. Attached as Exhibit 3 to this affi'daHt if a comparison i

of the current budget, broken down into major cost components, with those l

which would result from a construction suspension for the periods men-1 1

tioned. According to the data shown in Exhibit 3, the current budget for.

the Midland nuclear plant is $1.67 billion and a nine-month suspension in

, construction will boost the total plant cost to $1.92 billion, an increase of' $2'50 million. As shown, these figures do not include nuclear fuel costs.

The purpose of this testimony is to provide an explanation of what the

$250 million consists of, how it was arrived at, and how one might assess its magnitude.

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C tC' Exhthtt 3 indicates that aliout $12Q million, or almost half of tha

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l projected increase, is attri5uta51e to the allowance for funds use.d

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during construction (AFUDC). According to the Federal-Power Com-mission's Untform System of Accounts, AFUDC includes 7tha. nut' costifor. -

y.. n the period of construction of Sorrowed funds used for"constructtert. - -..

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purposes and a reasona5le rate on other funds when so used." Therefore, 7,,,,

, AFUDC is equivalent to the cost of capital used over the perted of con ~

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. struction: interest charges paid on debt, dividends paid on preferred..

stock, and a fair retur.1 on the comon equity. Although these costs.are-properly includthle in the electric plant accounts as-a: cost of construc-

-tion, ratepayers normally do not provide revenues to cover these-costs.

until the construction is complete and the planc goes into comercial.

operation. Since construction work-in-progress is not generally con-sidered "used and useful in the pubite s',ervice," it is not-allowed into.

the utility's rate base for rate setting purposes. This means that.

Consumers Power Company and most other electric utilities with large.

construction programs expend sizeable amounts of money on whicit they receive no cash return until the "used and useful" tes.t-ts satisfied.

.. Over the period of construction, the costs associated with construction

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, activities, including AFUDC are capitalized on the books d.the.uttittyn :- /s as part of construction work-in-progress. An off-setting credit is then made on the income statement under "Other Income." The dollar amount of AFUDC to he capttaltzed is computed By multiplying the. weighted average

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The staff has determined that when the Midland units come on-line in 198T and'1982, they will have the lowest production costs of any unit, dU with the exception of Palisades Nuclear and hydro capacity, within-E' the appl.icant's system. It is therefore of some economic concerif'tb : ~9 P the appTicant.and its customers to have Midland availabTe as scheduled.

Clearly, if the Midland units are delayed, Consumers Power Company (CP) must seek out alternative power sources to make up power that would have been forthcoming from the Midland units. Since it is logicaT*to: assume *-

that the least cost units will be used to' the neximum, 4ndependent of 7..:,

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whether Midland is on-line or not, all alternative power sources available to the applicant will be more costly and will require the uSTity' to

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incur incremental costs. The cost differential between producing the energy with Midland vs. the alternative constitutes the actual cost of the replacement power.

The selection of an alternative power source is not something one can readily predict. Logically, the utility will utilize the least expensive ----

alternative available. However, what is, available will depend orr:tfie "

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demands existing orr the system in 1981 and 1982. Seasonal patterns,as.

well as diurnal patterns of denand will affect this choice. Also, flexf-bilities irr the utilities planned outages and maintenance checks may well after ' the final selection. Depending ort these factors, replacement power may be supplied by some combination ~ of base, intermediate, and peaking units on the system, or thru outside purchases, or the creation of additional capacity.

For the sole purpose of our analysis of the cost of replacement power we conservatively assume littTe or no growth on the CP systenr. Consequently, the cost estimates developed herein are modest as they assume that the applicant wi1T be able to make up the energy deficiency internally thru the utilization of existing capacity. It is further assumed that either coal or oil fired units will be available to make up the energy differences.

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The cost of replacement power refers to the cost differential during that period of time between the presently scheduied availability of the

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. Midland units and the date of availability that wouTd' occur as a resui.....

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"f the proposed suspension, the relevant time period'is 1981-T982.

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".~. ' 7 Ih 1981 and 1982, the nuclear fuel cost is estimated Et.6'9-ahd".7.4 *,.,...

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based on infonnation previously presented in testimoliy' at' the W6Tf Cr sic.,. *.

e h"ehring'.F Here, it was a'ssumed tha't the nuclear fueWosPfhuWeN~aW~ tie

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In this testimony the staff utiTized.,,,

aJ number,of sources of infonnation in preparirs its nuclear fuil, cycl.......

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The estimate considers the various fuel cy..le......coinponents -

~~ cost estimate.

c The first step was to avaluate i974'estiniaEes of -

as identified by ERDA.

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'" AEC and update these costs basea upon latest available inform

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" source of these updates was to contact ERDA experts inost closely associated...

with the various fuel cycle components together. with espi~i+.s ih the iirivate l

sector, particularly regarding U 0g price forecasts. The results of these 3

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efforts are reproduced below as Table.l.

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- ---. g ;*g In.198T and 1982, the coal fuel cost is estimated at 12,4.and'13i0-

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mills /kWh respectively and for the same yeen the oil fuel. cost-is estf --- --

-mated at 28.0 and 29.4 mills /kWh. These values are also-in:1981-and.:--

1982 dollars.

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These coal and oil estimates are derived front average-priceszpeid for ---. :.--

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coal and oil for steam-electric plants in Michigan -ind975.as quoted irr Table 13 of FPC News of March 19, 1976. TiiStaI'Elid used aIrh

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1 iresentative eautyalent for.1 IGihTf electricity of 10,Ifo~ BTU *siof[ coa 1I -

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or oil. _In.. addition,1375_ prices..were escalated..at.50per. annum (see:

Enclosura 1).

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-Thus, the average fuel differential between nuclear and coal-is approxf-r -

mately S.5 mills /kWh, and between nuclear and oil, it-averages.out at about 21.5 mills /kWh.

TSame as Source for TabTe 1.

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.These price differentials are then mulitpifed by the,numbiei-br kWh'YoF ~ "",

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....... nuclear generated electricity foregone due to the ddlay.". Asi'using'a ~ ~~ ~,,",

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...,. 65% capacit;y factor, the Midland. units. would have been i:apable~bf

generating 0.6 billion kWh per month. Thus, if the ene:rgy:i:s:m: d:e up.t:e.1.:-

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..,,,with coal units, the cost of replacement power wuTd approxima.te 3.3

' 'million dollars per month. If ofi is the alternative,#i;he* cost

• rep.lacement power would approximate 13.0 million do1 Tars p,..

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.. Table.Z.shows the cost of replacement power per month.under different.u ass-.

., capacity factor assumptions and under different al,ter6a.tive'..fue.T~ ~~. '--..

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ESTIMATED NUCLEAR FUEL GENERATION COSTS

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(1982 DOLI.ARS)

Cost Component Mills /kWh Mining and Milling ($40/lb of U 0 )

2.33 3g Conversion to UF -($2.57/Tb U)

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... Enrichment ($128.50/kg SWU)

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Fabrication ($171/kg U)

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Shipping and Reprocessing ($249/kg U) 1.07 Pu Credit ($26/g)

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Carrying Charge (at Ibi)

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- - ~ Source: Supplemental Testimony of'Darrel A. Nash.before the Ato.mic Safety. -

and; Licensing Board, Wolf Creek Generation-Station, Unit No.1,,

. March. 1976.

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',E'J6stificition for a-5% Per Annus Escalation Rate for the Price of.Coel-Several steps were taken to arrive at a 5% escalatiun rai.e for projecting the price of coal. These steps includedf

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A. A review of the current literature on the subjeEt matter _

This included an examination of:

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(a-) th,_e National Energy Outlook-1976 prepared by' the Federal Energy Administration, L' e. -ha:;e=

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A' Study of Coal Prices prepared by the ExeEutive'

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Office of the President, Councf1 on Wage aS Price StabiTity,and (c) several other reports on fuel price projections pre-pared by, among others. Arthur D. Little, the' Federal Power Comission, and the Environmental Protection Agency.

B.

Collecting computerized pricing data on recent coal deliveries to every electric utility in the U.S.

This data was obtained.on a computer tape from the FPC.

C.

Discussions with knowledgeable individuals in the field of fuel pricas.

This included discussions with repre-sentatives of FEA, FPC, Arthur D. Little, and Sobotka and Company.

In making this recomendation on projected coal prices,. it is recognized that by simply escaTating the 1975 price of coal, one ignores, to a degree nany of the factors which might influence coal prices in the future For example, there are several factors which would tend to Tower the future price of coal. These factors include, among others, the avaiTahiTity of vast suppiles of western coal and the relative ease of strip mining operations in the west. On the other hand, there are forces-at worlt which could substantially increase the price of coal. These include the continuing Tabor difficulties and rising coal miner wages coupled with declining productivity In addition, strip mine reclar:ation programs could add'significant costs tar the price of coal.

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'The staff's approach tot projecting future coal pricktcivMM4be based

- 'on the; assumption that these factors would tend to cancel one.acother;. p.,-

-.. out and that the net effect would be that coal prices wi11 increase at h e' +.

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<r; the nominal inflation rate of. 5 percent per year.

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Based. on discussions with the parties identified in Item C above, ~ ~

the staff's approach to projecting coal prices may be conservative;FEA- -'

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.s representatives stated that in their opinion, future prices ok loEst[Nff ' '

._.., coal will escalate substantially over existing prices in real term. eor ->s and m.

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An FPC representative indicated.that irr real terms, coal prices chn be- '.'

expected' to increase by 50 percent by the early to mid-1980's. - When' this n --,

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. 50. percent real increase.is added to the 5 percent. inflation iate assumed',_.~.

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12.0 percent per year.

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55 Escalation for the Price of 011

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With respect to oil, staff believes that a 5% escalation rate is very.....

conservative given the continued long-term outlook for a shoFtfa11~'in"- - "

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supply of this fueT.

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TABLE Z COST OF REPLACEMENT POWER PER MONTH I

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.... CAPACITY FACTORS COST 0F REPLACEMENT POWER PER'M0ftTNa ~ 5

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(in millions.of do.11ars)

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Coat vs. Nuclear

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-01T vs. Nuclear e:.iarme-. w w h 2:o 55%

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PROFESSIONAL QUALIFICATIONS SIDNEY E. FELD U. S. NUCLEAR REGULATORY COPHISSION

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I am Sidney Feld, Regional-Environmental Econanist with the Cost-Benefit Analysis Branch, Division of Site Safety and Enviromental Analysis of E the-Regulatory Staff of the Consission.

I served wi[tih the Staff from. [._ C.

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July 1973 to August 1974, and rejoined the Staff in October 1975;. -I am :

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responsible for reviewing and analyzing Applicants' environmental reports and preparing cost-benefit sections for the __NRC __.~_ Staff's

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Environmental Statements. 06 ring the 1973-74 period. I conducted generic

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research on topics related to the social and economic impacts of nuclear power plants, including costs of delay, and the potential for population

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and industrial gmwth in the vicinity of nuclear plants. More recently, I have bee' involved in preparing a staff guide for use in instructing n

staff reviewers on the requisite methodology in analyzing the issue of need for facility.

I also presented testimony on need for power and con-servation of energy issues. for the hearings on Alvin W. Vogtle Nuclear Power Plant, April 1974, the Shearon Harris Nuclear Power Plant, May 1974, and the Wolf Creek Generating Station, February 1976.

4 I received a B.B.A. Degree in Economics fra the City College of New York in 1967, an M.A. Degree in Economics from the University of Rhode Island in 1969, and a Ph.D. Degree in. Resource Econctzics from the same university' in 1973. My graduate degree in resource economics focused on the application of economic theory to pubite resources. Areas of study included: simulation of market economic solutions; consideration of social impitcations such as environmental impacts; and tha application of decision tools such as cost-benefit analysis.

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S. E. Fald.

From September 1974 through August 1975, I was an Assistant Professor-

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of Resource Economii:s at the University of New Hampshire at Durham, New Hampshire.

In this capacity, I taught courses in Resource Econonticst.. '.. I and Statistics. I also served as co-investigator on a Sea Grant

:i ".:tresearch' project to examine economic activity in thallet611popshire:. Aeg enai-ir ma=2 ' Ari tcastsT Zone.

husu,vanc:.. Ihv:s or. c' m 5:r" - :r zw 4.ecuie m S:e e :me 4 0 :::e

?%rinnifiscal year 1970, I served as 'the coordinatqr. of W GoverJuut-19

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- s of Rhode. Island's Technical Canunittee on the Coastak 7.pner..- In -tMsreview--: ar:

3 capacity I prepared working papers and parts of the: Committee'.s.Fjna1 : ::s -:e g

:.: -Report.- The Committee's reconnendations were adopted by..the.-S. tate 3 3 3

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- -.::: : tegislature in 1971, leading to the establishnent of,ag. Coastal Zone 3 s.

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. Council and Coastal Zone Laboratory, both of which ara presently the :

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-- state's principal governmental bodies overseeing coastal resour.cas:.. -

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