ML19330A076

Affidavit on Behalf of Intervenors Responding in Part to Util Rebuttal Testimony.Urges Suspension of Const Pending Outcome of Full Remanded Hearings.Supporting Documentation Encl

ML19330A076
Person / Time
Site:	Midland
Issue date:	05/26/1977
From:	Timm R AFFILIATION NOT ASSIGNED
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NUDOCS 8007140887
Download: ML19330A076 (47)

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NUCLEAR REGULATORY COMMISSION q;j.[*f y BEFORE THE ATOMIC SAFETY AND LICENSING BOARD g

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In tho Matter of )

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CONSUMERS POWER COMPANY ) Docket No. 50-329

) 50-330 (Midland Plant, Units 1 and 2) )

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AFFIDAVIT OF RICHARD J. TIMM IN ' RESPONSE TO RESUITAL TESTIMONY FILED BY CONSUMERS POWER COMPANY AND THE NUCLEAR REGULATORY COMMISSION STAFF STATE OF ILLINOIS )

) SS COUNTY OF COOK )

Richard J. Timm, being first duly sworn, on oath statos:

1. My name is Richard J. Timm, and my address is LO38 Cascade Drive N.W., Salem, Oregon 97304. I am currently l

tha supervisor of Energy Planning for the Oregon Department of 1

Ensrgy in Salem, Oregon. I am the same Richard J. Timm who has 1

rc4viously testified on behalf of the Intervenors other than

?ow Chsmical Company in this proceeding, and my cualifications Iraset forth at pages 2 - 12 of my written direct testimony, l

)a supplemented at pages 6081 - 6089 of the transcript.

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2. The purpose of this affidavit is to respond to the rebuttal testimony. offered by Consumers Power Company and by the 4

4 Nuclear Regulatory Commission Staff in this proceeding. That j testimony includes both written material which was bound into~a separate volume of the-transcript on March 23, 1977 (which I read af ter the completion of my cross examination), and additional written material which was submitted by Consumers Power Company under date of May 20, 1977. I should point out, however, that this i

affidavit does not respond to all of that rebuttal testimony. I have been advised by counsel for the Intervenors other than Dow Chemical Company that some of the rebuttal testimony will be

challenged.as improper, on the ground that it does not comply with

the conditions established by Chairman Coufal at pages 6159 - 6163 '

of the transcript. Further, some of the rebuttal testimony does not relate to my testimony on direct examination or on-cross t

examination, and additional portions of the rebuttal testimony concern macter which was fully explored in the course of my live testimony on May 9,1977 through May 13, 1977. Accordingly, the I fact that a given piece of rebuttal testimony is not discussed in this affidavit does not necessarily mean that I agree with it.

Because of the vengr brief -time available within which to review all i

of the rebuttal testimony (both bound and unbound) and respond to it, I have- limited this affidavit _ to matters which I believe to be of particular importance in terms- of the arguments made to the

-Board and the issues before the Board in this proceeding. In that connection, I note.that the lengthy bound and unbound rebuttal L .

testimonyton behalf of' Consumers and the' staff was prepared by l

' fourteen separate individuals , while' I am the only expert witness I

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synilable to the Intervanors other than Dow to respond to that tostimony.

Response to Rebuttal Testimony of David A. Lapinski

3. The bound rebutta' testimony of Mr. Lapinski 1

concerns primarily the questions of whether suspending construction of the Midland Plant will adversely affect Consumers' system reliability, and what the cost of replacement power may be ostimated to be in the event of suspension or cancellation of Midland construction. These matters are discussed at pages 23 - 33 and 65 - 79 of my direct testimeny, together with the exhibits to which raference is made in those pages. Several points must be made- with regard to Mr. Lapinski's bound rebuttal testimony concerning those points.

4. At pages 4 - 5 of his . bound rebuttal testimony, Mr. Lapinski asserts that Midland Intervenors' Exhibit 18 (a Consumers Power Company estimate of Dow's electric demand and energy consumption, revised as of November 1976), rather than

- Midland Intervenors Exhibit 30 (Dow's own estimute of its demand and energy _ use as of January 28, 1977), should have been used 1

in correcting Consumers Exhibits 11,_12, and 13, originally i 1

prepared by Mr. Heins, for the reduction in Dow electrical demand

which will occur in the event of suspension or cancellation of Midland construction. In essence, Mr. Lapinski asserts that it l wac Midland Intervenors Exhibit 18 which was used in preparing Mr.

Heins ' Exhibit 11, and that the. use of Midland Intervenors Exhibit 30 m

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results in subtracting from Heins ' Exhibit 11 amounts in excess

) -of the total Dow demand.

, 5. I did not use Midland Intervenors Exhibit 18 i

(Consumers' estimate of Dow demands as of November 1976) for several reasons. First, that exhibit is plainly inconsistent with the position taken by Consumers concerning its contract with Dow.. Consumers' position, as understood by Dow (see page' 2 of Midland Intervenors Exhibit 30) and as it appears from numerous other documents and testimony in this proceeding, is:

. . .that the present contract for electric I

service between Dow and Consumers Power, exe-cuted in January 1974, requires Dow to purchase

.i'ts electrical requirements from Consumers Power' as soon as Midland Unit No. 2 is available for commercial operation." f In other words, Consumers asserts that Dow will be required to t

! cease all of its own electrical generation as soon as the first Midland unit is in commercial operation. Midland Intervenors Exhibit 18.(prepared by Consumers) specifically assumes "that <

4 Midland #2 will be in commercial operation in 1981." Accordingly,

it would appear that Exhibit 18 should reflect a sharp drop in Dow ' generation for1the year 1981- (since, under Consumers ' interpre-tation of its contract,- Dow will be required to cease generation as

of the March 1981 operation -date of FEdland Unit #2), and should indicate no Dow generation at all during 1982 or subsequent years.

In f act',' that is what hEdland Intervenors Exhibit 30 (prepared tur.. Dow) indicates, 'But Midland _ Intervenors Exhibit 18- (prepared by Consumers) indicates only a small drop for 1981, and includes a

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substantial amount of Dow generation even for 1982. Accordingly ,

Midland Intervenors Exhibit 18, even though prepared by Consumers, is seriously inconsistent with Consumers ' own interpretation of its contract with Dow.

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An additional reason for my use o'f Midland Intervenors Exhibit 30 (Dow's own estimate of its demand and energy needs),

rather than Midland Intervenors Exhibit 18 (Consumers ' estimate) ,

is.that Exhibit 18--uhlike Exhibit 30--includes figures only for the "as scheduled" or " base" case. Even if.I had used the figures on Exhibit 18 for a portion of my calculations , therefore ,

it would still be necessary to generate' additional figures 'I for my calculations concerning the delay and cancellation Cases.

7. In addition, I regard Exhibit 30 as a more reliable source of information that Exhibi.t 18. Exhibit 30 was prepared by Dow rather than Consumers , and thus represents Low's own estimate of how much electrical power Dow will need, rather than a necessarily "second hand" estimate by Consumers, as is the case with Exhibit 18. Also, Exhibit 30 was prepared later than Exhibit 18.

8. In any event, M' r . Lapinski's assertion that Exhibit 18, rather than Exhibit 30, should have been used in calculating my corrections to Mr. Heins ' Exhibits 11, 12, and 13, does not make any significant difference.in the thrus t of my tes timony. Attached hereto, and incorporated into my testimony is Table A, which I have prepared and which shows the reduction in peak demand in megawatts on Consumers '

system when correcting for proper handling

,:  : I' .- m s of Dow sales, for the years 1981 through 1984 and for each of the suspension cases and the cancellation case, both as calculated using Midland Intervenors. Exhibit 30 and as calculated using Midland Intervenors Exhibit 18. As I had indicated during cross examination, in some years the use of Midland I.ntervenors Exhibit 18 shows a smaller reduction in peak demand, but in other years it shows a greater reduction; overall, the dif ference is comparatively minor. For example, the total megawatts of reduction in peak demand for the years 1981 through 1984 in the five month suspension case, corrected for proper handling of the Dow sales ,

is 101 megawatts using Exhibit 30 and 114 megawatts using Exhibit

18. For the nine month suspension case, the total reduction in peak demand over the four year period is 168 megawatts using Exhibit 30, and 189 megawatts using Exhibit 18. Finally, in the cancellation case, the total megawatt reddction in peak demand for the four year period, when correcting for proper handling of Dow sales, is 937 megawatts using Exhibit 30 and 713 megawatts using Exhibit 18. Those figures, and an examination of Table A, show that--as I testified on cross examination--the major difference which results from using Exhibit 18 rather than from using Exhibit 30 relates to how the peak demand reduction corrections are phased in, not in th6in aggregate amounts.

9. It should also be pointed out that Mr. Lapinski is in error when he asserts that my use of Midland Intervenors Exhibit 30 (Dow's own estimate) rather than Midland I ntervenors Exhibit 18 (Consumers ' estimate of 'Dow's demand) results in a reduction of Consumers' load forecast by an amount in excess of the total Dow

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_7 d: mand. Mr. Lapinski is in error because the load figures found on Mr. Heins' Exhibit 11, like my load figures . corr.ecting Mr. Heins' and shown on Midland Intervenors Exhibit 31A, do not represent total load, but rather' represent total load divided by a 67% system capacity factor add a 91.5% system efficiency .

factor. In other words, I have recalculated Mr. Heins' Exhibit 11 in the same way it was calculated by Mr. Heins to bngin with.

10. Mr. Lapinski also asserts , of course, at page 5, item (b) of his bound rebuttal testimony, that my use of the ,

67% average load factor and the 91.5% system efficiency factor in recalculating Mr. Heins' Exhibit 11 are incorrect. Again, it is Mr. Lapinski who is in error. Mr. Heins' Exhibit 11 is based upon total energy requirements , not solely upon Dow energy requirements. If the load shown on Exhibit 11 is reduced, there-fore, one must still apply the 67% and 91.5% factors to the re-duced figure, because that figure. still represents total load.

In effect, Mr. Lapinski assumes that the overall system load and the Dow load were handled separately in calculating Mr. Heins' Exhibit

11. I agree that that would have been a correct procedure, and that if that-procedure had been used it would also be correct to

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use a different capacity-and efficiency factor for Dow sales when recalculating Mr. Heins ' Exhibit 11. However, that is not the l

procedure which was, in fact, followed by Mr. Heins in calculating

- Exhibit 11, as appears from Mr. Heins ' work pgpers cons tituting Midland Intervenors Group Exhibit 12. Therefore , because Mr. Heins did not. treat Dow-load separately in calculating Exhibit 11, I i

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did not creat the Dow load separately La recalculating Exhibit 11.

As I explained on many occasions during my cross-examination, I undortook to use calculation procedures as close as possible to those actually employed by Consumers when I revised the 31 series of exhibits,in order to minimize disputes about calculation procedure.

11. Mr. Lapinski also asserts, at page 4 of his bound rebuttal testimony; 'that I " ignored the fact that even in the abandonment case, Dow's energy requirements remain the samn." That is incorrect. I took that fact into account in my analysis of Mr. Heins' Exhibit 11. However, I did not make it a part of my calculations in revising Exhibit 11 for the following reasons. Dow now has a certain' amount of electrical generating capacity. If we assume (as Mr. Lapinski does, and as is necessary for the cancellation case) that Dow will in effect go its own way and add additional capacity in order ~ fully to service its own requirements, and if we also assume (as Mr. Lacinski does) that .

cven in the cancellation case we should treat Dow as a part l i

of' Consumers' system for calculation purposes , then Dow's additional I l

capacity should be added to Mr. Heins' Exhibit 11. Simply adding l i

Dow's load without adding Dow's additional capacity, as Mr.

Lapinski suggests, is incorrect because it considers only one side 1 1

of the equation. Furthermore, if both Dow's a'dditional capacity and its load are taken into account in the cancellation case, then for purposes of recalculating Mr. Heins' Exhibit 11, the added capacity--which, as Mr. Lapinski recognises, will necessarily equal or exceed the load--will cancel out the load for calculation purposes .

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Accordingly, in recalculating Mr. Heins' Exhibit 11, I excluded both the Dow load and the Dow capacity from my calculations .

That procedure is justified by the foregoing analysis. .

12. At page 6 of his bound testimony, Mr. Lapinski makes a further error concerning my treatment of the Dow demand. Mr.

Lapinski asserts that I concluded "that an abandonment of Midland would reduce Dow's demand by 277 megawatts ." However, that figure relates not to' Dow's demand, but rather to Consumers ' ' system peak load. Mr. Lapinski evidently misunderstood my calculations.

13. At pag 2s 7 - 8 of his bound rebuttal testimony, Mr. Lapinski discusses the sale of Midland capacity to municipalities and cooperatives, which is also discussed at pages 26 - 29, 35 l of my direct testimony. Mr. Lapinski correctly points out that the municipalities and cooperatives must meet their own demands in one of three~ ways: by installing their own capacity, by-l purchasing energy from Consumers , or by purchasing energy from i

i a system interconnected with Consumers to be wheeled over i Consumers' sys tem. But Mr. Lapinski goes on to say that "therefore,"

l the demand of the municipalities and the cooperatives will have an identical effect on Consumers whether or not a contract with t he

, municipalities and cooperatives has been executed. That is incorrect, because self-generation of power by the municipalities and cooperatives, or wheeling in pouer from outside Consumers' system to serve their needs, has nothing to do with generating reserves on Consumers' system. The amount of reserves needed, and the manner in which  ;

they will be generated, is not affected by how the municipalities l l

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T and cooperatives meet their own needs . The presence or absence of the Midland Plant has no effect on Consumers' load; it affects Consumers' generating capacity only for the percentage of that plant that Consumers owns. Therefore, it is incorrect to deal with the demand of the municipalities and cooperatives unless that demand has already been figured in, which is not the Case.

14. At pages 10 - 13 of his bound rebuttal testimony, Mr. Lapinski deals with my testimony (found at pages 36 - 41 of my direct testimony and related exhibits) concerning Consumers' reserve requirements. At page 10, Mr. Lapinski points out two alleged er_rors in my calculations. The first of the alleged errors (described by Mr. Lapinski as the use of " peak loads from the wrong years") was corrected in Midland Intervenors Exhibit 35R, which I presented during my cross examination. As I testified at pages 5846 - 5847 of the transcript, the correction ,

of that alleged error results in essentially insignificant changes ,

1 to Midland Intervenors Exhibit?35. Concerning che second alleged error noted by Mr. Lapinski (the claim that, in effect, I understated Consumers' installed reserve requirements by .9%), I wish to point out that, as Exhibit 35R shows, even if 'y m reserve calcu-lations are increased by .9% in each case, the available reserves are still significantly in excess of Consumers' requirements. In fact, even if we were to accept outright Mr. Heins' assumption (at I page 9 of his written testimony) that a 20%, reserve margin is necessary, when- the numerous errors made by Mr. Heins and pointed l l

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. cut in my earlier testimony are corrected--as is done in Midland iIntnrvenors Exhibits 31A - 31M, attached to my testimony--the cvailable reserves to Consumers exceed. that 20% margin for all

portinent cases. In other words , regardless of the precise

numbers involved, the thrust of my testimony remains the same .

' 15 . Pages 15 through 25 of Mr. Lapinski's bound

=robuttal testimony concern the cost of replacement power, dis-cussed at pages 70 - 79 of my direct testimony. Mr. Lapinski -

asserts that the five errors I pointed out in my direct testimony concerning Consumers' calculated cost of replacement power either do not exist or have been exaggerated. In each case, it is Mr. Lapinski who is in error.

16. First, Mr. Lapinski's analysis (at pages 15 - 16 j 1

~of his bound rebuttal testimony) of the inclusion of sales i to Dow contains five basic errors . To begin with, by attempting l 1

to include Dow's generating costs in the calculation of the cost  !

of replacement power, Mr. Lapinski attempts to broaden the scope of his analysis by including as' elements of replacement power cost not merely ~ expenses which Consumers will incur, but rather I expenses which are incurred outside Consumers' system and which have no financial impact on Consumers. That is improper, however, because~throughout this proceeding,. Consumers has taken a very narrow view of. the benefits which suspension or absndonment t

of the Midland Pl' ant will bring, and in discussions of that

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sort has always. limited the issue to its own system. For example,  ;

Consumers has never included in its calculations the credit to Dstroit Edison. which results from sales to Consumers in the

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3 evenr that Midland is suspended or cancelled. In other words, Consumers cannot insist da a " regional" analysis of replacement power costs and at the same time refuse to take into the account the region-wide credits resulting from suspension or cancellation of Midland.* Furthermore, Mr. Lapinski's assumptibn that Dow's generating cost will approximate Consumers ' replacement power cost is unjustifiable. The fact is that we do not know what Dow's generating cost will be. However, we do know that the amount of those costs attributable to a suspension or cancellation of the Midland Plant may be quite small. Even in the "as scheculed " case, we know that Dow will have to spend considerable sums in order to satisfy the Michigan Air Pollution Control Commission requirements by the 1980 deadline set by the MAPCC. Since those amounts will be spent even if there is no suspension of Midland construction, they cannot be taken i 1

into account in determining the effect of a suspensien. Only the incremental Dow costs attributable to a suspension can properly be considered; and in view of the substantial nature of what must be done to comply with the MAPCC 1980 deadline, .it is ur. 2asonable to assume that those incremental costs will be as l 1

large as Mr. Lapinski's suggestion. Third, including sales to Dow in the production cost runsmade by Consumers results in a very high "off the top" cost of power, since adding those sales to Consumers' other load automatically means that the power generated to fill.those sales will come from Consumers' least efficient and most expensive plants. Thus it is incorrect simply to assume, as Mr. Lapinski does, that the replacement

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power cost which Consumers has calculated will be no greater than the self-generation cost to Dow. Both because the replacement power costs are exaggerated in the manner just described, and because Dow's self-generation costs actually attributable to suspension or cancellation would appear to be smaller than Mr. Lapinski assumes, equating the two types of costs is not justified on the basis of the avAilable info rmation . FourtL, especially in light of the preceding ,

discussion, Consumers' claim that it lacks the data with which to calculate Dow's actual self-generating costs cannot_ validly lead to the assumption that those costs are equal to Consumers'.

It is both fallacious and arbitrary for Consumers to assert that, since it does not know what Dow's costs really are, we must then assume that the costs are whatever supports Consumers position. A futher f allacy in Mr. Lapinski's attemp't to equate Consumers' replacement power costs with Dow's self-generation costs is the fact that Dow is presently using a coal and combined cycle generating system, which is typically more efficient and less expens-ive th,an.the Consumers generating units from which Dow replacement power would come if Consumers were providing it. As previously explained, those generating units i Are the least efficient and most expensive of the units on l Consumers' system. Finally, Mr. Lapinski incorrectly asserts l

that, since Dow's demand consticutes only 15% of Consumers ' l 1

replacement load, complete Dow self generation cannot reduce re-1 placement power costs by more than 15%. Not only is Mr. Lapinski's 15% figure based on a total figure which includes sales to i l

municipalities and cooperatives (sales which, as I have

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previously explained, should not be included), but also Mr...Lapinski overlooks the fact that replacement power costs are not linear. Rather, the cost per unit of power increases as the aggregate power needed increases, because progressively less efficient and more expensive generating units are used to produce the power. Thus it is not accurate to assume that reducing demand by l'5% '(as recults from a proper handling of Dow sales) reduces cost by only 15%. For the reasons just ex-plained, it is virtually certain that the 15% of demand with which we are dealing will account for a substantially greater percentage of the total cost of replacement power, so that the replacement power cost will be reduced by substantially more than 15%.

17. Four points must be made concerning Mr. Lapinski's discussion at page 17 of his bound rebuttal testimony, of sales to co-operatives and municipalities.

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First, as I have repeatedly pointed out, in this proceeding we do not know--because Consumers has presented no evidence on the question--whether the co-operatives and municipalities in f act -

need the power which they may or may not purchase from the Midland plant. In light of Consumer s ' silence on the question--

even though Consumers has known for several months that the Intervenors other than Dow seriously question.its stand con-cerning the co-operatives and municipalities--it is fair to surmise that no rep.lacement power costs will accrue with regard to the co-operatives and municipalities, because they do not

.actually need power from Midland. Second, the co-operatives and municipalities have in no way supported ' construction of the Midland plant,-nor have they supported Consumers' position in these suspension hearings. One would expect them to do so, however, if in fact they need the power which is to be produced -

by Midland, and it would have been a simple matter for Consumers 4

to obtain testimony from the appropriate officials. Third, including the municipality and co-operative demand in Consmners'

- system load for purposes of determining replacement power costs

'is not only inappropriate for the reasons which I have just described,but also tends to exaggerate replacement power costs for the same reason that including Dow's demand exaggerates those costs: As the amount of Consumers' load increases, the generating units required to produce the increased power will have higher operating. costs than the units previously loaded, so that the increment cost of the additional power becomes extremely high. Thus, in-cluding a questionable or inappropriate demand in Consumers' load

for purposes of determining replacement power costs tends to exaggerate those costs in a manner much more severe than the size of the added load alone would suggest. Finally, it is highly likely that the municipalities and co-operatives will be able to find whatever power they need far more inexpensively from sources other than Consumers ' least efficient and most ex-pensive units--for example, from Detroit Edison's Fermi plant.

Mr. Heins specificallyfadmitted, at page 1809 of the transcript, that the Fermi plant will have sufficient capacity during the 1981-1984 period to supply the needs of the municipalities and the co-operatives, and Consumers' own cost production runs for Case II show that Fermi power will be substantially less costly than the, power generated by Consumers' least efficient units.

Fermi power is costed on that Exhibit at 6.19 mills, versus as much as 64 mills for the Morrow plant.*

18 Pages 18 through 25 of Mr. Lapinski's bound rebuttal testimony concern the Purchase 10 " forced purchases" which are discussed at pages 73-74 of my direct testimony, and which re-sult in unduly high replacement power costs. Mr. Lapinski's rebuttal testimony is in error concerning those purchases in several respects. First, I have never asserted that all addi-tional power needed on Consumers' system should be generated from fossil-fired units. Making that assumption produces results which are just as erroneous, in terms of a true picture of the cost of_ replacement power, as would be the case if we l

assumed that no additional power should be generated by Consumers, but rather that all of its needs should be filled through

• The availability of power _from Ontario Hydro (admitted by Mr.

Heins'at Tr. 1848-49)- should also be considered.

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outside purchases. As I explained during cross-examination, the problem with the forced " Purchase 10" purchases is that they themselves are introduced into the computer simulation in a way which takes no account of whether or not the purchase is economical. As a result, it is simply impossible,to determine from those computcr runs when, or to what extent, outside pur-chases would actually be more economical th'an additional, loading of Consumers' generating units. Fur thermore , the " forcing" effect of Purchase 10 purchases remains the same whether one uses the maximum net demonstrated capability or the maximum normal rating for the various generating units involved; in fact, as I testified on redirect examination, if the impact of the forced purchases on delay costs in 1981, for the five-month suspension case ,,

is recalculated using the maxiumun normal rating, the' result is still a very sizeable estimate of the cost-inflating effect of the forced purchases. Performing that recalculation using the maximum normal rating set forth in Attachment D to the unbound rebuttal testimony of Mr. Lapinski still results in the conclusion that the forced purchases improperly inflate the cost of replacement power by approximately $13 million'for the particular case discussed.

See pages 6121-6123 of the transcript.

19. Mr. Lapinski is also in error when he asserts (at pages 20-22 of.his bound rebuttal testimony) that I ignored the timing of forced purchases in estimating the artificial cost increase resulting from them. In fact, I checked all of my

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' calculations in order to be sure that I had correctly assumed that a given generating unit was backed off because of Purchase 10, rather than because of low demand. This point also relates to Mr. Lapinski's assertion that the price of purchased power should be 15 mills per kwh rather than 20 mills per kwh. In fact, the 15 mill figure properly relates to Purchase 3 purchases rather than to Purchase 10 purchases; as I indicated in my-redirect testimony (at pages 6118-6121 of the transcript) , Pur-chase 3 has nothing to do with the thrust of.my testimony concerning Purchase 10. Furthermore, Midland Intervenors' Exhibit 37--

Consumers' own work paper concerning Purchase 10--explicitly states that the Purchase 10 purchases are "on-peak" and that "the cost of this purchased power was 20 mills /kwh 1976 esc.

at 10%/yr." I carefully checked Exhibit 37 against the relevant computer runs in order to be sure that the statements made therein relating to the cost of purchased power and the on-peak nature

' l of-its purchase were correct, and found them to be correct.*  !

20 To repeat: Purchase 10 purchases, as inputs to Consumers' computer runs, are caused to be made regardless of the price of replacement power and regardless of timing. The most serious error made by Mr. Lapinski, in fact, is that concerning the timing of the forced purchases. Both in his bound rebuttal ]

testimony and in his unbound rebuttal affidavit of May 19, 1977, Mr. Lapinski demonstrates either a lack of understanding or a lack of candor regarding the impact of Purchase 10 purchases. He incorrectly states that "for' Purchase 10,...at a 70% capacity factor,:approximately the lowest 30% of the loads are not affected

• It should be noted, however, that (as I testified) Consumers' work paper--Midland Intervenors' E.vhibit 37--is incorrect in stating a 90%

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by the.ptrchase." . (Unbound af fidavit, page 4.) Properly stated,

that: statement should be that 30% of the time, the dispatch of plants is not affected by Purchase 10 purchases; it.is incorrect to claim that 30% of the loads are not affected.

21 At page 4 of his May 19, 1977 affidavit, Mr. Lapinski then correctly notes that "because the thermal units are dis-patched to minimize. cost, ' during periods of lowered demand the more expensive blocks of_the generating unit models are dropped from the. dispatch er ' backed-off.' This is illustrated in As Attachment B1 shows,-Purchase Attachment Bl to this affidavit.

10 purchases are not the only reason for backing off generating

-units; that point is obvious. However, Mr. Lapinski then refers to his own Attachment h (to his May 15, 1977 af fidavit) , showing the percent of the time specified baseload units are " backed-off,"

and states-that "in the vast majority of cases, the percent of i time units are ' backed-off' is less-than 30%." He implies that )

1 since the specified baseload units are " backed-off" by less than

.30% overall, Purchase 10 has no effect. That logic is seriously f aulty,. as shown in Attachment B2 to this affidavit. As Att'achmen.t

-B2 shows, the effect of Purchase 10 is to force baseload units .

l to back offfduring the hours of ourchase. Whether that is greater

-or less than 30% has no particular imoortance. What is imoortant is that large amounts - of ' energy which could have been generated at'a lower cost are purchased at a higher cost because of the

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forced' purchases. That is.shown by Attachment C to'this affidavit, I

which' lists the~ cost of energy from Consumers' coal plants as

compared to the cost of Purchase 10 p3wer. Note that in some

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cases, Purchase 10 is greater in cost by a factor of more than 2, and that in all cases Purchase 10 is greater in cost than any of the-coal plants on Consumers' system. That is by no means unimportant in dollar terms, because (as is shown on Attachment D to this af fidavit) the amounts of energy involved are quite large; forced purchases under " Purchase 10" of as much as 1050 megawatts at a 70% capacity factor are made.

22 Mr. Lapinski's unbound rebuttal testimony also indi-cates that computer runs were made without including Purchase 10 purchases, and that the resulting replacement power costs were higher. That will obviously be true, but is also meaningless, given the particular circumstances of this case. If Consumers does not make economy purchases from surrounding systems, but instead unrealistically runs high cost, inefficient plants (and, in the case of cancellation of Midland, does not build alternative f acilities) , ' costs will be inappropriately higher. As I stated previously, I have never suggested that Consumers should any more than I have forego all purchases from surrounding systems, suggested that it should make unrealistically large purchases from surrounding systems. The proper and realistic method of simulating the system to estimate true replacement power costs is illustrated in Attachment B3 to this affidavit. My Attachment 33 shows purchases based on economic dispatch, rather than forced without regard to cost. As a comparison of my Attachment B3 with my Attachment-32~ demonstrates, purchased power costs would have been significantly lower in Consumers' computer simulations if

forced purchases were excluded and economic dispatch purchases were included, which was the thruct of my testimony and which, ,

as I testified, is what Consumers has not done in its computer simulations. Further, my simulation approach correctly reflects the expected operation of Consumers' system.

23 One final comment concerning Mr. Lapinski's bound rebuttal testimony is required. At page 25 of that testimony, Mr. Lapinski notes that the use of a lower capacity factor for Midland during its first year of operation "would only shift

[ replacement power] costs to later years as the unit matures."

That is technically correct, but misleading. It must also be noted that in those later years, the replacement power which will be needed can be obtained frcm less expensive coal-fired units suchias Campbell 4, rather than (as is the case now) .from Con-sumers' most expensive units.

24 Some additional errors in Mr. Lapinski's uncound rebuttal affidavit require comment. Paragraph 7 of Mr. Lapinski's

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affidavit asserts that, even though Midland has a higher historical forced outage rate than its projected forced outage rate, never-theless the historical availability for Midland "is generally higher than the ' projected' availability." Given a higher historical forced outage rate, however, the only way the Midland plant can at the same time achieve a higher historical availability is if it has a shorter historical scheduled maintenance than the

_ projected. scheduled maintenance. In addition, Mr. Lapinski's

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• claim that since Midland's historical availability exceeds its

. projected availability, "use of the projected availability figure would be conservative in estimating replacement power costs,"

in incorrect. Mr. Lapinski improperly confuses the example of the Midland plant alone with statements concerning replacement power costs for the entire Consumers system.

25 . In paragraph 7 of his unbound affidavit, Mr. Lapinski a'lso misstates my testimony. Referring to page 5908 of the tran-script, Mr. Lapinski asserts that I stated that "the use of the higher ' projected' availability figures for fossil-fired generating units results in lower replacement power costs than if ' historical' figures were used." In fact, I said the reverse. My testimony was that the use of the lower projected forced outace rates for fossil-fired generating units results in higher replacement power costs than if historical figures were used. That point is also made at pages 38-39 of my direct testimony. Accordingly, Mr. Lapinski's discussion of projected versus historical availa-bility figures is based upon a misinterpretation of my testimony.

Nor is there much point in discussing, as Mr. Lapinski's affidavit paragraph 7 does, the availability of any single unit (such as Palisades) on Consumers' system. The point to be made, and the thrust of my testimony, is that in terms of Consumers' entire system, the lower the general availability of generating units, the lower the cost difference reflected in the replacement power costs will be. That follows from the fact that, because a lower general availability means that one generates less power from baseload units, one must make more high cost purchases, and must

~

generate more power with expensive and inefficient units, both of which necessarily result in a higher cost per unit of power for_ the base _ case. .This lowers the replacement power cost, since when the base case cost is increased, the difference between it and the suspension case cost decreases. . Also, a decrease in avail-ability raises the base case cost more than the suspension case cost, since in the suspension case more expensive and inefficient units are used-to begin with.

26. Finally, in paragraph 8 of his unbound rebuttal affidavit, Mr._Lapiaski quarrels with my testimony concerning Consumers' maintenance program. As Consumers' 1976 Annual Report (Midland Intervenors Exhibit 57, discussed at pages 6125 - 6126 of the transcript) shows,between 1973 and,1976 Consumers' system. maintenance program had been sharply scaled down because of financial difficulties. As o f now , however ,

the maintenance program has been substantially upgraded and (again, according to the 1976 Annual Report) is expected to result in substantially improved plant availabilities . Contrary to Mr. Lapinski's interpretation, in my opinion Attachment C to Mr. Lapinski's affidavit dramatically bears out both the statement and the-prediction made in.the 1976 Annual Report.

.That attac'hment shows that in 1973--the year when Consumers began- cutting down its maintenance budget--system plant avail--

ability- (which had been increasing during the preceding two

. years) began to drop sharply. The' drop continued, as one would expect'from the' Annual Report, through the 1976 plotted point on the L chart. Thus, Attachment C tells us that the-cutback

t, 4- ., -

in maintenance budgets described-in Consumers' 1976 Annual Report caused a drop in plant availability of approximately 10%. It is reasonable.to assume that an equivalent increase in the maintenance budget will have an equivalent beneficial, rather than detriaental, effect on plant availability. Here a point must be made which'is obscured by the fact that Mr..

Lapinski's Attachment C shifts'in scale at the 1976 plotting point and'omics the years between 1976 and 1982. Although a casual perusal of Mr. Lapinski's Attachment C suggests that a very sharp increase in system availability would be required in order to meet the projected availability figures for 1982 and 1983 (plotted on his Attachment C) , a more careful examination shows that the projected' availability for 1982 and 1983 is approxi-mately the same as the overall actual availability in 1970--and also only slightly higher than the overall actual availability in 1973, at the point just before the system maintenance budget was cut. In other~words, Consumers actually has six years (from 1976 until 1982) in which to recover the availability lost during the three years between 1973 and 1976. It appears reasonable to assume that Consumers can, with an upgraded maintenance budget, regain over-six years the territory it lost in only half that time.

Response to Rebuttal Testimony of Ronald =Calcaterra 27_ . After carefully reviewing the affidavit rebuttal testi-many of Ronald Calcaterra and the attachments thereto, which pertain to the' inconsistencies between Consume _s' filing in the Michigan Public Commission rate proceeding-(Case No. U-5331) Land

the filings by Consumers in these proceedings, I am forced to conclude that Mr. Calcaterra's affidavit is irrelevant. That is so because his affidavit concentrates exclusively on columns D and E of Midland Intervenors' Exhibit 55. As I explained during my testimony, however, the important comparison for pur-poses of this proceeding is not between column D and column E, but rather between column B (showing the actual capacity factors used in the rate case proceedings) and column C (showing the capacity factors used in Consumers' computer runs in this pro-ceeding). As I testified, that difference is not explainable by any difference in the scope or focus of the two proceedings.

Since any given plant is a,part of Consumers' system regardless ,

of whe'ther one considers that system on an isolated basis or

'on some sort of " regional" basis, its capacity factor.should not be affected by any such di"# rence in. consideration. .That is the point I sought to make in connection with Midland Intervenors' Exhibit 55, and it is untouched by the affidavit of Mr. Calcaterra.

Thus, for example, paragraphs 7, 10-12 and 18 of the affidavit, and the attached documents to which they refer, simply have no bearing on my testimony. Nor, for example, does paragraph 7 even indicate any error in my preparation of column E on Midland Intervenors' Exhibit 55. 'The numbers in column E on that Exhibit were taken directly from Mr. Calcaterra's attachments 2 thru 16, to which-he refers in paragraph 7 of his affidavit. Similarly, attachment 18 to Mr. Calcaterra's affidavit is of little value.

A*  ;

Since (as Mr. Calcaterra describes it) attachment 18 includes

-all of the original input errors made by Consumers--the erroneous Dow demand inputs, the overly high initial availability factor for the Midland plant, the failure to consider the option of not selling plant capacity, the improper for ed purchases, the im-proper-handling of the Palisades derating possibility, and the unrealistic coal costs *--the results obtained in attachment 18 to Mr. Calcaterra's affidavit are of no greater value than the results provided by original Consumers' Exhibit 14. Certainly attachment 18 fails to explain the most significant inconsistency between the rate proceeding and this proceeding to which I re-ferred in my testimony--the difference between the capacity factors noted in column B of Midland Intervenors' Exhibit 55 and the capacity factors noted in column C of that Exhibit.

28. Furthermore, paragraph 17 of Mr. Calcaterra's rebut-tal affidavit asserts that differences between the rate proceeding, and this proceeding inputs "results in an indistinguishable change in the reliability curve." Again, that is not the point of my testimony. As is explained by my testimony at page 5996 of the transcript, the point with which I am concerned is that the capacity sales to municipalities and co-operatives in this proceeding should have been handled in the sane way that capacity sales from

• It1should be noted that all of these erroneous inputs were identi-fied and discussed in my previous testimony. Nevertheless, only the forced purchase, Palisades derating, and coal cost items were directly challenged by Consumers.

E

y y - ,

Campbell 3 were-handled in the~ rate proceeding. That affects the calculation of reserves, rather th'na the LOLP program specifically.

As with the different capacity factors identified in columns B and C of Midland Intervenors' Exhibit 55, it appears that Mr.

Calcaterra has again missed the point of my testimony.

Response to Rebuttal Testimony of Gordon L.-Heins

29. 'With regard to the bound rebuttal testimony of Mr.

Heins (included in the special transcript volume of March 23, 1977),

I note, and agree with, his statement that "when projecting future load requirements, Consumers Power does not include anticipated load for.such interconnected entities" as the municipalities and co-operatives. That supports my. conclusion that possible Midland capacity sales to the municipalities and co-operatives should not be taken into account in this proceeding. While sales pursuant to interconnection agreements and capacity sales are, of course, not--the same thing, the nature of the interconnection agreement--

which, basically, provides that the municipalities and co-operatives will purchase energy if Consumers has energy to spare, but that Consumers is not obligated to supply energy to them under any and all circumstances--supports my view that, in the absence of executed-firm contracts for capacity sales, possible sales to the municipalities and co-operatives from Midland should be treated the same way. In other words, Mr. Heins agrees that Consumers is not nos under any obligation--even a " moral obligation"--

to supply.the municipalities and co-operatives. As Mr. .Heins-states: "However, Consumers Power-will not drop its own load

. l . -s i i

I in order to provide such service to an interconnected utility."

In the absence of firm contracts providing for firm service, I do not believe that any " moral obligation" results from the present state of affairs. Mrs.Heins now shares that belief.

30. Similarly, the unbound rebuttal affidavit of Mr.

Heins also lends support to the position I have taken in my testimony. Paragraph 5 of Mr. Heins' unbound rebuttal testimony shows that the anticipated Detroit Edison reserve figures for the years 1980 through 1982 have increased substantially--11% in both 1980 and 1981, and 3% (i.e., from 13% to 16%) in 1982.

Furthermore, paragraph _6 of Mr. Heins' unbound rebuttal affi-davit shows that the present ECAR-projected reserves for the years 1980 through 1983 have increased sigriificantly over the figures given in his prior testimony. It is noteworthy that'the increases are progressively larger: A 3% increase for 1980 (from 20% to 23%), a 5% increase in 1981 (from 19% to 24'%) , an 8%' increase in 1982 (from 18% to 26%), and a 10% increase in 1983 (from 16% to 26%). Accordingly, Mr. Heins' concern over " dwindling ECAR re-serves" appears unjustified. The facts indicate that those re-serves are increasing.

. Response to Rebuttal Testimony of Richard F. Brzezinski

31. The bound rebuttal testimony of Mr. Brzezinski

-(contained 'in the special transcript volume of March 23, 1977)

T relates to Exhibits-prepared and-submitted by-Dow Chemical Company, rather than to my testimony. Accordingly, I shall not discuss that rebuttal testimony in this affidavit.

32.. Paragraph 5 of the unbound affidavit rebuttal testi-

-mony.of sh. Brzezinski, which relates to Midland Intervenors' Exhibits 46 and 46R, asserts that there are eight," errors and-inconsistencies" in original Exhibit 46. Of those alleged errors,1tr. Brzezinski admits that Exhibit 46R corrects three of them: points '(a) , .(c) , and (f) . Codcerning the remaining alleged " errors," the following points must be made. With regard to point .(b), I used an 80*/. capacity factor when calculating the needed capacity.of :the electricity alternative to Midland Plant because,_as is well known and"as Consumers l own assumed' availability ~

' factors.(set:for'th in attachment D to the unbound rebuttal affidavit of ' Mr. Lapinski) show, coal fired plants--like the alternative to the Midland Plant with which Exhibits 46 and 46R deal--are more

-reliable than nuclear plants. Second, points (d) and (e) of Mr. Brzezinski's list of alleged " errors" appear to be duplicative.

In both, Mr~. Brzezinski asserts that the coal costs I used in

[cciculating: Exhibits 46 and 46R are too low for the type of alter-

- native . facility cos ted out--i .e . , a low-sulfur, EPA-quality coal

' facility. However,c as.I pointed out at pages 6130 -'6131 of'the-transcript,-Mr. Brzezinski is incorrect in asserting that S

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higher coal cost figures than the ones I used would result if only low sulphur coal were considered. I used a coal cost figure of $2.ll/million BTU's in calculating the fuel costs shown on Midland Intervenors' Exhibits 46 and 46R. However, if the data which I used in arriving at the number is limited only'to studies which explicitly concern low sulphur coal, the average coal cost figure derived from those studies is

$2.04/million BTU's for the year 1985. That number is lower, not-higher, than the figure used in calculating Exhibits 46 and 46R. It is therefore incorrect to claim, as Mr. Brzezinski does, that my coal pricing is " inconsistent" with a low sulphur, EPA-

' quality coal plant. Regarding item (g) of Mr. Brzezinski's -

lis t of " errors ," i .e . , my assump tion that the. alternative coal fired plant can be constructed and available in six years, it suffices to point out that Consumers' own planning studies support that conclusion, as I testified at pages 5535-86 of the transcript 1

during cross examination. While I am aware that Consumers has assertedly revised its planning s tudies in that regard, I am not aware of any cogent reasons for the revisions . Especially when i one considers that the coal plant costed out in Exhibits 46 and 46R is literally a s- . ';er unit to Campbell 3 and identical

.to it -(so that construction of precisely the same plant should l

if anything -be quicker. the second time around) , it is difficult

.to understand why Consumers believes that constructing such a 2

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sister plant would take longer even than constructing Campbell 3 Finally ,- with regard to Mr. Brzezinski's item (h), which claims that I excluded the cost of replacement power during the interim period required to construct the electrical alternative, Mr.

-Brzezinski is simply mistaken. As ' both my direct testimony (at page

86) and my testimony during cross examination (at page 5580 of the transcript); clearly state, 'I took the. cost of replacement power during that period into account in my calculations . I assumed that the cost of interim replacement power would be roughly equal to the credit which should be given for the added life of the alternative facility, so that the credit and the cost effectively cancel'each other out.

33. Paragraph 8 of Mr. Brzezinski's unbound rebuttal affidavit " corrects" the ratio which I used to exclude from the cost of the Midland Plant that portion which is projected for third party ownership . I disagree with Mr. Brzezinski's "cor-rection.'" .The point at hand is not the dollar amount of the third party contribution, nor th,e percent of total plant cost represented by .that contribution. The point is that in dealing with the alternative to the Midland Plant, I chose to assume an 800 megawatt coal plant both in order to assure that Consumers would have ~ capacity a't least equivalent to that of the portion o5 the Midland plant proj ected for Consumers ' ownership,,and also because the use of an 800 megawatt plant avoided what would otherwise have been the necessity of attempting to scale down

the' cost of Campbell 3 -in order to arrive at an alternative plant 1whose ~ capacity, would be exactly. equivalen t to the capacity

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of that part of the Midland Plant owned by Consumers . That resulted in an alternative plant the capacity of which actually exceeds the capacity of the portion of the Midland Plant to be owned by Consumers. In order to adjust for that fact, I simply assuned that Consumers would sell the excess capacity. Thus, for example, some capacity .would still be available to the co-operatives and municipalities ~ under the alternative . (The-alternacive has the advantage, - however, o f not requiring Consumers to sell as much excess capacity as is the case under Midland as presently planned. Thus, if Consumers is not able to sell all of the excess capacity, it will be lef t with a smaller amount of unsaleable capacity under the alternative.) In other words, both in dealing with the cost of -Midland and in' dealing with the cost of the alternative I treated the question of excess capacity in precisely the same way. In both instances, I assumed that the excess capacity would be sold, so that it is not taken into account in dealing with either the Midland plant or the alternative. ,

34. In addition, paragraph 9 of Mr. Brzezinski's rebuttal affidavit asserts that I " miscalculated the Dow fuel costs"'in-preparing original Midland Intervenors Exhibit 46, "and. compensated for this by not displaying the operations and maintenance' costs." That is incorrect. As both Midland Intervenors

~ Exhibit 46 and Exhibit 46R clearly state, operations and maintenance

-costs are included in the fuel costs set forth in those exhibits. -

Thus the " correction"'made by Mr. Brzezinski is inappropriate.

. .i -

35. - Mr. Brzezinski's most serious error, and one which affects his entire affidavit, is his conclusion that the proper way to handle what he believes to be inaccurate coal costs is not to increase the coal costs to a proper figure, but rather to redesign the entire Consumers Power Comoany alternative to the Midland Plant. That is completely absurd, both because the coal costs I: used are entirely consistent with the cost of low sulphur coal anticipated for 1985 (as I pointed out in paragraph of .this affidavit), and because in any event the proper way to correct any " error" in the coal costs is to change them--not to abandon the entire premise of Exhibits 46 and 46R by preparing an exposition of costs in connection with a totally different plant.

The fundamental nature of Mr. Brzeninski's mistake is shown, among other things,.by the fact that (assuming that all other factors remain equal) the coal costs shown on Exhibit 46R--

which are already higher than the average low sulphur coal cost obtained from the pertinent studies, as I testified at page 6131 of the transcript--could be increased by a factor of approximately 30% without affecting the conclusion that the alternatives to the Midland Plant are less expensive than the Midland Plant. In fact, the cost for the Midland Plant used in preparing Exhibit 46R .had been based on Bechtel's Forecast 2 rather than on Consumers'

" official" cost estimate (which would seem reasonable, since Consumers' own in-house-review team concluded that the Bechtel Forecast.was.only $10,000,000 too'high)*, a still further See page 5684 of the transcript.

a t_.

increase in coal costs would be possible without affecting the fundamental conclusion of Exhibits 46 and 46R.

36. Finally, Mr. Brzezinski's assertion (in paragraph 13 of his rebuttal affidavit) that we should "take into account the . . . net -cos t of abandoning the' Midland facility" in this proceeding is incorrect. Mr. Brzezinski's statement is mere?y another way of claiming that " sunk costs" should be considered.

But everyone in this proceeding knows that the Court of Appeals has expressly directed that sunk costs not be considered in restriking the cost-benefit analysis. Similarly, although Mr.

Brzezinski states in paragraph 13 of his rebuttal affidavit that

'he wishes to take into account the cost of " replacement power,"

he is silent concerning the need also to take into account the added life expectancy of the alternative facility. As I indicated in paragraph ;32 of this affidavit, it can be estimated for working purposes that those two items will cancel each other out.

Response to Rebuttal Testimony of Arnold H. Meltz

37. The bound rebuttal testimony of Mr. Meltz 3

concerns my testimony (at pages 65 - 69 of my direct testimony; and at pages 5595 - 5640 of the transcript) that It. Keeley failed to consider the time value of money in his cost of delay analysis. Mr. Meltz does not question the fact that Mr. Keeley failed to take.the time value of money into account; however, Mr. Meltz questions some of the calculations which I used to arrive at my estimate of the difference in the cost of delay analysis which results if the time value of money is taken into ,

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-35 '

account, At the outset, I want to emphasize--as I did both in my direct: testimony.and on cross examination--that the estimates

. which I presentedLin my direct testimony are simplistic and inexact; they. were intended only to show the serious nature of Mr. Keeley's error. Exact calculations were not intended,.-since

, my point went to the failure of Mr. Keeley's analysis .

38. During my cross examination, at pages 5595 -

5640 of the transcript, most of the numerous miscalculations made by Mr. Meltz are discussed. However, some additional points I

should also be made. First, at pages 3 and 4 of his bound rebuttal. testimony, Mr. Meltz asserts that there is no benefit '

to Consumers' rate payers from either a five month or a nine month. suspension of construction of the Midland Plant, but rather a net cost of "over $100,000,000" in the five month case and "about $200,000,000" in the nine month case. That is incorrect.

Mr. Meltz arrives at that conclusion only by assuming that in the suspension cases, Consumers' rate payers actually pay the 3

$220,000,000 (in the five month case) or $367,000,000 (in the nine . month case) of fixed charges . But the assumption which is made- in my testimony--as Mr. Meltz himself recognizes , at page 2

• l

. of his bound rebuttal testimony--is that in the - suspension cases , )

l the rate payers will not pay those-amounts. The rate payers will pay  ;

i those amounts only=if Midland is on line, rather than delayed--i.e., I

.onl'y in-the."as'~ scheduled" case. The point of my testimony is -that

.in the suspension cases, since Midland is not being constructed

'during the suspension period'the rate. payers will not be obliged I

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to-pay forfconstruct' ion during that time. Thus, there is no "added" paymant required in order to produce the savings to the rate payers--approximately $220,000,000 in the five month suspension case, and $367,000,000 in the nine month suspension case. Accordingly, Mr. Meltz's argument is based anf an incorrect reading of my testimony. .

t

39. In addition, at page 5 of his bound rebuttal testimony, Mr. Meltz. asserts that I neglected to consider the additional payments which Consumers' rate payers will be obligated i

to make, in the suspension cases, during the additional nine or i

i fif teen months the Midland Plant will operate before its de-commissioning after 34 years . Again, Mr. Meltz is in l error; those additional payments are taken into account in my l

~

calculations. In my calculations, I assumed.thct rate payers would be paying during that time, and present-worthed the value l of these added payments .

! -40. Furthermore, at pages 5 - 6 of his bound i  !

rebuttal testimony, Mr. Melt erroneously calculates the difference to Consumers' rate payers of paying for the suspension periods in 34 years, rather than paying for those periods now.*

l- Mr. Meltz simply present-worths the cost of the final nine. or

" fifteen. months at the end of the 34 years, noting that "the L

present value of 'a dollar 'to be' paid 34 years hence is about

$ .02,-assuming' a 11.75% discount rate."- however, present-worthing the additional payments 34 years froc now is only half of the.r9 quired-calculations. In' order to complete the calculation,

~

• For purposes of.' clarity, I have excluded from the following discussior Mr. .Meltz' additional error in'failing to take into account the~ fact-Lthat there are.. differences in payments in the 34-ye'ar period between L the.:first 9. (or 15) ~ months' and the last 9 (or 15) months.

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the present-worth cost of those payments must then 1.a subtracted from the actual cost of making the same payments now. In other words, the situation is not one in which it can be assumed that rate payers will make no payments now, regardless of what happens. Rather, in the "as scheduled" case the rate payers will make payments'now, which I have approximated at $220,000,000 for the five month suspension case and $367,000,000 for the nine month suspension case. In order to calculate the savings to the rate payers which result from not proceeding as scheduled, but preceeding on the basis of a five month or nine month suspension, we must subtract from those "as scheduled'.' payments (which, in the event of a suspension, will not be made) the present worth of the same payments 34 years from now. If that is done, it is obvious that the saving to the rate payer is not the 2 cents on the dollar which Mr. Meltz calculates, but rather the entire dollar less that 2 cent-per-dollar present-worth cost of the payment in >

34 years. Put another way, the savings is no t equal merely to: (present-worth cost of $220,000,000 in 34 years), but rather to: $220,000,000 minus (present-worth cost of $220,000,000 in 34 years).

41. Jus t as Mr . Meltz ' assumptions and arithmetic are faulty, the entire thrust of his testimony misses the point which I undertook to make at page 69 of my testimony. As previously mentioned, I stated there that thb~ calculation I had made was illustrative only, and did not pretend to be exact. The purpose of the calculation was simply to illus~trate the fact--which Mr.

Meltz does not question--that in calculating the cost of delay, Mr. Keeley omitted .to consider the _ time value of money and omitted

[

to consider the credit which results from the added life of the plant prior to de-commissioning. It is not accurate to say, '

as Mr. Meltz does, that the effect of my analysis is to assert that any delay in the construction of a plant benefits the rate payers. -It is also inaccurate to say tha.c my analysis means that the longer the delay, the greater the benefit will be. Obviously, there are a great many cases in which neither of those things are.true. In this case, however, we are not dealing with what might be called the " normal" case. In this ca e we begin with the fact that a portion of the Midland Plant has already been built, and _ a portion of the equipment needed for the plant has already been contracted for, so that delay will not produce any inflated costs with regard to that portion of the plant or that equipment. Thus, the normal inflation which would result from delay is less than might otherwise be the case. In addition, in this case (unlike the hypothetical " normal" case) it appears that a sizeable portion of the power to be generated by the Midland Plant -in particular, the sales to Dow and to the municipalities and co-operatives--will not i.eed to be replaced during the delay

~

period, so that the cost of replacement power for that period is not as high as might otherwise be the case. It is important to note that Mr. Melt: himself agrees with the fundamental premise of my-testimony, since he admits,. at page 2 of his bound rebuttal testimony, that the 34 year delay in payment of the costs which would otherwise have to be paid during the suspension period does result in.a lower present-worth cost to the consumer. Once his analytical ~ errors:are corrected (as I have done in the preceding paragraphs of this affidavit) , it is apparent that Mr. Meltz and I

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_39-would arrive at approximately the same numbers doing the same calculations.

Response to Rebuttal' Testimony of Sidney E. Feld

42. In large part, the testimony of Mr. Feld focuses on whether or not price elasticity makes a difference in forecasting. My.own testimony (for example, at pages 62 - 63 of my direct testimony) points out that the inclusion of price i factors in forecasting tends to make a large difference in the outcome of the forecast; Mr. Feld's-testimony supports that view. The table which follows page 2 of his testimony, for example, shows that in every one of the fifteen econometric models he analyzed, there was a response--frequently a dramatic response--

to the inclusion of price elasticity. Particularly in light of the energy program recently announced by the President and described

'in Midland Intervenors ' Exhibit 61, and also what appears to be 4

-a. consensus among politicians of both major' parties that price increase.(whether through taxes or through de-regulation) will play a major role in achieving the energy conservation goals sought by the Carter Administration, it appears that consideration of pricing techniques, including alternative. rate designs, will play an important part in demand forecasting. Certainly, the Administration's program sdggests that the Administration has so concluded. Especially in light of the Administration's program, it would appear that the remanded hearings should deFote more attention to consideration of, pricing techniques , again including

S* :. ._. y alternative rate designs, than has been the case in these suspension hearings. I cannot conclude from the bare and unexplained mention by Mr. Feld of certain rate redesigns now in effect on Consumers' system that as a general proposition rate redesign is not anappropriate factor for consideration.

43. By way of overall conclusion, it should again be pointed out that tne bulk of the rebsttal testimony which I address in this affidavit, does not question the thrust of my direct testimony, which is that Consumers ' and the Staff's presentation in these suspension hearings has improperly failed to take into account a large number of extremely important considerations, and that significant and major differences'in the conclusions reached by Consumers and the Staff appear when the matters they have improperly overlooked _

or ignored are taken into account. That, rather than the precise numbers which appear in my testimony, is the major point I have sought to bring to the attention of the Board. In addition, as indicated during my cross examination and in the course of this affidavit, even if the various figures given is my testimony represented the outcome of a thorough cost-benefit analysis (which they do not, because the record in these proceedings is insufficient to permit such a complete.a_alysis), the overwhelming majority of Consumers ' and the Staff's challenges to the computation procedures I used are either simply mistaken or insignificant, 4

• O t t ,

since recalculating.the figures in the way desired by Consumers and.the Staff yields only minor differences in the results.

Accordingly, I reaffirm the conclusion, reached in my direct testimony, that construction of the Midland facility should be.

suspended pending the outcome of full remanded hearings. As I pointed out in my direct testimony, each day of continued construc-tion inevitably tends to fore'close reasonable alternatives to the Midland facility. Unless construction is halted pending the remanded hearings, full and realistic consideration of those alternatives at the hearings will become difficult if not impossible, and the hearings will ce no more than an academic exercise, since at their conclusion no one will realistically be in a position to implement the alternatives which pre.ently .

exist.

44. The papers attached to this affidavit, . consisting of Table A and Attachments 31, B2, B3, C, and D, which are hereby made a part of this affidavit, were prepared by me and are true and accurate to the best of my knowledge and belief.

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Richard J. Timm Subscribed and sworn to before me this 26th day of May 1977

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TABLE A COMPARISON OF RESULTS OBTAINED BY USING M.I. EX. 30 AND M.I.

EX. 18 IN RECALCULATING HEINS EX. 11 BY CORRECTING FOR PROPER HANDLING OF DOW SALES (M.I. EX.

31 Q _

Delay 12/.1 - 12/82 Delay 6/82 - 6/83 Cancel

. Year Ex. 30 Ex. 18 Ex. 30 Ex. 18 Ex'. 30 Ex. 18 1981 101 13 112 17 122 17 1

1982 0 49 56 70 261 152 1983 0 52 0 85 277 272 1984 0 0 0 17 277 272 Totals 101 114 168 189 937 713

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Figures shown are megawatt reductions in Consumers' system peak demand (as shown on Heins Ex.11) resulting from correcting Heins Ex.11 to reflect proper handling of Dow sales .

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