ML19344A116

Testimony of SE Feld (NRC) Re Cost of Midland Vs Coal Alternatives

ML19344A116
Person / Time
Site:	Midland
Issue date:	11/16/1976
From:	Feld S NRC COMMISSION (OCM)
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ML19344A114	List: ML19344A112 ML19344A116
References
NUDOCS 8007310618
Download: ML19344A116 (9)

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h UNITED'5TATES OF. AMERICA NUCLEAR REGULATORY COMMISSION-BEFORE THE ATOMIC SAFETY AND' LICENSING BOARD In thel Matt'er of=

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i CONSUMERS POWER. COMPANY Docket Nos. 50-329-50-330 (Midland. Plant, Units'l.'&2)

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'l HRC STAFF TESTIMONY OF SIDNEY E. FELD ON

-COST OF MIDLAND V. C0AL ALTERNATIVES

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This testimony presents'an up-dated cost comparison between the Midland Plant' and alternative coal-fired units.

For each alternative the major cost. components under consideration are capital. operation and maintenance (0 & M), fuel, and, taxes, decommissioning, and insurance.

In addition, for th'e coal alternatives we have factored in the cost of interim power.

-The analysis is somewhat complicated by the fact that t e Midland units h

are already under construction and consequently, a portion of its capital cost is already sunk.

In theory, one should cdd the sunk cost component lof Midland.less the salvage value to the capital costs of the citernatives as these net costs will still be borne in the event one of the alternatives is chosen.

However, in this analysis no credit has been allowed for.thase sunk capital costs.

The fact that the Midland units are already un' der construction also suggests that these units csn come on-line some time e'arlier than the coal alternatives. The applicant estimates.this time differential at between two to three years and calculates a levelized interim replacement.

power costof 13 mills /KWh to reflect the cost df make-un power during the 1981.1983 period. The Staff accepts the premise that in the event the coal alternative is chosen, the applicant would likely incur interim j

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ireplacement' cost'sithat could be fsubstantial. - However, the Staff's esimate

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[is'considerablylower,:essentiallybecausewehaveassumedthatallthe

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'powericanbemadeupinternally,wheraastheapplicanthasassumedthat j

a. portion Lwould _ have to be purch'ased.. In spite of this conservatism, i

.and..our?tjecision to include the sun' capital costs on the nuclear side sof-the ledger, the following analys s still-supports the.conclusior, that'-

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.Midlant is. a more cost effective alternative' than a coal-fired plant.

3 Tlie following ar.alysis.will compare the costs of Midland, Units 1 and 2 to,(a) two 800_MWe high sulfur coal plants, and.(b) two 800 MWe low s'ul fur ' coal' plants.

i Capital Costs uInitially, the Staff' planned to use a computer prognm known as CONCEPTE to estimate thc: capital costs of Midland and its coal-fired ~ alternatives.

1 This program.....

(wa's designed primarily' for identifying. important elements-in the cost structure, examining average cost trends,

determining sensitivity to technical and economic factors Land providing reasonable long-range projections of cost.

Cost. estimates. produced.by the CONCEPT code are.not:

E Lintended.as' substitute's.for.detailedenglneeringcost_

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studies-for specific: projects, but it can be used and

~and.is; frequently ru'n to; assess the o'verall plausibility

of'such' s tudies.2]

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- The CONCEPT ' Computer runs produced capital cost estimates of about $1.2 t

' biliton for Midland, and $1.1 billion and $1.2 billion for comparable size low and high sulfur. coal plants, respectively.

Recognizing that there.is really no basis'to conclude that CONCEPT estimates are more l

reliable.than detailed engineering cost studies, and that the applicant's own estimates are, on balance, more favorable to the coal alternatives,

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the Staff has decided to use CP's capital cost estimates in this analysis.

From Table 11.3 of the Environmental. Report Supplement.the 1981 capital-l cost present values are:

Midland - $1.670 billion; higher-sulfur coal -

$1.2655 billion'and; low-sulfur coal - $1.0616 billion.

Assuming a 30

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year plant life, 10 percent discount rate, and a 65 percent capacity factor for all alternatives produces annual levelized values of 19.2, 14.5 r

and 12.2 mills /KWh, respectively.

These estimates are still more favorable to the coa 1' option then the applicant's own levelized values because in levelizing, CP assumed a higher capacity factor for Midland and the low sulfur coal alternative-(70%), a higher discount rate (11.75%), and a longer operating life ('34 years).3/

In addition, they have reduced the

Midland capital cost-by'about $400 million to reflect that portion already sunk due'to construction to date.

t Operating and Main'tenance (0 & M)

The' Staff:has. relied on'0ak Ridge's.0MCST code.for the levelized 0 & M cost estimates:for Midland and the coal: alternatives.S/ This code utilizes

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an extensive data _. base which takes into account historical experienca and currelt trends to derive 0 & M. cost functions by type and size of plant.

e The Staff.believ'es this is preferable to the applicant's approach which relies'primarily on the historical'~ experience on their units. - This is particularly true_ of' the.0 & M estimate for Midland, as it is hea'vily

. dependent on the 0 & M expenses incurred on only one nuclear facility.

(Paiisades).'

The OMCST computer runs provided the Staff with 1984 0 8 M cost estimates for Midland and the coal alternatives. Assuming a 5 percent escalation rate, 65 percent capacity factor,10 percent ' iscount rate, and 30 year d

plant life, we estimate annual levelized costs of 2.6 mills /KWh for Midland, 2.6' mills /KWh for the low sulfur alterr.ative, and 6.1 mills /KWh for the high sulfur coal, plant..It should be noted that the high sulfur control.

0 & M estimate includes an incremental expense for S02 Fuel Costs-The Staff's independent nuclear'fue'i cost estimate is 6.9 mills / KWh in 1981. An explanation of the-Staff's estimate appears in my testimony on " Cost of Replacement Power ~ Resulting from Su pension" in' this proceeding.5_/

Essentially, the. Staff lhas assumed that nuclear fuel costs will escalate at'_8 percent per year between 1975 and 1982,_ and at 5 percent thereafter.

Based;on this assumed escalation rate, a 10 percent discount rate, and a k'

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. 30 year plant life, the levelized-annual value -is estimated at 11.8 mills /KWh.

The Staff's fuel estimates for the coal alternatives are based on the average delivered prico paid by. Michigan utilities in 1975 for low sulfur coal (sulfur content l%-or less), and high sulfur coal (sulfur content exceeding 42%).5/ These prices were escalated at 5 percent per annum-to obtain 1981 coal estimates of 12.5 r e 1s/ Kwh (high sulfur) and 15.8 mills /Kwh (low sulfur).

To each of trese estimates the Staff has added 0.2 mills KWh for 1981 coal invento 3 costs.

For the' low sulfur alternative an incremental 1981 fuel cost of 0.t mills / KWh has been added due to estimated fuel requirements'for< particulate control, and to the high sulfur alternative, the 1981 incre.nertal fuel cost is estimated at 1.8 control.

mills /KWh.for fuel required fr. particulate control and S02 These incremental fuel cos's due to pollution control are taken from a 1975 report prepared fc. the Michigan Public Service Commission.E

' Assuming a '30 year plant-life,10 percent discount rate, and a 5 percent esc =1ation rate, the 30' year levelized values for the total coal fuel cost are 27.8 mills /KWh.for. low sulfur coal and 24.3 mills /KWh for high t

sulfur coal.

Taxes', -Insurance and Decommissioning The Staff has: accepted the ~ applicant's estimates of taxes, insurance,

.and decommissioning for Midland and the alternatives as reported in.the:

Environmental-Report Supplement, Table ~11-3.

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3 thhir nuclear insurance estimate overstates this cost item relative to the result-reported in the OMOST computer run'made for Midland 8/ and their decommissioning' estimate is consistent with values provided by other utilities f'or.the highest level.of deccmissioning (complete restoration

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ofthesite).b The annual.levelized v'alues based on a 65 percent capacity factor, 5 percent escalation, 10 percent 'iscount rate, and 30 year plant d

life are: Midland - 9.7 mills /KWh; low sulfur option - 5.9 mills /KWh and; high :;ulfur coal option - 7.0 mills /KWii.

Cost of Interim Power The present construction schedule calls for Midland, Units 2 and 1, to come on-line on March 1, 1981 and March 1, 1982, respectively. Unit #2 would contribute' 811 MWe to CP's capability and Unit #1 would make an additional 460 MWe available to the applicant's service area.

Assuming

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a 65 percent capacity factor, these units would be capable of providing 3.85, 6.80, and 7.2 billion KWh in the calendar years-1981-1983, respectively.-

If'a coal alternative is selected over the-Midland units, its in-service date is assumed'to be January 1, 1984.

This delay will force the applicant l

1981 1983 period to make-up to' rely on other sources of power during the the power that would have been piovided by the Midland units during-this time interval. The applicant has assumed that this power would be obtained from a combination of greater utilization of existing capacity and outside. purchases.resulting in a 1981 present value' cost of $661 million. :The Staff has assumed that all the interim power will be

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. provided-internally by coal an'd of'l-fired units and that the only incremental cost associated with this energy will be the fuel charges. Assuming-5 percent per year escalation in the price of coal and oil, a 10 percent discount-rate, and a 30 year plant life, produces a 30 levelized cost of

-4.0 mills /KWh.

Conclusion Table 1 summarizes and shows the Staff's conclusions regarding the cost comparisonfof Midland _ and the coal alternatives.

The comparison has been

. presented.in-terms of a levelized annual cost over a 30 year operating life. The table shows a levelized cost advantage of about 12.6 mills /KWh and 9.2 mills /KWh by selecting Midland over the high sulfur and low sulfur options, respectively.

It should be noted that the Staff has attempted rto use conservatively high cost estimates for nuclear compared

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to coal, so _that the cost differences shown are more likely to be too small than too large.

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TABLE 1 - Economic Comparison of Energy Alternatives - 30 Year i

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Levelized Costs in Mills per KWh Midland High Sulfur Coal Low Sulfur Coal 30-Year 30 Year 30 Year Levelized' Levelized Levelized CAPITAL COST 19.2 14.5 12.2 0 & M' 2.6 6.1 2.6

' FUEL 11.8 24.3 27.8-

-TAXES, INSURANCE &

-DECOMMISSIONING' 9.7 7.0 5.9 4.0 INTERIM. POWER 4,0 TOTAL COST-43.3 55.9 52.5 Discount rate 10 percent Plant life - 30 years-Capacity factor - 65 percent 0 & M cost based on DMCST Escalation rate ~of'5 percent per annum to year 2011 except 8 percent per year for nuclear fue' between 1975.and 1982.

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9-FOOTNOTES 1.

CONCEPT: A corauter code for Coric9ptual Cost Estimates of Steam-Electric 'ower Plants - Status Report, USAEC Report WASH-ll80, April _.1971.

2.

Supplemental. Testimony of Darrel A. Nash before the Atomic Safety and Licensing Board, Wolf Creek Generating Station, Unit No.1, March,'1976, p. 3.

3.

E.R. Supplement, October 26, 1976, Section 8 (:evised).

4.

A Procedure for Estimating Non-Fuel Operating and Maintenance Costs for Large Steam-Electric Power Plants, ERDA 76-37, October 1975.

5.

NRC Staff. Testimony of Sidney E. Feld on Cost of Replacement Power.Resulting from Suspension, Midland Plant. Units 1 & 2.

.pp. 2-3.

6.

FPC News, Vol'. 9. No. 12, March 19, 1976, Table 3.

7.

Environmental Protection Study, prepared for Michigan Public Service Commission, ICF, Incorporated, Washington, D.C., May 1975, pp. 57-58.

8.

OMCST computed a 1981 present value for insurance oI'about 11.3

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million dollars vs. applicant's estimate of about 53 million dollars

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Supplemental Testimony of Darrel A. Nash, note 2 supra, p. 23.

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