ML19344A119
| ML19344A119 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 11/05/1976 |
| From: | Feld S NRC COMMISSION (OCM) |
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| Shared Package | |
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| References | |
| NUDOCS 8007310621 | |
| Download: ML19344A119 (35) | |
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UNITED' STATES OF AMERICA' NI) CLEAR REGULATORY COMMISSION
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BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Mattir' of CONSUMERS POWER COMPANY
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-Docket Nos.
50-329 50-330 1
(Midland Plant, Units 1 &' 2)
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O NRC STAFF TESTIMONY OF SIDNEi E. FELD ON J
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' ThisLtestimony addresses the need on the part of the Michigan Electric Coordinated -System (MECS)~ for ' Midland, Units 1 and 2, in the 1981-1982 timeframe. The analysis will.show' that, based on Consumers Power's
. (CP) and. Detroit Edison's (DE) latest forecasts and capacity-plans, the reserve: margin in the _ summer of 1981, with Midland units delayed one
- year,'will fall below that deemed necessary by the MECS to maintain -
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reliable. service. Furthermore, the staff will demonstrate that based on CP's latest projection ~ of KWh sales, there exists an affimative indication for the addition of baseload capacity on the CP system.
Underlying these anal'yses 'is 'our ability to accept CP's and DE's fore-
' casts as reasonable measures ~of future growth and inherent in this acceptance is a recognition that conservation has been given adequate weight in these forecasts.
Based on a review of the assumptions embedded in.the utilities' forecasts, a review of independent forecasts and studies of the MECS service area, and consideration of the Federal Energy Admin-istration's (FEA) regional forecast, the staff concludes that the utilities'
- forecasts are reason.able representations of likely futura growth and they do, _in fact, factor in. the-impact of conservation.,The-following testimony
. provides support for this conclusion.
CONSUMERS-POWER & DETROIT EDISON SERVICE AREAS Consumers -Power -is one of two major electric utilities servicing the State of Michigan. As of-1975, it provided electricity to a population-of approx-imately 3.3 million-people extending over a wide geographic area (lower Peninsula:of.Hichigan except Southeastern portio'n) consisting mainly of L
rural areas and dispersed urbanized centers.. Major cities within the service
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area include' Grand Rapids, Fitnt, Kalamazoo, Lansing, and Battle Creek. The industrial ~ demand for electricity is concentrated in the autnmobile industry with General Motors alone accounting for about one-third the Company's total lindustrial' electric energy sales.
Other important industries in the service area include primary metals, phamaceuticals, machinery, oil refining, paper t
and: paper products,and food products, r
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w The second' major electric utility in Michigan is'the Detroit Edison Company. Their service: area-extends over approximately 7607 square miles in the more urbanized and industrial. area of southeast Michigan.
Its customers ' number about '1.6 million, and :the population. served is about _.
5 million.--
The two utilities comprise the Michigan Electric Coordinated System and
_ jointly' service approximately 90% of Michigan's electrical needs.I-They constitute;a hig.hly integrated system.and in addition to joint planning
.. efforts, -they ~ actively ' coordinate their transmission and generating equipment.to meet the electrical needs of Michigan's lower peninsula.
Because. Consumers Power is an integral part of this larger system, the staff concludes that a determination of need for Midland must be viewed in the context of the combined capacity and combined demands of both Latroit Edison-andl Consumers Power.
- Forecasting Demand The staff recognizes th'e uncertain nature of forecasting and that there'is no standard forecasting methodology to which one can turn as'a' reliable
- guide.for predicting the future.
Prior to-1973 few envisioned the oil' embargo and the succession of bewildering events aggravated by the embargo:
3
- fuel shortages; double-digit inflation; a prolonged economic recession; sharp rises in the price of electricity and alternate energy sources; and the implementation of conservation programs throughout-the country. Yet, in the uncertain environment of 1971, _the applicant prepared a forecast-i and the staff evaluated those' projections of IGh, sales and peakload demand i
and deemed them reasonable. Today, it is abundantly clear that those forecasts overstated future growth for the period 1971 through.1975.
-i
. l Governor's Advisory Comission -'on-Electric Power Alternatives, Final Report..
' Facts and Reccmmendations, Vol. IV, Lansing, Michigan, August,1976, p.4.
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'4 3-In 1971, when the applicant submitted its ER for the Midland units, it was1 forecasting a growtfi rate in peak _ demand of about 7.6% per annum for the years 1970 thru.1980. Their KWh sales' forecast was also about 7.6%
- per year over;the same time period. These forecasts were strongly influenced
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by-;the actual growth experience in the previous decade in which total sales-for Consumers Power grew at 7.6%;per annum (1961-70), with resid'ential sales
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growing at'6.4%, Comercial ~ sales at 9.1%, and Industrial sales at 7.8%.
Similarly, Detroit Edison was likewise forecasting a relatively high growth -
l rate back in 1971 based on its -historic growth pattern.
i But because 'of the factors identified above, growth in the 1970's did not keep pace with historical levels. Between 1970 and 1975, Consumers Power's KWh sales grew at a rate of about-4% and peak demand at only 3.9% per annum.
In addition, actual declines in sales were registered in 1974 and 1975, I
and a decline in peak demind occurred in 1974.
Clearly, factors such as conservation, an economic recession, higher prices for electricity, and to some extent, more moderate w'eather, all contributed to this decline in growth.
However, it should be noted that the preliminary results for 1976 suggest
- that growth is once again on the increase among the nation's electric-utilities.,For example, over the first seven months of 1976, the production of electricity by all U.S. utilities has been 6.7% above the same period last--
year.2 ~ Similarly, over the first eight months of 1976, KWh sales on the CP system are up about 7.4% and for DE, sales are up 7.9%.3
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l In the midst ofl declining growth in the MECS'the two utilities have over the
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e last few ' years continually revised their forecasts downward.
For example, 2 Energy Resources-Council, President's Energy Program, Monthly Progress Report, August,1976.
3 East Central-Area. Reliability Council (ECAPc) 1975-76 KWh Consumption by Ul timate. Customer.
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CP's 11atest forecasted growth rate is approximatley 35% below that fore-casted in 1972..The forecasts under consideration today, at this. hearing,
-are CP's 1976 forecast of sales and peak demand of 4.9% per annum between 1975 and 1984,:and DE's.1976 forecast of 4.E3 growth in sales and 5.2%'
growth in1 peak-demand between 1974 and 1984.
It is, the staff's belief that these moderate growth rates do in fact take conservation as well as other inhibiting factors on growth into account and reasonably reflect the likely growth over the time period under examination.
Clearly, adjustments to MECS's capacity plans are necessary to reflect the recent experience and these lower growth projections.
In the last few years,
. the _ response' to. capacity planning has been rather dramatic.
For example, in 1974, Consumers Power announced the deferral of 2773 MWe and the can-ce11ation of 2300 MWe, Detroit Edison deferred 5779 MWe and cancelled 1150 MWe.- Thus, the total amount of capacity either deferred or cancelled was 12,002 MWe, at _a time when the two companies' total installed generating ca' acity was approximately 14,000 MWe.
In addition, the Midland units p
themselves 'are now rescheduled to come on line about 4 years later 0981-82) thari initially _ planned back in 1971 (1977-78).
Need for Additional Capacity Table 1 presents the utilities latest summer peak demand forecasts and capacity plans for the years 1981 thru 1983. The table identifies two cases: Midland units'on-line as scheduled (available for sumer of '81 and '82); and Midland units delayed one year (available for summer 'of '82 and '83).
In the event Midland is not delayed, $the reserve margin (net capability as a percentage of reak demand) is projected to be approximately 120% over.a11 three years,-however with a one year delay, the reserve falls
'to 14.2 and -18.1 percent in 1981 and 1982 respectively.
It should be noted j
. hat: based on the applicant's_ reliability analysis,a reserve margin of-about
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20% is:needed on the MECS to maintair, a reliability criterion of one day in ten years 'loi5 of 1Ad Whf6fi is a ridSyrifzi'd standard throughout the.
electric utility industry.
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Michigan Electric Coordinated System (C.P. and D.E.)
. TABLE 1 :Sumer Peak, Capacity and Reserve Margins 1981L thru 1983 Y
Peak Demanda' Net Capabilicy (MWe}b Reserve Margin as % of peak' demand
(** )
Midland
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Midland
-E-Midland Midland on-line delayed on-line delayed as scheduled
_one year as scheduled one-year A
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1981 15127 18084 17273 19.5 14.2 1982 15891 19220 18760 20.9 18.1 I
1983 16653 19896 19896 19.5 19.5 a
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SOURCE:
Consumers Power Company Environmental Report Supplement, October 26, 1976,
' Table 1.1-1.
bSOURCE:
Consumers Power Company Environmental Report Supplement, October 26, 1976,
. Tables 1,1-6 and 1.1-7.
-Note:
Scaff accepted the data presented in these tables with the following exceptions:
1 - we assume Palisades will not be out during the 1981-82 period.
2 - the only sales of capacity 'that the staff has taken secount' of are the J
.Luddington sale to Consolidated Edison of 624 MWe and.the sale of 122_0.MWe of Fermi 2 to municipalities. Although othe'i sales are pro-
._.jected by the Applicant and may well.materializa, no deduction _fr.om.
- capacity has_been_made for them.
3 - The s_t,f_has taken account of a 147' mwd deratin,g,o'f capacity for.
(CP)'and 143'We forlDI)'~during sumer peak load due to higher cooling medium temperatures -in sumer.
See ER Supplement, p.1.1-20.
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. Need for Baseload Cacacity The staff;also evaluated the need for baseload capacity on the CP system.
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Essentially, this consisted of a quantitative comparison of projected baseload demand and baseload capacity for the years 1091 thru 1983.
All unitsfdesigned and operating as baseload units were identified by the'appilcant. For example, in 1981, with Midland 2 in service, du CP system will have 7682 MWe of capacity of which 4698 MWe will be baseload for a percentage share of total capacity of about 61%. Without Midland 2 on-line, the baseload portion would approximate 57%. As of September t-30, 1976, CP's -baseload portion-approximated 59% which suggests that the addition-of Midland 2 would not alter significantly CP's historic relative dependence on baseload capacity.
Baseload demand has been estimated by the staff as a function of forecasted KWh sales.
It may be-noted that nationally approximately 85-to 90% of the J'
KWh's generated during the year are at loads equal to or less than the average load.
For CP' the, staff has estimated that 88.2% of its KWh sales occur over this range.of"their load duration curve.4 The staff assumes that these KWh's will be generated by those units in the system that are the most economical to operate, usually the 'large units. The remainder of the electrical energy will be generated by peaking or cycling units. Taking 1981, the year the first unit is expected to go on line, the applicant forecasts an energy level-of t
1 29,835,000 MWh. 87.5% (midrange between 85 and 90) of this is about 26,106,000
.MWh _ At.a-capacity factor of 65% for baseload units, this would require 4585
.e MWe-in baseload capacity.
4That' load equal-to or less than the average load for the CP system is a function' of its_ load duration curve which can be approximated by a ~fifth
~ degree polynomial wr.ose coefficients 'are closely related to just two-quantities--the ratio of the minimum load to the maximum load during the
. period, and the ratio of _ the average load to the maximum load. The pre-
.ceeding method -is discussed 'in International Atomic Energy Agency." Market Survey for' Nuclear Power -in' Developing Countries," September,1973, and scoments to that article, Nuclear Technology, " Letters to the Editor," letter
'by Artha Jean-Snyder, Vol. 24, November,1974, p. 260. These ratios were cal-
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The results indicate that
= 88.2". of'the total KWh's generated occur at loads at least equal to the average 4
load.
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-7 Table 2 presents the baseload capacity and demand as':imates for CP for the years 1981 thru 1983.
Based on this analysis, a delay of one year will result in shortages in baseload capacity of about 700 MWe and 125 MWe in 1981 and 1982 respectively.
With Midland on-line as scheduled, surpluses of between 84 and 335 'MWe will occur in the 1981 to 1983 period.
TABLE 2 - NEED FOR BASEL0AD CAPACITY - CONSUMERS POWER Y
BASEL0AD CAPACITY BASEL0AD DEMAND BASEL0AD MARGIN-EXCESS With With OR (DEFICIT)
E Midland Midland With With A
on line delayed 1 year Midland Midland R
as scheduled on line delayed 1 yet as schedulec 1981 4698 3887 4585 113 (698) 1982 5158 4698 4823 335 (125) 1983 5158 5158 5074 84 84 l
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A third factor which 'is relatively important-in considering. the applicant's -
need to add the proposed-nuclear plant to its system is the desirability of. adding non-fossil capacity to reduce fuel consumed by gas-and oil-fired units now forming about 27". of CP's total system capacity. To the extent that this substitution can occur, it will increase the avail-
- ability of these:more versatile fuel resources for other' uses'for which
. there is no available substitute.
Shifts of this nature are consistent with national energy objectives as. set forth by. the Federal Energy Administration and the Federal-Power. Commission, and are also beneficial in reducing our nation's balance of payment deficit.
The. foregoing : analyses suggest that the Midland units are needed as scheduled to. maintain reliable service for the MECS custcmers, to meet the need for baseload capacity on the CP system, and to permit CP to limit its dependence on scarce fossil fuels in accordance with national energy policy.
However, for the most part,-these analyses are dependent on two important assumptions:
1) that the capacity estimates in the 1981-83 time frame will materialize; and.
2) that' the growth forecasts envisioned by CP and DE will likewise materialize and are reasonable in light of the potential for conservation savings.
System Capability - 1981-83 Capacity planning on the CP and DE systems has undergone dramatic revisions in the last few years!in response to changing tiemand and financial conditions.-
The' capacity data appearing in Tables 1 and 2 represent the latest plans (as' of mid-1976)'available to the staff. The staff believes that the estimates used herein are conservative;because the potential for future delays and deferrals in capacityjare ignored even though they are very much a reality whereas the additio'n of capacity not planned for at this time is highly
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unliksly becidse of the large lead time typically required.
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i or example, the capacity plan presented'here ' assumes that F
- six units,' excluding Midland 1 and 2, with a. total net summer capacity
- of 4459 MWe will' come on-line between 1977' and 1983 as scheduled. Given the frequency with which constnJction has Been delayed in recent years, ihismustbecharac'terizedasaveryoptimisticassumpti.on.
Furthennare,
.it does not take'into account the p.ossible repairs to Palisades which '
represent a. potential derating-of CP's capacity of approximately 680 MWe
' during. the 1981-82 period. Also, it assumes that gas and oil. supplies will be adequate to allow CP to meet the future demands that will be placed or. 'ts. gas and oil' fired capacity. Out of.a total capacity of
~7682 MWe in 1981,' oil-and gas-fired units will account for about 1800 and 400 MWe's respectively. And finally, it does not reflect CP's present plans' to sell portions of Midland.1 and 2, and Campbell. 3 which, if consumated, would further reduce CP's net system capability in 1981 and 1982.
Indeoendent Assessment of Demand The. staff has. had'an opportunity to review two independent forecasting analyses that project growth in electricity demand on the MECS.
Since they-are solely concerned with growth in the CP and DE service areas and
-because they:are the products of analyses performed under the auspices of the government of the state of Michigan, their inclusion here appears warranted. -In addition, the staff has also considered the FEA's latest I
forecast for the east north central region. Although this forecast is
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- not as precise l geographically ~(evaluates growth in a five state regicn),
'itcisincludedhereas'a'seco'd'aryreference' check'onthe' preceeding f
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. analyses. Each' off the analyses wil'1 be discussed and their results will
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be= compared with those made by CP and DE.
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. MICHIGAN PUBLIC SERVICE COMMISSION In December of 1974 the Michigan Public Service Commission (MPSC) released a report entitled Evaluation of the Consumers Power and Detroit Edison 1974 Load Growt.: Forecasts.
The document prepared by a project team within the MPSC, responded to a request by the Comissioner to:
Provide an independent evaluati.
of the electric demand evaluating electric demand requirements.gston'.s use in load factors and forecasts for the Commi The thrust of the report is a detailed evaluation of the 1974 forecasts prepare.d by CP and DE. After a careful. analysis of each of the assumptions underlying growth in the residential, commercial, and industrial sectors, as well as a detailed-investigation of the impact of conservation, sub-stitution, growth in the economy, and the future behavior of the load factor, the report concludes that:
- 1) The forecasting methodologies used by both CP and DE seemed reasonable and were consistent with generally accepted approaches used by utilities across the country.
Furthermore, they were depicted as containing a high i
degree of analysis and statistical support although specific areas of
,' improvement vere identified;6 and 2)
In the opinicn of the PSC project team, the CP and DE 1974 forecasts underestimated future peak demand. This conclusion was based primari13
~ on the project team's belief that the utilities overstated conservation savings and understated growth in the Michigan economy.7
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t SMichigan'Public~ Service Commission, Evaluation of the Consumers Power and Detroit Edison 1979 Load Growth Forecasts, Staff Study 1974-4, December, 1974,. p. 1 -9.
9 Ibid., p. 2-la, 2-2 and 3-7.
7Ibid., p. 2-1, 2-11.
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Although the project-team did not develop an independent forecast pee se,,
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theyldid. produce:a reforecast range by substituting alternative assumptions within the_ Companies'Eforecast methodologies.
It should be emphasized that this is not-to say that the Companies' forecasts are' necessarily incorrect,-
i or that the project team's'are correct.
Rather, they indicate the general
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! direction.in which the project team believes the actual values may be relative-toithe Company estimates, t
' The' key parameters used in CP's and DE's 1974 forecast methodologies are depicted in Tables!3 and 4-respectively. For each parameter,~three estimates are presented. The first is the company's'own estimate which was used to generate their 1974 forecasted growth rate in electricity demand. The ~1atter two. values represent the high and low values that the-
-project team assigned to the same parameters based on their research and knowledge.. These estimates ~were then incorporated into the forecasting model to derive high and low estimates of electrical growth in the CP and j
DE systems.
It'is interesting to' note, that in several instances, CP's value for a particular' parameter was even less than the.MPSC's low value for the same parameter.
For. example, whereas in 1974 the appitcant. assumed 'an average use.cer residential domestic customer of 7800
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KWh by 1982 and a rate of growth in GNPcof 2.3%, the MPSC's low estimates
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were 8100 KWhs and 3% respectively.. The project team's estimates for electrical growth for the year 1982 appear in Table 5.
Rapresented are projected KWh' sales and peak demand ~ for:CP, DE,-and for the MECS L(CP and
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DEcombined).. In each instance,.high and low values are depicted.
These
- estimates are contrasted with the Companies'-latest (1976) forecasted results.
Table 5-
.suggestsithat CP's_ forecasts are consistently conservative, even
- when contrasted to the MPSC's low forecast.
For DE, the Company's forecasts are cons.istently; below the -high-end of:thi projecc team, however, are
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Lapparently; not as conservative as the project team's low forecast with respec't Lto '. pea'k demand.
Here, the Company's own forecast is'about 700 MWe 1
greater.than-the project team's low value. With respect to the MECS, the i
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TABLE 3 Y
MPSC S*JPPORTING ASSU:4PTIONS FOR REFOPICAST Based.cn Projections by 1982 Consumers. Power
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MPSC MPSC FORECAST CATEGORY-
- 1974 FOPICAST HIGH ESTI:GTE LOW ESTI:GTI Residential Sales
, Number of-Customers 1,275,500 3,304,600 1,265,000
. Marginal Space 40%
50%
70%
Heating Saturations
. Average Use Per Residen-7,800 KWH 8,700 KWH 8,10 0 YJ.
tial Domestic Customer Average Use Per Space 19,200 KWH 19,900 KWH 18,900K;;
Hetting Customer
- -Commercie.1 Sales 6.05%
7.37%
5.17%
-Industrial Sales Sales to GM,
1%
2.2%
1.5%~
Sales to Other Industrial
..--Rate of Growth in GNP
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2.3%
4.0%
3.0%
.. Rate of Grcwth in Usage Por Unit FRD 0%
3.97.
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-Load Factors Space Heating Lcad Factor 45%
.45%
45%
Net System Load Factor 65%
63%
67%
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TABLE 4 (f
- MPSC SUPPORTING ASSUMPTIONS FOR REFORECAST RANGE Detroit Edison
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,n MPSC MPSC 1974 FORICAST HIGH ESTIMATE LO?7 ESTI ' ATE
.;nECAST CATEGORY gesidential-Maximum Demand
. Number of Customers.
1,759,000 1,759,000 1,700,000
. Air Conditioning Saturations' 50%
42%
46%
..Rcom 23%
25%
21%
.. Central 63.5%
80%
80%-
. Marginal Space-Heating Saturations
. Average Use Per Customer Temperature Sensitive Load
.. Room Air Conditioning 500 600 400 3,200 3,200 2,800,
.. Central Air Condition-12,000 ing
.. Electric Space Heating 14,000 14,000
. Average Use Per Cus omer Non'-Temperature Sensi-6,804 7,600 6,600 tive Load
. Residential Load Factor 54.4%
50%
50%
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-Ccemercial Maximum Demand 4.6%
5.0%
4. 2 11
. Commercial Growth Rate
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..Tommercial Lead factor 46.6%
44%
4~%
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-Industrial Maximum Demand-
. Rate of Grewth in GNP 3.5%
4.0%
3.0%
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.. Industrial Load Factor 77.5%
72.1%
77.5%
O SOURCE:- Chart 4.15 C, MPSC Study
. 4-45
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Table 5 - 1982 KWh Sales and Peak Demand for CP, DE, and MECS--
Companies' Forecasts vs. MPSC Range 1982 KWh SALES Company Foreca'st (1976)
MPSC RANGE MKWh MKWH HIGH LOW 4
3 b
b Consumers Power 31386 38737 34494 c
d d'
Detroit Edison 48423 57443 49937 MECS-(CP & DE) 79809 96180 84431 1982 PrqK DEMMD Company Forecast (1976)
MPSC RANGE MWe MWe HIGH LOW.
a b
b
. Consumers. Power 5840 6734 6354 c
d Detrail Edison 10051 11222 93-g
'MECS (CP & DE) 15891 17956 15691 a - Consumers Power Company Environmental Report Supplement, October 26, 1976,
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- Tables l'.1-1 'and' 1.1-3 i
L - MPSC Study, Chart 4.26B, p. 4 c - Latest' forecast submitted 10/18/76 by CP on behalf of DE - Note, since DE only forecasts total output,1982 sales were estimated by applying growth rate.in total output--(1975-82)..to actual sales in 1975.
1975 sales.=.32,419-MKWh and 1975-82 growth = 1,49
.d.- MPSC Study, Chart 4.15B, p. 4-42 l
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Companies combined peak demaad is_approximately 2000 MWe below the com-
- mission's-high forecast and.about 200 MWe above their low forecast. On balance, one must-conclude that relative to the MPSC forecast range, the Companies' combined 1976 forecasts.are a conservative reflection of likely electric growth:in-its region.
Governor's Advisory Comission on Electri[ Power Alternatives (GACEPA)
In August,1976. the GACEPA released a study. which, among other things, provided the state with an econometric model to forecast. electricity demand in_the CP and_DE systems.8 The model utilized quarterly data over A
a' ten year. period (1965-74) with 'the exception of the industrial sectors which were developed on 19' years of annual data. Using this data base. and regression analysis-it derived estimating coefficients for key explanatory variables.
The model was fairly disaggregated in that it-forecasted sales by major _ customer class -(residential, comercial, and industrial) and within the industrial sector' attempted to forecast by the Department of Co[nmerce's Standard Industrial Classification Code (SIC).
Th's attempt at' further disaggregation:was statistically effective wi.tn rt spect to the CP. forecasting model but produced excessively downward biased forecasts for the_DE model.9 Consecuently, the' forecast for the DE industrial class
- was ultimately p$4onned on an aggrecated basis.
Once the causal variables and estimating coefficients were defined, the Advisory Commission' Staff postulated future levels for all causal variables.
. t Three distinct scenarios for the growth levels of causal variables were developud.10 8Governor's Advisory _Comission on Electric Power Alternatives, Final Report... Facts and Reccmendations, (Vol IV) Lansing, Michigan, August 1976.
9 Governor's-Advisory Comission on Electric Power Al ternatives, Forecastino Electric: Energy Demand in Michigan, Vol II, Lansing, Michigan, February,
~1976, p. 29.
10Advisory Commissions Final: Report, pp.14-15.
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LThe high-growthL case assumes that causal variables will grow at the same annual average growth rate which obtained
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in Michigan during the period 1969-73, a period of strong 1 economic growth.
The medium-growth' case assumes that the levels of causal
~
variables will grow at the annual average rate that obtained in Michigan during the period 1965-74, a period which saw both high and low cycles of economic activity in the state.
- The low-growth case assumes that Michigan causal variables will move at the same rate forecast for the nation by Chase Econometrics (this forecast includes a recession in 1977-78).
Given these postulated levels,- the model forecasts the following average annual growth rates-in sales and demand through 1985 (see Table 6).
TABLE 6 GACEPA' FORECASTED GROWTH RATES IN SALES AND PEAK DEMAND 1975-1985 High Medium Low Consumers Power 7.54%
5.26%
3.70%
' Detroit Edison 5.49%
4.17%
3.33%
MECS(CP&DE[
6.29%
4.59%
3.47%
weighted aerage c
. - =
=
The Advisory Commission adopted its staff's medium forecasts. When weighted by Lthe size of the two companies ~ 1975 peak demand, the MECS averaga-annual compound growth rate in peak demand is 4.59 percent, unless vigorous con-
'servation measures are taken.
However, the Commission noted that shortages l
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- of basic fuels-that are rerdily transportable to end users (natural gas, fuel
= oil, propane) could result in a-shift.to greater expans on of electricity i
use and thus they recommend:using the staff's medium rate of growth with
~ allowance for minor upward adjustment in case of error."
. Addressing the question of need for new capacity.on the CP and DE systems by.1985 the; Advisory Comission concludes that:12 The national ' recession which hit Michigan's _ economy with the force of a depression in 1974 and 1975.di.d have the effect of.providing a " breather" in the state's growing electric needs. 'Also, this Comission's forecast at present projects a lowered rate of growth.in demand through 1985.
Nevertheless, we forecast the need fcr 5077. MWe of new
. construction in-the combined-Consumers power-Detroit Edison service. area:by 1985, assuming only-a 15% instal'.ed reserve capacity.
If the' reserve -is 20% -(which both Detr6it Edison and Consumers Power assert is necessary to-maintain bulk power reliability), then the necessary construction by 1985 would be 5908 MWe.
The present expressed plans of both companies provide for 7231 MWe construction by 1985, which would more than meet the needs which we forecast.
However, construction has not yet resumed on enough' capacity to warrant certainty that t
- Michigan'
.ieeds will be met.
If additional dela 3 of one.
to two years are incurred on plants now tenta:ively scheduled-for completion in 1983 and 1984, then the state's 1985 needs
- at 20% reserve would not be inet.
'i 1
1 U Ibid.,pp.'20-22.
121 bid. *pg. 9.
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. Table 7 contrasts-the companies' and the GACEPA' peak. demand projcetions -
t for the-year 1982. The GACEPA medium forecast, which was identified
- by the. Advisory Consission.as' probably being slightly biased downward, Lis accepted by the staff as a basis.for comparison.
The Advisory
~
-h
. Commission's peak demand growth rates are applied to the.1975 peak for CP and -DE -in order to obtain projected peak demands in 1982 and the comparison is performed for CP, DE,.and the MECS (CP & DE).
TABLE 7 1982 PEAK DEMAND FOR CP, DE, AND MECS - COMPAlilES' FORECASTS VS. GACEPA'S MEDIUM FORECAST 1982 PEAK DEMAND-Company Forecast (1976)
GACEPA Medium Forecast
-MWe MWe
. Consumers Power 5840 6004:
Detroit Edison 10051 9609 i
~~Relakive to the C,mmission's medium forecast, CP's own forecast is 4
conservative by about 165 MWe, whereas DE's own forecast is overstated by about 440 MWe.
In total, the MECS forecast is_ about 260 MWe greater than that forecast by the Commission's econometric model. Recognizing that this is' only a 1.8 percent discrepancy in astimated 1982 peak demand' ana 'that the Commission acknowledges that,their. medium forecast-
- may understate growth, one must ccndlude that relative to the Advisory
~
Commission'sifindings, the companies' forecasts are reasonable. measures iof. future growth.
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FEDERAL ENERGY-ADMINISTRATION REGIONAL MODEL The most comprehensive attempt at an econometric model concerned with future. energy growth was presented about a year. ago by the U.S. Federal'
~
' E,nergy Administration (FEA) in their " Project Independence Report."
~
More recently, a refinement of the FEA model was reported in " National Energy Outlook (February, 1976).14 One impact of this refinement was a reduction in' FEA's projections.
Furthermore, this report providsd results on a regional basis.
In all, the model provides three projections of future national electric energy consumption:
1) the reference case, which does not assume passage of any energy conservation actions but does -
include the conservation ef.fect of higher energy prices; 2) the conser-vation case, which represents the reference ca,e as modified by conservation actions and -load management programs; and 3) the electrification case, which incorporates into the reference case certain measures aimed at substituting coal and electricity ~ in place of oil and natural gas in the -
commercial, is.dustrial, and residential sectors.
Under the reference case:
with oil. at $13/ barrel, electricity consumption is projected to grow nationally at 5.4 percent per year betwen 1974 and 1985.
Under the conservation and electrification cases, electricity consumption is pro-jeci.ed to grow at 4.9 percent and 6.4 percent, respectivei.
f
(
{
13" Project Independence Report," Federal Energy Administration, Superintendent
- of Documents,- U.S. Gov't: Printing Office, '4ashington, D.C., Stock Number 4118-00029.
14" National. Energy Outlook," Federal Energy Administration, FEA-N-75/713, February 1976.
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a These national 4results simply constitute an aggregation of estimates
-prepared on a regional-basis and in' actuality-elasticities and projected b
- changesLin the independent variables exist for-each of the.nine census
- regions in: the U.S. :In addition, for each region, electricity consumption
' siforecasted by major custo'mer class: residential, commercial, and -
i
~
[
. industrial.
Consequently, based _on the distribution of sales. among major
. customer classes, one can use 'the regional results to estimate growth in electricity consumptioniin a specific ' service area..This procedure requires one-to accept the, assumption that the structural coefficients and their. projected growth rates that were developed on a regional basis are representative of specific service areas within the region.
The FEA' forecasts energy sales for the time; period 1974-85 by major Census Region. The relevant geographic a'r'ea is the East North Central
~
Region which ' encompasses the States of Michigan, Wisconsin, Illinois,
' Indiana, and Ohio. -The forecasted growth rates for this region under the reference scenario are 8.15 percent for the residential sector, 3.00 percent for the commercial sactor, and 2L65 percent for the industrial sector.15 Sales to others will be assu-ed to grow at the same rate as the average of the three major classes. The; staff assigned weights to -
.each of the growth rates based on the present distribution of electricity by ~ customer. class.in the system.
This assumes-that these proportions will' remain relatively unchanged over the forecast period.
This approach 4
produces ~ an annual compound growth rate in electricity sales. through 1985 of 4.79 percent for CP, 4.55 percent for DE, and 4.66 percent for MECS.
The calculations _ appear in table 8.
v 4
Ifbid. - page' C-28, Table 13a.
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TABLE 8' DERIVATION OF.CP'S, DE'S, AND~MECS' GROWTH RATE-IN ELECTRICITY SALES, 1974-1985, USING REGI0tlAL FEA MODEL b-
' Percent of" Forecasted Contribution to l Customer Class Total Sales Growth ~ Rate (%)
Service Area Growth Rate
~
Consumers Power-Residential 31.7 8.15 2.59 Commercial 22.3-3.90 0.87 Inoustrial-40.9 2.65 1.08-Other 5.1
- 4.90 0.25 Total 100.0 4.19 Detroit Edison Residential 29.8 8.15 2.43 Commercial 17.3 3.90 0.68 Industrial 51.0.
2.65 1.35 Other 1 ~. 9 4.90 0.09 Total 100.0 4.55 Michican Electric Coordinated System (CP & DE) c Total 4.65 f
a-
.1975 sales distribution 4: reported to ECAR b - National Energy Outlook, p. C-28, Table 13a, Residential, Commercial, and Industrial forecasts for East North Central region.
Other is the average ofethe above three.
.c - average of total growth rate-for CP and DE weighted by total 1975 sales.
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LThe forecasts of electricity sales become the basis on which peak load _ *
~
-demand.is projected. That is,.once electrical _ energy growth is projected, the ' analyst must makefa determinathe 2s to the likelihood.of whether peak
~
I
- load willigrow faster or slower. :-In most instances, utilities are fore-
- casting faster growth for peak load than for. electricity consumption.
This is true for DE,'although CP assumes equal growth between sales and peak demand. Historically,' peak load has grown considerably faster. than energy; sales.
For-example, for all U.S. utilities, between 1963 and 1973 electrical. energy consumption grew at 6.9 percent per year _ and non-coincident j
. pe'ak load grew at 8' percent per year.
The' FEA= regional results cited above reflect the FEA's reference. scenario.
. Presently, this is the only' scenario for which results are reported on a regional basis. An important assumption underlying the reference case is
.)
the continued deterioration of the load. factor with peak loa,d growing a modest one-half. per:ent faster than electrical consumption.'g Thus, the r
l' FEA regional -forecas.t indicates that peak load in the relevant service areas will-grow tt approximatelyc 5.29' percent, 5.05 percent, _ and 5.15' percent for CP, DE, and the MECS respectively _ (or one'-half percent faster
-than the growth in energy sales).
Applying these growth rates to-the appropriate 1974 peak demands-enables one to obtain estimated 1982. peak demands which ;are based on the FEA's regional model.
These values.are presented.in Table 9 and contrasted with the companies' own latest fore--
casted values.
p
~
TABLE 9
(-
1982 PEAK-DEMAND FOR=CP, DE,' AND MECS - COMPANIES' FORECASTS VS. FEA'S EAST NORTH CENTRAL FORECAST-REFERENCE SCENARIO l.
1982 Peak Demand _
FEA East North Central Company Forecast'(1976)' Forecast-Reference Case MWe MWe
.CONSUMERSIPOWER.
5840' 6206 DETROIT EDISON 3
- 10051 9809 MICHIGAN _ ELECTRIC.,CO-15891 16015
-ORDINATEDUSYSTEM ~
16 Ibis;pagef2391
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. 23 :
- Once again, the compa'ny forecast's appear. reasonable.
Relative to the
~
FEA forecast,LCP's 1982 estimate understates peak' demand in 1982 by about
.360-MWe and DE overstates growth l by about 240 MWe. More importantly ^, the net effect for the coordinated system-(MECS).is an understatement on the'
. part of' the' companies:by about:100 MWe.
Thus, based on the three independent analyses reviewed by the staff, we
. conclude that the Companies _' forecasts-provide reasonable estimates of projected growth in the MECS service area.
In the remaining sections of this testimony the staff will attempt to determine whether or not these forecasts give adequate weight to future conservation savngs in the service area.
CONSERVATION Since11 ate 1973, this country has developed numerous programs in an effort to conserve our scarce' energy. resources. The conservation of electric energy has been anfintegral part of this endeavor. All. levels of govern-ment, as wellJas the electric-utilities themselves, have' initiated policies encouraging the " wise use'! of electricity.
Essentially, these-programs
-are designed to discourage physical and economic waste in order to reduce current use rates.
' The applicant is actively -involved in promoting conservation measures p
~among its-customers. For example, as of 1970, promotional advertising was abolished 'and advertising c'ampaigns and' educational-programs were limited almost exclusively to encouraging conservation, In addition, the applicant-
- discontiinued the sale of electric appliances-. in 1972.
To a large extent, a utility's~' conservation program -- as it relates - to consumers -- can be.
i little more than~ informational -in nature. Once the consumer is made aware of the seriousness of the problem and the-means to correct wasteful ~use, it is:upfto..the consumer'to effect.a change. However, a utility can also Lpractic.e conservation within its own operations and CP has' done this. The
. applicant's internal.uses. of electricity have been cut by aimost 30. percent}8 lIC.P. 's" Environmental Report-Supplement, October.1976, p. l.1-2.-
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Ibid., p.J1.1,
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Our ability to separate out arid quantify conservation's-impact relative -
to higher prices, a sluggish economy,.and various' other factors is very difficult. Technically, conservation--that is,' conservation apart from
. any response to changes in relative prices of electricity and other goods and services--represents a shift in consumer demand curves rather than a movementialong tne demand curve. The shift would be' due to. changes attiib,
utable to taste preference: factors-such as a new conservation ethic rather than.real income effects.
In explaining the absence of significant growth in KWh ' sales since 1974,- we cannot at present resolve the relative role of
.nonprice-related-conservation;because so many other factors were changing rapidly during this time period.
And even if data problems were sur-mountable,. semantic differences would remain.
At one extreme, some would probably argue that all savings in KWh of electricity would have been realized even in the absence of risir.g real electricity prices, the
~
economic. slump, and mild weather, as consumers became aware of the poten-tials for such savings.
At the other extreme, some would ' argue that all savings are economically motivated.
The truth, as it often does, probably lies somewhere in between these two extreme viewpoints.
The applicant has made several attempts--to identify the conservation response that has.already occurred between 1973 and 1976.
I,n a 1976 survey.of commercial and industrial firms, ordered by the Michigan Public Service Comission, the company has ascertained that most firms have re-duced lighting levels, that about 20 percent have reduced ventilation energy, and that, in certa *,. instances, electric water heater temperatures have -
been lowered, equipment has.been shut down during' work breaks, and thermo-stats have been lowered in winter'and raised irt sumer.19 The~ applicant's.an'alysis ^ of conservation savings among residential and comercial customers in its service area generally indicates a diminished response o*!er time.
In the winter following the energy crisis these Ibid.,-p. 1.1-8.
4 5
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1 However, in sub-
- customers reduced consumption by about 4.5 percent.,
(
. sequent. heating seasons, absolute increases were registered.. One exception to this. pattern is energy use among residential electric space heating customers. _ 'Here, declines in winter energy use have per-sisted each year, although at a decreasing rate.20
.The applicant - states that thes'e conservatten responses _have been factored into'its latest-forecast via the inclusion of the slow-down in growth e<perienced over these latest years. More specifically, the applicant has identified several parameters, used in' its forecast, that have been adj0ste'd
' to reflect future conservation savings.
For example,. in the residential-sector, the growth in average use of electricity by residential do~mestic-customers is now projected at one-half the rate that occurred during _ the 1960s. The present forecast also assumes that 10 percent of new, _elec trically heated ' homes will have heat pumps by 1980.
In the industrial sector, conservation is reflected by-the assumption that the ratio of electricity sales per unit of the forecasted Federal Reserve Bank (FRB)-
Manufactures Index will level off in contrast to-the historical exp,erience:
-in which this ratio has increased at about 4.6 percent per year.
In the commercial ~ sector, the applicant simply states that conservation will con-tribute to a significant reduction-in growth from historic levels but'does not identify how this has been factored into-its modeT.
-In 197.4 the Michigan Public Service Commission carefully examined the
' CP and DE forecasting methodologies and assumptions. An important conclu-sion of this report was that the companies did, factor conservation into
-their forecasts and in the opinion of the MPSC staff, did so in such a way as to overstate its likely impact,
futu,re, growth. After reviewing the forecast assumptions made by:both utilities, it was the project team's opinion that:
....the-impact of the energy crisis and projections of slow economic growth on future demands for electricity have been overstated. As a* result, both utilities' forecasts of.
2pIbid.,p.11.1-7.
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maximum' demands are lower than what might be reasonably-
- projected if the potential impact of these factors were assessed differently.21 With respect to residential demand,- the opinion of the project. team was
~
tha t:.
...the impact of conservation pressures on residential customers to cut back on their electric usage would not be as significant ~as both Detroit Edison and Consumers Power assumed in the.1974 forecasts."22 Specifically, the' project team questions..."...the drastic decrease in the growth,f average use..."23 which CP has since identified as reflecting
. conservation savings. The project team felt that..."...less of a reduction seems warranted"24 based upon the following reasons:
Voluntary conservation will not continte at 1974 levels
' for the duration cf the forecast period. - The Company's recent monthly r'eports support this.
Appliance efficiencie's increased as a result of the energy crisis will n'ot imediately affect average use because of the comparatively long term turnover for major appliances.25 With respect to industrial growth and the specific conservation assumption thaf. the ratio of sales to unit of FRB index would' level off, the project team concluded that: - " Growth in sales per uni,t of output is, for similar~ reasons, unlikely to cease."26 The team reasoned that:
21 MPSC Study, p. 2-4.
-22 Ibid...p.'2-11.
23Tbid.,p. 4c73:
24 Ibid..
25Ibid.
c26Ibid., p. 4-76.
7 p
" Efficiencies of operutions will be offset by environmental requirements as is the case in sales to General Motors.
From this analysis, it is the project team's opinion tnat the ~ company's forecast of sales to other industrial customers is zvery low.'37 With respect to commercial growth, the project team acknowledged con-sideration of conservation within the applicant's forecast and found it, commercial projection reasonable.28 In the aggregate, the MpSC project team repeatedly reached the opinion that the companies are understating future growth because they are giving too much weight to conservation savings over the forecast period.
Yet, in spite of this criticism; the. applicant's present forecasted growth rate in peak demand is even less that that being forecasted in 1974.
The staff believes that much uncertainty surrounds estimates of future conservation savings. We recognize that several existing studies indicate that the technical potential of-electric energy conservation is indeed considerable.
However, one must distinguish between potential-energy savings' and achievable savings. The staff believes that in order for important gains to occur, government sponsored incentives, mandates, and legislation must be. forthcoming, and in their absence, the impact of conservation on future electrical.use and demand will likely be con-siderably less than.the naximum technical potential.
s...
26 Ibid., p. 4-76 27 Ibid.
28 Ibid., p. 4-74, 75.
(
..- ~__
~
However? one studyisuggests that even with important technological.breah
- throughs, government' subsidies, and:large conservation investment, the more dramatic forecasted conservation. savings may not be realized.. The
~
FEA' has~ projected annual' kWh growth through 1985 under a onservation
~
p.
~..
thermal efficiency standards fu. new buildings,
' scenario which includes: -
. appliance; standards andl labeling,Ean insulation tax credit, an industrial-P energy conservation program, and increased-~ dispersed solar equipment.
The' program has-been characterized as an, aggressive one, with the commitment of $250. billion over a ten year period in conservation investments in all
. energy marketc. The difference if n the results: generated through this-L iscenario vs - the:FEA reference case is a reduction in the growth rate of l
electric' utility ' output of 0.5. percent per-year over the piFica 1974-85.
l
.Thus,:given government. incentives, and the expenditures of hugh sums of
. money for ' technological developments, growth in kWh sales is 'not eliminated, but ' simply lowered.-by one-half a percentage point a year, which results in p
L a fall-off in sales?of about 9 percent relative to' the FEA reference case.-
In the opinion of the staff, the foregoing discussion provides support tor '
the applicant's position that conservation is adequately accounted for in y
its present. forecast., And in the event savings sho'uld exceed present esti--
i
- mates, the staff feels that countervailing forces exist which may offset l-
- an increased conservation response.
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-29 :
I-SUBSTITUTION-Since ~ the new emphasis on energy ' conservation has resulted principally from~ the energy crisis,1 1t is. equally important to inquire as.to what i'
extent will the future substitution of electrical energy for fuels in.
.short supply -- namely,i oil and natural gas -- tend.to increase the demand: for electrical power and thus offset the impacts of conservation 4
measures.
~ Recognition of this. positive' stimulus to future electrical-demand has-been frequently noted in the literature.
Preliminary data already in-dicate shifts.by consumer groups-due to price and supply considerations associated with natural gas..For example,- for the residential sector.
for the first six months of 1973, the sale of gas ranges was down 0.6 percent from the year before while electric ranges were up 12.6 percent i
over the same time period. Water heater sales suggest a similar trend; gas water heater sales up 1.2 percent versus electric water heater sales -
up :18.4 percent.
For gas' and electric dryers, sales of electric models increased 17.5 percent versus an increase of 5.5 percent for. gas units.
And n 'the spaceheating category, gas fired units.were down 9.3 percent
.versus a 15; percent increase for electric models.
In 1974, the Electric Energy: Association predicted that.for the first time more than half the newly built homesiin-the United States wouid be heated electricallyP Recently, the 50th American Assembly-held a symposium attended by 62
- experts from government, industry, and the academic community where
.the.following general consensus was reached:
(
For U.S. electric power demand, it was felt that although.
J growth would probably'be less than the historic growth rate, it was unlikely. to be less than ~5 to 5.5 percent in view of uses of _ oil and gas.30. electrical energy:for some present the need 'to substitute 295ee for.'exampid, " Energy Crisis. Alters Power-Use Pattern," Electric World, January -1,1974 and Sanford Jacobs, "More Mcmes are Using Electric Heat,"
Wall' Street Journal, February '18,-1974.
TheEAmerican: Ass'embly, Columbia University, Report of the Fiftieth American: Assembly, April: 22-25,1976, Arden House, Harriman, New York.
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^ Natural Gas - National' Perspective'-
~
As early as 1969, it was recognized by-the Federal Power Commission's j
(FPC) Bureau of; Natural Gas that the nation would be facing difficulties of supply emerg'ing during the period 1969-73. I The shortage indeed appeared such that by 1971-72 the major pipeline companies and distrib-utors in most parts of the country were forced to refuse requests for additional gas service from large industrial customers and many new
~
customers.
By 1970, ninety-five percent of the proven reserve inventory was already comitted to gas sales contracts and was therefore unavailable for s' ales to new customers or for increased volumes to old customers.
Availability had decrea' sed to such an extent that it became necessary -for the FPC to curtail service on interstate pipelines and to issue guidelines and priorites in= meeting comitments to gas customers.
Natural Gas - State of Michigan In 1970, gas requirements in the state of Michigan were approaching one trillion CF.
Today, because of curtailments on the major interstate
' pipelines servicing Michigan, the available supply approximates 900 bil-lion CF, or a short-fall from 1970 requirements of about 10 percent. As a result of this shortage most Michuan gas distributors have not hooked.
up new comercial and industrial customers since 1970.
Today, only one.
t distributor continues to service new non-residential customers but does-
- so on a selective basis.
Thus, the 10 percent short-fall in supply may be misleading because it does not take into account most of the growth in gas requirements that would have occurred in the comercial and in-dustrial sectors between-1970 and 1976.
In recent years, the applicant has observed some minor conversions to electricity on the part of CP customers.33 For example, in the industrial sector. during the last'6 to 8 years conversions to electric furnaces have a
31 Federal Power Comissior "* ational Gas Supply and Demand 1971-1990,"
- Staff Report No. 2; Burer..: of Natural Gas,. Washington, D.C., February
~1972..
32 38 F.R. :1503:(January 15, 22,:1973).
- 33 Consumer Power Compai@, iironmental Report Supplement, October 26, 1976,
- pp.1.1-14 & :15.
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-31 resulted in the addition of about 200 MWe. Recently, a natural gas pipeline company replaced gas engines with electric motors resulting in a small' electric load of about 2200 KWe. In addition, CP has received numerous inquiries from industry, including one from one of its largest customers, to discuss contingency plans calling for conversions to L
electricity. New commercial and industrial buildings and private resi-dences are also installing electric heat with much greater frequency.
~
For example, since 1970, the number of homes heated with electricity has more' than doubled (18.6 thousand vs. 39.4 thousand) on the CP system.
The results to date indicate that although electricity is increasing its market share relative to other energy sources, the transition is slow in coming. The Governor's Advisory Comission on Electric Power Alternatives acknowledges that the substitution stimulus in Michigan is really not effec-tive at the present time and attributes this to the fact that increases in l
the price of natur21 gas have not yet matched those of other fuels.
Ho Wyer, i
they conclude that' shifts o'ut of nitural igas'should pick up momentum in the next decade and ultimately predominate over those factors such as con-l servation which tend to reduce growth in electricity demand 34 Specifically, they identify the following substitution factors as items l
that will increase the future demand for electricity. in Midhigari.35 l
. Natural' gas, historically the space-heating fuel of l
ch61ce, will become, less available and/or much more expensive in real dollars. As natural gas becomes less
(
available and/or more expensive, space-heating installations l
will turn to oil and electricity.
. New and more efficient forms of electric heating and cooling, such as the heat pump, are being developed and
~
3 put into widespread comercial and residential use. As i
such developments make electric heating and cooling more lj hovernor's Advisory Conission on Electric Power Alternatives, Final Reoort--Facts and Recomendations, State of Michigan, Lansing, Michigan, August,1976, pp.19-22.
35Ibid., pp. 19-20.
s-n,,
7, desirable, th'ey will increase its use in new and, to some '
extent, replacement applications.
. The low capital cost of electric resistance heating makes it attractive to builders of both single-family and multiple dwellings.
(Over 50% of dwelling units comple.ted in recent years contain electric heating.)
^
. Uncertainty of,futu.e price and availability of natural gas and petroleum-based fuels has led to increased experimentation and commercial development of devices which run on electric power..
36 Another study also acknowledges the importance of substitrtion on future ' electric demand and identifies these shifts as being long-term in nature. The authors of this study conducted a survey of the ma,jor
. energy consuming manufacturing industries in the United States to l
determine the effect of potential short-falls of fossil fuels on future industrial electric energ' requirements.
The 15 most energy intensive manufacturing groups.were selected, repre-senting over 90 percent of the energy consumed by the industrial sector
~
in the United States.
Ten companies from each of these groups were selected for interviews and in all,142 companies and approximately 25 trade associaticas, electrical equipment manufacturers, and electric utility industry representatives were contacted.
Of the.142.cortpanies surveyed, 80 percent indicated that they expect a short-fall of. certain types of fossil energy and 61. percent plan signifi-cant changes in their energy mix during the next ten years and have developed contingency plans.
Of those companies expecting. to make -
' energy. use changes in the imediate future, most anticipate greater re-11ance on oil, apparently due to the ease of conversion. However,- al though
_36 Potential Fuels Shift -A Survey of-Contingency Planning by Manufacturing
- Industries. in the United States, A Report by Stone & Webster Manufacturing JConsultants, Inc.. for the Edison Electric Institute, May,1976.
.w-
~,,,
r
- oil will remain the dominant alt'ernate fuel for the two to five year immediate period, increased shifts to electricity and to new coal applications are anticipated. This study concluded that....."over the long term.the nurber of companies using_ coal and electricity is ex-pected to increase significantly.37 Industrial activity in the state of Michigan is concentrated in the lower peninsula where CP's and OE's service areas are located.
According to the Census of Manufactures, the 1972 manufacturing activity in those counties serviced by MECS-accounted for over 95 percent of total manu-facturing payrolls and value added.
Furthermore, those manufacturing activities that predominate in Michigan also happen to be the most energy intensive.
For example,' the 15 most energy intensive industries, as identified in the. preceeding survey, account for over 95 percent of Michigan's manufactures value added.
J The staff has attempted to calculate the potential level of conversions and trarslate this to_its effect on the growth in electricity in the MECS's service area.
The FPC's Bureau of Natural Gas has adopted a policy which includes reallocation of availabl,e natural gas away from low priority use together with conversions to alternate fuels for all interstate gas supplies.
Industrial use, of which manufacturing is a-subset, has been designated a low priority by the FPC.
Approximately 90 percent of the natural gas consumed in Michigan enters.the interstate supply system and thus comes under the authority of the FPC. Just
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viewing manufacturing activity,_ one can demonstrate that electricy. growth, via natural _ gas substitution, can be significantly expanded.
37 Ih11.,p.4.
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.0-3 34-In 197i, Michigan manufacturers purchased fossil fuels for heating and power purposes equivalent to 149.3 billion kWhs of electricity.
In the.same year, these industries' direct use of electricity amounted to about 25.4' billion kWhs.
Thus, approximately 14.5 percent of their energy needs~ were being met with electricity.
This is slightly higher
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than the national average in 1971 of about 13.4.38 However, Michigan's-dependence on fossil fuels is heavily biased toward that which is in shortest supply -- namely, natural gas.
Seventy, point two billion kWh equivalent, or 47 percent of the energy used by Michigan manufacturers was produced with natural glis.39 Thus, independent of economic growth in the state, there nevertheless does exist a vast potential source of increased demand by manufacturers in the MECS. This potential is somewhat on the order of three times the electricity demand by manufacturers in the s ta te.
For each billion cubic feet of natural' gas replaced by elec--
tricity, the MECS would realize an increase in 'lectricity sales of e
about.3 billion kWhs or an increase in their annual electric sales growth rate of about 0.5 percent-(using 1975 as base). - That is, if growth in 1976 is presently projected 'at 5 percent, with an additional one billion CF~of conversions, it would be 5.5 percent.
And one billion CF of natural gas represents only 0.4 percent of what manufacturers in Michigan used in 1971. AdCng potential conversions from other. fossil fuels and other customer groups would of course add further to the potential growth in electricity from substitution.
Derived from-~-tI.S.. Department of Commerce, Bureau of Census,1972 Census' of Manufacturers Fuels and Electric Eneroy Consumed, (Washington
- D.C.
- . Government Printing Office, July,1973), Tables 1 and 4.
39 Ibid.,-:-Table 4
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..>-o In summary, the staff believes that the existing shortage of natural gas in the state of Michigan and the uncertainty of future supply offers significant growth potential in new electric loads in the MECS service area over the forecast period and beyond. However, it must be emphastzed that just as with conservation savings, there -is no guarantee that sub-
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stitution's full potential will be realized.
Rather, its inclusion here appears warrented to simply identify a potential off-setting influence to conservation.
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