ML19347A645

Testimony of Feld (NRC) Re Cost of Midland & Coal Alternatives

ML19347A645
Person / Time
Site:	Midland
Issue date:	11/18/1976
From:	Feld S Office of Nuclear Reactor Regulation
To:
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ML19347A644	List: ML19347A643 ML19347A645
References
NUDOCS 8007310541
Download: ML19347A645 (10)

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- UNITED STATES OF' AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC-SAFETY AND LICENSING BOARD In the Matter of

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j CONSUMERS POWER COMPAtlY.

Docket Nos. 50-329

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

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i NRC STAFF TESTIM 0t1Y OF-SIDNEY e FELD ON COST OF MIDLATID V. C0AL ALTER ATIVES

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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),1 fuel, and, taxes, decommissioning, and insurance.

In addition, for the coal alternatives we h;ive factored'in the. cost of interim power.

The analysis is somewhat complicated by the fact that the Midland units are already under construction and consequently, a-portion of its capital cost is already sunk.

In theory, one should add the sunk cost component of: Midland le.,s the salvage value to the capital costs of the alternatives 4

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 these sunk capital costs.

The fact'that the Midland units are already under construction also suggests that these units can come on-line some time earlier than the coal' alternatives. The applicant estimates thjs time differential at between two to three years and calculates a levelized interim replacement

' power cost of 13. mills /KWh to reflect the cost of make-un power during the 1981-1983-period.

The Staff accepts the premise that in the event l

-thel coal alternative is chosen, the applicant would likely incur interim e

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i s i replacement costs that could be substantial.

However, the Staff's esimate

.is considerably: lower, essentially because we have assumed that all the power can -be made up ~ internally, whereas the. applicant has assumed that

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a portion would have to be purchased.

In spite of this conservatism, and our decision to: include the sunk capital costs on the nuclear side of the ledge'r,_ the following analysis still supports the conclusion that-Midland is_a~more cost effective alternative than a coal-fired plant.

The following analysis 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 sulfur: coal ~ plants.

Capital Costs Initially.. the Staff planned to use a computer program known as CONCEPT 3/

to estimate the capital costs of Midland and its coal-f, ired alternatives.

This program....

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was. designed primarily for identifying important elements in the cost structure, examining average cost trends, determining sensitivity to technical and economic factors and-providing reasonable -long-range projections of cost.

I Cost estimates produced by the : CONCEPT code are not

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intended as; substitutes for detailed engineering cost

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. studies for specifi.c projects, but it can be used and

- and is frequently run to assess the overall plausibility _

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7 1, The CONCEPT Computer runs produced cap tal cost estimates of about $1.2

billion 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 c;nclude that CONCEPT estimates are more reliable than detailed engineering cost studies, and that the applicant's own estimates are, on balance, more favorable to the coal alternatives, 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 cost'present values are:

Midland - $1.670 billion; higher-sulfur coal -

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

Assuming a 30

. 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 and 12.2 mills /KWh, respectively.

These estimates are s'till more favorable to the coal-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.

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-Operating and Naintenance (0 & M)

The Staff has relied on Oak Ridge's OMCST code for the 1,velized 0 & M cost estimates for Midland and the coal alternatives.O This code utilizes 4

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an extensive data base which takes into account historical experience and

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current trends to derive 0 &-M cost functions by type and size of plant.

The Staff believes this is preferable to the applicant's approach which

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relies'primarily.on the historical experience on their units.

This is particularly true of the 0 & M estimate for Midland, as it is heavily J

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

The OMCST computer runs provided the Staff with 1984 0 & M cost estimates for Midland and the coal alternatives. Assuming a 5 percent escalation rate, 65 percent capacity factor,10. percent discount rate, and 30 year plant life, we. estimate annual levelized costs-of 2.6. mills /KWh for Midland, 2.6 mills /KWh for the low sulfur alternative, and 6.1 mills /KWh for the high sulfur coal plant.

It should be noted that the high sulfur

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0 & M estimate includes an-incremental expense for S0 e ntrol.

2 Fuel Costs The ' Staff's independent nuclear fuel host estim e is 6.9' mills / KWh in 1981. ~ An explanation of the Stt fi's estimate appears in my testimony on:" Cost of Replacement Power Resulting fron - Suspension" in this proceeding.E Essen'tially, the Staff has 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

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y 30-year plant life,.the leveliied. annual value:is estimated at 11.8

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m The' Staff's fuel ~ estiniates for. the coal alternatives are based on the average-delivered. price paid by Michigan utilities in 1975-for low sulfur coal-(sulfur content 1% or less), arid high sulfur coal (sulfur cor. tent exceeding 2%).6f. These prices were. escalated at 5 percent per: annum to-I obtain'1981 coal estimates of 12.5 mills / Kwh (high sulfur):and 15.8

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mi11s/Kwh '(low sulfuri To each of these estimates the Staff has added

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0.2 mills KWh for 1981 coal inventory costs.

For the low sulfur alternative an-incremental'.1981 fuell cost of 0.6 mills / KWh has been added due to LestimatiedL fuel requirements for particulate control, and to the high sulfur alternative,:the'1981 incremental fuel cost is estimated at 1.8 control'.

mills /KWhifor fuel required-for p. rticulate control and S02 These incremental fuel costs-due to.-pollution control. are takan from a

-1975'reportprepared.fortheMichiganPublicServiceCommission.7_/

Assuming a~ 30. year plant life,10 percent discount rate, and a 5 percent escalation rate, the 30 ye'ar levelized values (or the total coal fuel

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cost are 27.8 mills /KWh for low ~ sulfur coal'and 24.3 mills /KWh'for high sulfur; coa 1.

Taxes, Insurance and-Decommissioning-r i1 nThe Staff has acceptedithef applicant's estimates of taxes, insurance,-

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fand: decommissioning for Midland and~the alternatives as: reported in the iEnvironmental. ReporttSupplement, Table:ll-3.

It-shoulo be!noted that:

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.their nuclear insurance estimate overstates this cost item relative to

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the result reported in.the OMCST computer run made. for Midland 8/ and their

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decommissioning ~ estimate is' consistent with values provided by other utilities for. the highest level of decommissioning (complete restoration

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of the site).E/ The annual levelized values based on a 65 percent capacity factors'5 percent' escalation, 10 percent discount rate, and 30 year plant life are:- Midland -- 9.7 mills /KWh;- low sulfur option - 5.9 mills /KWh and; high sulfur coalioption - 7.0 mills /KWh.

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

.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 lis selected over the'Midlapd units, its in-service date.is' assumed to belJanuary 1,..'1984.

This delay will force the applicant to rely on other sources of power during.the-1981-1983 period to make-up (the power that!would have been provided~ by the Midland units during i -

this time interval. -The applicant has assumed that this' power would be

!obtained from a combination of greater utilization of existing capacity and. outs'ide purchases resulting.in a 1981 present value cost of'$661

. milli'on. LThe Staff has assumed that all the interim power will be

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s provided internally: by coal and oil-fired units and that the only increniertal

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- 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 a130 levelized cost of 4.0 mills /KWh.

1 Conclusion Table 1 summarizes and shows the Staff's conclusions regarding the cost comparison cf 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 l2.6 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 to use conservatively high cost estimates for nuclear compared 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 Levelized Costs in Mills per-KWh Midland High Sulfur Coal Low Sulfur Coal 30 Year 30 Year 30 Year Levelized Levelized Lpvelized 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 OMCST-Escalation rate of 5 percent per annum to year 2011 except 8 percent per year

.for nuclear fuel between 1975 and 1982.

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s FOOTNOTES

1. ' CONCEPT: ' A computer code for Conceptual Cost Estimates of Steam-Electric Pcwer Plants - Status Report,. USAEC Report

~. WASH 1180, April 1971.,

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

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E.R. Supplement, October 26,-1976, Section 8-(revised).

_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.

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0MCST-computed-a;1981present-valuefoiin'suranceofabout11.3' million dollars vs. applicant's estimate of about 53 million dollars

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

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