ML19347B392

Affidavit Re Economic Comparison Between Competing Generation Alternatives.Util Does Not Qualify for Any Exemptions to Fuel Use Act Which Would Allow Unlimited Use of Gas for Unlimited Time.W/Certificate of Svc

ML19347B392
Person / Time
Site:	Allens Creek File:Houston Lighting and Power Company icon.png
Issue date:	09/30/1980
From:	Buy J HOUSTON LIGHTING & POWER CO.
To:
Shared Package
ML19347B383	List: ML19347B382 ML19347B385 ML19347B386 ML19347B387 ML19347B388 ML19347B389 ML19347B390 ML19347B392 ML19347B393 ML19347B394 ML19347B396 ML19347B398
References
NUDOCS 8010140582
Download: ML19347B392 (10)

Text

h UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Mattor of S

S HOUSTON LIGHTING & POWER COMPANY S

Docket No. 50-466 5

(Allens Creek Nuclear Generating S

Station, Unit 1)

S AFFIDAVIT OF DR.

J.

D. GUY My name is J. D. Guy and I am employed as Manager of Corporate Planning at Houston Lighting & Power Company.

I have B.S.

and Ph.D. degrees from Texas A & M University and an M.S.

degree from the University of New Mexico in Electrical Engineering.

Additionally, I have taken a number of undergraduate and graduate level courses in Economics, I

Finance and Accounting at the University of Houston, g

Following graduation from Texas A & M I worked for two years at the Atomic Energy Commission as a Power Systems Engineer.

For the past nine years I have been employed by Houston Lighting & Power Company.

I began my employment in HL&P's Engineering Department and transferred to the Corporate Planning Department in 1976.

I was promoted to Manager of Corporate Planning in February, 1980.

In this capacity I

~

am responsible for developing HL&P's long range plans for j

new power plants.

0010140 &

m

.m_

,m_

g

-.-_m In my capacity as a corporate planner I am required 5

to become familiar with legislation such as the Powerplant and Industrial Fuel Use Act of 1978 (PIFUA), because of the j

impact of such legislation on HL&P's long term planning.

I am particularly familiar with the Act because I became involved i

j when the legislation was first proposed in the Spring of 1977.

l l

At that time we began an extensive program to review and

(

l comment on the legislation.

Subsequent to passage of the l

l PIFUA I have been involved in commenting on the DOE regulations implementing the Act.

Most.. importantly, it has been my responsibility to evaluate the impact of PIFUA on HL&P.

I have determined that HL&P is precluced from constructing new gas plants.

I have also evaluated the various exemptions contained in the legislation to determine whether HL&P would qualify for the receipt of one or more of the exemptions for continued natural gas.use past 1989.

I will comment later on the results of my evaluation.

With regard to the economic comparison between competing generation alternatives, it has been my continuing responsibility over the past four years to provide such analyses to executive management for their use.

My comments on the analysis conducted.by Mr. Johnson in his affidavit and the conclusions I have reached on the economic comparison between natural gas and Allens Creek generation are discussed l

i below.

l The PIFUA contains prohibitions against the use of gas as a primary energy cource in new power plants and, l

beginning in 1990, against the use of gas as a primary energy source in existing power plants.

However, exemptions are available which mar allow the construction of new gas-l fired power plants and mag allow fcr the extended use of gas in existing plants past 1989.

I have evaluated each of the exemptions contained in the legislation and implemented in l

Final Rules published in June and August of 1980.

It is my l

opinion that HL&P could not qualify for a single permanent exemption to construct new gas-fired generation to replace that generation expected to result from the construction and operation of Allens Creek.

With regard to exemptions for continued use of gas in existing power plants, my opinion is that HL&P can qualify for retirement exemptions for some of its older gas-fired capacity and continue to burn gas in that capacity until December 31, 1994.

Thus, at most, we could get only an additional five years service out of l

these units on natural gas.

This relief would not preclude l

the need for ACNGS Unit No. 1 which has an expected life of 1

/* years.

There are simply no exemptions for which HL&P could qualify which would allow unlimited use of gas for unlimited time periods in existing capacity.

f.

-r w

y

The most important point to make here is that even if unlimiteu exemptions were available, HL&P must build new capacity for load growth during the 1985-1990 time period.

It is clearly the primary purpose of the Allens Creek facility to provide new capacity to support this projected load growth.

Concerning the " economic evaluation" of Mr.

Johnson, it is my judgment that his analysis is flawed in the following respects:

1.

The use of constant dollars is inappropriate because the cost of natural gas has increased at a much faster inflation rate than has the cost of nuclear fuel, and this trend is expected to worsen when the 1985 scheduled natural gas price deregulation occurs.

k J-2.

The discount rate should be based on current instead of real dollars to be consistent with the previous comment.

However, even if a real dollar discount rate were to be used, tha 7% figure is inappropriate.

The discount rate should be bcsed on the total cost of capital and not just the interest rate as Mr. Johnson assumes.

After weighing all sources of funds that EL&P uses, and reducing that average by the 9% inflation assumed by Mr. Johnson, the appropriate real discount rate would be closer to 3%.

3.

The " initial estimate" of $1.6 billion is in-accurate.

The current estimate for the total cost of Allens Creek Nuclear Generating Station ic S1.48 billion, expressed in current dollars for 1988 commercial operation.

The additional escalation of 15% per year is therefore completely baseless and inappropriate.

In response to Mr. Johnson's affidavit, I have prepared a brief analysis showing the relative economics of 4

a new natural gas powered plant versus Allens Creek.

A more extensive analysis should take into account, among other things, a more realistic appraisal of future gas prices following deregulation.

This brief analysis is not intended to be the full presentation that HL&P would make in litigating this issue.

Rather, the analysis is a simple demonstration that nuclear power is more economic than gas fired capacity even using several of Mr. Johnson's assumptions which are inaccurate.

I have used a conventional and well-accepted utility economic evaluation analysis commonly referred to as " revenue requirements".

This methodology uses current cost data for capital and fuel and assumes typical utility.

l i

financing.

The results of the analysis are expressed in levelized cost of generation over the life of the facility.

The input assumptions for my analysis are as follow:

ACNGS New Gas Power Plant Commercial Operation Yr 1988 1988 Capacity (MW) 1200 1200 Capital Cost ($/Kw) 1237 393*

Fuel Cost First Year ($/MBtu) 1.07 5.25 j

Cost Escalation (%/Yr) 5.8 5.5 O & M Cost First Year ($/Kw-Yr) 10.4 10.0 Cost Escalation (%/Yr) 4.0 4.0 l

Heat Rate (btu / Kwhr) 10600 10200 Capacity Factor (%)

45 and 74 75 Levelized Cost of Energy 80.2 and 63.7 112.6 (mills / Kwhr)

Assuming Mr. Johnson's $295/Kw for 1985 operation and escalated at 10%/Yr to 1988.

As one can see, even using Mr. Johnson's thoroughly pessimistic assumption regarding capacity factor (an assump-tion which I do not accept as appropriate) and using natdral gas prices which do not take into account the 1985 price deregulation, the levelized cost of generation from Allens __

Creek is considerably less than that from a new gas-fired i

power plant (80.2 vs 112.6).

I also evaluated the cost of energy from an existing gas-fired power plant assuming no gas plant capital cost and the same gas price as above.

The levelized cost of energy from that analysis was 100.0 mills /

Kwbr, still 25% greater than the highest cost of energy from Allens Creek.

My conclusions are as follows:

1.

Under the existing PIFUA the construction of new gas-fired capacity is infeasible and extending the life of existing gas capacity beyond 1990, even if feasible, would not-provide the new capacity required for the projected growth in the HL&P system.

2.

Notwithstanding my first conclusion, even if Mr.

Johnson were correct with regard to gas use fea-sibility,.my economic analysis of gas versus Allens Creek, under the most pessimistic assump-tions, shows Allens Creek to be considerably less costly than gas-fired capacity.

i l

0 4

UNITED STATES OF AMERICA i

NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD

,i In the Matter of S

1 S

l HOUSTON LIGHTING & POWER COMPANY S

Docket No. 50-466 S

(Allens Creek Nuclear Generating 5

Station, Unit 1)

S AFFIDAVIT OF J.

D.

GUY a

l STATE OF TEXAS S

i S

j COUNTY OF HARRIS S

i i

I, J. D.

Guy, Manager, Corporate Planning Depart-1 ment, Houston Lighting & Power Company, first being duly sworn, upon my oath certify that I have reviewed and am i

thoroughly familiar with the statements contained in the j

attached affidavit and that all my statements contained therein are true and correct to the best of my knowledge and belief.

J. 5. Guy Subscribed and sworn to before me by the said J.

D.

Guy on this StN4Aay of M

, 1980.

i Z{ptary Public in and for j

Harris County, Texas v

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i UNITED STATES OF AMERICA

{

NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD 1

I In the Matter of S

S HOUSTON LIGHTING & POWER COMPANY S

Docket No. 50-466 S

l (Allens Creek Nuclear Generating S

]

Station, Unit 1)

S

.i CERTIFICATE OF SERVICE j

j I hereby certify that copies of the foregoing

]

Applicant's Response to TexPirg's Motion for Summary Disposi-tion of TexPirg Additional Contention No. 8 Re Natural Gas Alternative and Cross-Motion for Summary Disposition in the 3

above-captioned proceeding were served on the following by 1

deposit in the United States mail, postage prepaid, or by i

hand-delivery this 2nd day of October, 1980.

1

]

Sheldon J. Wolfe, Esq., Chairman Hon. Charles J. Dusek.-

j Atomic Safety and Licensing Mayor, City of Wallis

{

Board Panel P. O.

Box 312 U.S. Nuclear Regulatory Commission Wallis, Texas 77485 1

Washington, D.

C.

20555 Hon. Leroy H. Grebe Dr.

E.

Leonard Cheatum County Judge, Austin County Route 3, Box 350A P. O.

Box 99 Watkinsville,' Georgia 30677 Bellville, Texas 77418 Mr. Gustave A.

Linenberger Atomic Safety and Licensing Atomic Safety and Licensing Appeal Board Board Panel U.S. Nuclear Regulatory U.S. Nuclear Regulatory Commission Commission Washington, D.

C.

20555 Washington, D. C.

20555 Mr. Chase R.

Stephens Atomic Safety and Licensing Docketing and Service Section Appeal Board Office of the Secretary U.S. Nuclear Regulatory of the Commission Commission Washington, D.

C.

20555 Washington, D. C.

20555 Susan Plettman Richard Black David Preister Staff Counsel Texas Attorney General's Office U.S. Nuclear Regulatory P. O. Box 12548, Capitol Station Commission Austin, Texas 78711 Washington, D. C.

20555

Bryan L.

Baker Brenda McCorkle 1118 Montrose 6140 Darnell Houston, Texas 77019 Houston, Texas 77074 J. Morgan Bishop W. Matthew Perrenod 11418 Oak Spring 4070 Merrick Houston, Texas 77043 Houston, Texas 77025 Stephen A.

Doggett F.

H. Potthoff P.

O.

Box 592 7200 Shady Villa, No. 110 Rosenberg, Texas 77471 Houston, Texas 77055 John F. Doherty Wayne E.

Rentfro 4327 Alconbury P. O. Box 1335 Houston, Texas 77021 Rosenberg, Texas 77471 Carro Hinderstein William Schuessler 609 Fannin, Suite 521 5810 Darnell Houston, Texas 77002 Houston, Texas 77074 D.

Marrack James M.

Scott 420 Mulberry Lane 13935 Ivy Mount Bellaire, Texas 77401 Sugar Land, Texas 77478

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J Greg y

opeland i

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