ML20031B402
| ML20031B402 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 09/22/1981 |
| From: | Mcnair G ALLEGHENY ELECTRIC COOPERATIVE, INC., PENNSYLVANIA POWER & LIGHT CO. |
| To: | |
| References | |
| NUDOCS 8110010335 | |
| Download: ML20031B402 (35) | |
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UNITED STATES OF AMERICA
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NUCLEAR REGULATORY COMMISSION
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%o BEFORE TiiE ATOMIC SAFETY AND LICENSING BOARD \\\\
my In the Matter of
)
)
PENNSYLVANIA POWER & LIGHT COMPANY
)
)
Docket Nos. 50-387 and
)
50-388
)
ALLEGHENY ELECTRIC COOPERATIVE, INC.
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(Susquehanna Steam Electric Station, )
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Units 1 and 2)
)
AFFIDAVIT OF GRAYSON E. McNAIR'C;; SEEO O 1981*' b-pe
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IN SUPPORT OF APPLICANTS' ANSWER TO NRC STAFF'S MOTION FOR
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SUMMARY
DISPOSITIONOFCONTENTIONM]v.s.
County of Lehigh
)
Commonwealth of Pennsylvania
)
Grayson E. McNair, being duly sworn according to law,
. deposes and says as follows:
1.
I am Vice President-Consumer and Customer Services for Pennsylvania Power & Light Company ("PP&L") and give this Affidavit in support of Applicants' Answer to NRC Staff's Moticn for Summary Disposition of Contention 4.
A summary of my pro-fessional qualifications and experience is attached as Exhibit "A" to this Affidavit.
o3 2.
The methods used by PP&L to forecast the growth of electricity r, ales aid load as well as the results of thoso forecasts are set forth in Exhibit "B" to this Affidavit, a 8110010335 810922 PDR ADOCK 05000387 G
PDR a
4 document entitled " Applicants' Testimony of Grayson E. McNair on Contention 4a and 4b (Load Forecasting)"
dated September 15, 1981.
Those results ne used in systs cost analyses presented by William F. Hecht in his Affidavit in Support of Applicants' Answer to NRC Staff's Motion for Summary Disposition of Conten-tion 3.
PPE's programs on energy conservation and the results of those programs are set forth in Exhibit "C" to1this Affi-davit, a documeni entitled " Applicants' Testimony of Grayson E.
McNair on Contention 4c (Conservation)".
As shown in that document, conservat, ton programs being implemented by PPE can, with the assistance of proper regulation, significantly reduce projected loads in the future.
Reductions in loads due to conservation have already been factored into PPE's load fore-casts.
Neither PPE's conservation programs nor any additional conservation programs can eliminate the need for Susqvahanna.
[f
'4 p(7M Gray E. McNair l
Sworn to and subscribed l
before me this #J'* day of September, 1981.
p l
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j g Notary Public l
MUN A. SMOUCK. Notary Pubiic l
Alfentown, Lenign County, Pa.
My Commission Exp.res May 14,1984 J
$ NfA/T
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RESUME OF GRAYSON E.
McNAIR Please state your full n me and business address.
Q.
A.
Grayson E. McNair, Two North Ninth Street, Allentown, Pennsylv1nia 18101.
Q.
By whom are you employed and in wh1.t capacity?
A.
I am employed by Pennsylvania Power & Light Company (PP&L) as Vice President-Consumer and Community Services.
Q.
Tihat are your responsibilities as Vice President-Consumer and Community Services?
A.
I am responsible for the development and administration of PP&L's conservatior. and load management programs, customer service.9, rates, market research, customer-relation activities cnd economic and community development programs.
I am also responsible for research andd development of ways the customer can more wisely use electric energy supple-mented by alternate energy sources.
Q.
What is your educational background?
A.
I received a BEE degree frcs the University of Virginia in 1962; completed the Power Systems Engineering course in Schenectady, New York in 1967; became a registered Pro-fessional Engineer in the Commonwealth 'of Pennsylvania $ n 1968; completed several post-graduate courses in electrical engineering at Lehigh University; and was Visiting Lecturer in Electrical Engineering for three years at Lehigh Univer-Ert/tStr "A'
R pfp M vir of tfRAYsoN E. thNA/R.
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/'sity.
Q.
How long have you been employed by PP&L and in what capacities?
A.
I joined PP&L in 1962 as Graduate Trainee followed by assignment to Distribution Engineering in 1963 with responsibilities for design of overhead and underground 12 kv facilities.
In 1964 I was transferred to the gelay and Control Engineering group and became Project Engineer in 1966, representing PPEL on the Conemaugh Relay and Commun-ications Task Force for designing protective relaying for the 500 kv transmission lines.
I was also Chairman of the Transient Stability Co.nmittee.
In 1968, I transferred to the Interconnection Planning Section of the System Planning Department as a Project Engineer.
After being a Senior
~
Project Engineer, I was named Transmission and Distribution Planning Engineer in 1971 with responsibilities for long-and short-term planning of all electrical facilities operating at less than 230 kv.
In 1975, I became Assistant Manager-Rates & Market Research.
I assumed the position of Manager-Conservation Services in 1978.
On January 1,
- 1980, I was appointed to my present position. ;
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- UNITED STATES OF AMERICA h"TCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of
)
)
PENNSYLVANIA POWER & LIGHT COMPANY
)
)
and
)
Docket Nos. 50-387
)
50-388 ALLEGHENY ELECTRIC COOPERATIVE, INC, )
)
(3usquehanna Steam 15:lectric Station, )
Units 1 and 2)
)
APPLICANTS' TESTIMONY OF GRAYSON E McNAIR ON CONTENTION 4c (CONSERVATION) w September 15, 1981 W
.to y.,e EXHIB tr
" B "
To AFfthAutT of GMYsop E. McN4rA
a t
Septembcr 15, 1981 UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of
)
)
PENNSYLVANIA POWER & LIGHT COMPANY
)
)
and
)
)
Docket Nos. 50-387 ALLEGHENY ELECTRIC COOPERATIVE
)
50-388
)
(Susquehanna Steam Electric Station, )
Units 1 and 2)
)
TESTIMONY OF GRAYSOH E. McNAIR ON CONTENTION 4C (CONSERVATION)
Q.
Plea e state our full name and business address.
A.
Grayson E. McNair, Two North Ninth Street, Allentown, Pennsylvania 18101.
Q.
By whom are you ecployed and in what capacity?
A.
I am employed by Pennsylvania Power & Light Company (PP&L) as Vice President-Consumer and Community Services.
Q.
What are your responsibilities as Vice Pr'asident-Consumer and Community Services?
A.
I am responsible for the development and administration of PP&L's conservation and load management programs, customer services, rates, market research, customer-relation activities and economic and community development programs.
I am also responsible for research and development of ways the customer can more wisely use electric energy supple-mented by alternate energy resources.
~
2 2-Q.
What is your educational background?
A.
I received a BEE degree from the University of Virginia in 1962; completed the General Olectric Power Systems Engineering course in Schenectady, New York in 1967; became a registered Professional Engineer in the Commonwealth of Pecnsylvania in 1968; completed several post-graduate courses 1
. setrical engineering at Lehigh University; and was Visiting Lecturer in Electrical Engineering, for three years at Lehigh University.
Q.
How long have you been employea by PP&L and in what capacities?
'A.
I joined PP&L in 1962 as a Graduate Trainee followed by assignment to Distribution Engineering in 1963 with responsibilities for design of overhead and underground 12 kv facilities.
In 1964 I was transf arred to the Relay and Control Engineering group and became Project Engineer in 1966, representing PP&L ca the Conemaugh Relay and Commun-ications Task Force for designing protective relaying for the 500 kv transmission lines.
I was also Chairman of the Transient Stability Committee.
In_1968, I transferred to the Interconnection Planning Section of the System Planning Department as a Project Engineer.
After being a Senior Project Engineer, I was named Transmission and Distribution Planning Engineer in 1971 with responcibilities for long-and short-term planning of all electrical facilities I
operating at less than 230 kv.
In 1975, I became Assistant Manager-Rates & Market Research.
I assumed the position of Manager-Conservation Services in 1978.
On January 1, 1980, i
I was appointed to my'present p7sition.
Q.
What is the purpose of your testimony?
A.
The purpose of my testimony is to respond to Contention 4(c) in this proceeding.
This contention alleges:
The National Energy Program contemplates that steps be followed in order to achieve a lowered growth rate in electrical demand of less than 2% annually.
Yet there has been no demonstration that the effects of conserva-tion efforts decigned to achieve that goal have been factored into the analysis of need foi this facility.
The conservation programs suggested by the Applicants are not designed to encourage either meaningful energy conser-vation or efficient energy use.
- Instead, these programs are aimed at encouraging continued electrical-energy usage, regard-less of whether electricity is the most efficient form of energy for the job'at hand l
or not.
One such exampiu is the Applicants' encouragement of reliance cu expensive elec-
4-trically operated mechanical heating and cooling devices, like heat pumps, in the name of energy conservation.
As anotner example, there has been no comparison of the cost of upgrading the thermal insulation in existing residences and commercial buildings in tb-service area of the Applicants with the cost' (environmentai and econc%ic) of operating the Susquehanna facilities.
Furthermore, there has been no discussion, in connection with energy conservation, of end use efficie les or what have come to be known as "Second Law Efficiencies," or of the health benefits of energy conservation.
Q.
Mr. McNair, would you please explain the background for Pp&L's conservation program and policias in relation to the Susquehanna Steam Electric Station (Susquehanna) and this proceeding.
A.
By way of historical perspective, substantive consideration of Susquehanna began in the mid-1960's, and the bulk of the initial site was purchased by this time period.
Major equipment orders, including a nuclear steam supply system contract (with G.:neral Electric), were placed by early 1972.
Actual cone.. action began at the plant site in late 197L At the time the Company decided !c go ahead with Susque-
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hanna we had experienced an 8.9% compound growth rate in winter peaks for the 196L/1969 period, and we were then fore-casting a 7.0% growth rate in winter peaks for the 1972/1982 period.
The projected,7.0% growth rate was modest in rela-tion to historical growth rate patterns for the electric utility industry and represented a substantial flattening of the 10.1% growth rate PP&L had experienced for the 1966/1973 period.
Even with the substantiall." flattened growtn curve forecast in 1972, the installation of the Susquehanna uni?.s was projected as barely keeping PP&L current with its then projected lo% Pennsy.'Tania-New Jersey-Maryland Intercon-noction (PJM) capacity reserve obligation.
Additional units beyond Susquehanna were planned to be in service in the 1980's.
In the late 1960's and early 1970's PP&L's management began to sense a change in much of what had been traditional in the electric utility business.
An awareness developed regarding the impact of inflation on the cost of new power production facilities and the realization that the growth l
cycle, which had been our theory for reducing rates during the decade of the 1960's, was no longer valid.
This knowl-l edge, coupled with an awareness of the impact of exponential growth in demand on the finite fuel supplies available, pre-cipitated a change in early 1972 from our previous aggres-sive energy marketing posture to a new role of energy con-servation.
t
6-A restructuring of our former marketing organization ---
reoriented toward energy conservation --- was undertaken in early 1972 and implemented by mid-year.
This change re-sulted in a new approach to customers regarding the econom-ics of energy.
The new approach was based on life cycle costs of equipment, facilities, and energy sunplies ratner than current costs.
Making this change was not easy.
To the best of my knowledge, PP&L was among the first utilities in the United States to organize and develop programs aimed at reducing the growth in peak' load and enargy use.
Q.
Would you please outline some of PP&L's early conservacion i
progra'as?
A.
PP&L's early conservation programs were principally educa-tional in nature, since we were attempting to increase our customers' level of awareness of the impending energy crisis as we perceived it.
Efforts included both meetings with l
individuals and groups of customers from the residential:
1 commercial, and irdustrial sectors, and the use of bill inserts and newspaper advertising.
Some of our typical early programs included Home-ecology, a Builder-Developer Information Book, agricultural workshops and other ccuaumcr education programs.
These efforts were made in ottr attempt to disseminate information regarding energy supplies and means by which customers could reduce their energy con-
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. sumption.
These initial progrces included the development and continual updating of " Insulation Standards and Recommen-dations for All-Weather Comfort" for use with those con-l structing new residential units.
These Standards and Recommendations specified energy conservation construction techniques which could be employed eacily.
We also developed an " Energy Management Guide" for use by our larger industrial and commercial customers so that they could E
establish energy management teams in their business enter-prises to effect conservation measures.
This highly recognized guide was adopted by the U.S. Department of Commerce in 1975 as a model, and was also recommended by the Federal Energy Administration.
Finally, as an attemp c to establish a factual data base for these early progre_ms, in 1974 we constructed an energy conservation research home in Schnocksville which tested a variety of concepts in insula-tion techniques, heat recovery and solar utilization.
This installation provided significant guidance for our later conservation programs.
Q.
Mr. McNair, has PP&L developed any conservation related corporate goals?
A.
Yes, it has.
From the first recognition in the early 70's of the need to exercise wiser stewardship of our enelgy resources, PP&L has played the role of a catalyst ---
encouraging our customers to practice conservation and make I
. wise use of all forms of energy.
Research, development and exposition of the results of innovative ways to reduce the amount of energy from nonrenewable sources were undertaken by the Company to enhance its role as catalyst.
In 1977, PP&L was faced with (1) the uncertainties of electric demand growth rates after the aberrations in oil and natural gas supplies and prices, and (2) the prospect of having to commit to the start of another genersting plant beyond Susquehanna.for an in-service date of the late 1980's or early 1990's.
In response to these factors PP&L adopted a corporate objective to reduce peak load growth to an average annual compound growth rate of no greater than 2-1/2 percent from 1977 (4500 MW peak) to 1995 (7020 MW peak).
The Compsny also conducted an extensive study of its long-term generating capacity needs in relation to various projected rates of customer load crowth.
This study indic1ted a neen for evec acre aggressive energy and demand management (EM/DM) programs if we were to restrain the rate of load growth within our ability to provide adequate capacity and to reduce the drain on our finite resources until altornative or improved energy sources became avail-able.
In 1978 PP&L began an expanded conservation program designed to implement its 2-1/2% load growth objective, by achieving a reduction of peak or, maximum load through a reduction in energy use.
9-The target figure of 2-1/2% reflected our desire to defer the need for new future capacity additions without, however, undercutting our ability to meet customer needs.
It is our view that the pursuit of this goal will conserve natural resources,-will gain time for the development of new energy technology, and will help minimize future customer costs.
With an annL41 growth rate of 2-1/2%, major changes in lifestyles and standards of living should not be required.
Q.
How does PP&L intend to achieve its conservation objective?
A.
To meet our objective, PP&L's expanded conservation program is being implemented in stages.
The first phase provides for increased consumer education and assistance relative to conservation of both electrical and other energy fuel forms, primarily relying ou customers to voluntarily respond to the conservation ethic.
The second phase is the establishment of various rate schedules encouraging further voluntary electrical energy conservation and demand control.
The third phase includes consideration and implementation of various Company contingency plans that may result in forced conservation and core direct utility control of customer de' mand.
Q.
Would you describe some of PP&L's more significant conser-vation programs and their respective resdits?
A.
PP&L has implemented conservation programs in several areas.
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. RESIDENTIAI; In the residential area, our efforts have been directed toward improved insulaclon in new home construction, free energy audits of existing ' homes to recommend energy-esving measures, promotion of energy efficient appliances, promo-tion of energy saving draft sealer kits and water heater insulation kits and encouragement of energy conservation habits by residential customers.
The Company also developed an Energy Efficient Home Award Program and offlered National Energy Watch (N.E.W.) recognition awards.
The.N'. E. W. program, developed by the Edison Electric Institute (EEI) for electric utilities and refined by local utilities, was designed to recognize new and existing homes which meet the minimum conservation standards of this industry-wide program regardless of the type of fuel used.
The Energy Efficient Home Awn.rt. Program, a more stringent variation of the N.E.W. Program, recognized new electrically heated homes which utilized the highest insulation standards in conjunction with installation of a heat pump as the pri-mary heating source.
Savings of approximately 4.5 MW and 14,544,000 kWh were realized as a result of this program.
At the time the Energy Efficient Home Award Program was implemented, several independert reports had~ verified the efficiency of the heat r.uc.p in relation to other electri-cally operated heating systems.
This program was discon-
11 -
i tinued in 1981 when the Company instituted Supplement 72 to its tariff.
This supplement, discussed in detail below, required new buildings to meet certain minimum insulation levels.
In both the N.E.W. and Energy Efficient Home Award programs, PP&L's objective was to recognize customers whose homes met recommended thermal levels, and to educate the consumer on the most efficient usage of electrical devices for space heating as well as the benefits of proven energy conservation applications.
The sum of these efforts in the residential area have produced meaningful results, with a 52.6 MW demand reduction and 121.8 million kWh annualized energy savings since 1978.
As discussed beisw, we expect our conservation program to achieve even greater energy savings and demand reductions.
Thermography In an effort to heighten awareness of energy conservation among our customers, PP&L has developed and is implementing a program in aerial infrared thermography.
The program encompasses a total of 260,000 residential and industrial /
commercial customers in selected areas of Allentown-Bethlehem, Harrisburg and Lancaster.
A successful filot program conducted in Scranton in.the winter of 1979-80 prompted the extension of this program to these additional areas for the winter of 1981-82.
Black and white "thermo-1
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. grams" graphically demonstrate the relative effectiveness of insulation in the roof area of the homes and businesses surveyed.
Through meetingc with the customers early next year, we hope to motivate them to increase insulation levels in the roof and ceiling areas to achieve significant savings.
Energy Efficient Appliances Energy efficient appliances such as high Energy Efficient Rating (EER) air conditioners and energy efficient refrig-erators are being promoted along with encouragement for development of efficiency standards for all electric appliances.
Improvement in appliance efficiency represents a potential reduction in peak load by 1990 of 40 MW and reduced energy consumption of 200 million kWh.
I Least Impact Systems Demonstration Programs This program is designed to identify and cor. firm specific electric space heating systems which have the least impact on PP&L's peak loads.
Tbc goal of this demonstration pro-gram is to identify customers and/or builders who already plan t'o install electric heat in new homes and encourage them to optimize heating system efficiencies by installing a "least impact system."
PP&L.is implementing this demonstra-tion program to achieve the installaticu of 250 supplemental electric storage system heat pumps and 250 dual-fuel heat pumps.
PP&L will monitor these systems to confirm our pro-
. jections of the impact on load growth, electric use and leak demand (Ref. 1, 2, 3, 4 and 5).
_ Residential Conservation Service Programs PP&L in response to the regulations promulgated by the l
U.S. Department of Energy under the National Energy Con-serva: ion Policy Act, has developed a Residential Conser--
vaticn Service (RCS) Program which offers in-hot 4se audits of existing homes and apartments.
PP&L Residential Consultants have been trained in conducting comprehensive home energy audits and are certified by the State.
The audits provide a complete basement-to-attic survey of the home's energy efficiency.
A computerized analysis is made on the spot and a report presented to the customer covering:
low-cost and no-cost practices for saving energy, a list of energy con-servation measures in order of pay-back, an estimate of the cost to install these measures, recommendations regarding the customer's heating system where applicable and, zf re-i l
quested, assistance in selecting a contractor or lending l
institution.
INDUSTRIAL AND COMMERCIAL Induscrial and commercial programs have resulted in the I
formation of over 1400 active and ongoing energy management i
teams made up of customer personnel who continuous..y monitor 1
and recommend methods of conserving all types of energy in l
tneir business enterprists or institut1or.e.
The electrical l
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- 14 requirements of those custocers with energy ~ management teams represent nearly 1500 megawatts of demand, or nearly 60 f
percent of the total demand of our industrial and commercial customers.
PP&L recognizes those companies doing the best jo'o of conservation by pressuting them with Energy Management hards.
In addition, we also hava presented Energy Saver Awards to various smaller industrial and commercial customers, and Architect / Engineer Awards to designers of
.i outstanding conservation projects.
In addition to these energy management activit es, our Industrial and Commercial Consultants have had a significant impact on the design and construction of efficient buildings and energy systems for new buildings over 5,000 square feet.
They also make recommendations for application of energy conservation techniques within these structures.
We also conduct meetings for architects and consulting engineers and the top management of our leading manufac-turing customers tg advise them of our concerns regarding energy supplies and the need for their active participation in helping to achieve our conservation goals.
Since 1978, Industrial and Commercial Program efforts have contributed 113.7 MW demand reduction and 255.2 million kWh annualized energy savings.
l
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In addition to customer load and energy savings, PP&L has conducted an intensive conservation program within l's own.
facilities.
Since 1976,. average energy consumption in Company facilities has decreased from 133,015 Btu /sq. ft. to 94,430 Btu /sq. ft., a reduction of 8.9% annually.
CONSUMER INFORMATION AND EDUCATION We feel that another -important ei en.ent of our conser-vation program is providing. consumers with accurate infor-mation regarding energy use.
Since we are in the energy l
business, we believe we have an insight into the realities of the future of energy supply and cost, and feel it incumbent upon us to communicate with cuatomers informa-tion whtch in the long run will enable them to make informed buying decisions regarding energy supply and utilization equipment and systems.
Therefore, we will continue to keep well informed of developments and projections with regard to energy supply and cost to assist our customers, builders, i
developers, and building' designers in making wise choices with respect to building design and construction as well as the energy systems employed within theee strur:tures.
Our i
I efforts will be directed toward reducing energy consumption while building flexibility into process heating, ventilating and air conditioning systems so that customers will achieve the minimum long-range cost for energy.
- Althc.gh we consider our conservation programs to have been successful in contributing to reduced energy consump-tion as well as a reduction in peak loads on our system, we believe that the public attitude toward conservation is changing and, t'herefore, we will be exparling our activities to increase the rate of acceptance of conservallon options.
Complementing the conservation programs described above, the Company initiated, in 1979 a broad-based energy education program.
This program recognized the long-term nature of the energy problem and the need to educate con-sumers in eder that they can make wise decisions on future energy choices.
The program has two major components ---
energy education in schools and adult energy education.
The school energy education program is a broad-based effort to work with educators in developing instructional materials on energy for use in loca? schools.
The adult energy education program utilizes presentations, displays and l
literature in sessions with employees and consumer groups to increase their awareness of the need to conserve energy and offer ways to reduce their energy use.
COMMUNITY PLANNING In 1979, PP&L prepared a comprehensive report titled
" Energy Conservation Ideas for Community Planning," that discussad and supported land use planning approaches which
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local governments can use in seeking the conservation of anergy in cue; unity development.
The concepts presented in this report can be a key instrument in dealing with energy conservation issues related to community development.
However, under the Pennsylvania Municipalities Planning Coce, Act 247, _ocal governme..ts, not electric utilities, guide and regult.te their overall physical development by preparing comprehensive plans to adopt and enforce land use l
controls.
It is, therefore, the responsibility sud prerogative of local municipalities to make community development contribute toward the achievement of energy conservation.
In summary, our expanded conservation program has achieved 166.3 MW demand reduction and 377.0 million kWh annualized energy savings.
These energy and demand savings are described in detail in Table I.
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SUMMARY
CF ENERGY AND DEMAND SAVIEGS Cumulative Total (Includes Rcduction in Peak Demand f M
.978 1973 1980 2nd Qtr.1981)
Residential Thermal Conditioning-New 7.3 8.1 9.0 30.8 Thermal Conditioning-Existing 1-3 4.6 12.6 20.1 Heating / Cooling System
.6
.2
.9 Conversions, Water Heating,
.1
.3
.8 Etc.
8.6 13.4 22.1 52.6
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Industrial & Commercial Lighting 5.9 6.1 17.3 36.0 Heating / Cooling systems 7.2 12.6 15.0 41.5 Shifts to off-peak 3.5 3.1 1.3
- 13.5 Process, water heating, etc.
6.4 4.4 5.5 22.7 23.0 26.2
.39.1 113.7 TOTAL 31.6 39.6 Gl.2 166.3 Annualized Energy F.vi g (millions of kWh)
Residential Thermal Conditioning-New 22.6 23.2 26 3 88.9 Thermal Conditioning-Existing
.5 15.2 13.6 30.8 Heating /Cocling System
.5
.2
.8 Conversions, Water Heating,
.4
.3 1.3 Etc.
23.1 39.3 40.4 121.8 Industrial E Commercial Lighting 22.0 18.6 62.0 123.8 Heating and Cooling Systems 11.9 25.2 31.1 78.4 Process, water heating, etc.
20.7 6.9 12.1 53.0 54.6
- 50. '<;
105.2 255.2 TOTAL 71.7 90.0 145.6 377.0 i
1
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19
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Q.
Mr. McNair, are there any rates being implemented by PP&L which entwurage conservation and load management?
A.
Yes, there are.
In order to develop data with respect to not only the load reduction potential in a variety of new rate designs, but also to test their impact on the censumer, we had included several innovative rate proposals in our 1980 rate filing, which were approved by the Pennsylvania Public Utility Commission (Pa. PUC) and became effective January 30, 1981 under Supplement 77.
First, an economic incentive is included to encoarage off-peak storage systems for residential domestic hot water use and space heating purposes - rate schedule RTS.
A new elec-trically heated home imposes approximately 10 kW demand on our system at time of system peak.
By charging a storage medium at night (off-peak hours) that demand impact can be reduced to around 2 k# at time of system peak.
We, there-fore, plau to communicate with new home builders the benem fits to the homeowner that can be achieved through this rate.
We will also communicate with distributors of heat storage equipment to inform them of the availability of the l
rate.
We have been testing a central, heat-storage system.
this past winter in our Schnecksville research home for which we have previous energy use data.
Thus, we will have some data regarding the erficiency of central storage l
systems which we plan to share with customers interested in l
heat-storage applications.
l
Second, PP&L is implementing the lower rate for off-peak water heating contained in rate schedule RS.
The incre-mental cost to provide the required separate wiring for the water heater in a new installation should be considerably less than retrofitting an existing home.
While we plan to publicize the availability of these rates to all,our residential custocars, we will concentrate on the new home market where we expect our efforts will meet with greater Success.
Third, an experiment with residential time-of-use rates (rate schedule RX) is being offered by PP&L to see if paople are willing to change their lifestyle by shifting most of their electricity usage to off-peak periods in exchango for lower electrle bills.
Information g *bered from these experiments vill be used in developing future strategies to use pricing as an economic incentive tp accomplish conser-vation and energy management goals.
, Fourth, as part of our overall effort to reduce the race
- growth of demand for electricity on the PP&L system, we will begin replacing the electric meters of' residential customers who use more than 50,000 illowe,tt-hours a year (demand measurement provision of rate schedule RS).
The new meters will measure both total electrical energy used and the highest demand for electricity in any 15 minute period
<cring the billing month.
Hopefully, this will encourage oemand control and conservation among our high-use customers.
. Q.
Has PP&L considered implementing any mandatory conservation measures?
A.
Yes.
As indicated previously, much of what we have done in the area of conservation activities relates to voluntary re-sponse on the part of customers, either because of the economic impact of rising energy costs o. because of their response to a national concern.
Many of the actions which have br a implemented by customers involved little or no capital investment, but rather a change in patterns of use.
We are at the point where many further conservation achievecents will require an economic investment on the part of the consumer and, therefore, the potential for additional kW savings resulting from our numerous conservation programs directed toward the existing market will be minimal.
The ther alternative to produce positive results involves the adoption of rules and regulations to produce the desired resuit,s.
What we are proposing in our future energy conser-vation program incorporates some aspects of both economic incentives and mandatory or regulatory requirenects.
One of the principal components of future load growth on the pP&L system is the electrically heated home or apart-ment.
The Pa. PUC approved PP&L's Tariff Supplement 72 which required all new buildings, citer April 1, 1981, to i
meet certain minimum insulation levels to qualify for an electric service connection.
This mandatory program would l
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. reduce the 1990 peak load by 75 megawatts with a corresponding reduction in kilowatt-hour sales of 250 million.
The Pennsylvania Commonwealth Court recently barred implementation of the mandatory provisions of Supplement 72.
While this decisioa is being appealed to the Pennsylvania Supreme Court, we will continue to promote effective insulation levels to achieve reductions in pe?L load.
Q.
Has PP&L received any recognition for its conservation efforts?
A.
Our activities is energy conservation have earned us recognition from a number of sourera.
These include:
1.
An award from the Clean Air Council of the Lehigh Valley for the construction of our Energy Conscrvation Solar Re.e.Osrch Home in Schnecksville.
2.
An award from the Engineering Society in the Delaware Valley for this same conservation home project.
3.
The SavEnergy citation given by the United States Department of Commerce for our outstanding induatrial energy management program.
l 4.
Recognition from the Federal Energy Admin-l 1stration (now DOE) for our Utility
. Conservation Action Now (UCAN) program which was judged to be one of the outstanding programs in District 3 of the Federal Energy Administration.
5.
Citations by " Electrical World" and " Wall Street Journal" for outstanding efforts in the field of energy conservation.
The Tennsylvania House of Representatives commended PP&L for its innovative " Electric Use Profile" information presented on residential service bills in the form of a histogram.
A graph on the customer's bill illustrating kWh usage each month over the thirteen previous months provides each customer with a visible means of comparing energ usage from month to month.
PP&L received an Honorable Mention Award from the Pennsylvania Electric Association for this same project in recognition of a residential program having significant impact.
PP&L slso received a citation from tha Pennsylvania House of Representatives for our. Montour Greenhouse project.
This research project utilizes the waste heat generated by the Montour plant to warm a greenhouse, thereby eliminating the fuel consumption normally utilized to maintain required temperatures within the greenhouse.
Q.
What research activities has PP&L undertaken in connection with its conservation programs?
A.
PP&L's initial research efforts in conservation concen-trated primarily upon better insulation techniques, reducing air infiltration, and improved door 0,nd window glazing.
Many of tne Company's concepts were demonstrated in its Energy Efficient Soler Research home, built in 1974.
One of the most notable of these was our advocacy of polyurethane or other insulating sheathing to provide a tight thermal envelope around tne home.
This measure has since been adopted as standard construction by a majority of builCers in the Company's area.
Research efforts next moved to refining the energy utilization systems within the home.
The Company sponsored construction of six bicentennial homes in 1976.
These homes not only used the insulation techniques mentioned earluer, but also contained a variety of high efficiency heating and water heating systems mostly utilizing innovative heat pump designs -- some coupled with solar heating.
Most recently, our research has been more specifically aimed at developing a variety of off-peak heating and cooling systems which will significantly reduce the growth rate of the Company's peak loads.
Examples of these include:
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25 -
1.
Off-peak Heat Storage using a variety of storage media, such as water, ceramic bricks and phase-change materials; 2,
Off-peak Cool n3 Storage utilizing ice builders where cooling loads are contributing significantly to customer peak. load; 5.
Constant Energy Input System where relatively low electric resistance capacity with hot water storage is used to levelize heating systems.
Other reseErch efforts include:
1.
S,tudy of Tharmal Qualities of Earth-berped Structures:
PP&L is studying the thermal characteristics of earth-bermed walls.
This study will i
assist PP&L in determining the optimal thermal insulation characteristics for passive solar earth-sheltered home.c and for the basements of conventional homes where controversy exists over the proper levels of insulatione l
2.
Heat Pump Water Heater Test:
This test will help to determine the energy demand characteristics of the Department of l
Energy-sponsored energy utilization systems.
Heat punp water heaters are being monitored in laboratory and field conditions.
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A
. 3.
Low Wattage vs. Quick Recovery Water Heater Tests:
These tercs were established to compare the en ergy use of low-wattage and quick-recovery water heaters in residential use.
In addi-tion, modifications designed to save energy in netting water will be tested and reported.
4.
Water Heater Temperature Study:
i This study will help to determine the relationship between electric water heater thermostat setting and the actual tempera-ture.
Ine study is being conducted in employee homes.
5.
Water-Source haat Pump Stu Q:
PP&L is investigating the economy and reliability of water-source heat pumpe and the particular problems related to water use
(
and disposal.
l 6.
Opsimal Power Factor Cont. roller:
l The use of this power factor controller will help PP&L determine the energy and demand-l saving characteristics of new solid-state power factor controllers for induct 10 motors developed by NASA.
Both laboratory and fie.t testing will be performed.
Application arcas l
and savings potentials will be identifiad.
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Electronic Ballast Test:
Through this test, Pd&L expects to determine energy saved by using the electronic ballast sys tem as opposed to two high-efficiency magnetic ballast systems.
The study also expects to dete7/mine the relative pcrformance
~
of certain illumination system parameters and to collect reiiable data on all ballast systems involved.
8.
High Pressure Sodium Interior Lighting:
A study of employee and visitor reaction to high pressure sodium lighting in the office i
l and rest area of the Company's traindog canter was undertaken to determine if theqe light sources should be recommended to our tustomers for office environments.
9.
Appliance Interlock Contgol Systems:
Various control systems have been tested, such as interlocks between major appliance loads to prevent these loads from operating simaltaneously.
These research activites not only involve study work but include data gathering and monitoring of installations in PP&L's service area.
Our load research metering and computer translation of multi-track magnetic tapes have
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28 -
allowed us to expand our metering efforts to these research projects.
Additional p-1ects will be undertaken in the future such as determining. the impact on energy use of increased window arr^s to provide internal daylighting.
In addition to its own research efforts, PP&L provides a significant financial contribution to the Electric Pow.<
Research Institute,(EPRI), the electric industry's research arm.
EPRI currently sponsors some 45 conservation-related research projects totaling $7.4 million.
The technology
" transfer" expected from EPRI research should have a signif1sant future impact in utility conservation efforts with customers.
Q.
What future conservation programs does PP&L plan?
A.
We will try to reach out into the existing home market to improve insulation levels for all customers, re6ardless of fuel use.
This program, developed in conjunction with the Peansylvania Residential Conservation Service Program (RCS),
involves a home energy audit conducted for interested customers by well-trained PP&L consultants.
We visualize that this program will have an impact on total energy consumption which will exceed the direct value to the Company in reducing peak loads.
However, we feel that there is potential for reducing the demand impact of existing electrically heated homes by approximately 70 megawatts and 230 million kWh in 1990.
The success of this
. )
program will depend to a great degree upon the impact of rising energy costs and the pressures brought to bear on the corsemer by federal and state energy programs.
Q.
Section III(d)(6) of the "Public Utility Regulatory Policies Act of 1978" (PURPA) provides that each electric utility must offer its customers such load management techniques which the. State Regulatory Authority has determined will be cost effective, reliable and provide useful energy or capacity management advkatages to the electric utility.
Would you please state what PP&L is doing to comply with this standald?
A.
As early as 1973, and peric~dically since then, PP&L has investigated load management techniques but has not been able to justify direct utility control techniques.
We continue to stay abreast of technology in this area l
l periodically raview the cost / benefits.
i l
We have, however, concentrated our efforts in vasearch and development of load management techniques which the customer can utilize to nis own benefit while at the same time einimizing the demand impact on the electric system.
PP&L has determined that the most cost-effective load management technique in the residential area is the instal-lation of adequate levels of insulation when the dwelling unit is initially constructed.
For that reason, we filed Supplement 72 requi. ring minimum insulation levels in all new structures as a prerequisite for electric service.
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i The Company is presently evaluating a computerized simu-lation model that will permit us to make more and better analyses of various load management techniques.
We must have the capability to more easily analyze both the energy and demand impacts of these techniques to appropriately assess energy / demand costs and benefits.
In summary, PP&L is actively encouraging voluntary load management by its customers at the present time, implement-ing various time-of-use and demand-sensitive rates for further voluntary load management efforts, researching additional techniques applicable to customer use, and continually reviewing the state of the art of direct utility-controlled load management techniques to be in a position to offer them when they can be demonstrated to be cost effectite.
Q.
What has PP&L done regarding "Second Law Efficiencies?"
A.
The "Second Law Efficiencies" are sometimes referred to as l
the ratio of the least available work that could perform a
(
given task to the available work actually consumed.
I prefer the analogy of " Don't use an elept-nt gun to shoot rabbits," or use the appropriate energy source for the job to be done.
"Second Law Efficiencies" provides an cfriciency ratio for measuring resource utilization.
It does not, however, l
l take into account many other important criteria for i
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31 -
syste:cs to be used.
These other factors include economic costs for installation and operation, social impacts, environmental effects, and acceptance by those ultimately using the energy.
Thermodynamic concepts alone cannot be the basis for determining resources utilization and system selectica.
As discussed in the testimony on Contention 4D, PP&L is actively pursuing energy utilization techniques with improved "Second Law Efficiencies".
Rawever, the other criteria identified above will prevent wide implementation of these techniques in the near term.
Considering the fact that the energy generuted by Susquehanna will substitute for more expensive energy generated by fossil-fueled facilities, "Second Law Efficiencies" are not relevant to a consid-eration of the nee'l for Susquehanna.
Q.
Mr. McNair, woul4 you discuss the health benefits of con-servation versus generation of electricity.
A.
When the era of low energy costs changed to an increasing cost era, the side effects of conservation were all con-sidered beneficial.
For example, walking more instead of driving would improve muscle tone, etc.
However, as stronger efforts were made to improve energy use effi-ciencies and substitute wood burning for the conventional heating sources, detrimental health-related side effects started to surface.
Until further study of these detri-
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1 mental side affects is completed, we must carefully maintain a balance between energy conservation and energy supply.
Undue emphasis on conservation and resource sub'stitution may create additional health / environmental i
problems and disadvantage consumers economically.
For example:
a.
Excessive use of localized sources such as wood burning c<in esuse health and environmental prcblems reaging from deaths due to house fires caused by unattended or careless wood burning to a more widespread ravaging of our forests or pollution of the air we breathe.
Controlling such pollution on an individual home basis can be very difficult.
On the other hand, the utility industry can effectively control the pollution from its central generating stations.
B.
Increased insulation levels associated with minimal ventilation resulting in extremely " tight" homes may produce adverse internal pollution problems ranging from the ill effects of " leaking" formaldehyde in i
" foam" insulation (use of such insulating material has been banned in Massachusetts) to buildup of carbon monoxide in fossil fuel burning homes or the con-centration of tobacco smoking contaminants.
The Environmental Frotection Agency is just begin-ning a comprehensive studv of indoor pollutants to l
33 -
bring the health hazards of conservation int'o proper focus.
C.
Use of more efficient light sources in buildings has recently come under scrutiny because of reported health problems when children are exposed to these light cources for long periods of time during the day in schoc1 and even in adults in offices.
The health side effects of ccnservativa are not all beneficial.
More and.more data and experience are showing that conservation has health detriments as well as health benefits.
Q.
What can you conclude about the, possibility that conser-vation efforts can eliminate the neod for Susquehanna?
A.
We expect that future demands on PP&L's system will be significantly reduced as a result of our conservation programs, thus delaying the need to design and construct new facilities beyond Susquehanna.
However, artificial stimulation of marginal conservation and renewable resource applications will result in excessive installation and operating costs, unsatisfactory performance and a negative customer reactidn which could significantly deter the solid progress which might be made in these areas.
P'ae programs being implemented by PP&L can, with the 1
I assistance of proper regulation, produce a reduction of about 1040 megawatts in projected loads through 1995.
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1 I
However, neither these nor any additional conservation Programs can eliminate the need for Susquehanna.
Q.
Mr. McNair, does this conclude.vour testimony?
I A.
Yes, it does.
i 4
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^'"*"""e'w%cwe
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REFERENCES i
- 1. Hea t Pump Technology - A Survey of Technical Developments,
Market Prospects and Research Needs, May, 1978, prepared by Gordian Asscc., Inc. under contract to Department of Energy.
2.
Building Energy Use Data Book, Edition 2, J. C. Blue, et al., C1k Ridge National Laboratory ORNL-5552 December 1979, Chapter 2.
3.
Analysis,,of Field Test Data on Residential Heating and Cooling, prepared by Battelle, Columbts Labs, for EPRI EA-1649, Dec. 1980.
4.
Heat-Pump Centered Integrated Community Energy Systems,
System Development Summary, J. M. Calm Argonne National Laboratories ANL/CNSV-7 Feb. 1980.
5.
Energy Consumption and Life Cycle Costs of Space yonditiocing Systems, 1976, prepared by EUS, Inc. for National Electrical Mf g. Association.
[YNIO/T
"{ U UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of
)
)
1ENNSYLVANIA POWER & LIGHT COMPANY
)
)
and
)
Docket Nos. 50-387
)
50-388 ALLEGHENY EI.ECTRIC COOPERATIVE, INC. )
)
(Susquehanne Steam Electric Station, )
Units 1 and 2)
)
APPLICANTS' TESTIMONY OF GRAYSON E. McNAIR ON CONTENTION 4a AND 4b'(LOAD FORECASTING)
~
1 l
September 15, 1981 i
C y' H IB IT "c "
To 4
- f. / e AJAIR AFT:? DA u t?
0F 6RAYSQU
CONTENTS P, age Introduction 1
The Forecast - Its Purpose, Development, and Design 2
Evaluation of the Future by the Econometric Method 4
Evaluation of the Future by the Traditional Method 12 Derivation of the Probability Band Forecast 20 1980 Short-Term y<J teast: Methodology and Results 24 Peak Load Forecast 27 l
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INTRODUCTION One of the elements used in development of PP&L's long-range capacity requirement plans it a forecast of the future peak demand of our customers.
The current demand forecast was prepared in October 1980.
This testimony discusses the development of ths se.les and peak load forecast levels.
The first section discusses the preparation of forecasts, the 3etting of corpocate goals, and the incorporation of uncertainty.
This is fallared by the methodology, assumptions, and results of the econometric analysis.
The traditional or judgment evaluation is also explained.
In addition to the long-racge analysis that goes into the prepara-tion of the projected annual ssles, therce is also a,short-range analysis to provide monthly sales detail needed for budget purposes.
A section detailing 4
its development and the blending of the long and short-range outlooks.into a peak load forecast is provided.
4 I-r l
1
pE FORECAST - ITS PURPOSE, DEVELOPMENT, AND DESIGN The planning needs of the company dictate that forecasts of sales and peak loads be prepared for both the short-term 'and the long-term.
The g
short-term forecast, usually for two years into the future, is available by months for sales to individual SIC (Standard Industrial Classification) customer classes and for peak loade.
This amount of detail is necessary for a short-term forecast because it is used in preparing the company's operating budget, which in turn is a decision-making tool when developing strategies concerning each flow, rate filings, and security offerings.
The long-term forecast extends the forecasc period to as much as 20 years.
Sales and peaks are forecasted for each year and are used in making decisions about capacity expansion.
There are numerous factors which influence the level of sales and peak lotd. One phase of forerasting is to determine those key factors and measure their effects. These factors include the level of the economy, fuel prices, population level, technological and social changes -- along with ranges of values they may exhibit in the future. Then, one or more fore-casting methods are employed to determine the collective effect of thesa events and the variations that o ;r sales and peaks may exhibit due to vari-ations in the influencing factors.
The result is'a band forecast that encompasses the most probable levels in which the future level of sales and loads will fall.
Since the uncertainty increases as the forecast pertod is extended, the band is noraally an ever-widening one. Although a single-line forecast that falls within the band forecast may be selected for planning purposes, the band serves the purpose of showing the probable range of outcomes as a basis for decision-making.
The approach PF&L has taken to position the lower limit of the band is to link together assumptions about the future that tend to reduce sales. An effort must be made to be sure they are internally consistent and are at reasonable levels. A similar approach with assumptions that tend to increase sales is used to place the upper band.
An example for the low side is assuming simultaneous occurrence of low ece-nomic activity, conservation, and high interest rates -- a major influence on new construction of dwellings and places of business.
This approach reduces the risk of future loads falling outsLJ,a the stated band.
The resulting product is a band forecast about one percent on either side of the single-line forecast.
x There are a variety of forecasting methodologies frem which to choose today.
In what might be called the traditional methodology, a com-bination of marketing, engineering, and end-use data is analyzed and tempered with judgment to produce a forecasc. The results are highly dependent on the forecaster's experience, knowledge, and ability. A detailed forecast using this traditional method is reviewed in.a later section of this paper.
A second methodology which has gained favor during the past decade is econometrics -- representing economic behavior in terms of mathematical equa tions. This approach to forecasting aims to quantify past relationships between causes and effects which in turn provides a starting point for appli-cation of judgment.. The goal is to quantify the ef fects that the ecosamy, energy prices, population, and other factors have had on sales of electri-ci ty.
A detailed description of this methodology starts on page 4.
2
A common concern to all forecasting methods is capturir g fully the effect of new significant factors that are likely to alter historical growth patterns.
Conservation of resources a,nd subsequent new snergy technologies certainly fall in this category.
This concarn has been subject to constant review since the oil embargo -- in the beginning making broad estimates about what might happen and more recently refining this broad estimate to specific items. The current forecast includes an extensive list of conservation /new technology events that are likely to occur in the next 20 years.
Some will reduce substantially the sales of electricity, but others in the long run will foster the substitution of electricity for fossil fuels.
Specific items included because of their significant impact on loads in the next 15 to 20 years form the followina list.
In the residential market, the heat putp will be installed in an expcnding number of new hames; older homes will be retrofitted with significant amounts of insulating materials; homes v2.ll be smaller and household appliances will be more efficient.
Offsetting some of these reductions are conversion of fossil-fuel heated homes to electric heat in response to rising fossil-fuel prices; the use of portable electric space heaters to maintain the tempc ature in only one room of fossil-fuel heated homes; and the proposed introduction of the massed produced electric car in the middle of this decade.
In the commercial and industrial market, space,conlitioning and lighting equipment have under-gone extensive redesign to minimize the use of electricity.
The same is true for production processes, i.e. cooking, motors, assembly lines, furnacer, pumps, and compressors.
Due to conservation and new energy technologies developing between now and the year 2000, the expected net reduction is 5 ro 6 billion kilowatt-hours or 1,000 mW of load. PP&L has also assumed a reduction of another 400 mW of loads that will be derived by shifting on peak loads to off peak.
PP&L's forecasting approach provides the following benefits:
o Riskt inherent to the future are clearly defined.
e M aitoring is easier and more realistic.
For example, when actual salues begin falling outside of the band, this signals that a review of the forecast is needed.
Fotecasts are valid over a longer period of time thus improving e
decision-making.
The lengthening of time between forecasts allows time for extending the scope of planning ef forts.
3
EVALJATION OF THE FUTURE BY THE ECONOMETRIC METHOD 1
METHODOLOGY Introduction The PP&L econometric model forecasts long-range electricity sales for the residential, commercial, and industrial sectors in the PP&L service area. By identifying key variables affecting sales, the model utilizes historic values to measure interrelationships that existed between these varisbles and kWh sales. The crucial linkages captured by the model equa-tions provide the user with a framework which onables him to zroduce "first cut" forecasts of sales consistent with various economie, energy, weather, and policy outlooks.
In the following sections, the methodology used in the forecastiag of each market sector is described, esg., residencial, commercial. Also included are the assumptions developed by Data Resources, Inc., (DRI) and selected by ?P&L for the twenty-five year macroeconomic outlook, since this DRI/PP&L forecast forms the basis for the regional economic outlook of the base case kWh sales forecast.
The forecast results using the base case assumptions are provided along with the foreradt results based on alternative assumptions to indicate the sensitivity of kWh sales to changes in the U.S.
economy, particularly employment, production, income, etc., and to relative fuel price projectiore of alternative forms of energy, particularly oil and natural gas.
It should be emphasized that it is not the intent of this analysis to arrive at a point estimate of future sales.
These forecasts were developed to reveal a broad outlook required to expose the risks the future may hold for planners and decision-makers.
Econometric Methodology in the Residential Sector l
In the PP&L econometric model, resider tisl sales are forecasted as the product of the number of PP&L residential customers and the estimated i
average electric use per custome7.
Because usage characteristics differ j
between electrically heated (EHEJ and general (GRS) residential service cus-l tomers, sales to these two classes are forecasted separately.
The estimate of the number of future eastomers in ette electric heat and general residential claases is made by starting with a known fact, the existing number of customers in each class.
Next, a forectst of the number of new dwelling units to be added in each future year must ha determiced.
These new dwelling units are forecasted using the current housing stock, demo-graphic housing demand (i.e., the population in our service area over age 20), the real per capita disposoble income in the service area, and the real
. dollar amount of U.S. mor: gage commitments.
The percentage of new dwelling units which are electrically heated is a function of the marginal price of electricity relative to the price of fuel oil and a binary variable to repre-sent the market penetration of electric heat.
The depreciation and less of 4
I i
existing homes as a result of demolition, fire, etc., is taken inte account with a depreciation factor.
Finally, the conversion of general residential customers to electric heating is a function of real per capita disposable income in the PP&L service area and a binary variable for the termination of PP&L's promotional electric heat rate.
Average use per customer forecasts rise out of estimates of appli-aret saturation and applianc6 usage.
Each applianca saturation represents the number of appliances per 100 customers and is a function of the unde-preciated appliance stock and a corresponding real per capita disposable income term.
Fixed kWh weights are a.csigned to each major appliance (these may change over time due to conservation, etc.) reflec*ing reported annual kWh usage per appliance.
Special account is taken of u4e lower kWh usage of second and third appliances, such as televisions and refrigerators.
Each appl!&nce satu;stion is cultiplied by its corresponding kWh usage and.then aggregated to form GRS and EHH indexes of appliance usage.
The GRS t.43 EHH average usage equations are functions of their re-spective appliance indexes, adjus;ed for past temperature and humidity vari-ations since forecasts are made assuming normal weather, and the real price of electricity.
GRS average usage is also dependent on the number of persons per household and the percentage af income available to households after food, clothing, and ahelter expeaditeres.
New Residential Technologies - Residential sector msthodologv has recently been elaborated.
The model now accommodates assumptions concerning the electric vehicle, future appliance efficiencies, and the extent of kWh savings resulting froe smaller energy-efficient homes, retrofitting of in-sulation, heat pumps, and solar water heaters.
Econometric Methodology in the Commercial Sector In our model, the commercial sector is divided into four parts:
Wholesale and Reteal Trade, Financial and Personal Services, Other Commer-cial, and Small Conmercial.
The Other Commercial category consists of state and federal government, agriculture. construction, and transportation and public utilities.
Small Commercial is a conglomeration of businesses pres' ently not classified by SIC Code, such as baauty shops, service garages, doctors' offices, etc.
The foundation of most commercial sales forecasting equations is employment, since euployment growth has playcJ a critical role in explaining past growth in the commerciel sector.
!n general, service area commercial employment is linked to U.S. empicyment and the relationship of real per capita income in PP&L's service area to that in the U.S.
The PP&L sales forecasting equations are, in turn, dependent on *E&L customers per employee in our service arca, megawatt hours per employee, and the average price of electricity in each sector relative to oil prices.
Small Commercial sales are forecasted differently from the other three groups, mainly because the paucity of data makes attribution to specific factors difficult.
Small Commercial sales forecasts are based mainly on real per capita disposable income, weather variation, and prices for other energy supplies.
5
O In each equation, special variables are incorporated to account for jolts in past commercial sales.
Among the most important adjustments are binary variables for the energy crisis, Hurricar e Agnes, and data classifi-cation shifta.
Commercial Conservation - Af ter the basic projection of commercial sales is made using the historic relationships of economic and price vari-ables to sales, adjustments are made to incorporate conservation.
- Sales, before conservation, are separated into sales by end-use, such as lighting, space conditioning, and water heating. Assueptions are made tur the per-centage reduction in sales that can be attained in each end-use through conservation measures.
The percentages are not constant but increase over time.
These percentage reductions are applied to the original sales levels to obtain sales levels reflecting conservation.
Econometric Methodology in the Inuustrial Sector Specific sales equations are created for Steel, Chemicals, Coal Mining, and Small Industrial as data exists which pennits the individual estimation.
For the remainder of the industrial sector, sales are foracasted in aggregate, then broken out according to the proportion each industry con-tributes to an estimated production of goods and services it Central Eastern Pennsylvania.
i As in commercial sales forecasting, service area employment in each industry is a critical element explaining ' sales growth. Most of our indus-trial employment equations are linked to PP&L se vice area employments of the pregbdimg quarter, corresponding U.S. industrial prodnetion indexes, a linear time trsJ which pieb up changing technology, and, in some cases, biQry variables for strikes and the exit or entry of large plants in our service area.
i Employment is then linked to an index representing the production the industry is generating 1 the PP&L territory.
Each PP&L production index is the product of our service area employment and cxpected production per i
employee in the U.S.
Sales are directly Capendem on these PP&L production indexe s.
Another major determinant of sales is price. Most equations incorporate the real electricity price relative to oil and/or natural gas.
Some also include real average electricity prices.
In the coal mining and steel industries, real marginal prices play an important role.
Industrial Conservat.on - As with the commercial' elass, af ter the 4
basic projection of industrial sales is made using the historic relationships of economic and price variables to sales, adjustments are made to incorporate conservation.
Sales, before conservation, are separated into sales by end-use, such as pumps, furnaces, packing, process heating, etc.
Assumptions are made for the percentage reduction in sales that can be attained in each end-use through conservation measures.
The percentages are not constant but increase over time.
These percentage reductions are applied to the original sales levels to obtain sales levels reflecting conservatione 6
ASSUMPTIONS Macroeconomic Assumptions of CYCLZLONG2004 Data Resources, Inc., of Lexington, Massachusetts, regularly pro-deces multiple sets of long-term forecasts of the U.S. economy.
Each fore-cast is based on varying macroc.onomic assumptions and, therefore, represents varying outlocks on the U.S. economy.
The DRI forecast selected by PP&L to produce the PP&L base case evaluation is titled CYCLELONG2004.
It envisions a period of moderate real national output growth.
The projected average annual rate of real GNP growth is 2.3%, a considerable 13 owdown from the higher than average 3.9% growth rates of the 60's, and slower than the growth we experienced from 1965 to 1980 (3.2%).
The major factor causing this slowdown is the predicted decline in labor fcrea growth.
Over the past twenty years, the percentage of women entering :ha labor force was phenomenal. When combined with the increasing large numbers of " baby boom" children who began working during this earlier period, the labcc force grew dramatically.
It appears that the labor force participation rate for women will increase more slowly in the future.
Furthermore, growth in the number of entrants into the work world will taper off as the age composition of the population changes.
Because this slower labor force growth has important Laplications for the amount of output this country is capable of producing, it is one of the most important considerations in the national forecast.
Like labor force growth, investment vill proceed at a lower rate than we witnessed in the 60's, but unlike the energy and interest rate jolts that plagued investment growth during the 70's, we foresee a pickup in the pace of apital formation in the next few decades as some of our recent problems are sorted out.
Although the personal savings rate will remain at relatively low rates, government policies wf]l be designed to encourage investment.
l Over the twenty-five year forecast period, productivity growth will l
also recover from its cost oil-embargo levels.
Several factors contribute to I
this conclusion including a more mature labor force, replacement of older less-efficient machinery, cn? a proportional decline in non goods producing investments such as pollution abatement equipment.
This moderate future productivity growth is one of the factors contributing to the gradual unwind-ing of the high inflation rates we've been witnessing in recent years.
Energy supply considerations are an important aspect of the forecast.
In tPe short-term, disruptions of energy supplies can still greatly affect our customers since they are limited by the flexibility of l
equipment currently in place.
In the long-run, customers will become less l
susceptible to energy price shoc.ks as substitution of cther factor inputs --
such as energy-efficient machinery -- takes the place of energy.
In the next few decades, consumers will be spending their incomes differently than they have in the past.
Although the share of income spent on consumption remains almost constant at 63%, the portion spent on services 7
1 1
L
~
~
is expected to climb. Durable purchases such as furniture and automobiles will become relatively nore important, especially in the mid 80's, as a con-siderable portior, of the population reaches home-buying age.
On the other hand, nondurable purchases, e.g., food and gas, should become less inportaat in the future because of the decline in population growth and the continued trend toward small, fuel-efficient cars.
Government expenditures on the state and national level are pre-dicted to decrease as a percestage of total output in the next twenty years.
The continued decrease in the growth of tax burdens is largely the result of demographics, e.g., a continuation of the declining trend in school age population, and growing consumer dissatisfaction with government spending.
This forecast has taken into account the recent manifestations of the economy's vulnerability to shocks.
The increased likelihood that our economic future will be characterized 'v stubborn inflation, low productivity growth, and tight energy supplies hac cesulted in a less optimistic outlook than some earlier outlooks.
Since our forecast philosophy is based on the idea of producing not just a one-line forecast but a band that has a reasonable probability of covering the eventual outcome (actual), other DRI scenerios with different assumptions were evaluated and used. HIGHTREND2004 and L0tTREND2004 were used to quantify the outside risks due to the economy.
TRENDLONG2004 was used to project sales based on an economy absent of shocks and lost economic oppo rtunities.
This study provided another rough estimate at a high case.
The impact that changes in macroeconomic assumptions had on PP&L sales is illustrated in Table 1 on page 10.
Each economic outlook was used with an identical set of pricing assumptions and oroduced forecasts on line 3 that ranged from 42,011 GWh to 48,538 GWh.
l Pricing Assumptions The price assumptions for fuels used in the PP&L base esse econo-metric forecast were derived from discussions with various departments at PP&L. The resulting consensus electricity price forecast was that electric prices would range between -3% and 1% real average anntal growth through 2000 with
.5% average annual real increase as the expected value.
This real price growth primarily reflects the expected increases in plant and fuel costs and varying plant capacity utilization rates.
For alternate fuels, oil prices were assumed to increase one to three percentage point. above the real average annual price increases for coal -- the main fuel at PP&L's power plants.
Coal had a consensus range in real average annual growth of 1% to 3%.
The consensus range for average real growth in oil prices was between 2%
ard 6%.
Natural gas prices were assumed to increase more then oil by an average of two percentage points a year, with a consensus range of real average annual growth of 4% to 8%.
The expected values for increases were 2%
for coal, 4% for oil, and 6% for natural gas.
Given the erratic decisions of OPEC, the uncertainty of decontrol l
timetables, economic health, etc., the risks associated with adhering to just one price forecast are apparent.
Therefore, several model runs were made by altering energy price assumptions within their respective ranges.
The table l
of results on page 10 shows that the choice of pricing assumptions greatly influences the results.
8
RESULTS The economic simulation is based on the CYCLELONG2004 scenario adjusted for expected prices and conservation assumptions.
The result of this simulation, which is found in Graph 1 on page 11, is our point-estimate econometric forecast.
Table 1 lists the forecast results developed by altering price and macroeconomic assumptions.
For the year 2000, one can see that altering the economic assumptions alone can result in a sales range between 42,000 and 48,500 GWh when expected prices are assumed in each case.
The basis for the outer points of this band lies in DRI's alternative assumptions regarding potential U.S. economic growth.
The basis for the upper band limit (HIGHTREND2004) envisions more employment of labor and capital, resulting in higher production levels and a lower inflation rate (higher real incomes).
Since PP&L sales are linked to the macroeconomic variables, it is not sur-prising that HIGHTREND2004 has the highest predicted sales, all else con-stant. The lower band limit based on LOWTREND2004 is nearly a mirror image.
KWh sales are also sensitite to fuel and energy price changes. On a percentage change basis, prices generate an even wider range of forecast re-sults than economic activity.
The variation in forecasts based on TRENDLONG2004 but with alternative price assumptions attests to this. With oil and gas real price increases kept constant and varying electric real price increases from 1% to -3%, sales range between 39,700 GWh and 56,100 GWh.
i l
I 9
TABLE 1 ECONOMETRIC METil0D TOTAL GWil SALES IN 2000 DRI MACROECONOMIC FORECAST llICllTREND2004 TRENDLONG2004 CYCLELONC2004 LOWTREND2004 Price Assumptions (Real Average Annual Percent l
Increases)
Elec-Natural tricity 011 Cas i
-3 4
6 56,122 go
.5 4.9 5,7 46,688 44,693 4
l
.5 4
6 48,538 45,325 43,433 42,011 1
4 6
39,667 1
1 1
36,012
-3 6
8 62,714
-3 2
4 55,671 '
1 2
4 34,563 2
1 6
8 38,814
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1 EVALUATION CJ THE FUTURE BY THE TRADITIONAL METHOD INTRODUCTION As mentioned previously, forecasting methods at PP&L fall into two general categories, the traditional method and the econometric approach.
The traditional or judgment method allows the foreccst team a freer hand to apply many implicit sales relationships wb?ch cannot be accommodated when employing the econometric method because of the difficulty in stating the relationships as equations.
Several studies have helped uncover and provide much insight into the connection between sales and recent energy developments.
These studies have reviewed conservation, throwover (substitution of fuel sources),
and residentiel conversions.1/ As a part of the foreca
, special emphasis was directed toward the natural gas market, the electric vehicle, and the historical relationsulp between Gross National Product and energy consump-tion.
METHODOLOGY The long-term judgment forecast has been constructed as a band fore-cast to quantify a probable range of kilowatt-hour sales.
The band forecast is composed of an upper bound (JFMAX) that is based upon a set of assumptions that may not be 100% consistent with one another, but all have the effect of pushing electric sales to an upper limit.
The lower bound (JFMIN) is simi-larly constructed with tha. exception that all assumptions hold electric sales down.
These bands are further adjusted to include conservation (JFMAXC and JFMINC), throwover from natural gas and oil, and cogeneration.
Each of these variables war reviewed with the most recent data and forecasted separately for the upper and lower bands of the forecast.
Traditional Methodology in the Residential Sector The general residential and electrically heated homes sales fore-casts were prepared by determining the levels of sales that each end-use of 1/ Conservation and throwaver analyses were based upon a report submitted to j
PP&L solely for the PP&L system:
Hamel, Bernard B. and Brown, Harry L.,
I Pennsylvania Power and Light Co. Alternative Fuel Evaluations and Energy l
2rojections for Major Industrial Groups, General Energy Associates, Inc.,
Cherry Hill, NJ 08003, September 7, 1979.
l I
Further conservation data was based upon a report by Conservation Services, PP&L:
Analysis of Industrial & Commercial Customer Peak Demand & Load Management Opportunities, Conservation Services, Industrial & Commercial Section, December 1979.
Residential Conversion analysis is based upon a report:
Frazier, Donald N.,
The Residential Conversion Market 1980-2000, Market Research -- Pennsylvania Power and Light Co., April 1980.
l l
12 l
. ~ -
-. _ - _ _ _ _...., ~.. _,
electricity in homas would contribute to the total.
Thaea end-uzo cats:gorisa included 15 major appliances, heating, lighting, miscellaneous small appli-ances, and future appliances that may be marketed.
Annual sales to a partic-ular end-use in any year is a product of the number of customers in that year, the percent saturatior of the end-use, and its average annual kWh usage.
Since altering any of these three variables will change the outcome, a band forecast. of sales can be prepa*ed by combining band forecasts of these three variables.
As with the econometric method, the starting point for the customer forecast of the electric heat and general residential classes is the existing customer count. To this is added the increase due to new dwelling units (NDU).
The new dwelling unit forecast is a function of the population growth in the twenty and over age group and the breakdown of households into one, two, and three adult homes.
In addition -- based on historical observation
-- new dwelling units are included to accounc for replacement homes and seasonal homes, A forecast of the saturation of electric heat is made to break new dwelling units into the two residential classes.
The final step is to account for the depreciation of the housing stock dac. to fire, abandon-ment, etc., and the conversion of customers from general residential service re electric heat.
In order to reflect a future without an additional increment of conservation, the appliance, heating, and lighting average uses factored into the sales calculations are those that are experienced currently.
The final variable in the calculation of sales to each end-use is the saturation of each appliance.
Current appliance saturations for general residential and electrically heated customers are available through recent appliance saturation surveys, along with saturations in new dwelling units.
These surveys are conducted every few years and care used to determine the starting point for developing the band of saturation for each appliance. To determine a maximum level of saturation, factors that would tend to increase saturations were developed.
Sora examples are energy prices, change in percentage of apartments, size of home; convenience and savings, appliance becoming standard in NDU, recent trend in saturation, renovations, higher food prices (for freezers), and the price of the appliance.
Estimates were made of how these factors would affect the saturation of appliances in new dwelling units and the future purchase rate of those who currently do not have the appliances.
These, in conjunction with the current number of appliances, yielded the maximum saturations.
The low band was similarly constructed, only taking into account factors that would minimize the saturations.
The sales forecast bands are a product of the 1980 average uses, the high (low) level of customers and the high (low) level of saturations.
i Residential Conservation - To produce the band forecast with con-servation, the calculation above was repeated using average appliance uses that reflected some conservation for the high band and a high level of l
conservation for the low band.
l It is expected that some appliances will exhibit a decrease in average use.
As these new, more-efficient appliances are added to the stock in PP&L's service territory, the average uses will drop.
By 2000 most, if 13
i not all, appliancas are expscted to be tha more-efficient onsa.
Tha water heater is one appliance where average use can be dropped on both new and i
existing appliences, simply by insulating the tank and reducing the thermostat setting.
Varying the assumption on the percentage of people who will take these steps produced average uses at two levels of conservation.
j The average use for space heating has been dropping and is expected to continue to drop.
The factors whose effect we have quantified are higher insulation levels on NDU, insulation retrofit, smaller home' size, and heat pumps.
1 Electric Vehicle - Speculation and skepticism have surrounded the mass production of the electric vehicle (EV) for decades. Engineers have explored the wide variety of electric battery systems in their attempt to find an electric storage system capable of powering a vehicle several hundred miles ar current highway speeds.
It appears that Gulf and Western (G&W) and General Motors Corporation (GM) now lead in the race toward the creation of an electric vehicle that is worthy of mass production.
General Motors is i
planning to mass produce its first electric vehicle in 1984.
Our analysis ot the electric vehicle and its impact on the PP&L j
system is dependent upon the number of vehicles in operation, the average mileage per vehicle, and the kilowatt-hour per mile. PP&L's service area population is approximately 1% of the U.S. population and we assume that PP&L customers will purchase 1% of the electric vehicles sold in the U.S.
Our forecast is produced in a band to accommodate the most ambitious electric vehicle activity we can imagine and the least amount 4f electric vehicle activity possible.
The average number of milee traveled per vehicle is expected to be less than the average for a gasoline-driven vehicle due to i
constraints on range and speed. As for the number of kWh consumed per mile, current technology has reached a rough average of 2.3 kWh per mile. Assuming l
technology may make improvements on this rate of consumption, a band of this l
variable's values was made.
Traditional Methodology In The Commercial Sector i
In preparing the commercial forecast by the traditional method, the four class breakdown used in the econometric method is not employed. This is due to the fact that the historical and forecasted data for the factors used in producing sales to this class by this method are available only for com-mercial as a whole and not for individual classes.
The methodology is somewhat of a building-block process.
Each l
year's forecast is equal to the previous year's commercial sales plus ths increase (or decrease) due to any changes in the ' existing customers' average use plus the kilowatt-hours from any new customers (or lost from old ones).
The kilowatt-hours from new customers is broken down into contributions from electrically heated and non-electrically heated customers.
Each is a func-tion of the average number of kWh used per square foot of building (which is different for electrically heated and non-electrically heated buildings) and the amount of new square footage added to each heating type.
A variable was derivic using data accumulated over the 1975 to 1979 period to link square footage to the number of commercial customers, which in turn is related to the number of residential customers.
l 14
Commerical Concarvation - Tha application of conservation by com-mercial classes is centered around each of the four major end-uses:
space conditioning, water heating, lighting, and other. Utilizing a number of studies /, commercial sales is disaggregated into these four end-uses and a 2
percent reduction due to conservation is applied to each.
The percent reductions were based on technological advances, substitution of more effi-cient systems, (e.g., HVAC systens), and design changes.
Commercial Throwaver - With rising fuel prices and questionable supply sources, throwover (conversion) to electricity becomes an important consideration for long-term planning. Using a survey of fuel type within the commercial sectot./ and assuming PP&L customers correspond to those sur-3 veyed, it is possible to derive the amount of oil and gas consumed by PP&L commercial customers, which is a measure of the maximum amount of throwover passible.
F:?om this point, assumptions are made on the percent of cil and natural gas switchable to other fuels, the percent switchable to electricity, and, of this potential figure, the projected amount that will switch.
Traditional Methodology In The Industrial Sector The band forecast for the industrial sector is composed of a forecast for each SIC class. The research that goes into preparing these farecasts deals with the historical relationship between real GNP (Gross National Probtet) and che associated national production level for each SIC class.
These relationships are used with a band forecast of GNP to determine future national production levels.
Local production levels take into account PP&L's chare of the national' market and the economic health of the regional industry.
The electric sales forecast is the amount required for the forecasted level of production.
Industrial Conservation - The application of conservation is centered around five major end-uses:
lights, space conditioning, pumps and compressors, mechanical work form, and assembly and packaging. Each SIC class's sales are disaggregated into these end-uses and a percent reduction due to conservation is applied to each.
The major contributors to the conservation accomplishments are technological advances (particularly improved elect;ic motor application) and more-efficient lighting equipment and design.
Industrial Throwover - As with the commercial sector, there is a potential for customers to switch from oil and gas to electricity. The i
2/EnergyUsersNews, "How the Commercial Sector Uses its Energy," Volume 3, Number 2, January 9, 1978.
Commerical Energy Use:
A Disaggregation by Fuel, Building Type, and End-Use by J. R. Jackson and W. S. Johnson, Oak Ridge National Laboratory Oak Ridge, Tennessee, February 1978.
3/ Ibid.
15
. - ~ _
j throwover forecast of gas to elegtricity is based on an industrial fuel study which outlines gas availability 3/ and a study on the amount cf gas suitable 5/
for switching to other fuels.
Analyzing oil throwaver began with the Hamel & Brown figura of current oil consumption.
Assumptions from this point had to be made on:
the percent of oil switchable to other fuels, of this the amount switchable to 4
electricity, and of this potential figure the projected amount that will switch from oil to electric. These studies served as a basis for the maximum amount of throwover.
The minimum was assumed to be zero.
Industrial Cogeneration - The ability to produce electricity on-site from waste steam has become alluring to many large industrial custorers.
Hamel & Brown reviewed each SIC for cogeneration potential to the year 2000 with their findings applied to the JFMIN band.
The current level of cogen-eration is not expected to expand in the JFMAX band based on the assumption that the current cogeneration facilicies would expire without replacement.
ASSUMPTIONS Economic Assumptions The assumptions within the long-term judgment forecast are its 4
cornerstone.
The forecast group spent a great deal of time and deliberation in formulating these items that will have an effect on the nation's economy as well as the economy and sales picture of the PP&L system.
In keeping with the idea of forecasting in a band, the assumption was made that real GNP per capita will increase at an average annual rate of between $92 and $102 per person per year. The $102 per person per year level is found to be lower than the majority of forecasts, but is equivalent to the historical level since World War II.
Population growth has a substantial influence on the nation's economic health.
Although population growth typically produces growth in.mur economy, it does not necessarily produce an increase in GNP per capita.
The U.S. population growth rate is expected to approach zero by 2000, producing a stable population level by 2010. A potential short-term upswing in the birth l
rate is expected as the post-war baby boom children enter the prime child-bearing years during the 1980's.
The need for a second family income, which forces more women into the workforce, may limit this growth.
As population growth slows, the average age of our population will rise.
This will produce a larger pool of experienced workers, which will aid productivity, and a larger pool of Social Security recipients.
Those of retirement age may find it necessary to remain in the workforce longer due to financial need.
4/ Hamel & Brown, Alternate Fuel Evaluations, September 7, 1979.
5/ Ozarks Regional Commission, Ozarks Regional Energy Alternatives Study, Missouri Summary, Little Rock, Arkansas, August 19 77, page 22.
l l
16
. -. - - - ~ - -
Productivity is expected to increase, but at a decreasing r$te.
A continuing shift of employment from the manufacturing sector to service-oriented positions contributes to this trend.
Energy issues are an important facet of any kWh sales forecast.
In the long term, oil producers can be expected to cut m cduction to keep supply just short of demand.
The probability of embargoes of oil, natural gas, and valuable raw materials increases as we continue to import greater quantities from less reliable sources.
Pricing Assumptions A key assumption within the traditional long-term forecast concerns fuel prices.
Prices for the substitute fuels of oil, gas, and coal are a vital ingredient in a forecast which helps outline the market for electricity in the home, office, and industrial plant.
The electricity market is ex-pected to grow due to the attractiveness of its cost, versatility, and resource security in comparison to other fuels.
Table 2 shows the band of assumptions for all fuel prices.
For JFMIN the assumption was made that there would be positive real price increases for all fuels.
The percentage increases for electricity and coal are expected to be less than t$ase for oil and natural gas.
For JFMAX the assumption was made that the real price of electric';y would decrease in the 1980-2000 period while all other fuels would exhibit increases in real prices. Again, oil and natural gas show the largest increases.
l
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i 17
l TABLE 2 t
ASSUMPTIONS OF REAL ENERGY PRICE GROPTH 1980 - 2000 Electricity Coal
,011 Natural Gas Inflation JFMIN 0.0 - 1.0%
0.5 - 1.0%
1.0 - 2.0%
2.0 - 3.0%
8.0 - 9.0%
JFMAX (0.5) - 0.0%
1.0 - 2.0%
3.0 - 4.0%
5.0 - 6.0%
6.0 - 8.0%
i T
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i YEAR l
19
i DERIVATION OF THE PROBABILITY BAND FORECAST i
THEORY To improve the applicability of the long-cerm judgment forecast for planning, it is important to produce an estimate that proves durable and long lasting and spans the most probabic. outcomes. The. intent is to produce a band forecast with as narrow a range as possible but wide enough, so that with proper placement, it has a high probability (80%) of covering the re -
sulting actual sales level.
METHODOLOGY It must be acted that the probability band forecast is formed using consistent sets of assumptions and is an outgrowth of an-initial analysis which displays the absoluce maximum and minimum sales levels (JFMAX, JFMIN) that can occur 1980-2000.
Adding conservatien, throwover, and cogeneration j
estimates to the maximum and minimum values provides the forecast team with a refined set of outer bounds.
The probability band refines this initial estimate to capture the best estimate available.
Suggesting a band that increases significantly less than plus or minus (+) one percent per year around a midpoint significantly increases the probability of the band being too narrow to contain the eventual, actual level of sales.
The method for setting a narrower forecast band would include analyzing each of the input variables within each separate class for a potential range, statistical distribution, and/or probability of occurring.
Computer costs and time constraints limit this approach and strongly suggest the development of the narrower ferecast for total salas be approximated using an inherent understanding of each of the ind1=idual variables that influence total sales.
It is felt by the forecaster that making the estimate for the total rather than each class has detracted little from the end result.
The initial placement of the probability band about a center point of the outer bounds produces a 16,000 GWh range of sales estimates.
Implicit knouledge of the actual distributions of the variables led to the conclusion that the distributions of each variable were not actually symmetrical or uniform but were skewed toward the lower side.
This observation formed the backdrop in determining each side of the band which in turn also determined the band width.
4 The selected upper bound is premised upon a mean level of industrial activity as well as a mean level of the ratio of industrial activity to elec-tric enerF'r consumed. The full conservation effort 1/ as well as the maximum 1/
1 conservation ef fort by customers is most likely to occur when ecouomic conditions are good and when money is available to invest in new' improved equipment either for replacement or for expansion.
20
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level of fuel substitution to electricity is also included.
Finally, 70 percent of the electric vehicle potential pushes the upper estimate to 44,000 GWh in the year 2000.
The bottom side estimate takes into consideration the technically minimum annual increase -- based on historical observation in each sales cla s s. This estimate is applied as a guideline in the formation of the actual lower bound.
Incorporating a minimal amount of conservation as well as a modest addition for the electric vehicle and a low estimate for fuel substitution to electric produces a level of 31,500 GWh.
As a check the econometric analysis implies the following:
Fluctuations due to uncertainty in economic activity, all else e
constant, indicates that the band width cannot be less than 6,500 GWh in the year 2000.
Similarly, the amount of uncertainty surrounding future energy o
prices, all else constant, suggests the band width must be 16,500 GWh for :he year 2000.
RESULTS In 2000 the probability band is 12,500 GWh wide (+ 0.86% annual rate from mid point), symmetrically located around a mid point.
With respect to capacity planning, enough uncertainty exists within this band to provide the demand for one additional 900 mW generating unit or one less unit from the needs of the band mid point.
A major observation which surf aced from this analvsis suggests three eraa of electric energy usage which have been embedded within the forecast.
The analysis predicts the contiauation of the conservation era tu approxi-mately 1986.
This era is characterized by relatively low year-to year gains due to various conservation / energy management programs. A second more dynamic era of throwover from oil and perhaps natural gas to coal and nuclear-based electric is expected to follow. The period ending near 1997 is characterizrd by continued high oil and natural gas energy prices which persuade energy consumers to switch to electric power.
Deregulation of oil and natural gas spurs the switch by homeowner and manufacturer alike.
This period portends relatively high year-to year gains for electric sales.
The final three years to 2000 will be dominated by the maturation of alternate renewable fuels.
Included in this category are wind, cogeneration, biomass, solar, low-head hydro, geothermal, and synthetic fuels.
These three rather distinct phases with varying growth rates result in the band of expected sales shown on Graph 3.
l 21 l
GRAPH 3 THREE ERAS OF ELECTRIC ENERGY CONSUMPTION LONG-T'dRM JUDGMENT FOREC AST: PROBABIL I TY BAND 1980 TO 2000 50000 n
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GRAPH '4 PROBABILITY BAND IN COMPARISON TO LONG-TERM JUDGMENT FORECAST 70000 W
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20000 1980 1985 1990 1995 2000 YEAR i
1980 SHORT-TERM FORECAST: METHODOLOGY AND RES'ULTS INTRODUCTION The 1980 short-term judgment forecast was developed within the normal annual forecast cycle.
Historically the forecast period is 18 months but this year's analysis was extended to 1986.
The 1980 long-term judgment forecast provided the additional coverage required to 1986. Although minor differences surf ace during the common six-year period because the forecasts were done at slightly different times, they have essentially been constructed around the same assumptions.
METHODOLOGY The development cf PP&L's short-term forecast is based upon the data supplied by the Company's respective field divisions.
Each of the six divi-sions seeks out the most recent expectations of the local home builders, commercial operations, and industrial customers with respect to new construc-tion, cdditions and/or layoffs of workers, production increases, and conser-vation accomplishments.
Each of these changes is recorded qualitatively (what change to customer operations has occurred and why) as well as quanti-tatively (the effect expected on kWh sales) for the next 18 months.
This analysis divides each of the four major classes (Residential, Commercial, Industrial, and Other) into sub-categories or Standard Industrial Classificati1n (SIC) codas to improve the data collection, the knowledge of c'stomer energy characteristics, and the forecasting task.
Historically it can be demonstrated that customers' expectations of their kWh consumption for the succeeding 18-24 month period are usually too optimistic. To counter this optimism the forecast teen tempers these estimates.
Since this year's projection time frame was extended four years to cover through 1986, our method of analysis had to be altered and expanded.
No customer expectations from division sources were available from 1982-1986.
Each'of the sub-categories and SIC codes was reviewed in depth with emphasis placed upon the recent historical data which displayed annual movements in kWh sales, the overall strength (weakness) found in each industry locally as well as nationally, and the cyclical nature of the industry with respect to economic conditions.
Two final adjustments were made.
Due to the uncertainty and difficulty of forecasting economic activity, it was concluded that placing a recession precisely in 1985 (see CYCLELONG 2004) could not be defended -- it may not start until 1986 or 1987.
The cyclical nature of the economy is an accepted event and the economic losses associated with recessions have been factored in over a longer time period.
A second refinement increased the projected average use of residential customers in the early years of the 1980's by reducing the decreasing trend.
It was concluded that the rapid retardation of average use would slow up - probably the result of decreasing opportunities for conseivation and relatively smaller increases in prices for electricity.
24 l
l l
ASSUMPTIONS A brief review of the critical assumptions used in the 1980 forecast is recorded below.
e Real GNP to be tracked at $100 per capita per year on average to set the 1986 real GNP value.
e Interest rates to be on the general rise in the short term and higher than historic levels for the long run.
e Inflation rate expected to be high by historic levels, near double-digit figures in the short run.
e Foreign sources continue to exert control over the supply of valuable raw materials.
e Conservation will reduce some economic activity even though it is theoretically possible to continue production at current levels with less energy.
Maintaining the current standard of living is likely to be challenging.
RESULTS The short-term forecast was constructed to produce point estimates in contrast to the band format of the long-term forecast.
This approach coincides with the various needs of the Company in supplying a specific value for each year. Table 3 contains the resultant forecast with a breakdown by major class. Levels both with and without sales to neighboring utilities of UGI-Luzerne Electric and Atlantic Electric are shown.
i i
25
TABLE 3 1980-86 SHORT-TERM FORECAST KWH x 10o Including Sales to Excluding Sales to UGI-Luzerne Elec.
UGI-Luzerne Elec.
& Atlantic Electric _/
& Atlantic Electric 2
1 Residential 8,088 8,088 9
Commercial 3,660 5,660 8
Industrial 7,984 7,984 1
Other 1,056 729 Total 1/
23,073 22,746 1
Residential 8,405 8,405 9
Commercial 5,990 5,990 8
Industrial 8,313 8,313 2
Other 1,299 742 Total 1/
24,303 23,746 1
Residential 8,717 8,717 9
Commercial 6,240 6,240 8
Industrial 8,520 8,520 3
Other 1,636 752 Total 1/
25,416 24,532 1
Residential 9,044 9,044 9
Commercial 6,490 6,490 8
Industrial 8,730 8,730 4
Other 1,870 762 Total 1/
26,443 25,335 1
Residential 9,374 9,374 9
Commercial 6,780 6,780 8
Industrial 8,950 8,950 5
other 1,913 769 Total 1/
27,334 26,190
,1 Residential k,
'8 9,728 9
Commercial 6,uG 6,990 8
Industrial 9,140 9,140 6
Other 1,932 777 Total 1/
28,115 26,960 1/ PP&L merged with Hershey Electric Company effective March 1,1980.
Sales to customers in this portion of our service area were estimated separately and are incorporated in the Total category but not the individual Residential, Commercial, Industrial, and Other pieces.
1/ PP&L has contracted to sell electricity to two neighboring utilities, UGI-Luzerne Electric and Atlantic Electric Company.
Sales to them are put into the Other category.
26
PEAK LGAD FORECAST i
L j
INTRODUCTION In conjunction with the preparation of the sales forecast, a peak load forecast is made.
In order to adequately provide for our customers' demands for electricity, generating capacity must be available to serve the highest demands pieced on the system.
The peak load forecast provides an estimate of the magnitude of the maximum hourly demand PP&L will experience l
in the future.
Its development is grounded on the sales forecast through the l
extensive load research program maintained by the Company.
The assumptions on the level of the economy, fuel price levels, conservation, and new l
technologies that are incorporated into a sales forecast are automatically incorporated into the corresponding peak load forecast. The peak load fore-cast serves as a guide for capacity planning.
i METHODOLOGY PP&L's peak load forecasting procedure produces summer and winter peak loads by developing the contribution to peak made by each rate class.
The term " rate class" means all customers served under similar rate schedules.
l Starting in the 1950's Pennsylvania Power & Light Company inter-mittently conducted studies measuring the load characteristics of major groups of customers.
Since 1977 PP&L has continuously collected load data from a permanent sample of more than 1,300 customers that is designed to
(
cover all major classes. Half-hour loads are gathered from each test cus-tomer monthly using specialized metering and are translated onto a computer tape. The data is then audited, edited, and summarized with tha aid of an i
IBM 360/370 computer system.
This data provides great flexibility and opportunity to analyze and determine the contribution each customer class is making to Company system peaks with some precision.
The Company's load research program plays a major role in developing the historical load characteristics that form the basis of the load forecast.
l Our continuous load study program is designed to determine the load charac-teristics of the customers in each of our rate classes.
Since the load characteristics of a customer at a high-usage level may be different than those of a low-usage custcmer in the same rato class, load characteristics are initially developed for customers at different ranges of usage within a rate class.
For those classes billed with watt-hour meters, stratified random samples of customers within kilowatt-hour usage ranges are selected and studied.
In the case of most general service rate classes (up to 7000 kw with demand meter billing), random samples of customers in load factor ranges are used.
The largest commercial and industrial customers are studied indi-vidually.
I The data collected through this load research program enables PP&L i
to construct a load curve for an average customer in each rate class stratum for the days of the Company's monthly peaks.
The next step is to expand 27
,. _.~. _ ___ _ __
thsca avaraga cuetomar lord curves to onsa chat represent all the customers in that usage fange.
For curtomers studied by kilowatt-hour ranges, demand per customer data for each st~ atum of each rate class are multiplied by the number of customers in that Otratum to obtain a universe daily load curve.
Average customer daily load curves for load factor strata are stated as ratios to customer monthly maximes demand.
These ratios are applied to the sum of total customer demand in cach load factor stratum as determined from an hours-use distribution to obtain the universe daily load curve.
For a historical year the strata of a rate class are added together to form the daily load curve for the entire rate class.
The rate class load curves, which at this point are at the sales level and do not include the line losses betwean the generating plant and the customer, are corrected for losses to put them at the generation level.
The sum of rate class load
^
curves represents the system load curve and is checked against actual peak loads.
Using these techniques we have developed rate class contributions to summer and winter system peaks historically for selected hours of the day.
The ratio between class contribution to system peak and annual sales to that class is calculated for each rate class at the time of summer and winter system peak, for every historical period analyzed.
The trend of this ratio for either a summer or a winter system peak is fairly constant over time.
For a given rate class the trend of this ratio for both summer and winter system peak is projected through time.
By applying the appropriate racies to the predicted annual sales of a class in any future year, that class' con-i tribution to summer ana winter peak is forecasted.
The system peak for a specific time period is obtained by adding together the projected class contributions to system peak.
As is in the case of the sales forecast, judgment of experienced planners and forecasters is applied throughout this process.
RESULTS Table 4 summarizes the resulting forecast.
The peaks catermined are the summer seasor.al peak, the December peak, and the January peak (winter seasonal peak).
The sales are expected to grow at a slightly higher rate than the annual peak as evidenced by the increasing load factor.
Due to the
'.ncrease in the amount of heating load served, the winter peaks are moving l
from the 10-12 AM time period to the 8-9 AM period.
Of the two seasonal peaks, the forecasted winter peaks have a higher growth rate than the summer peaks, which has also been true historically.
In addition to the conservation that is incorporated into the peak load forecast as a reflection of the conservation exhibited in the sales levels, the ef fect of demand management programs, such as demand controllers and off peak heating, is also included.
These programs would focus on reducing daily peaks in the winter.
The 7,020 MW winter peak forecast for 1995 represents a compound annual growth rate of 2.5 percent over the 1977 weather-adjusted peak of 4,500 MW.
The corresponding growth rate for sales is 2.8 percent.
The 28
extensiva work in the areas of econometric forecasting, judgment _ forecasting, and the development of the probability band as described earlier in this testimony confirms that the 2.5 percent peak load growth and the 2.8 percent sales growth are most reasonable. Graph 5 exhibits that over the long-term, this level corresponds both with the econometric forecast and with the center of the probability band.
For planning purposes, in addition to studying future capacity needs under the 2.5 percent load growth (1977-1995), 1.5 percent growth and 3.5 percent growth were also investigated. A plus or minus one percent deviation from the 2.5 percent growth was chosen for the band because using a smaller value would increase the probability that the band would be too narrow to cover the eventual actual level of peak while using a wider band would also decrease the band's practical value by encompassing too broad an outlook.
The support for these views is based on the analysis conducted to set the bands for the sales forecast. The 1.5 to 3.5 percent band covers the sets of assumptions that combine factors which cause sales and peak loads to decrease and combinations of assumptions that generate increased sales and peak loads.
Only by assuming unlikely circumstances can the forecast for the period be driven outside this band in any significant way.
l l
a f
29 l
TABLE 4 Pennsylvania Power & Light Co.
Forecast (10/80) Without UCI Peaks January Subsequent Load Sales Output Summer December Year Factor MWh MWh MW MW MW 1980 22,458 24,367 3946 4290 4740 59.2 l
1981 22,746 24,710 3990 4440 4900 59.4 1982 23,746 25,775 4100 4550 5060 60.0 1983 24,532 26,628 4170 4710 5240 60.0 1984 25,335 27,561 4310 4880 5430 59.9 l g 1985 26,190 26,416 4420 5010 5580 59.7 1986 26,960 29,252 4570 5210 5800 59.8 l
1987 27,980 30,358 4690 5430 6030 59.8 1988 29,070 31,541 4780 5520 6160 59.7 1989 30,400 32,984 4870 5640 6290 61.1 1990 31,100 33,744 4970 5770 6420 61.2 l
l 1991 31,800 34,503 5060 5870 6540 61.4 1992 32,500 35,263 5160 5980 6660 61.6 1993 33,100 35,914 5250 6090 6780 61.6 1994 33,800 36,673 5340 6200 6900 61.7 1995 34,400 37,324 5430 6300 7020
- 61. 7 These sales and peaks exclude contract sales of electricity to a neighboring utility, UGI-Luzerne Electric Ccmpany.
i GRAPH 5 COMPARISON GF RESULTS 70000 1-FORECRST (10/80)
ECONOMETRIC FORECAST zn PROBABILITY BANO cc
- ;i:;i :;
U 60000 0
E I
W l--
C Z
50000 O
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. 2::
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20000 1980 1965 1990 1995 2000 i
YEAR 31
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