ML19253A574
| ML19253A574 | |
| Person / Time | |
|---|---|
| Site: | New England Power |
| Issue date: | 08/29/1979 |
| From: | Mead A, Ramsay G RHODE ISLAND, UNIV. OF, KINGSTON, RI |
| To: | |
| Shared Package | |
| ML19253A572 | List: |
| References | |
| RTR-NUREG-0529, RTR-NUREG-529 NUDOCS 7909100347 | |
| Download: ML19253A574 (11) | |
Text
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RE7IEW OF NUREC-0520 NEED FOR THE PLANT (Chapter 8)
BENEFIT-COST SD::'ulRY (Sec tions 10.4, 10.5)
. Arthur C. Mead Assistant Professor Glenworth A. Ramsay Associate Prof essor 8
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The central elements in the NRC's assessment of both the need for and the benefits associated with the construction and op,eration of New England Power Units 1 and 2 are proj ec tions of electricity consumption and generating capacity. To generate their forecasts of electricity demand, both the NRC staf f and the applicant have relied heavily upon econometric models which represent a significant improvement over the simple extrapolation methods used in previous impact studies. A care-ful review of the analysis, however, reveals some potential problems with both the supply and demand sections.
Supply Analysis The NRC staff has presented what would be considered the supply side of the analysis in two sections. In Section 8.4 the staf f presents an inventory of existing capacity and proposed plant ex-pansions through the year 1990 while in Section 8.3.2, calculations of the cost savings associated with the early completion of the plant are discussed. In neither section is there any discussion of the potential use of alternative energy sources (solar, wirci, hydro...).
4 A reading of these two sections leaves on with the impression that at present electric energy production capacity is fixed and that any .
future expansion is heavily dependent upon the construction of NEP 1 and 2. This position can be justified if the alternative technologies do not presently exist and are not expected to be operational in the near future (prior to 1990) or if the costs of electricity f rom these sources will be higher than the costs of electricity f rom NEP 1 and 2.
This analysis of potential supply appears inad equa t e , however, in light of scme recent developments. First, there is no mention of the possible importation of power f rom Canada. Recent information released k '-
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by the New England governors suggests there is a possibility of large-scale purchases of power from the hydro system in Quebec. There is also no mention made of the recommendations made by the New England Energy Congress regarding potential alternative sources. In their final report, they discuss the notion of an optimal supply mix that includes alterna-tives to nuclear and fossil fuel that could supply up to 25% of the region's energy needs by the year 2000.
Demand Analysis The NRC's analysis of demand unquestionably represents an ambitious undertaking. Within Chapter 8, Sections 8.2 and 8.3, the staf f attempts to simultaneously develop its own forecast o f d ema nd , summarize the ap-plicant 's forccast of demand, briefly describe the outlines of the staf f and applicant's econometric models, describe the exogenous f actors that drive these models, and compare the models' structure and forecasts.
Unfortunately, the demands of a project of this dimension are incompat-ible with the externally imposed constraints of limited space and an audience of widely varying technical backgrounds. In attempting to satisf y these constraints, the staff has produced a document that is e
of ten confusing and dif ficult to evaluate. By avoiding any explicit presentation of the econometric models, either in the text or an appen-d ix, the authors have made it virtually impossible to compare the NERA, ORNL and staf f models that are central to the demand forecasts.
The projections or future demand that appear in Table 3.11 in-dicate that there exists a considerable discrepancy between the forecasts of the various models. The Table also suggests that the staff model's proj ections are 7ery sensitive to the forecasts of certain exogenous
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_3 va r ia ble s . Neither of these results is _ rprising, however, since econometric forecasting is of ten extremely sensitive to the undeciying a s sump t io ns . The dif ficulty inherent in this report is that, as pre-sented, it is i=possible to separate the impact of the dif f ering fore-casts for the exogenous variables on the forecasts of electricity de=and f rom that of the diff erences in model structure.
Two potentially more serious problems involve the appropriateness of the structure of both the applicant's and staf f 's econometric fore-casting models and the disregard of those f actors that are not easily incorporated into the =odels. There is some evidence presented in the cha p ter tha t suggests 'the data sets utilized in the estimation of codels were inappropriate. Also, despite some evidence that conserva-tion could reduce the growth rate of electricity demand by 97%, the impact of conservation and rate restructuring are completely ignored.
Benefit-Cost Analysis The benefit-cost analysis presented in Sections 10.4 and 10.5 re-presents more of a summary of the entire reports findings than a true benefit-cost analysis. This section suf f ers from a lack of careful a
consideration of alternatives - a problem characterisite of the analysis in Chapter 8. There also appears to be some confusion as to the selection of factors that represent benefits and costs in the analysis and a lack of any attempt to quantify the indirect and en-vironmental costs of the project. The reader is lef t with the impres-sion that the socio-political and environmental impacts are insignifi-cant. The reviewers of Sec tions 2, 4, and 5 must determine if this is an appropriate characterization of the situation. ( ,,
-4 The section is also somewhat misleading in its conclusion that this power-generating capacity is needed at least by 1990. Pr ev ious l y mentioned reservations regarding the use of an inappropriate data base, the lack of any consideration of conservation's impact on energy demand, and the absence of any discussion of the potential generating capacity of alternative fuel sources, suggest that there may be an upward bias in both the NERA and staf f estinates of excess demand. To the extent that this is t ru e , the calculations of co=parative cost become in-creasinly important since the benefits of the nuclear power will now be determined primarily by the cost savings. If nuclear power costs, af ter disallowing any potential government subsidies in the form of lower insurance, disposal, and land purchase costs, is found to be lower than the costs associated with alternative fuel sources, the plant =ay be justif ied on its econo =ic merits. The determination of the cost ef f ectiveness of nuclear relative to other power sources is the task of the reviewer of Chapter 9.
SPECIFIC COM3!E:ITS S.2 Factors Affecting the Growth of Electricity Use 3.2.1 In this section the NRC staf f lists and briefly explains the basis for the projections of the economic and de=ographic variables that are deemed "important" in explaining electric energy consu=ption. This is the key section in the demand analysis and is deficient on a number of counts. The first dif ficulty involves the NRC's selec tion of "important variables ." It is hard to discern from the text the selec-tion criterion used to classify the exogenous variables as important or
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_5 unimportant. Does important mean contribution to the explana t ion of variation in electricity demand or quartitative ef f ect on d ema nd ?
Some of this ambiguity would be answered if the model's equations were specified, but in any event a complete account of the determin-ant's of demand is in order.
This section also suf f ers from a lack of any of the model's track-ing record. There is no direct evidence in the text regarding the explanatory power of the econometric forecasting models. Does the model explain 99% or 50% of the variation in electricity consumption for the period in which it was estimated? There is an indication that some sectors of the model perform better than others. In NERA's esti-
=ation of the saturation of electrical heat, the econometric model proved so poor that it was completely abandoned. As a substitute, NEPd made the assumption that 50% of new customers utilized electric heat -a figure much higher than justified by the data in Table 8.7.
Given the importance of space heating in tne residential sector's energy demand, this would tend to bias upwards NERA's estimates of energy consumption growth. The staff suggests that the NERA estinte is high but gives no indication of how they dealt with the problem.
An additional issue not addressed in this section involves the projections of the exogenous variables. It is unclear how the values of the economic and demographic variables inputted to the model were ob-tained. I would find it unlikely that the review of regional, state, and substate analysis would provide one best estimate of future growth rates for these variables as suggested in the report. A very usefui extension of the analysis, especially in light of the lack of any de-
.a-tailed treatment of the model, would involve simula t ions of the model for a range of projections for these exogenous variables. This would give some indication of how sensitive the results are to forecast errors in the ~'ogenous variables. It would also be considerably more informa-tive if scenarios were developed that changed a variety of assumptions s imul ta neou s ly. A dif ficulty with this report is that ii treats as-sumptions ind ividually. For example, a " worst case" might be a combina-tion of successful conservation high electricity prices and slca regional growth. It would also be useful and interesting to see what set of assumpt ions (if any) will make the ORNL model reproduce the NERA fore-casts.
A final question not addressed in this section involves the exogen-eity of the exogenous variables. The selection of population growth and industrial activity as exogenous variables may prove to be inappropriate.
The rise in the relative price of energy experienced in the recent y ears which NERA projects to continue into the future, may slow down the growth of population and economic activity in the region as people and industry relocate out of the Northeast which is very energy intensive. In Section 8.1.3, the authors suggest that the slow growth in energy consumption in
- New England af ter 1974 can be attributed to the slow growth in population.
It may very well be possible that the slow population growth was a result of the increase in the price of energy. The impact of this would be in-possible to predict in a simultaneous equation model that is unspecified, but the expectation would be for lower rates of growth in this expanded system with the two-way causal relationship between economic growth and elec tr ic ity d emand .
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- 3. 2.4 a nd 8. 2. 5 These sections on rate-atructuring and conservation as determinants of electricity consumption are inadequate. With regards '
to peak-load pricing, which theoretically can reduce peak-load without altering overall energy consumption, the staf f makes no attempt to quanify the potential impact of such a program. At the very least, some mention should be made of the results in other regions which have adopted such a program.
A more important issue is the staf f 's emission of any con-sideration of conservation's impact on demand. The staf f indicates that r'o.aricant reduc tio ns in energy growth can be obtained through conserva-tion techniques and their associated energy savings. In light of recent developments, it seems likely that the government will enact programs that will promote conservation either through direct legislation of standards or through subsidies. If conservation could reduce the growth rate vf energy ta 1%,10 times higher than the projection ref erred in the text, then the reserve margin for NEPCO without NEP 1 and 2 in 1990 would be 43% - considerably more than the 21% needed by the company.
8.3 Load Forecasts This section contains a brief, incomplete outline of the NERA and staf f econometric models and a summary of the forecasts. Despite the staff's attempt to compare the NERA, ORNL and staf f models, the lack of any knowledge of the model's structure makes it impossible to compare and evaluate the three models. It is virtually impossible to explain the
, significant discrepancies in the forecasts presented in Table 8.10 and 8.11 with the information presented in the Chapter.
A potentially more damaging problen, however, involves the data base a ~
tor the econometric analysis. In their development of at least some parts >
of the forecasting model, NERA employed cross-section data for New England i in 1972. The ORNL model meanwhile was estimated with 1955-1974 time series data. Given the data presented in Tabic 8.2, it is dif ficult to accept the implicit assumption in their analyses that there has not been a structural shif t in energy consumption since 1973. Tabic 8.2 contain data which suggests the growth rate in energy consumption has slowed down con-siderably in the 1974-77 from what it was in the early 1970's.
To the extent that these figures represent a true change in the pattern of electricity consumption for both the residential and business customers, the econometric model is inappropriate for forecasting pur-poses. The problem is that it is impossible to estimate a model on the data for the 1974-77 pe r iod a nd , a t best, extremely dif ficult to f o rmula t e hypothesis regarding changes in parameters of the existing econometric models.
This section also lacks an discussion of the factors responsible for the dif f erences between the growth in electricity consumption in the 1970's and the projections for the 1980's. This deficiency is most noticeable in the SERA estimates of a 5% growth rate through 1985 which is consider-ably higher than the 3.8% growth rate in the 1970-77 period and the .7%
rate from 1973-77.
8.5 Staff Assessment of Need This section examines the need for NEP 1 and 2 f rom the vicwpoint of the New England Power Pool where need is evaluated in terms of reliability and cost. In many respects, section 8.5.1 involves a duplication of the -
work in Sec tions 8.2-8.4 and theref ore is subject to the same r ese rva t io ns as mentioned previously. g j f\/
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Sec tion 8.5.2 contains an assessment of the cost ef f ec tiveness of auclear energy. Table 8.18 which contains the staf f 's comparison of the base case and delay case is confusing at best. The totals for the nuclear columns bear no relationship to the numbers appearing in the column.
For the cost calculations, the capital costs are well-defined, but there is little detail on the operating snd maintenance. In examining Section 10.4 which summarizes these calculations, two questions emerge.
One is the appropriateness of assuming an inflation rate equal to the interest rate in the calculations of the decomissioning costs. His to r ica l-ly, interest rates have been higher than inflation rates and this is un-likely to change in the future although at certain points in time this cay not be true because of, some institutitonal regulat ion in the interest rate.
A second question involves the fuel storage and disposal costs. The DOE is now in the process of assuming responsibility for spent nuclear fuel. There is no indication in this report whether or not DOE will change a price suf ficient to cover all the costs of this service. To the extent a
that it does not cover these costs, the cost calculations for the nuclear plant will be biased downward. A similar problem involves insurance costs.
Due to the Federally mandated upper limit on power plant liability, the insurance costs do not adequately reflect the risks involved with nuclear power generation. This liability limitation is in ef f ect operating as a subsidy to nuclear power and it should be ignored in any cost compar isons .
Paragraph 1, pp. 8-23 should read $24/ bbl not 24c/ bbl.
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10.4 Benefit-Cost Summary The section on benefits of the plant are presented . . such a way as to leave the reader with an inflated view of the benefits. The $150 n.illion spent on construction related equipment, the $640 million on construction wages, the S132 million spent on operating payroll, and the unspecified property tax commitments represent costs of the power and should not necessarily be considered benefits. To the extent that the material and labor is bid away f rom other potential proj ects in the state there would be no benefit associated with the construction and opera tion of the plant. Only in the case where this expansion of economic 2.ctivity in the state resulted in the utilization of currently unemployed resources within the state would this growth be an unquali-fied beneilt.
The calculation of decomissioning cost in Section 10.4.2.3 is to be questioned. In the calculation it appears as though the calculations are basea on two separate inflation rates in dif f erent portions of the calculations. There is mention of a 7% escalation rate of a 10% in-fla tion rate.
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