load center steam generation, on a 50 percent load factor basis, with no sale for secondary energy, may now be brought together as follows: Cost of Government hydro power delivered to load centers at 200 miles distance from the projects.. Cost of equivalent steam generation in modern private stations at the load center: Mills per kilowatthour 3. 3 Coal at $2.50 per ton.. 5.6 6. 3 MAJOR GOVERNMENT HYDRO PROJECTS OFFER GREAT SAVINGS IN POWER COST 6. Economic analysis of major Government hydroelectric undertakings, including the St. Lawrence project which will be developed and operated by the Power Authority of the State of New York, in comparison with power supply under similar conditions to the same load centers by the most modern private steam plants, reveals Government hydro generation so much cheaper that, if public policy dictated, hydro power could carry the full investment, including project works for irrigation, navigation, flood control, etc., without approaching the cost of load-center steam. 7. The St. Lawrence River development owned by the State of New York, on the basis of 6%1⁄2 percent fixed charges, would deliver power at 50 percent load factor, with reasonable division of the total dependable capacity among markets 50, 100, and 200 miles from the site, at an average cost of 4.1 mills per kilowatt-hour, including transmission costs and allowance for transmission losses. On an 80 percent load factor basis, a more reasonable assumption for this project, the corresponding average cost will be 2.6 mills. Equivalent loadcenter generation in modern steam stations privately owned would cost 6.3 mills and 5.0 mills, respectively. The annual saving over steam power costs would be from $4,975,468 at 50 percent load factor to $8,970,468 at 80 percent load factor, assuming no sale of secondary power. 8. The Bonneville development, on the basis of 6% percent fixed charges, would deliver power, with reasonable distribution of available dependable capacity between markets 50 and 100 miles from the site, at an average cost of 3.5 mills per killowatt-hour on a 50 percent load factor basis and 2.9 mills per kilowatt-hour at 80 percent load factor, including transmission costs and allowance for transmission losses. Equivalent load-center generation in private modern steam stations would cost 6.5 mills and 5.4 mills per kilowatt-hour, respectively. The annual saving over steam-power costs would be $5,281,710 at 50 percent load factor and $4,427,760 at 80 percent load factor. 9. The Grand Coulee development, on the basis of 6%1⁄2 percent fixed charges, would deliver power, with reasonable division of total dependable capacity among markets 50, 100, and 270 miles from the site, at an average cost of 3.1 mills per kilowatt-hour on a 50 percent load factor basis and 2.5 mills at 80 percent load factor, including transmission costs and allowance for transmission losses. No comparisons with steam costs are made because of the improbability of fuel competition in the area which will be served. The costs shown, however, are less than the fixed charges alone on equivalent steam generating capacity. 10. The Boulder Dam development, on the basis of 6%1⁄2 percent fixed charges, would deliver power to Los Angeles at 270 miles transmission distance at an average cost of 3.4 mills on a 50 percent load factor basis and 2.5 mills at 80 percent load factor, with all transmission costs included. Equivalent power generated in private steam stations using $1-a-barrel oil at the load would cost 6.4 and 5.1 mills, respectively. The annual savings over steam would be from $10,338,016 to $11,663,329. MANY POTENTIAL HYDRO DEVELOPMENTS WILL PROVE ECONOMIC 11. Determination of the economic limits of power project investment, within which the Government will be justified in undertaking power development as a part of its general water resource conservation program, insofar as competing steam power costs are factors, will start with the cost of energy supplied by modern steam generation delivered to a transmission network and work back to the amount available for the hydro power project fixed charges after deduction for transmission costs and losses and hydro operating expenses. 12. The steam-generation costs which must be used in determining the economic limits of cost for Government hydro projects, assuming privately owned, modern, high-efficiency stations located at or near the load centers, delivering power to a transmission network at 50percent load factor, will range from $24.50 per kilowatt-year with $2.50 coal delivered on a 66,000-volt network to $27.80 per kilowattyear with $4 coal delivered on a 220,000-volt network. The corresponding range on an 80-percent load-factor basis will be from $29.70 to $34.82 per kilowatt-year. 13. On this basis, taking full account of the cost of transmission, including transmission losses, and the operating cost of hydro stations, the limits of economic investment in Government hydroelectric projects will be found to range from $269 to $389 per kilowatt of dependable capacity for distribution load-factor plants, and from $342 to $509 per kilowatt of dependable capacity for base load plants. The variables within these ranges will include size of plant, transmission distance to network, voltage of network, and cost of fuel at locations adaptable to steam generation to serve the same load. NATIONAL RESOURCES BOARD CONTEMPLATES MANY HYDRO PROJECTS 14. The development by the Government of such hydroelectric projects, as may be appraised on the basis described above, was contemplated by the National Resources Committee in its Report on Public Works Planning. That report, prepared by a committee of Government experts, assumes the inclusion of hydroelectric development in plans for the improvement of practically all the drainage districts of the country. 15. The National Resources Committee, in the section of its Public Works Planning Report dealing with the Great Lakes-St. Lawrence Basin, calls special attention to the importance of planned utilization of the hydro powers of New York rivers draining into Lake Ontario At present Los Angeles area steam stations are equipped to burn either oil or natural gas, the latter resulting in somewhat cheaper power. But a continued supply of natural gas cannot be depended upon. 29564-37-2 and the St. Lawrence River, to carry peak loads in connection with the major power development in the international section of the St. Lawrence. This suggests the possibility of coordinated Government hydro systems in various river basins with controlled river flows, assuring reliability without the necessity of looking to steam as the primary source of power. CANADIAN SYSTEMS PROVE HYDRO OFFERS DEPENDABLE POWER SUPPLY 16. The publicly owned Ontario Hydro-Electric System offers the strongest refutation of the contention that hydroelectric power does not afford a reliable and satisfactory source of power supply. This system, serving 782 municipalities, including 26 cities, 98 towns, 275 villages, and 383 rural townships, as well as many large industries, wholly dependent upon hydroelectric power. is 17. Striking testimony to the satisfactory nature of hydroelectric power as the sole source of supply to the Province of Ontario is found in the fact that the Ontario Hydro-Electric System provides residential service at an average rate of 1.5 cents per kilowatt-hour, the lowest residential rate level for a system including a complete range from rural to urban customers on the continent. These low rates enable the average Ontario home to use about three times as much electricity as the average home in the United States. 18. The great privately owned Montreal Light, Heat & Power system, serving the Montreal area, is also solely dependent upon hydroelectric power and maintains satisfactory service at rates materially below those in corresponding cities in New York State. Similarly, both public and private systems serving Ottawa, as well as the competing systems in Winnipeg, are hydro systems able to give their customers lower rates and far more ample service than can be shown by any private system in the United States. SECTION 2. CRITICAL ANALYSIS OF MR. FOWLE'S ASSUMPTIONS Mr. Fowle's conclusion that certain major Government hydroelectric projects, as a group, are economically unsound as compared with the generation of equivalent power in modern steam stations, is based on a remarkable series of erroneous assumptions which cumulatively understate the cost of steam generation while exaggerating the cost of power to be derived from Government undertakings. Correction of these erroneous assumptions raises the per kilowatthour cost of 50 percent load factor steam-generated energy at the mine from 4 mills to 5.2 mills. At the load centers the cost per kilowatthour becomes 5.6 mills where coal costs $2.50 per ton and 6.3 mills where coal costs $4 per ton. The corrections follow: Error No. 1.-Assumption that Correction. Normally a reserve the installed capacity of an iso- factor of 25 percent must be lated steam station is 100 percent allowed for dependable supply dependable on system load, with- from such a plant to a 50-percent out any allowance for reserve system load factor. Adjustment capacity. His claim that he of his figures for this correction makes the same assumption for raises his per kilowatt-hour steam hydro is contradicted by the fact station cost from 4.0 mills to 4.6 that in deriving his hydroelectric mills. investment he includes the cost of secondary generating capacity equivalent to a 52.7-percent re serve. Error No. 2.-Assumption that "a plant cost of $85 per kilowatt is representative of the run of the best modern plants now in service" and can be taken as typical of the cost of plants with which the Federal Government's hydro projects would compete. Correction.-Analysis of the cost of 33 recently constructed, or proposed, steam stations, with a combined capacity of 5,729,000 kilowatts, shows that $93 per installed kilowatt or $100 per kilowatt of effective capacity is as low a figure as can be taken as representing the achievement of the industry under ordinary conditions. Actually 70 percent of the combined capacity reviewed is found in the range above $93 per kilowatt of installed capacity. Stations showing construction costs for ultimate capacity below this figure, with the exception of one plant with a cost of $91 per installed kilowatt represent, in all instances, exceptional conditions of construction or operation, reflecting either depression construction costs, absence of investment in land or auxiliary facilities, or design for strictly standby service in large hydro systems. Correction of Mr. Fowle's assumptions reduces the per-kilowatthour cost of 50 percent load factor hydro generation for the group of major Government projects which he selected from 6.3 mills to 2.1 mills as follows: Error No. 3.-Assumption that Correction. These figures inthe United States Chamber of clude $261,000,000 for separable Commerce compilation, showing undertakings in no way neces$845,000,000 as the ultimate cost sary for water power developof six dams under construction by ments, including the steam stathe Tennessee Valley Authority tion at Muscle Shoals, for which and three larger western projects, Mr. Fowle allows no credit, the correctly reflects investment prop- All-American Canal 250 miles south erly chargeable to power. of Boulder Dam and the Grand Coulee irrigation works. Elimination of these separable projects from the total reduces his average cost per installed kilowatt from $164 to $113. Error No. 4.-Assumption that, after arbitrarily determining the dependable capacity of these projects at 3,380,000 kilowatts through Correction. If Mr. Fowle had eliminated the $53,370,000 investment in such unused secondary capacity as well as the $261,000, application of the natural average 000 investment in nonpower projrate of dependable to installed ects his total investment for Govcapacity, he can legitimately in- ernment projects would have been clude the investment cost of an reduced to $530,630,000, and his additional 1,779,000 kilowatts of investment per kilowatt of desecondary capacity for which he pendable capacity would have recognizes no market. This as- been reduced from $250 to $157. sumption, together with the above criticized $845,000,000 investment figure, enabled him to derive the unit cost of $250 per kilowatt of dependable capacity which he states "is representative of the less costly hydro projects undertaken by the Federal Government." Error No. 5.-Assumption that Correction. If he had referred the average of 65.5 percent for the to the voluminous technical data ratio of dependable to installed available on these projects he capacity for all hydro stations would have found that the dethroughout the Nation is applica- pendable power available at 50 ble to the great Government proj- percent load factor would be ects which he was analyzing. His 4,224,000 kilowatts. Use of more use of this average ratio gave him authoritative cost data than those a total dependable capacity of published by the United States 3,380,000 kilowatts. Chamber of Commerce and a design capable of developing the total dependable power available at these sites under Mr. Fowle's conception of independent operation and sale of power, including adequate reserve, would have given him an ultimate cost of these projects constructed for power generation alone of $630,290,702. This would have reduced his investment per kilowatt of dependable capacity from $250 to $149. Error No. 6.-Assumption that Correction. If tentative allocathe projects are built entirely for tions of investment in joint and power purposes and that no allo- specific facilities are made for cations of investment made jointly Tennessee Valley projects and for navigation, flood control, irri- Bonneville on the basis used by gation, etc., to these purposes are the United States Engineer Corps justifiable. Mr. Fowle did not for allocation of the cost of the deduct even those costs which St. Lawrence River project, the were solely included for the pur- total investment for power would pose of navigation and flood be reduced by $99,492,726, to control. $530,797,976. This would reduce the investment per kilowatt of dependable capacity in the Government projects selected by Mr. Fowle from his original $250 to $126. |