Error No. 7.-Assumption that Correction.-If 6% percent fixed Government hydroelectric power charges are used to cover the projects must carry fixed charges annual cost to the Government based upon the private utilities' including allowance for depreciaconception of a fair return results tion and equivalent taxes, and if in total charges of 10% percent. this percentage is applied to the By applying this 10% percent to $126 per kilowatt found to be the his inflated investment of $250 investment in these projects propper kilowatt of dependable power erly chargeable to power, using and by adding $1.31 per depend- the same operating expenses as able kilowatt for operating ex- Mr. Fowle, we obtain $9.15 as penses, Mr. Fowle secured a total the average cost per kilowatt-year cost of $27.60 per kilowatt year, of power to be produced from the or 6.3 mills per kilowatt-hour at ultimate development of these 50 percent load factor. Government hydroelectric projects. This means electricity at 2.09 mills per kilowatt-hour at 50 percent load factor. Mr. Fowle's estimates of the cost of transmitting Government hydroelectric power to the load center where it must compete with steam are subject to two corrections: 1. He assumes 12%1⁄2 percent annual charges when 11% percent would have been adequate for privately owned lines and 71⁄2 percent for Government-owned lines. 2. He assumes that the cost of transmission losses is obtained by estimating the cost of generating the equivalent energy by a steam station at the load center. This method of establishing the cost of losses is completely at variance with the practice of the industry. Regular procedure is to charge 10 percent of the cost of hydro generation to transmission, i. e., to divide the total cost of hydro generation by the power delivered at the load center end of the transmission line.5 The following analysis starts with Mr. Fowle's conclusions as to the total cost per kilowatt-hour of Federal hydroelectric power delivered to the load center where it must theoretically compete with modern steam generation. It then in successive steps corrects the mistaken assumptions by which Mr. Fowle cumulatively inflates the cost of this power. Throughout the tabulation a 50-percent load factor is assumed. Delivered cost of Federal hydroelectric power It is common practice to estimate a 10-percent power loss on long transmission lines under maximum load conditions. Under average operating conditions this results in an energy loss of approximately 5 percent. For the sake of simplicity in economic calculations and to recognize the unusual condition, the figure of 10 percent has been assumed as applying to both power and energy. Corrected basis with suggested allocations of joint investment to navigation and flood control: 1 200 100 miles 50 miles miles 3.94 2.42 6.36 3.79 2.42 6. 21 3.79 1.89 1 Following the method used by the U. S. Corps of Engineers in allocating the cost of joint works of the St. Lawrence project between navigation and power, allocations have been made for the Tennessee Valley and Bonneville projects totaling $99,492,726, or less than 16 percent of the investment in the works necessary for power production of $630,290,702 in the 9 projects selected by Mr. Fowle for analysis. The corrected cost of power generated by the great Federal hydroelectric projects on the basis of delivery at various transmission distances may now be compared with the corrected estimate of equivalent power generated in modern steam stations at the load center as follows: A further unrealistic assumption of Mr. Fowle is that isolated steam stations of the modern high efficiency type deliver directly to distribution systems. Actually the modern trend, as indicated by a majority of plants built in the last decade, is toward delivery by such stations as well as by hydroelectric plants to high-tension transmission networks which are, in fact, the modern conception of a load center. This modern set-up gives a further advantage to the hydro station in any comparison of alternative power costs, as the cost of step-down voltage transformation becomes a function of the load, and is not chargeable to any particular power source. As a corollary the cost of step-up substations must be included in the cost of alternative steam-generated power delivered on the network, as developed. in section 5. *PAPER PRESENTED BY F.F.FOWLE AT MIDWEST POWER ENGINEERING CONFERENCE, APRIL, 1936. LOAD CENTER PLANT LOAD CENTER PLANT UNIT INVESTMENT $100 RESERVE CAPACITY REQUIRED F.F.FOWLE'S MINE MOUTH UNIT INVESTMENT $06 SECTION 3. MODERN STEAM GENERATING COSTS Determination of the economic limits of investment in Government hydroelectric developments in terms of the alternative cost of fuel generated power must be based on such costs in the market areas which may be served by such hydro projects. This requires analysis of modern steam station costs, its application to power from existing Government undertakings placed on a comparable basis, and the derivation of a method for working back from such costs in terms of modern operating practices to formulate criteria for potential developments. The detailed analysis of modern steam-station costs is contained in appendix I of this report. Its assumptions differ from those of Mr. Fowle chiefly in two particulars (a) it rejects his assumption that a mine-mouth station with an investment cost of $85 per kilowatt of effective capacity can be used to determine typical steam-station costs; and (b) it corrects his assumption that no steam-reserve capacity is required to render dependable service on system load. INVESTMENT COST For the purposes of this analysis a high-pressure station of a type being constructed today has been assumed at a cost of $93 per kilowatt of installed capacity. A review of investment cost data for 33 modern steam stations, ranging from 15,000 to an ultimate 1,080,000 kilowatts capacity, shows that $93 is as low a figure as can be taken as representing the achievement of the industry under ordinary conditions for comparison with Government hydro developments. In this review, where stations have not been completed to full planned capacity, the costs used are the company estimates for the completed station. Actually 60 percent of the capacity of 5,729,000 kilowatts in the stations reviewed is found in the range from $95 to $109 per installed kilowatt, with only 30 percent reported as costing less than $95 and 10 percent at a cost in excess of $109. Thus 70 percent of the capacity of modern steam stations included in the tabulation was constructed at a cost in excess of the power authority figures. The stations showing construction costs below $93 per kilowatt represent, in most instances, exceptional conditions either of construction or operation. Two with a combined capacity of 940,000 kilowatts were constructed in whole or in part during depression years when prices had reached distress levels. Two more, with a combined capacity of 360,000 kilowatts, report costs which do not include land and certain other facilities. Four others, with a combined capacity of 270,000 kilowatts, are strictly stand-by stations in large hydro systems. The only capacity in this group not included under these exceptions is in one station with an investment cost of $91 per installed kilowatt. For the purposes of this analysis account is also taken of the fact that a percentage of the total installed capacity of modern stations is required for operation of auxiliary station equipment. Information on six 1,200-pound stations, for which data are available, shows a range of from 6.25 percent to 7.50 percent of capacity for such station service. On the assumption that 7 percent of station capacity is required for such auxiliary equipment, the investment per kilowatt of effective capacity in the station assumed by the power authority becomes $100. RESERVE REQUIREMENTS It is further assumed that dependability in a steam station or system requires the installation of reserve capacity ranging from 10 to 35 percent against any particular station, dependent upon its load responsibility and whether it is operated as an isolated plant or on an interconnected basis. Authoritative estimates of steam-reserve requirements range from 20 to 40 percent. The Consolidated Edison bond-issue prospectus of April 9, 1936, quotes the estimate of officers of its electric subsidiaries. that the minimum requirement of capacity for 1935 system operation was 1,847,000 kilowatts against a system peak of 1,319,000 kilowatts, representing a reserve of 40 percent. GENERATING COST IN LOAD CENTER STEAM STATIONS 6 On the basis of these assumptions the cost of electricity generated. in large private high-efficiency stations for delivery direct to the distribution system at various load factors and costs of coal per ton 7 will be as follows: This table shows that, on the 50-percent load-factor basis assumed by Mr. Fowle, the cost of generating firm steam power in a minemouth plant would be 5.2 mills as against Fowle's erroneous 4.0 mills. The cost would vary with the price of fuel up to 6.7 mills at load centers where coal costs average $5 a ton. Mine-mouth plants are admittedly rare, and current produced at such plants must be transmitted to the load center. More nearly typical steam station energy costs at 50-percent load factor would be 6.3 mills per kilowatt-hour based on $4 coal or the equivalent fueloil price of $1 per barrel, and 5.6 mills where coal can be obtained at $2.50 per ton. These are representative of the steam power costs with which the great majority of Government hydro plants must compete. At 80 percent load factor, or carrying a load comparable with that to be supplied by base-load hydro stations, steam power supply, generated in efficient private stations in accordance with current utility practice, would cost from 4.0 mills per kilowatt-hour if generated in a mine-mouth plant to 5.5 mills if generated at a load center where coal costs averaged $5 a ton. More typical costs are 5.0 mills, with $4 coal and 4.4 mills where coal cost is $2.50, representing the steam power cost with which the great majority of Government baseload hydro projects must compete. For detailed determination of these costs, see appendix I. 7 Based on 13,000 B. t. u. per pound of coal. |