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GOVERNMENT HYDRO VERSUS PRIVATE STEAM
(A Study in Relative Economy)
An extraordinary sequence of events, which distinctly resembles discredited acts of the public policy committee of the National Electric Light Association, reveals a concerted effort to discredit the Government's water-power program by widespread publication of misleading statistical and technical set-ups which purport to show that hydroelectric power is less economical than power generated in modern steam stations. Important milestones in the unfolding of this effort include:
1. The United States Chamber of Commerce, March 1936, issued a committee report entitled “Water Resources Policies, National and Local,” which refers to "the popular misconception that hydroelectric power is much cheaper thon fuel generated power” and announces that "today steam power is being generated from fuel at less than 4 mills per kilowatt-hour at the newer and more efficient plants, and it is seldom that water power gets down to this figure.” The report included a compilation of figures for ultimate capacity and estimated total cost of 14 Federal hydro projects.
2. F. F. Fowle, former consulting engineer for the National Electric Light Association, in April, 1 month after the Chamber of Commerce report, in a paper before the Midwest Power Engineering Conference, developed a figure of 3.97 mills as the cost of steam generation in a mine-mouth plant and, basing his calculations on the Chamber of Commerce compilation, produced a figure of 6.3 mills for the cost of hydroelectric power to be generated at the major Government undertakings. In this way the appearance of technical support was given to the chamber's pronouncement.
3. A. A. Potter, dean of the Purdue Engineering School and member of the Edison Electric Institute Prime Movers Committee, as consultant for the National Resources Committee in his section of the Report on Technological Trends entitled "The Production of Power, issued June 18, 1937, cites F. F. Fowle as stating that "under ordinary conditions a steam plant will deliver current at the powerplant bus at 4 mills per kilowatt-hour, as compared with 6.3 mills for a hydroelectric plant.” The phrase "under ordinary conditions” is Mr. Potter's own contribution. His only comparison of steam and hydro costs is based on Mr. Fowle's address, thus creating the appearance of Government recognition of these figures. Subsequently,
1 Consulting engineer, National Electric Light Association, 1920-32. (Who's Who) Editor in chief of Standard Handbook for Electrical Engineers.
? Dean of engineering, Purdue University; president, American Engineering Council; member, National Electric Light Association Prime Movers Committee, 1920-33, and of its Public Relations Section from 1925. (Who's Who) member, prime movers committee, Edison Electric Institute, and of Construction Committee, United States Chamber of Commerce. (Who's Who In Engineering)
Mr. Potter admitted a range of from 4.0 to 6.0 mills per kilowatthour for the cost of steam generated power.
4. The Committee of Utility Executives, August 1937, issued a pamphlet entitled “Administration Experts Declare Water Power is More Costly Than Steam”, comprised almost entirely of selected excerpts from Mr. Potter's section. These excerpts enabled Mr. P. R. Gadsden, chairman of the committee, and vice president of the United Gas Improvement Corporation, to state in his foreword: “It would follow from the testimony of the administration's own experts, that the Federal power program is economically unsound.”
5. The Committee of Utility Executives, through release of this pamphlet on September 28, 1937, the eve of the President's visit to the Bonneville development on the Columbia River, gave the widest possible circulation to Mr. Potter's official use of Mr. Fowle's erroneous figures sustaining the United States Chamber of Commerce thesis and so initiated a wave of propaganda against the Government hydroelectric power program.
This propaganda is based upon incorrect figures. As its effect, from whatever source it draws its testimony, will be hostile to New York State's St. Lawrence project, the Power Authority, as trustee for the people of the State, feels under obligation to correct such misrepresentation.
The Power Authority has examined the entire matter and prepared this report in order that the public may not be misled as to the economic soundness of Government hydro development. The technical analysis, contained in the appendixes of this report, gives convincing evidence that the Government power program is economically sound, insofar as alternative steam generation is concerned.
The present report examines especially the paper delivered by Mr. Fowle before the Midwest Engineering Conference upon which Mr. Potter based the statements in his section of the Report on Technological Trends which was used to make an apparent case for the Committee of Utility Executives.
In order to correct the misrepresentation of the Government's power program, it has further been necessary to determine the delivered costs of hydroelectric power at load centers which will be served by four of the largest public projects completed or under way, assuming Mr. Fowle's concept of independent operation and sale of power. One of the largest of these is the proposed St. Lawrence power development which, by act of the State legislature, will be owned and operated by the power authority of the State of New York as trustee for the people of the State.
In addition to the St. Lawrence undertaking, the major projects analyzed from the point of view of government hydroelectric power, as compared with alternative private steam power generation, are Grand Coulee, Bonneville, and Boulder Canyon.
It has further been necessary to set up a realistic method for determining the limits of justifiable investment in any potential hydroelectric development which may be considered in connection with the Government's major river basin projects. 3 Chairman of the Committee of Utility Executives and vice president of the United Gas Improvement Corporation.
SECTION 1. CONCLUSIONS AND FINDINGS
The technical analyses contained in the subsequent parts of this report indicate that the major Government power projects, when developed to ultimate dependable power capacity, will produce power which can be delivered to markets at approximately half the cost of alternative power generated in the most modern private steam stations. In fact, the margin of saving as compared with private steam generated power will be so great as to make possible either material reductions in electric rates or the amortization of the cost in associated irrigation, flood control, and navigation projects.
The analyses show further that the economical limits of investment in large, medium, and small hydroelectric developments, if undertaken by governmental agencies, are broad enough to include a wide range of such power undertakings in connection with the contemplated conservation of the country's great river-basin resources.
The major conclusions established in the succeeding pages of this report may be summarized as follows:
1. The figures, taken by A. A. Potter from F. F. Fowle's paper for his power section of the “Report on Technological Trends,” purporting to show 4.0 mills per kilowatt-hour as the cost of steam power as against 6.3 mills for hydro power, represent gross exaggeration when applied to cost of the Government's hydroelectric projects and gross understatement of the cost of modern steam generation. Correction of the fallacious economic and technical assumptions upon which their assertions are based completely reverses the conclusions as to the comparative economy of Government hydro as opposed to steam generated power.
2. The extent to which Mr. Fowle has understated the cost of steam power and exaggerated the cost of hydro power generated at major Government undertakings is revealed in the following comparison of his figures with corresponding costs based on assumptions in keeping with modern practice in the power industry:
5. 2 5. 6 6. 3 6. 7
Mine mouth plant.
2. 1 2.9 3.0 3.3
1 Mr. Fowle's assumption of 50 percent load factor operation together with his assumption that there will be no market for secondary energy have been accepted for purposes of comparison.
3. The saving to the people from these major Government power developments, in power supply costs alone, as compared with the cost of equivalent power supply from private steam stations, will approximate $50,000,000 a year. If New York State's St. Lawrence development is included, the annual saving is increased to $60,000,000, without considering the effect of Government competition in lowering excessive retail electric rates. Capitalization of these savings at 5% percent would show a total value of these projects to the people, over and above their construction cost, of more than $1,000,000,000 which, under Government ownership, will never become a burden to consumers of electricity.
4. Four major Government hydro developments, which are submitted to detailed economic analysis in this report, reveal the following remarkable results, demonstrating their great economy as compared with equivalent steam power generated in modern private stations at the load centers:
1 The St. Lawrence project is naturally a base load development. At 80-percent load factor the cost of hydro would be 2.6 milis.
2 No equivalent steam power could be contemplated in the area. Actually, the cost of Grand Coulee power is less than fixed charges alone on a steam generating station.
5. The use of the national credit to finance water-power developments as part of its general water resource conservation program brings a wide range of natural power resources within the limits of economical development. These water powers, both large and small, must forever run to waste, unable to make their contribution to the Nation's wealth, if burdened with the high fixed charges resulting from the so-called "fair return" demanded by private power companies. The ability of the Government to finance such projects at a low rate of interest is decisive because fixed charges constitute almost the entire cost of hydroelectric power.
6. On the basis of Government financing, scores of water power resources, both large and small, in the country's many river basins will be found to supply power more economically than private steam plants if the investment properly allocable to power falls within limits ranging from $269 for a large 50 percent load factor development, to serve a market 200 miles distant in which coal is available at $2.50 a ton, up to $509 for a small base load plant, to serve a local market where coal is available for steam generation at $4 a ton.
7. Coordination of numbers of large and small Government hydros, which may be expected to result from the Government's river basin
conservation program operated so as to enable each to carry that portion of the total system load for which it is best adapted, will mean the most economical use of these resources.
8. Hydroelectric power is a thoroughly dependable and satisfactory source of power supply as shown by great systems, both public and private, which are solely dependent on this source of energy. These systems are providing their retail customers with service at the lowest rates on the continent. In view of the utility propaganda in favor of steam as a major source of power supply, the companies chiefly or solely dependent on steam should explain why they are unable to give their customers the advantage of the low rates maintained by these hydro systems.
The major findings upon which these conclusions are based, developed in detail in the succeeding pages of this report, may be summarized as follows:
CORRECTION OF FALSE PREMISES Shows GOVERNMENT HYDRO
CHEAPER THAN STEAM
1. The F. F. Fowle paper, delivered before the Midwest Power Engineering Conference in April 1936, from which A. A. Potter extracted the conclusion which affords the utility executives the basis for their contention that the Government power program is unsound on the ground that hydroelectric power is more expensive than steam, contains an extraordinary series of false assumptions which are cumulative in understating the true cost of steam-generated power and exaggerating the cost of Government hydro.
2. The correction of these false assumptions, insofar as they affect the cost of steam-generated power, establishes the true cost of energy produced under ordinary conditions in modern steam plants as ranging from 5.2 mills per kilowatt-hour where coal is available at mine-mouth prices to 6.7 mills where coal costs $5 a ton. Figures typical of steam station costs, in areas to be served by a majority of the Government's hydroelectric projects, are found in the narrower range from 5.6 mills with $2.50 coal to 6.3 mills with $4 coal instead of the erroneous 4.0 mills per kilowatt-hour taken by Mr. Potter from Mr. Fowle's paper.
3. The correction of the false assumptions enumerated in connection with determination of comparable costs for Government hydroelectric projects, taking the group of projects selected by Mr. Fowle, and analyzing them on the basis of his assumptions of 50-percent load factor and no sale for secondary energy, results in an average investment in dependable Government hydro capacity of $126 per kilowatt as compared with Mr. Fowle's erroneous figure of $250.
4. The correction of false assumptions in the case of hydro also results in an average cost for Government hydro generation of 2.1 mills per kilowatt-hour as compared with Mr. Fowle's erroneous figure of 6.3 mills. The average cost of Government hydro power delivered to load centers involving 200 miles of transmission is correspondingly reduced from Mr. Fowle's figure of 8.7 mills to a corrected figure of 3.3 mills.
5. The corrected figures for Government hydroelectric power delivered 200 miles with all costs included, compared with private