DRAFT
                                         September 2&,  1968
                 THERMAL POWER

                    AND THE

         COST OF WASTE HEAT TREATMENT
   United States Department  on tbe Interior
Federal Water Pollution Control Administration
      Northwest Pegion, Portland,  Oregon

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                          CONTENTS









                                                     Page




INTRODUCTION  	   1




SUMMARY OF CONCLUSIONS  	   2




BASIC NUCLEAR PLANT COST	   3




THERMAL TREATMENT COST  	   5




MERGER WITH PGE SYSTEM	   7




EFFECTS ON CONSUMER'S COST	11




POWER RATES AND PACIFIC NORTHWEST GROWTH 	  15




CONCLUSION	20




APPENDIX	22

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                         LIST OF TABLES
TabLe                                                     Page

  1    Cost Summary of 1,000 MW Nuclear Plant  with
         Once-Through Cooling 	    5

  2    Incremental Capital and Annual Costs  of Waste
         Heat Treatment Methods 	    7

  3    1,000 MW Nuclear Plant Merged with PGE  System   .  .    8

  4    Portland General Electric's  Present Source of
         Power	10

  5    Changes in Portland General  Electric's  Produc-
         tion Cost with Different Treatment  Methods  ...   11

  6    Production Expense Distribution,  Portland
         General Electric 	   13

  7    Effects of Change in Production Costs on
         Portland General Electric  Consumer  Charges  ...   13

  8    Effect of Nuclear Merger on  PGE's Consumers   ...   14

  9    U.S. Average Consumer Charges,  Mills  par BWH,
        1966	18

 10    Pacific Northwest Average Consumer Charges,
         Mills per KWH, 1966	19

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           THERMAL POWER AND THE COST OF WASTE HEAT TREATMENT






Introduction




     Large-scale thermal power generation has come to" the Pacific North-




west.  Even with development of all the additional hydropower sites in




prospect, some 15 nuclear-fueled power plants must be built and put into




operation from 1974 to 1987 to meet power demands, according to the




Bonneville Power Administration's 20-Year Advance Program report released




in November 1967.  Resources exist for one fossil-fueled power plant--




under construction near Centralia, Washington—but the remainder of the




demand must be met with nuclear plants.




     Under present technology, thermal nuclear power plants convert into




kilowatts only one-third of the energy of the nuclear fuel.  The remain-




ing two-thirds becomes waste heat which must somehow be disposed of.  Da-




pending on how waste heat is handled, there is presented the possibility




of far-reaching, adverse impacts on the aquatic environmant, particularly




water quality.  Technology has provided the facilities to assure no adverse




environmsntal impacts.  The question most often raised in regard to the




use of such facilities is their cost.




     Cost information is available, in general terms at least, on the




basic power plant and the several alternatives for handling waste heat.




What has been lacking is an analysis pointed toward interpretation of




cost information presently available in such a way as to evaluate tha




impact of waste heat treatmant costs on the cost of power to consumers




when new thermal nuclear power plants are integrated into an ongoing




company system.  In short, would the installation of waste heat treatment

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                                                                     2




require a significant increase in consular power bills? The purpose of




the analysis presented in this report is to answer that question as con-




clusively as it can now be answered, using the best data available at




this time.  The analysis presented attempts to analyze the incremental




cost to the consumer of a nuclear-fueled thermal power unit, using




Portland General Electric as the example utility, and the added incre-




ment to that cost attributable to the installation of a waste heat




treatment method.  The question of the importance of the resulting com-




petitiveness in power rates between the Pacific Northwest and other




regions is also indicated.




Summary o ^Conclusions




     The findings of the analysis, in general, are subject to some vari-




ations in absolute terms, but the incremental costs and comparisons are




considered sufficiently valid to allow reasonable judgments in regard to




the Portland General Electric example system.  A 1,000 MW nuclear plant




with once-through cooling (when integrated into its present system) would




decrease Portland General Electric consumer costs below thair present




levels in a range from 1.9 percent for comiiercial consumers to 3.5 per-




cent for industrial consumers.  The most expensive waste heat treatment




method analyzed, the natural draft wet cooling tower, would cause an




insignificant increase over the Portland General Electric consumer costs




of 1966-, ranging between 0.1 and 0.2 percent.  The waste heat treatment




methods analyzed with costs betv/een the above two methods are once-through




salt water cooling and induced draft wet cooling towers.




     Because annual power bills of Portland General Electric's consumers




would be little affected by the most expensive treatment method analyzed,

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                                                                        3


the question of competitive rates between the Pacific Northwest and utili-


ties in other regions does not arise.  However,  it is felt that the whole


question of cheap power as being vital to economic development should not


be exaggerated.  The analysis tends to show that those industries depending


heavily upon cheap power have decreasing importance as an economy diversi-


fies and matures, and those industries now contributing the most to the


economic growth of the Pacific Northwest are not dependent upon cheap


power.


Basic Nuclear Plant Costs


     Because this analysis assumes an average or typical nuclear plant in


contradistinction to a nuclear plant at a particular site and because of


relatively fast changes in economic and technical aspects of nuclear power,


all cost figures are necessarily only estimates.  Considerations that might


be pertinent to a specific site study but not considered in this analysis


would include costs associated with possible make-up water holding ponds


and blowdown water treatmsnt.—   Figures presented in this study, then,


should be understood to be for illustrative purposes, yielding only orders


of magnitude instead of definitive answers.


     The cost of a 1,000 MW nuclear plant with once-through fresh water


cooling is apparently somewhat higher now than at the time of the incor-


poration of nuclear proposals in the TVA system or those for the Oyster


Creek plant of Jersey Central.  The Bonneville cost study gives $160/KW

                                                           2/
as the capital cost with once-through  fresh water cooling.—   Interest
\J  Make-up water ponds at the 1,400 MW coal-fired Centralia plant are

    -estimated to cost $10,000,000.

2/  Letter from John F. Baldino,  Acting Administrator,  Bonneville Power
    Administration, to J. L. Agee,  Pacific Northwest Regional Director,

    FtfPCA, dated August 26,  1968.

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during construction was given as $14.4/KW,  making a net of $145.6/KW for

the plant alone.  Excluding interest during construction,  TVA's two Browns

Ferry plants capital investment was reported as $105.6/KW ($116 billion
                    3/
for 1,098 MWs) each.-  Battelle-Northwest used $121/KW, excluding interest
                    4/
during construction.—  The capital cost of the 815.5 MW Surry plant is

given as $153/KW, but the portion of this figure attributable to interest

during construction was not separated.—'

     In deriving annual costs, the Bonneville cost study mentioned above

was used, and all cost figures referred to hereafter, unless noted, were

taken from that study.  An 85 percent load factor with a 35-year life was

assumed.  Financing was based upon 60 .percent bonded debt at a 6 percent

rate of interest, 30 percent common stock at a 7% percent rate of interest,

and 10 percent preferred stock at a ,6% percent rate of interest.  This

structure would yield an overall rate of 6.4 percent.

     A 1,000 MW nuclear power plant with once-through fresh water cooling

will be considered the reference plant with which all other plants with

different cooling methods will be compared.  The separate cost of the cool-

ing method on this reference plant will not be delineated.  Table I illus-

trates the results of the assumptions for this reference plant.
3_/  "Comparison of Coal-Fired and Nuclear Power Plants for the TVA System,"
    Office of Power,  TVA,  Chattanooga,  Tennessee,  June 1966.  Table 1,
    p. 4, BWR Type.

4/  Battelle-Northwest.  Nuclear Power  Plant Siting in the Pacific Nort^h-
    we_st.  BPA Contract No. 14-03-67868,  July 1, 1968, Summary Report,
    p. 43, Figure 4.

5_/  Nuclear Power Economics--1962 Through 1967.  Report of Joint Committee
    on Atomic Energy, 90th Congress, 2d Session, February 1963, p. 20,
    Table III.

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                              TABLE I*
                          COST SUMMARY OF
                      1,000 IIW NUCLEAR PLANT
                     WITH ONCE-THROUGH COOLING
                                 g
Total Annual Production (KWH x 10 )                                7.446

Total Plant Capital Cost ($000)                              160,000

  Fixed Annual Cost ($000)                                     23,715

  Variable Annual Cost ($000)                                  8,610

    Total Annual Generator  Terminal Cost ($000)**             32,325

    Mills/KWH                                                      4.34
 * Source:  Letter from John F. Baldino,  op. cit.
** Equals bus-bar costs minus step-up transformers and circuit
   breakers estimated at $375,000 annually.
Thermal Treatment Costs

     The treatment of thermal power waste heat is relatively new to the

American scene, and lack of data is even more noticeable than for nuclear

plants.  Just the number of methods for waste heat dissipation alone make

a definitive cost study difficult.   These methods range from once-through

fresh and salt water to cooling ponds to wet and dry cooling towers, natu-

ral or induced draft.  Each type of cooling tower can be constructed sev-

eral ways to yield a given result.   And, of course,  each method has

construction and operating costs different from those of another method.

The same technological and economic factors met in regard to nuclear plant

costs above compound the problem.

     In conducting a general anaylsis of waste heat  treatment cost, it is

important to point out that only reference or illustrative plants can be

handled.  To be truly representative, a study would  have to be conducted

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                                                                        6




relative to specific sites.  There is>a potentially large cost difference




between sites.  A specific site may exclude a wide choice of thermal treat-




ment methods because of topography, because of former areal development,  or




because of climatic conditions.  For instance, cooling ponds are reported




to be doubtful at Portland General Electric's Trojan site because the




topography and former land development would appear to forego them.   Dry-




type towers are doubtful east of the Cascades because of climatic condi-




tions during the warmest period of the year, a time when thermal treatment




is most needed.  Atmospheric conditions in some locations may preclude wet




cooling tower operations at times.




     Transmission costs are another item requiring specific site analysis.




Thermal treatment requirements may necessitate a different site selection




that might increase transmission costs.




     For illustrative purposes, four types of cooling methods were selected--




once-through fresh water (incorporated in the reference plant), once-through




salt water, induced draft wet cooling towers, and natural draft wet  cooling




towers.  All were analyzed with the same financial structure as was  assumed




for the 1,000 MW reference nuclear plant with once-through fresh water




cooling.  Table II presents the capital cost (including interest during




construction) and total annual cost of each method as increments to  the




reference nuclear plant.

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                                       *
                               TABLE II
                  INCREMENTAL CAPITAL AND ANNUAL COSTS
                    OF WASTE HEAT TREATMENT METHODS
Treatment Methods

Once-Through Fresh Water

Once-Through Salt Water

Induced Draft Wet Cooling Towers

Natural Draft Wet Cooling Towers
     Millions of Dollars
                    Total
Capital Cost     Annual Cost
     (Not.delineated)

    7.9             0.96

    8.0             1.34

   13.8             2.00
U
 ti. C /
* Source:  Letter from John F. Baldino,  op^ cit.
     As the table shows,  natural draft wet cooling towers have not only

the highest incremental capital cost of those analyzed but also the highest

incremental annual cost.

     There are other cooling methods.  Fan-assisted natural draft hyperbolic

wet cooling towers are a  possibility, but the lack of sufficient data at

this time prevented an analysis.  Cooling ponds are a-lso possible, but the

analysis of a typical cost situation in the absence of a specific site and

land costs proved impractical.  Other types of treatment include the dry-

type cooling methods.  However, dry-typa cooling methods are probably un-

satisfactory in most areas and were excluded from the analysis.

Me rge r wi th PG E S y s t em

     With the above discussion of nuclear plant and thermal treatment costs.

a 1,000 MW nuclear power  plant can be merged with any utility system.

Portland General Electric's present system will be used as an example.

Such a plant will more than double Portland General Electric's presently

available KWH's from 6.4  billion to approximately 13.8 billion KWH annually.

The following table summarizes these mergers .

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                                                 TABLE III
                                          1,000 MW NUCLEAR PLANT
                                          MERGED WITH PGE SYSTEM
                                          1966^
                                         Actual
                                                                                  Induced Draft  Natural Draft
Once-Through
Fresh Water
Once-Through
 Salt Water
 Wet Cooling
    Tower
 Wet Cooling
    Tower
                     B/
Generation Investment"	 $120,049,000   $160,000,000

Annual Expenses:                                          "
  Total Generation Expenses 	 $ 15,804,000   $ 32,325,000
  Purchased Power 	   illtiMZi.0-0-0.	II	
$167,900,000

       /?. ?
$ 33,285,000
$168,000,000
      Jo- &
$ 33,665,000
$173,800,000
      / f •?

$ 34,325,000
    Total Production Expenses 	 $ 30^291^000   $ 32.325,000   $ l^^S^OOO   $ 33_t665tOgO   $ 34.325,000
Total Annual Power Production
KWH (l,000's)c/ 	
Production Cost, Mills per KWH 	
Merged with PGE System:
Total Annual Expenses 	
Total Annual Power Production
KWH (1 000 's) 	
Production Cost. Mills oer KWH ...
6 375 245 7 446 000
4.75 4.34
	 $280,049,000
	 $ 62,616,000
	 13,821,245
	 4.53
7 446 000
4 47
$287,949,000
$ 63,576,000
13,821,245
4.60
7 160 000
4 70
$288,049,000
$ 63,956,000
13,535,245
4.73
7 197 000
4 77
$293,849,000
$ 64,616,000
13,572,245
4.76
A/  Source:  Statistics of Privately Owned Electric Utilities in the United States.  FPC S-186; GPO, September
    1967, and FPC Form No. 1, 1966, Annual Report to the Federal Power Commission.  Total annual generation
    expenses include generation 06M, generation depreciation, total allocated taxes, and total allocated net
    income.  The latter two were allocated in the same proportion as net generation investment was to total
    net investment.  See Appendix for complete explanation.

I5/  PGErs gross generation investment amounted to $138,773,000 with $18,724,000 accumulated depreciation.
    Nuclear plant investment includes capital cost and interest during construction.

C_/  Assumes PGE's actual 1966 sales plus generation capability for nuclear addition at 85% load factor.
                                                                                                                CO

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                                                                     9

     The above "Total Production Expenses" does not my.1.1 total system

expanses, but r-prer.ents costs of only the generation plant a.id appur-

tenant facilities, excluding switch yards and transformers.—   As Table

III shows, purchased power expenses in 1966 almost equaled Portland Gen-

eral Electric's total generation expenses (92 percent) and accounted for

48 percent of  its  total production expenses.  For the comparative pur-

poses of this analysis, it is assumed the company will continue to pur-

chase the same amount of power in the future.  (This restriction is

discussed later.)  The most noteworthy item in Table III is the decrease

in the costs per kilowatt hour of 4.6 percent after the nuclear plant

with once-through fresh water cooling is merged with Portland General

Electric's system.

     The relative cheapness of nuclear power might seem in error since

most of Portland General Electric's power source is hydro-generation.

However, the list in Table IV of Portland General Electric's power sources

(excluding purchased power) strongly indicates the reason for this seeming

anomaly.  Of the total eleven plants, three are steam, and the majority

of the others are small hydro-plants.  Because of their small size, they

undoubtedly represent high cost power when compared with any large hydro-

plant on the main stem Columbia River, for instance.
6/ Production is generally expressed in terms of "bus-bar costs/! which
   includes switch yards and step-up transformers.  Since these two items
   cannot be separated from Portland General Electric's transmission
   costs, they were excluded from the nuclear plant analysis also.

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                                                                     10
                                TABLE IV
                       PORTLAND GENERAL ELECTRIC'S
                         PRESENT SOURCE OF POWER
Name
Bull Run
Faraday
North Fork
Oak Grove Fork
Pel ton
Portland 'E1
Portland 'L'
River Mill
Round Butte
Salem 'H'
Sullivan
Total
Location
Bull Run Creek
Clackamas River
ii M
ii H
Deschutes River
Portland
ii
Clackamas River
Deschutes River
Salem
Willamette River
Type
Hydro
ii
ii
H
M
Steam
ii
Hydro
ti
Steam
Hydro
Nameplate
Rating KW
21,000
34,450
38,400
51,000
108,000
10,000
75,000
19,050
247,050
2,500
15,400
622,350
     The power sources listed in the above table accounted for approximately

26 percent of the total power sold by Portland General Electric in 1966.  Of

the total purchased power (74 percent of the total power sold), 46 percent

was purchased from the Bonneville Power Administration.  An estimate indi-

cates Portland General Electrie's purchased power cost them an average

of 3.07 mills per KWH while their generated power was in the neighborhood

of 9.50 mills per KWH.—   Consequently, it is not surprising that the

reference nuclear plant manifests smaller costs per KWH.
TJ  Total power sold amounted to 6,375,245 MWH.  Total power purchased
    amounted to 4,712,250 MWH costing approximately $14,487,051 yielding
    3.07 mills/KWH.  They generated from their own power sources, then,
    1,662,995 MWH costing $15,804,352 yielding 9.50 mills/KWH.  See Appendix.

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                                                                      11
Effects on Consumers'  Costs
     The effect of the mergers illustrated in Table III on Portland General
Electric's production cost varies from a 4.6 percent decrease in the case
of the once-through fresh water method to a 0.2 percent increase in the
case of the natural draft wet cooling tower method.  Table V presents these
percentage changes in production costs.
                                 TABLE V
         CHANGES IN PORTLAND GENERAL ELECTRIC'S PRODUCTION COST*
                    WITH DIFFERENT TREATMENT METHODS
Treatment Methods
  Percentage Change in
1966 PGE Production Cost
Once-Through Fresh Water .  .  .  .
Once-Through Salt Water  .  .  .  .
Induced Draft Wet Cooling Tower
Natural Draft Wet Cooling Tower
        -4.6
        -3.2
        -0.4
         0.2
* Source:  Computed from Table III.
     The effect of these production cost changes upon consumer power bills
depends upon the proportion of consumer power bills accounted for by pro-
duction costs.   If production costs on a KWH basis amount to 50 percent of
the cost of power to the consumer,  then any change in production cost will
affect consumer costs only one-half as much.   The implicit assumption, of
course, is that all other costs--transmission, distribution, customer ser-
vice, administration, etc.--remain  the same.   Table VI presents the relevant
percentage changes in consumer power bills brought about by the merger of
the different cooling methods.

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                                                                      12




     What the above percentage changes mean in regard to Portland General




Electric's present average consumer charges on a kilowatt hour basis is




shown on Table VII.




     The changes in consumer charges presented in the two tables depend




upon the degree to which Portland General Electric incorporates the new




additional power in its system.  It was assumed that Portland General




Electric would continue to produce as much power from their other genera-




ting facilities and to purchase the same amount of power as before.  These




are restrictive assumptions, since several different alternatives are open




to Portland General Electric, and they will likely choose an operating




procedure different from that assumed.  They could, for instance, terminate




a sizable portion of their purchasing contracts and sell the remaining un-




used new power.  Alternately, Portland General Electric could close down




their less efficient power sources in combination with a reduction in




power purchases.




     In any case,  Portland General Electric will be able to incorporate in




their own system only a minor portion of their nuclear power output regard-




less of the operating procedure chosen.  In such a case, the full effects




of changes in production costs should not be passed on to Portland General




Electric's consumers.   For example, if they could incorporate only 20 per-




cent during the first five years and then some greater percentage five years




later, and so on,  then only 20 percent of the change in the costs delineated




in the above analysis should be passed on to the consumer during the first




five years, a larger percentage for the second five years, etc.  Since all




the output of the nuclear addition was assumed to be incorporated within

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                                                     TABLE VI
                                         PRODUCTION EXPENSE DISTRIBUTION
                                            PORTLAND GENERAL ELECTRIC
Consumer Class
1966 Alloc.Prod,
 Cost as % of
Consumer Cost*
	Percent Change to Consumer from 1,000 MW'Merger With...
Once-Through^/ Once-Through^,/  Induced DraftC/Natural DraftW
Fresh Water     Salt Water    Wet Cooling Tower   Wet Coolinc  Tower
Residential 46.43 -2.1
Commercial 41.68 -1.9
Industrial 76.62 -3.5
* Source: See Appendix A for the derivation of these figures.
A/ First column multiplied by 4.6 percent decrease. See Table V.
E/ First column multiplied by 3.2 percent decrease. See Table V,
C/ First column multiplied by 0.4 percent decrease. See Table V.
D/ First column multiplied by 0.2 percent increase. See Table V.
-1.5
-1.3
-2.5

-0.2
-0.2
-0.3

0.1
0.1
0.2

                                                    TABLE VII
                EFFECTS OF CHANGE IN PRODUCTION COSTS ON PORTLAND GENERAL ELECTRIC CONSUMER CHARGES
                                                  MILLS PER KWH
                                                                  1,000 MW Nuclear Merger With.
Consumer Class
           1966*
          Actual
Once-Through
Fresh Water
Once-Through
 Salt Water
Induced Draft Wet
  Cooling Tower
Natural Draft Wet
  Cooling Tower
Residential
   Production Costs
   AIL Other Costs
      Total Consumer Charges

Commercial
   Production Costs
   All Other Costs
      Total Consumer Charges

Industrial
   Production Costs
   All Other Costs
      Total Consumer Charges
          5.225
          6.029
         11.254
          5.225
          7.312
         12.537
          3.389
          1.034
          4.423
  4.985
  6.029
 11.014
  4.985
  7.312
 12.297
  3.233
  1.034
  4.267
  5.058
  6.029
 11.087
  5.058
  7.312
 12.370
  3.281
  1.034
  4.315
    5.204
    6.029
   11.233
    5.204
    7.312
   12.516
    3.375
    1.034
    4.409
      5.235
      6.029
     11.264
      5.235
      7.312
     12.547
      3.396
      1.034
      4.430
* See Appendix for derivation of these figures.

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                                                                      14

the Portland General Electric system in the above analysis, it would tend

to represent a maximum incremental effect on their consumers.

     In 1966 Portland General Electric's average residential consumer used

11,726 kilowatt hours of power and paid $132, their average commercial con-

sumer 47,910 kilowatt hours of power and paid $601, and their average indus-

trial consumer 14,071,410 kilowatt hours of power and paid $62,238.   Assuming

the same amount of power is used by consumers in the future, and considering

the maximum incremental effect, average yearly consumer power bills  would

be as shown in Table VIII.—/
                               TABLE VIII
                           EFFECT OF NUCLEAR*
                        MERGER ON PGE'S CONSUMERS

                                   Average Yearly Power Bills
                                   After Nuclear Merger With...
1966
Consumer Class Actual
Residential
Commercial
Industrial
$ 132
601
62,238
Once-Thru
Fresh Water
$ 129
589
60,043
Once -Thru
Salt Water
$ 130
593
60,718
Ind. Draft Nat. Draft
Wet C.T. Wet C.T.
$ 132
• 600
62,041
$ 132
601
62,336
  Consumer cost per KWH from Table VII multiplied times the above annual
  consumer KWH consumption.
     As the above table indicates, the change in production costs associated

with the addition of the induced draft wet cooling tower and with the natu-

ral draft wet cooling tower, would not be large enough to materially affect

consumer power bills.  With once-through fresh and salt water cooling,
8/  This implies, of course, that the Portland General Electric system will
    expand by the necessary number of consumers.

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                                                                      15




there is a significant decrease in consumer power hills, particularly in




regard to industrial consumers.  It is again emphasized, however, that the




above analysis is only illustrative and not definitive.  The analysis




assumed a typical or average 1,000 MW nuclear plant in the absence of a




particular site.




Powe r Ra. te s and Pac i fi c No r thwe s t Growth




     The question of what the addition of the cost of thermal waste treat-




ment will do to the competitiveness of the Pacific Northwest relative to




other areas in attracting heavy power using industries is brought to mind.




The question is a valid one but does not appear to have as much importance




in the future as it enjoyed in the past, and becav.se pouer rates will not




be affected in regard to Portland General Electric's case, it is more or




less an academic question.  Nevertheless, it does deserve some comment.




     In a broader sense, the forces bringing about economic growth have




been undergoing a significant change.  In the past, economic development




has been largely natural resource oriented.  The development of agriculture,




forestry, fishing, and mining meant a growing population and rising incomes--




par ticularly agriculture and forestry in regard to the Pacific Northwest.




It meant a developing manufacturing base for chose products 'tied closely




to their source of raw material.   Natural resource orientation is "still a




relatively important factor in the economic development of the area, but




its importance becomes of lesser force as the economy diversifies and




matures.




     The change has involved a shift from a large dependence upon natural




resources and manufacturing tied to natural resources to a greater depen-

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                                                                      16

dence upon skills and services.  Battelle Memorial Institute states the

case :

          A fundamental factor in the evolving economic structure
     is  the increasing importance of the human element.  More and
     more businesses are demanding highly skilled and stable labor
     forces, and industry is locating where the best quality labor
     is  available or can be attracted.—
                               • •  •
          In the next decade the Pacific Northwest will continue
     its development into a diversified manufacturing economy.
     The primary industries of agriculture, lumbering, fishing,
     mining and metal smelting, will continue to be important
     employers, but secondary manufacturing activities such as
     aircraft, electronics and machinery manufacture will repre-
     sent a more significant source of new employment during the
     1970's.
          Paralleling this transition will be the increasing im-
     portance of service industries as major sources of employ-
     ment. !£'

     Historical data indicate this trend to services, machinery and elec-

tronics.  Employment in the traditional basic industries—agriculture ,

forestry, fisheries, mining, and manufacturing—increased 38 percent between

1940 and 1960, whereas all service type industries, armed forces excepted,

increased some 86 percent.  Manufacturing itself increased employment in

the Pacific Northwest between 1940 and 1960 about 94 percent, but the

machinery employment category of manufacturing increased some 200 percent

and the electrical employment category shot up some 700 percent.  The growth
2/   The Pacific Northwest, Economic Growth in a Quality Environment,
     December 1967, p. 9.
!£/  Ibid, p. 11.

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                                                                      17

of industries based upon skills, education, scientific research, and other

factors (including chance) rather than upon natural resources--cheap, hydro-

electric power is a natural resource—has been demonstrated in the case of

Albany's rare metal's complex and Seattle's transportation developments.

The aerospace industry in the Puget Sound alone increased employment from

about 60,000 in 1963 to over 90,000 in 1967, an increase of over 50 percent.il/

Omark in machinery and Tektronix and Electronic Specialty in electronics

are examples of companies in Portland pushing this trend along.

     Among the changes in locational factors listed by Portland General

Electric is that, "Electric power rates, except for a few industries, tend
                                            1 O /
to be a low-rated factor in site selection."i=-'  For Portland General Elec-

tric this is undoubtedly true.  Those industries locating in the Pacific

Northwest because of its cheap power are served by non-private utilities.

Even so, those industries should not be over-emphasized in their contribu-

tion to economic development of a region.  The heavy power using aluminum

industry is a case in point.  Bonneville Power Administration estimates

show that additional employment throughout the entire Pacific Northwest

attributable to direct aluminum employment is on the order of 1 to 2 jobs
                •I O /
per smelter job.—'   In 1965 direct employment in the aluminXim industry in
ll/  Economic Study oJE Puget Sound and_ Adjacent Waters.  Prepared for
     Puget Sound lask Force of Pacific Northwest River Basins Commission,
     Consulting Services Corporation, January 1963, p. 19.
12/  Area Development and Research Forum, Vol. 1, No. 2, November-December,
     1967.  "The Changing Pattern of Industrial Location Factors," Fred I.
     Weber, Jr.  A Portland General Electric Publication, p. 4.
13/  Alutninum.   Pacific Northwest Economic Base Study for Power Markets,
     U. S. Department of the Interior, Bonneville Power Administration,
     Vol. II, Part 7B, 1967, p.  273.

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                                                                      18

the Pacific Northwest was 9,082 and is projected to 17,100 by 1980 .-

This would mean total direct and indirect employment of 27,200 in 1965 and

51,300 by 1980 (using the maximum multiplier of 3).  Comparing this to total

employment of approximately 2.0 million in the Pacific Northwest in 1965 and

a projection to approximately 2.9 million by 1980, ten* to place the alumi-

num industry with its high power requirements in proper perspective.  Whereas

the aluminum industry's power requirements in 1965 equaled 21 percent of the

total power requirement of the Pacific Northwest (projected to about 23 per-

cent by 1980), it directly and indirectly employed only 1.4 percent of the

Pacific Northwest's total employed work force (projected to about 1.8 per-

cent by 1980).

      Actually, Portland General Electric is very competitive with utilities

in other regions in the United States.  Table IX illustrates this competi-

tiveness .
                                TABLE IX
                     U.S. AVERAGE CONSUMER CHARGES*
                           Mills per KWH, 1966
Industrial
American Power
Commonwealth Edison of 111.

Georgia Power
Los Angeles, Dept. of W & P
San Antonio, City Pub.Sv.Bd.
Southern California Edison
Texas Electric Service
T.V.A.
Portland General Electric
U.S. Average
7.74
9.91

8.46
8.60
10.01
8.74
9.78
4.16
4.42
9.78
*Source: Statistics of Ptivately Owned
Commercial
19.81
21.87

19.48
12.92
21.24
17.87
18.83
-
12.54
21.29
Electric Utilities
Residential
19.72
26.84

17.01
20.12
21.03
23.88
23.55
-
11.25
• 23.40
in the United
          S_tajte_s, FPC S-186, GPO, September 1967, and Statistics of Pub-
          licly Owned Electric Utilities in the United_Snn_teg_, FPC S-L88,
          GPO", November 1967 .
14/ Ibid, p. 274

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                                                                     19

     As shown, TVA is the only utility with cheaper average industrial

rates.  In terms of the Pacific Northwest, however, Portland General

Electric's competitive stance is less noteworthy.   Table X illustrates

this comparison.
                                 TABLE X
                           PACIFIC NORTHWEST*
                       AVERAGE CONSUMER CHARGES
                          Mills Per KWH, 1966
Industrial
B.P.A.
Clark County PUD
Eugene W. & E. B.
Idaho Power
Montana Power
Pacific Power & Light
Puget Sound P & L
Seattle City Light
Snohomish County PUD
Washington Water Power & Light
Portland General Electric

* Source: Same as for Table IX.
2.06
3.85
2.84
5.13
6.34
7.49
6.34
5.02
4.10
6.27
4.42

Commercial
-
10.18
7.94
13.17
18.90
16.08
17.43
11.29
12.08
14.77
12.54

Residential
-
9.03
8.69
17.50
20.91
14.20
12.11
9.03
8.49
13.64
11.25

These figures are somewhat deceptive as a comparison in that Clark County

PUD, Eugene W. & E. B.,  and Snohomish County PUD are very small (KWH sales

one-fourth PGE's) and bought practically all their power from the Bonneville

Power Administration.  As shown, the Bonneville Power Administration is the

only major utility with average industrial rates below Portland General

Electric's average industrial rates.  The merger of a nuclear plant having

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                                                                     20




differing cooling methods with Portland General Electric's system would




change their average industrial rates ranging from approximately 4.3 mills/




KWH in the case of the once-through fresh water method to approximately 4.4




mills/KWH (about the same as their present rates) in the case of the natural




draft wet cooling tower method.—'  Consequently, Portland General Electric"s




competitive stance with other utilities in other regions of the United




States and in the Pacific Northwest will not be materially affected.




Conclusion




     Although the cost data on the coming nuclear fueled thermal generating




units and assumed waste heat treatment methods are of necessity only esti-




mates of reference plants, the above analysis is believed to have sufficient




validity to allow a reasonable judgement as to their effect upon consumer




power bills.   In the case of Portland General Electric, the addition of




the basic nuclear plant with once-through cooling would show a decrease in




power costs.   However, by adding the most expensive method analyzed, the




natural draft wet cooling tower, Portland General Electric consumers would




remain in about their present cost position.




     Cheap power is always a favorable factor in helping to develop and




broaden the economic base of an economy.  There are many theories on the




cause and effect of economic development, and many factors contribute to




economic growth--natural resource endowment, size of population, education




of population, climate, cultural development, political goals, etc., all




factors interacting with each other.  Given these factors, however, the




development of a cheap power source could be a strong factor in setting







15/  See Table VII.

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                                                                       21




off a chain reaction leading to the development of a relatively undeveloped




area.  Whereas an area was formerly dependent largely upon agricultural and




forestry industries (as VMS true of the Pacific Northwest), cheap power




could induce the development of electro-processing industries and broaden




that area's economic base to some extent (make the growth of the area less




dependent upon the growth of agriculture and forestry,  in the case of the




Pacific Northwest).




     Whatever sets off this chain reaction (and it need not necessarily be




cheap power although cheap power would certainly play some part), one can




see that, as more and more different-type industries develop, the economy




of the area becomes less and less dependant upon the contributions of any




one industry, though never completely independent of that industry.




     This in no way implies that the growth of the Pacific Northwesu de-




pended upon the development of cheap power.  In all probability, even




without cheap power the Pacific Northwest would ha^e developed at a faster




rate than was tru>2 of the Nation but, without a doubt,  the growth was




accelerated to some unknown extent because cheap power was developed.




     As pointed out, the industries presently making the greatest contri-




bution to the growth of the econony of the Pacific Nocthwest are nor de-




pendent upon cheap power.

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APPENDIX

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                                                                     22
                                APPENDIX
                             Production Cost
                       Portland General Electric's
                             Present System
                                  1966
     Portland General' Electric's production cost analysis could not be

extracted in a direct manner from published reports.   Two assumptions were

necessary:  To derive the portion of total taxes and  net income allocated

to production expenses, it was assumed that both would be allocated in the

same proportion as net generation investment was of total net investment.

Table I below presents total production costs of Portland General Electric's

system with the above assumptions.
                                 TABLE I
                        PORTLAND GENERAL ELECTRIC
                           PRODUCTION EXPENSES
                                  1966
                                                              Dollars*
     Total Generation Operations and Maintenance           $ 1,809,019

     Generation Depreciation                                   648,035

     Allocated Taxes (40.257. of Total Taxes)                 4,667,590

     Allocated Net Income (40.25% of Total Net Income)       8,679,708

          Total Generation Expenses                        $15,804,352

     Purchased Power                                        14,487,051

          Total Production Expenses                        $30,291,403

     Total Power Sold, 1,000's of KWH                        6,375,245

     Production Cost, Mills Per KWH                                  4.751
     * Source:  Statistics of Privately Ownetl Electric Utilities in the
       United States. 1966.   FPC S-186, GPO, September 1967, and FPC Form
       No. 1, Annual Report  to the Federal Power Commission, 1966.   All
       other figures presented in this appendix was derived from, the above
       publications.

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                                                                     23

     Normally, the above production expenses would be allocated to consumers

in the same proportion as their total kilowatt hour consumption is to total

power sold.  However, since the production cost on a KWH basis comes to

4.751 mills whereas the average industrial consumer paid only 4.423 mills,

some additional costs have to be carried by other than industrial consumers.

It was assumed, then, that industrial consumers contributed nothing to

present net income, that power was sold to industrial consumers at cost.

     Consequently, the allocation of production costs to Portland General

Electric's consumers was carried out in two steps.  Costs were first allo-

cated ex-anti net income in the same proportion each consumer class1 power

consumption was of the total power sold, then net income was distributed

to all but industrial consumers.  Table II below presents the production

cost distribution ex-anti net income, and Table III the net income distri-

bution.
                                TABLE II
                       DISTRIBUTION OF PRODUCTION
                       EXPENSES EX-ANTI NET INCOME
Consumer Class
Total




Sold
Residential
Commercial
Industrial
Other
Thousands of
KWH's
6
3
1
1

,375,
,070,
,541,
,646,
117,
245
029
217
355
644
Percent of
Production
100.
48.
2&.
25.
1.
00
16
18
82
85
Total
Cost*





* Derived by dividing power consumed by each consumer class by the total
  power sold.

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                                                                     24
                                TABLE III
                         NET INCOME DISTRIBUTION
Consumer Class
Residential
Commercial
Other
Total
* Derived by dividing each
Percent of KWH
Consumed
48.16
24.18
1.85
74.19
consumer class by 74.19.
Percent of
Total Distributed*
64.91
32.59
2.49


Residential consumers would be assigned 48.16 percent of the production

cost ex-anti net income and 64.91 percent of net income, etc.

     The above analysis, together with the production expense table (Table I),

would yield a total production cost distribution to the different consumer

classes as follows (the "other" consumer class will be dropped):—


                                TABLE IV
                          TOTAL PRODUCTION COST
                    DISTRIBUTION BY CONSUMER CLASS
                       PORTLAND GENERAL ELECTRIC
                                 1966
Consumer Class
Residential
Commercial
Industrial
Excluding
Net Income
$10,408,192
5,225,708
5,580,140
Net Income
$ 5,633,998
2,828,717
0
Total
Allocation
$16,042,190
8,054,425
5,580,140
     A completed picture of the above analysis showing the relevant KWH's

and costs is shown in Table V.
16/  The "other" consumer class includes railroads,  public streets and
     highways, and other public authorities.

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                                                                     25
                                 TABLE V
                           PRODUCTION COST BY
                             CONSUMER CLASS
                                  1965
Consumer Class                         KWH          Dollars      Mills/KWH

Residential, 1,000's of KWH sold    3,070,029
     Allocated Production Cost                   $16,042,190
          Mills Per KWH                                            5.225
     Residential Revenues
     (power bills)                                34,551,189
          Mills Per KWH                                           11.254
     Percent Production Cost of
       Consumer Cost                                              46.43
Commercials, 1,000's of KWH sold     1,541,217
     Allocated Production Cost                     8,054,425
          Mills Per KWH                                            5.225
     Commercial Revenues
     (power bills)                                19,322,109
          Mills Per KWH                                           12.537
     Percent Production Cost of
       Consumer Cost                                              41.68
Industrials, 1,000's of KWH sold     1,646,355
     Allocated Production Cost                     5,580,140
          Mills Per KWH                                            3.389
     Industrial Revenues
     (power bills)                                 7,281,589
          Mills Per KWH                                            4.423
     Percent Production Cost of
       Consumer Cost                                              76.62
From Table V,  it can be seen that total allocated production costs accounted
for 46.4 percent of residential power charges;  for commercial consumer,
total allocated production costs represented 41.7 percent of total commercial

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                                                                      26




charges.  Total allocated production costs for industrial consumer, however,




amounts to 76.6 percent of total industrial charges, reflecting the result




of the reallocation of net income.




     Normal net income on the 1,000 MW nuclear plant was distributed equally




(in percentage terms) when it was merged with the Portland General Electric




system, however.  There are two reasons for this dichotomy in the analysis.




First, the analysis of the costs of the nuclear plant and of the different




waste treatment methods as received from Bonneville Power Administration




made it impossible to separate the net income component without completely




reworking the computations.  Second, the equal distribution of net income




of the nuclear addition would reflect a maximum incremental effect upon




industrial consumers.  Since competitive industrial power rates in the




Pacific Northwest are developing into an important issue, it was felt that




relaxing the "non-uniform distribution of net income" in regard to the




nuclear merger would allow a margin of safety.  To be consistent would re-




quire the same "two-step" analysis as was done in analyzing Portland




General Electric's present status.  Using the "two-step" analysis, indus-




trial consumer rates would have been somewhat lower than the analysis in




the main report shows and residential and commercial consumer rates some-




what higher.

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