Some Highlights of 1965: Energy

NUCLEAR ENERGY. During 1965 seven public utilities announced their intention to erect nuclear generating facilities; the South (Florida) and the West (Colorado)—though the latter only in a highly subsidized way—joined the old-timers in Illinois, New York, and New England. In addition, the principal builders of nuclear equipment let it be known that numerous other utilities were either negotiating or considering "going nuclear." On the strength of this, numerous newspaper and magazine writers heralded the coming of age of the atomic power industry.

But then, many had thought that nuclear energy had "come of age" in 1964. Yet before 1964 was over, two planned reactors, one in New York and one in California, had been wiped off the starting list, and a third, also in California, appeared mired down in serious siting trouble. The bright spot was the 600-megawatt reactor at Oyster Creek, NJ, that turned up late in 1963, survived 1964, and in 1965 entered the construction phase. It is destined to commence operations by the end of 1967, and even the most critical observers have not succeeded in making its planned level of efficiency and cost look anything but promising.

For all the high hopes, 1964 was inconclusive. One would be wise to contemplate the events of 1965 dispassionately.

The facts are impressive. The new nuclear capacity of the seven utilities that announced plans in 1965 totals over 4,000 mw. All are designed to generate power at a cost of around 4 to 5 mills per kilowatt-hour. The seven installations and their net nominal ratings (which represent a conservative estimate in the initial period of operation) are: Florida Power and Light-652 mw.; Dresden No. 2 (Ill.)-715 mw.; Millstone (Conn.)-549 mw.; Boston Edison (Mass.)-600 mw.; Rochester Gas and Electric (NY) —450 mw.; Public Service Co. of Colorado-330 mw.; and Consolidated Edison (NY)-873 mw. All seven were still in the running at the end of the year.

Two factors give one pause. First, the licensing road has turned out to be anything but smooth. As it tripped some projects in the past, so it may in the future. The public in or near cities seems far from ready to welcome a reactor in its midst, on grounds of safety. Elsewhere, as in California, siting has run into seismological trouble, and at times concern for preservation of scenic spots has clashed with utility plans to locate the reactor away from population centers. Sitting affects cost; apparent competitive advantage to nuclear plants could be wiped out by interference with the most advantageous location as well as by delays before or during construction.

Second is the competitive factor. Although the possibilities of nuclear generation are such that it can no longer be ignored as a live option for new capacity, the margins are so slim that any advance on the n nuclear side (such as recent . improvements in coal transportable can reverse the balance. A longed seesaw battle may ensue

An example of the competition was the 1965 decision of the Duke Power Co. of North Carolina to build a coal-burning plant despite its finding that an equal-sized nuclear unit at the same site would produce cheaper power. The reasoning behind this choice was that the company was able to negotiate reductions in freight rates on coal for its entire system which will yield system-wide savings greater than the generating cost differences between the nuclear and coal-burning plots under immediate consideration.

Another example of the close competition was the announcer in late November that Consolidated Edison of New York would add an 873-mw. reactor to its existing nuclear generating plant at Indian Point. Early in 1964 Consolidated Edison abandoned the idea of erecting a nuclear reactor of similar size. Frustrated in its intention to build it in the city of New York, it contended that the added costs of transmission facilities would make location away from the city uneconomical. Hydropower from Labrador, the company said, offered a more attractive alternative. So rapidly do competitive situations, or a utility's judgment thereof, change that in less than two years nuclear energy seems to have regained its position, and at a substantial distance from New York City—a solution available but apparently not as advanced at the time the project was abandoned in 1964.

During the year the two major California utilities displayed a cautious attitude toward the future of nuclear energy in their territory The increased attractiveness of power from remote coal-fired stations supplied via extra-high voltage lines—weighed against the hazards of licensing and public hostility in a state in which it seems difficult to get sufficiently far away from potential seismological trouble to demonstrate safety—is likely to have been a potent factor in removing California from the list of early large customers of nuclear energy.

On balance, nonetheless, the mere fact that more than half-a-dozen large utilities are knocking at the licensing door, prepared to build and operate over 4,000 mw. of nuclear power, suggests that whether or not it has come of age, nuclear power is holding up well under the counterattack of the conventional fuels, a sign of growing maturity.

Overseas, one of the highlights in the nuclear field was the announcement of the United Kingdom Central Electricity Generating Board that a British reactor design had bested an American Oyster Creek-type reactor in the competition to build a second nuclear power plant of well over 1,000 mw. at Dungeness, and that its generating costs would be 15 percent or more below the competitive threshold set by coal. This was the first time that a plant in Britain promised cheaper power than conventional fossil-fuel-fired plants, and the Dungeness report may well signal for the United Kingdom what the Creek project may mean or the United States: the achievement of competitive status for nuclear power, at least in large-sized plants, in substantial portions of the country,

Indeed, one consequence of the award was a revision of the Ministry of Power'd nuclear power program from that announced only one year earlier. The Ministry in October proposed a program to build approximately 8,000 mw. during 1970-1975—almost twice the previously announced figure—so that total installed nuclear capacity by 1975 would be about 13,500 mw. This is about 28 percent of total installed capacity of all energy in the United kingdom at the end of 1965.

Nuclear energy also made news in Eastern Europe. Czechoslovakia in 1965 turned to the West in the search for a nuclear reactor, as Romania had done the year before. In the case of Romania the potential supplier had been the United States, while the Czechs are looking to the United Kingdom.

This, turning point in Czechoslovakia's road to nuclear energy indicates disappointment with ten years of efforts to obtain assistance from the Soviet Union in building a 150m w reactor for operation once hoped for by 1960. The USSR had made similar agreements with Hungary and East Germany. Altogether, Czechoslovakia and East Germany each looked to something of the order of 3,000 mw. of nuclear energy capacity around 1970 as an economic necessity, given the prospect of shrinking Polish coal and Romanian oil surpluses, but of ample domestic supplies of uranium-rich ores. It turned out, however, that the Soviet Union expected the satellite countries to supply the larger part of the nuclear power station components, as well as of construction and technical services. This has delayed the first Czech reactor to the extent that it is not likely to be completed for another two to three years.

The Soviet Union's slowness in assisting Eastern Europe in its nuclear program may not be unconnected with its petroleum export policy. In 1965 Soviet oil exports to the satellites were about nine times their size ten years earlier. Whatever the motives, the experience has caused the Czechs tentatively to look to Britain for a second reactor, variously reported as a 200 mw. or 400 mw. facility. For while Soviet oil is welcome while it keeps coming, independent energy supplies via nuclear reactors are not something lightly foregone.

COAL HEADS WEST. Bituminous coal consumption of about 460 million tons in 1965 was the highest since 1951. There is a radical difference, though, between the two years: then it was a stopping point on the way down, use having hovered just below 600 million tons during the war years. Now the trend is up, and it is almost certain that in less than a decade the record volume of the early forties will have been surpassed.

All this is by now an old story. But one element in coal's comeback did attract attention as it came more clearly into focus in 1965: the push of coal-fueled steam generating plants into western states, long the domain of hydropower, gas, and oil-burning thermal plants, and considered a "natural" for nuclear generation.

Published statistics, still incomplete at the time of writing, show that the increase in utility coal consumption between 1964 and 1965 was about three times as large in the mountain states as in the United States as a whole; there was a similarly pronounced decline in natural gas consumption in the area. But this reflects only the experience of existing installations; with one exception, major coal-burning facilities are still in the design stage.

The exception is the expanding generating complex at Farmington, New Mexico—specifically the Four Corners plant owned by the Arizona Public Service Co. Its entry in 1963 raised the share of coal in New Mexico's utility fuel consumption from 3 percent in 1962 to 28 percent in 1963 and to 44 percent in 1964. If recently announced plans for more than tripling the plant's current capacity come true (it now accounts for almost half of all electric power generated in this oil-and-gas-rich state), New Mexico would become an area in which coal constitutes the bulk of utility fuel. In addition, through interties the plant would become the most important supplier of coal-based electricity to California, and its location guarantees no addition to Los Angeles smog.

Other companies announced plans and intentions in 1965. A 5,000 mw. coal-burning plant, giant by any standard, might go up on the shore of Utah's Lake Powell, burning nearby strip-mined coal and using Glen Canyon water for steam generation and cooling. Resulting electricity would feed into the network that supplies western consumers, including California. Basic agreements were reached in late 1965 between the utilities, the Department of the Interior, the state of Utah, and the Ute Indians who control land and water rights crucial to the project.

Another coal-burning venture, only one-third as large at the outset but even so a consumer of at least 3 million tons of coal annually, is in the making for the southern tip of Nevada, not far south of Hoover Dam. It is supported by the seventeen utilities that form the newly organized WEST energy pool and would equally feed into the coastal grid. Its coal is to come from the Black Mesa country in the Navajo and Hopi reservations of northeastern Arizona and is cheap enough to justify the laying of over 100 miles of new rail track or of a pipeline that would traverse practically the entire state of Arizona.

Thus, there are in varying stages of programming and development something approaching 8,000 mw. of installed capacity in New Mexico, Nevada, and Utah, presaging 15 to 20 million tons of coal consumption per year, and liable to undergo subsequent expansion.

These developments owe much to the improvement in extra-high-voltage transmission that can economically link the West Coast consumer to the low-cost coalfields hundreds of miles to the east. And fuel costs are low indeed: in 1964, the Farmington mine-mouth plant paid $2.22 per ton, equivalent to 12.3 cents per million Btu, while the lowest price of utility-burned gas on record in 1964 in the same state was 13.9 cents, with most utilities paying upwards of 20 cents.

Presumably, it is this low cost of strip-mined coal that has dampened the advance of not only gas but also nuclear energy. But fast-moving shifts in energy costs make it unwise to predict just how long this judgment will prevail. In another part of the country TVA, the most efficient and largest utility consumer of steam coal, hinted strongly in its 1965 Annual Report that it might soon enter the ranks of the nuclear energy generators: "The wide cost advantage that coal once held in comparison with nuclear fuel has narrowed considerably and may have disappeared. Comparative studies of coal-fired and nuclear plants are being made in consideration of future generating capacity." Just before the year was up, it pursued the matter further by announcing that in 1966 it would ask for bids on both conventional and nuclear equipment before deciding which to order for its next 1,000-mw installation.

And, as noted above, one of the four principal utilities in Florida—where the power industry has slowly been replacing oil and gas with coal—let a contract for one of the largest nuclear facilities yet built in this country. Events such as these give one pause in appraising the future of coal in the West. Nonetheless, even a decade ago it would have been hard to predict that future competition in the West might pit nuclear power not only against oil, gas, and hydro, but against coal as well.

NATURAL GAS PRICE REGULATION. A landmark event in the troubled history of natural gas price regulation occurred in the summer of 1965 with the Federal Power Commission's decision regarding ceiling prices for gas produced in the Permian Basin (a geological structure located in south-western Texas and southeastern New Mexico).

Federal regulation of natural gas prices is a direct consequence of a 1954 decision by the Supreme Court in which the Court held that producer's sales of gas destined for interstate transmission were subject to regulation under the terms of the Natural Gas Act of 1938.

In the years since the Court's decision there have been unsuccessful attempts to amend the 1938 Act in order to minimize the scope of federal regulation. The underlying economic question at issue has been whether regulation is required, or whether competition among gas producers is sufficient to insure competitively determined prices for gas purchased in the field by pipeline companies.

At the same time, efforts by the Federal Power Commission to implement producer price regulation have raised the question of the basis upon which prices should be set. The application of traditional public utility standards, which would require the determination of individual company costs of service for gas, proved unworkable because of the joint occurrence of natural gas and oil, and also because of the lack of a dependable relationship between the amount of money spent on exploration and the quantity of oil and gas discovered.

The Commission decided, therefore, to regulate prices on an "area" basis rather than on the basis of the individual company's cost of service. The idea was to establish fair prices for each of the principal gas-producing areas of the country.

The Permian Basin decision is the first area price determination completed by the Commission and is meant to be a model for other regions. In the decision the commission prescribed two ceiling prices for gas produced in the area: a higher price for gas produced from new gas wells (i.e., gas found in wells separately from oil), and a lower price for all other gas. The stated purpose of this distinction is:

a) to encourage the industry to search for gas as such, based on its presumed newly-developed ability to channel exploratory activity toward the discovery of gas rather than oil and

b) to prevent windfall profits to others, including old producing operations and the discoverers of oil-well gas.

This ruling has been vigorously attacked on legal and economic grounds. Producer price regulation is still far from being an accepted aspect of gas industry operations.