Atomic Energy of Canada Limited

PROSPECT OF VERY LOW COST POWER FROM ONTARIO HYDRO

BASED ON URGE CAPACITY NUCLEAR GENERATING STATIONS

DM-112L

by

W . BENNETT LEWIS

l> I

V*. " * .

I *

) , T U

Ch«lk River. Ontorio- 5 - • * *

DM-112

PROSPECT OF VERY LOW COST POWER FROM ONTARIO HYDROBASED ON LARGE CAPACITY NUCLEAR GENERATING STATIONS

by

W. Bennett Lewis

ABSTRACT

Statistics from the Annual Reports on Ontario Hydro show thatfrom 1948 to 1968 the average price of electric energy sold roseonly from 5.27 mill/kWh to 7.57 mill/kWh. Over the same periodthe price index for the Gross National Product rose by a factorof 1.74. The equivalent 1949 price of power sold in 1968 isaccordingly only 7.57/1.74 =4.37 mill/kWh.

It is shown how by the use of heavy-water-moderated nuclearpower generating stations and their further development, thecost of" power sold could be brought down in less than 50 yearsof continued expansion ,even at as high a rate as 7% per year,from 7.6 mill/kWh in 1968 to the range 6 to 4 mill/kWh interms of 1968 dollar values. It seems, however, inevitablethat the price must first rise in order effectively to eliminatethe debt now standing at over $250 per kilowatt of peak capacityon the whole system.

It is shown that the future low cost can be reached most quicklyby

(1) ceasing to borrow money as soon as possible, whichwill entail a temporary price rise of 2 to 5 mill/kWh,

(2) following a planned program for purchasing equipmentthat will enable manufacturers and suppliers to learnthe necessary techniques while holding no monopoly,nationally or internationally,

(3) devoting about 2.5% of revenue or 0.2 mill/kWh toimmediate known and specifiable nuclear reactor andsteam turbine development, and

(4) slowing the rate of committing conventional thermalplant construction and halting future commitments whennuclear generating stations are satisfactorily xnoperation.

August, 1970* AECL-3686

On prévoit qu'une énergie très bon marché sera fournie par

la Commission électrique ontarienne grâce a

ses centrales électronucléaires de grande capacité

par

W. Bennett Lewis

Résumé

Les statistiques extraites des Rapports annuels de laCommission électrique ontarienne montrent que de 1948 à 1968 leprix moyen de l'énergie électrique vendue n'est passé que de5.27 mill/kWh a 7.57 mill/kWh. Durant la même période l'indicedes prix du Produit national brut a été maj oré par un facteur de1.74. Le prïx équivalent en dollars de 1949 de l'énergie vendueen 1968 n'est par conséquent que de 7.57/1.74 = 4.37 mill/kWh.

On montre comment, en employant des centrales électro-nucléaires modérées par eau lourde ayant été perfectionnées, lecoût de l'énergie vendue pourrait être ramené en moins de 50 ansd'expansion continue (même a un taux aussi élevé que 7% par an)de 7.6 mill/kWh en 1968 .a 6 ou 4 mill/kWh en dollars de 1968. Ilsemble, cependant, inévitable que le prix commence par augmenterpour que soit effectivement éliminée la dette qui s'élève actuellementa plus de $250 par kilowatt de capacité maximale sur l'ensemble dusystème.

On montre que le faible coût de l'avenir pourra êtreatteint plus rapidement:

1) en cessant d'emprunter de l'argent aussitôt que possible, cequi entraînera une augmentation de prix temporaire de2 a 5 mill/kWh,

2) en suivant un programme planifié pour acheter l'équipement, cequi permettra aux fabricants et atK^fournissèursd'apprendreles techniques nécessaires sans exercer de monopole nationalou international,

3) en consacrant environ 2.51 du revenu ou CU2: iiiill/kWh audéveloppement des réacteurs nucléaires dont les spécificationssont déjà connues et a la mise au point des turbines à vapeur, et

4) en construisant moins de centrales thermiques classiques et encessant complètement d'en construire lorsque les centralesêlectronuclêaires fonctionneront de façon sat isfa isante .

AECL-3686

PROSPECT OF VERY LOW COST POWER FROM ONTARIO HYDROBASED ON LARGE CAPACITY NUCLEAR GENERATING STATIONS

by

W. Bennett Lewis

1. Introduction

It is well known that Ontario Hydro sells energy to its customersat cost. A relatively small balancing fund absorbs deficits inadverse years and surpluses in fortunate years. There is,however, a basic option which has been exercised very skilfullyover longer periods, namely the ratio of borrowings to currentrevenue that is applied to system expansion to meet the growingload demand. Assuming the demand is always met, then over along period with negligible inflation, borrowing inevitably coststhe customer more. Since World War II, however, the sustainedand relatively steady growth (Fig. 2 C & D) has been accompaniedby a degree of inflation higher than a majority of investorsanticipated, so that even fairly long term bond issues have beentaken up at interest rates that in retrospect appear low.Because of this successful borrowing and the limited fraction ofcapital that was borrowed, the extra but deferred cost to thecustomer has proved small and very acceptable. The excellentresults achieved are shown in Fig.l and repeated on a logarithmicscale at A in Fig. 2, These graphs are constructed from theannually published statistical summary of energy delivered tocustomers (kilowatt-hours) and net revenue (current dollars).From these the^ost to the, customer of the net Ontario Hydrooperations is directly calculated in milli-dollars per kilowatt-hour (m$/kwh)*. It is shown both in terms of current dollarsand in 1949 dollar values, the latter being derived from t h e - •Gross National Product expressed in these two values published 5by the Dominion Bureau of Statistics (see, e.g. Canada Year Bookand B in Fig. 2). Both the low level of the cost of energy andits significant decrease over the years in constant 1949 dollarvalues seem highly commendable achievements. The net revenuein 1968, $414.96 millions, the last year for which full figures

*Note; This form of writing mill/kwh conforms with the metricinternational system (S.I,) of units recently adopted by OntarioHydro

- 2 -

are as yet published shown in Table 1 was, however, only 53% ofthe "simplified" cash-flow-in of $778.69 for the year shown inAppendix 1 in Table Al, since new borrowings (bonds and notes)account for 44%« It is of interest to consider how the opti-mum ratio of borrowing to revenue is likely to change in thefuture. The expenditure on fuel used (7% of cash flow or13.25% of revenue in 1968) is also subject to choice, since itis generally possible to save construction expenditure by allow-ing higher fuel costs.

It may be noted that the cash-flow-out shows expenditure of$M2Q9.21 or 27% on past financing, which in the extreme couldhave been zero if all initial debt had been amortized fromoperating revenue at the expense of a higher price rate forenergy sold. (A parenthetical caution may guard against draw-ing a wrong conclusion from the mention of a higher price.Recently there have been pronouncements against the inflationaryeffect of price rises. It would, however, seem that a priceincrease paid by Ontario Hydro customers in order to reduce therate of increase of payments to creditors is anti-inflationary.In general a price is composed from (1) wages, (2) profit, (3)materials and other purchases, (4) efficiency and (5) paymentsto creditors. In this case profit is zero and it is expectedthat the trend of increasing efficiency shown between 1953 and1968 will continue. Wages and purchases are tightly linked tothe inflationary climate. Payments to creditors, if proceduresare unchanged, would increase even more rapidly than inflationbecause at the present time fiscal policies are being appliedthroughout the western capitalist system by which interest rateshave been made high with the object of curbing inflation.Ontario Hydro acts as a service to industry. To curb inflationindustrial expansion should depend on its own individual creditand not on a universal credit such as supplied by Ontario, Hydro.It is"shown later that iiit the absence of"•".irtflatiori, ;not^even atemP°*ary gain is achieved by continued borrowing by dhtarib Hydroonce the true interest rate matches the *ate of expansion of thes t ) ' ~ • •- • , , . . . . . . . - , •

The prime -re spons ibi lity of Ontario Hydro to make electric poweravailable to the people of Ontario at the lowest cost may wellbe interpreted with a fairly long span of years in mind. Iaving-on-credit, which is always cheaper now, is not to be preferredexcept in a depression. A proper plan of financing; such asOntario Hydro has customarily followed, is necessary, if only tofulfil its .responsibility. The optimum plan: will change with therate of expansion of the demand, the rate of bond interest, the

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d eg r ee ?f concern over inflation and as a new element on thescene the changing relative economies of the potentially avail-able sources of energy, conventional and nuclear, and of thetypes of nuclear reactor and fuel cycle. Moreover, it isimportant also to consider the optimum use of hydro resources,in particular the extent of water storage in conjunction withextra turbines for higher peak flows.

2. Review and Projections

Only a brief explanation of the review and projections shown inPig. 3 will be given first and then the conclusions will bediscussed. Only a little of the great mass of detail fromwhich Pig. 3 has been constructed will be discussed in the maintext, most appears in the appendices.

Looking at Pig. 3 it may be noted that from 1948 to 1968 allinformation is derived from the annual reports of Ontario Hydro.Some other aspects have already been shown in Figs. 1 and 2.Both the alternative projections labelled "coal" and "nuclear"in Fig. 3 assume expansion of the system continues thereafterat 7% pel* year. If the expansion rate were less the charge forenergy to the customer would be less for some time but in thevery long term following a nuclear policy the advantages of largescale operations result in a lower unit cost. Moreover, naturesets no attainable limit to nuclear capacity.

In the projections, from 1968 to 1988 the debt on the system isheld constant at $2,400 million, but the average interest raterises from the 1968 average of 3.5% to 6.5% determined largelyby bonds already issued. So much of the program is alreadydetermined for both nuclear and thermal generation, because ofthe lone/ construction..times., that little separation, occur a.between.the costs following a maximum coal: or maximum nuclear-poiicybef ore1984. Thereafter, however, the separation is quitei rapid. " Astep increase of 3 m$/kWh in the rate charged to customers is shownat 1968. The sooner and the more abruptly this or an even largerincrease is applied, the sooner and the greater is the overall longterm reduction. Since Ontario Hydro operates at cost it is only ^the asssessed benefit to the customer that is at issue. It is quitepossible to spread the initial increase over 4 or 5 years and thisis discussed later. By keeping the debt constant at $M24O0 whilethe system expands by a factor of 4, it becomes possible to move 'towards; eliminating the debt completely with only the small temporaryincrease shown at 1988. . : • • • ' ' i - • " • : - ' ' ' • - ; • • • "T "^r'-: ' .-••, -r• ~.K

- 4 -

As shown the debt Is finally eliminated f 21 tyears;/later at 2009,when if the nuclear route is followed;;the: average, charge dropsbelow 6m$/kWh, As-indicated in the heading on Fig. 3 allvalues after 1968 are expressed in 1968 dollar values but theprospect of currency inflation does not necessarily change theoptimum choice of route.

Fig. 3 does not show as successful and rapid a reduction in thecost of energy in constant dollars as was achieved between 1953and 1968 as shown in Fig. 1 when the expansion rate was muchgreater than the interest rate on borrowed money. There is,however, a prospect of a greater reduction than shown in Fig.3,with the continued development of nuclear technology. Somedevelopment is assumed in Fig. 3 but not as much as appearstechnically possible.

Attention mayibe drawn to the magnitude of the operations andpossible savings, shown by the scale at the top of Fig. 3.Between 1948 and 1968 the scale corresponds to the actual inc-rease in the energy, sold per year. After 1968 the scalecorresponds to the postulated increase at 7% per year. Forexample; the cost difference shown for 1988 between the coaland nuclear routes is 0.8 m$/kWh and from the scale above corres-ponds to a difference of $170 million per year at that dete.Twenty years later the difference is 1.8 m$/kWh or $1477 millionsper year and another ten years later 2.2 m$/kWh or $3550 millionsper year, even in 1968 dollar values.

Even the difference for 1988 indicates that the absence of anydevelopment program in AECL on the most promising line of theorganic-cooled heavy-water-reactor with thorium (valubreeder [VB])fuel at the present time merits the attention of Ontario Hydro onbehalf of its customers. The planned expansion at the WhiteshellNuclear Research Establishment has been slowed by the Federalausterity. An immediate contribution from another source of anextra $5 million a year (i.e. 0.1 m$/kWh for the 1968 operation)would take many years off the eventual development date. Thegreatest advantage foreseen for the organic coolant is the savingin radiation exposure or "man-rem", but there is also much higherefficiency, 36 to 39%, instead of 29 to 32%, a much lower heavywater inventory, only 1/6 kg D2O/kWe, a smaller reactor and al£.oso much less fuel changing that on-power fuelling, or at leastfuelling at high temperature and pressure may be unnecessary.The reactor vessel for a CANDU-OCVB-1500 MWe reactor would baabout the same size as that for the Gentilly eANDU-BLW-250 MWereactor arid smaller than that for a Pickering CANDU-PHW~500 MWe

- 5 -

reactor. Some development of the steam cycle and turbine alsowould bear promise.

Having shown the attraction of^ the debt-free nuclear route re-vealed by Fig. 3 some explanation of the assumptions on which theprojections are based may be desired. Both conventional andnuclear thermal generating stations may be charaqterised by

(1) a capital cost per kWe capacity

(2) a construction time

(3) a lifetime

(4) an annual maintenance and operating costper kWe capacity (excluding fuel)

(5) a fuelling cost per kWh

(6) an annual utilization - full power hours per- year at maturity (4 years after in-service date).

The construction time is taken care of by charging interest duringconstruction and applying it to the capital cost. Where moneyis not borrowed the system expansion rate of 7% per year may beused as the equivalent interest rate for internal book-keeping.The total capital charge which includes also commissioning andteething trouble costs and site costs is then applied at the "in-service" date. The annual maintenance and operating cost,excluding fuel, are assumed the same for both types at about0.3 m$/kWh for large units in multiple unit stations.

The costs assigned are (in 1968 dollars)

Years

1968-20181970-19801981-19841985-19881989-2018

NOD-2Supplement

CapitalSkWe

120II

II... "-

;.~s\ii '. •" '

It

143

Conventional * •Fuelling UtilizationmS/kWh hr/vr

. ' 3 . 4 " •:••••

II

II

•• ." i t

• .•?;•;. n • • . . •,

3.11

6000II

If

i t •

11

7000

1 Capital-S/kWe

250220180160

254

- - Nuclear'Fuelling."> mS/kWh

0.70.511

, . „ ....0;55

Utilizationhr/vr

7000. . ; , . • «-;. i V . , ' :

- • it . ^

7000

• • " • ' • • 1

The bases for-these assignments are discussed in Appendix;2. Inthe last line the values quoted in the 190 Supplement to OntarioHydro's paper NOD-2 presented to the World Pow^r Conference inMoscow in 1968 by L.G. McGdnnell/ are given for ready comparison;

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2.1 Smoothing the transition

Althoughitis quite rational to argue that the sooner borrowingat high_interest rates^stops, the sooner will' tlie cost of energyfall, yet any abrupttransition in a synsffcem of high momentum isliable to be disruptive and unacceptable to many customers * Theeffect of choosing to smooth the transition over a few years isshown in Fig. 4, After .1988 the Coal and Nuclear projectionswould continue much as in Fig. 3 but marginally higher since thedebt is $2781 million instead of $2400 million.

Effects of Debt Policy

Since Figs. 3 and 4 are very much complicated by the realitiesof the current Ontario Hydro commitments, the effects of followingsome different chosen courses in debt management are shown isolatedin Fig. 5. Before studying Fig. 5 in detail it should be notedthat the "Debt Payments" curve in Fig. 3 is not of the same family.-Theh^Payments^ in Fig;, 3 are those corresponding to the Cash Flowpaymentsof Table Al in Appendix 1, where the convention followedis 1:hat "Redemption of Bonds" is a payment independent of whetherthere is any reborrowing by Bond conversion.

The; cury^s in Fig. 5, on the other hand, are strictly the netcontributions from debt financing to the price that has to becharged for energy. The contribution is the sum of the interestand bond redemption (including repaid advances) minus the newborrowing. The contributions can be negative as shown by curve A,if the borrowing is sufficiently large.

For sustained expansion borrowing is temporarily profitable, pro-vided the interest rate is less than the rate of system expansion.This is illustrated by curve A which shows zero price reductionwhen at 1992 the average interest rate is assumed to reach 7.0%,the rate of expansion of the system. A very high debt>however,is being carried ($13,000 million at 1992, still $267/kW peakcapacity) and if the rate of expansion of the system should slowdown, or if it were decided to reduce the debt, the price chargedwould have to rise. The (perhaps extreme) case of paying offthe debt in 20 years is illustrated by the upper continuation ofcurve A from 1993 to 2013.

A sudden decision in 1968 to pay off the debt in 2Q years wouldhave had a similar effect as Tshowh by curve B. The smallri™ e?? e i s ^ ^ ^ ^ * » f i n i a f rate of interest that for allShf *%£ e! "^^yr*^01"^-5* to^,5% between 1968 and 1988.Ivl I'll " ^ J f ^ ^ ^ ^ y derived from the; 1968 Annual Report,the 6.5% is indicated by the higher rates on bonds already issued

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but involves a projection that can only be guessed. 7.0% isreached by 1992.

Because there seems to be no strong reason for paying off alldebt by 1988, the course of curve C was followed for the projec-tions in Fig. 3 already discussed. Following curve C the courseof paying off the whole debt in 20 years is taken in 1989 and thesystem is debt-free after 2009.

To smooth the large sharp transition in 1968 of curve C the courseof curve D was followed for the projections in Fig. 4. Forcurve D the rate of debt increase is reduced over the initial5 years from 7% through the sequence 5%, 4%, 3%, 2%, 1% to zero.After 1989 the whole debt is paid off with the same annual $M12Opayments as for curve c. The system is debt-free after 2012*It is quite rational to argue that for a system that is sure tocontinue to expand at 7% per year it is wise to borrow even at7% interest, on the basis that a 7% interest rate includes acomponent for inflation. Two points, however, would be left tochance, the rate of system expansion and the rate of inflation.Now that investment in electricity supply is a significant fractionof the total industrial development, the choice of the source ofits funds cannot be considered immaterial, either to industrialor to currency expansion*

The two essential advantages of reaching a debt-free condition areflexibility and the saving of payments to creditors*. There are,however, two others. At a time when interest rates are high andmoney is scarce, for whatever cause, there is a pressure tominimize construction and development expenditure even though byso doing the total expenditure on fuel, and inefficiency, is muchgreater in the long term. In a debt-free condition it is possibleto take full advantage of technical development, such as in prospectfor nuclear energy.

The Process of Technical Development

Any manufacturer expects to be able to supply equipment on a repeatorder at a lower cost than experienced on a first orde , but notnecessarily at a lower price than tendered for the first order.At the same time his experience is likely to suggest an improvementof design that would reduce the cost still further. An improvementof tooling may also be recommended, the cost of which would besaved if a sequence of items of one design is produced. Theseconsiderations are well known generally and represent savings due

*To Fiqv 4 and curve D of Fig. 5 the interest alone contributes 1.533 m$/kWhin 1968 and 0.852 m$ in 1988. The fall is due to the system growthexceeding the growth of the interest, After 2012 the interest is zero.

- 8 -

to "education" or "learning" that did not appear specifically inthe initial estimates.

At the same time it is recognised that the spur of competition isnecessary to maximise the worth received by the customer. Thewell known procedure of competitive tendering is suitable wherethe product or a construction service are so well established thatthe labour and management involved may be considered fully educated,and the operations are routine. Particularly, however, in theconstruction of electric generating equipment and stationstechnical development is so rapid that "education" or "learning"is a major component of each project. Under these conditionscompeting tenders must be evaluated with knowledge of the degreeof learning available. Moreover bonus and penalty clauses maybe useful to ensure that the "learning" is in fact applied- tothe job.

Moreover a separate development laboratory or organisation maycontribute significantly to the "education" of the supplier.Tiie pro<jess;:--'Is':::-c6stly""ahd:'-the customer cannot afford to spreadit too widely.

All the above considerations lead to the selection of a small number,probably only two or three, suppliers for each item or assemblyrequiring the new learning.

There is no ready solution to the dilemma of staying with an exist-.ing but imperfect design or choosing an unproved but more promisingone. It will always remain a matter for responsible judgment. Itis usually advisable also for someone else within the same or anotherorganisation to be not only allowed but encouraged and financed todevelop the more promising line, so that when the point of decisionrecurs the ruling is more likely to turn in its favour.

These points are made here not because they are novel. Theylargely arise from AECL and Ontario Hydro's experience in nuclearpower development. They need, however, to be remembered, for theprocess of technical development of generating stations seeks farfrom its end. At the present time the means for the necessarydevelopment are under-employed. ^ ^ -

Development seems needed not only in nuclear reactors and auxiliaryequipment but also in steam turbines and steam cycle; equipment,Promising avenues are recognised but are hot being followed forlack of funds. Bearing in mind the rapid expansion of the OntarioHydro system where new construction is a large fraction of revenueand even of total cash flow, it would seem reasonable to assign asmall fraction that may be only 2.5% of revenue or 0.2 m$/kWh to

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immediately specifiable nuclear reactor and steam cycle develop-ment. This is a slightly higher figure than suggested on page 4in the narrower context of nuclear reactor development alone.

The prospects for nuclear and conventional thermal stations

The outstanding long term difference between nuclear and conven-tional thermal generating stations is the fuelling cost. What-ever happens to the price of uranium, the neutron economical heavywater reactors can expect fuelling costs with plutonium sale orvalubreeder fuelling to remain in the range 0.3 to 0,6 m$/kWh.This corresponds to coal at 3,3 to 6.7 $/MBtu. As already notedfrom the NQD-2 Supplement, the cost of. coal delivered in Ontarioat about $9/short ton is about 34*/MBtu. Although there is a goodprospect of oil delivered in Ontario at a lower price, it is stillseveral times that of nuclear fuel.

With heavy water in prospect at $40/kg and with the CANDU-OCVBat 1/6 kg D2O/kWe, the inventory cost is only $7/kWe. The netstation efficiency would be just as high as for conventional fuel.With the "learning" component looked after as discussed above,the capital cost for 1500 MWe nuclear units should not be morethan $40/kWe higher than for the conventional station.

It is true that nuclear stations do not yet have capital costsbelow about $250/kWe but the "learning" process is by no meanscomplete, and there are significant improvements waiting fordevelopment. For the meantime it is justifiable to take someof the benefit froc he lower capital cost of $120-140/kWe ofthe conventional thermal station but as the record shows, evenin 1968 the cost, of coal contributed 1.0 m$/kWh to the cost ofenergy for the whole system, including 7% purchased energy.As soon as nuclear generating station performance promises goodavailability it will only postpone future price reduction toconstruct any more conventional thermal stations.

The promise of water storage development must also be kept inmind to reduce the idle time of more costly generating capacity.

TABLE 1

ONTARIO HYDRO STATISTICAL SUMMARY

Year

194719481949195019511952

19531954195519561957

19581959156019611962

19631964196519661967

1968

PeakCapacity

MW

205021662282273029423353

35654135453045524844

57616155652667347088

77567776819984648995

10338

AnnualEnergySold

MkWh

1212712623140741663217728

18574*19909*23888*26802*28288*

28599*32073*343173480736684

3846641115442134794450725

54816

NetAnnualRevenue

MS

636984

102112

136143162183197

198213229.2235.7249.3

269.5288.Bl311.30336.44336.72

414.96

m$/kWhsold

5.205.475.976.136.32

7.327.186.786.836.96

6.926.646.6796.7726.796

7.0067.0247.0417.0177.230

7.570

Price of Enerqy

Price Index$/(1949)$

_1.001.03061.14141.1981

1.20321.23211.23781.28451.3231

1.34831.38321.40381.41281.4364

1.46011.49711.54071.61181.6747

1.7393

Sold

m(1949)$kWh sold

-5.475.795.375.27

6.085.835.485.325.26

5.134.804.754.804.73

4.814.704.564.354.32

4.35

Bonds, notesand advances

H$

274.40416.79570.86690.33862.29

1040.481161.631208.331392.491572.60

1691.481787.151845.261918.29t1937.81

1958.811999.272106.122237.002399.75

2618.06

$/kW

126.69182.64209.11234.65257.17

291.86280.83266.85305.91324.65

293.61290.36282.76284.86t273.39

252.55257.11256.88264.30266.79

253.25

* revised valuest given elsewhere as 1919.49 & 285.05

TABLE 2

EXPENDITURES ON CAPITAL CONSTRUCTION

FROM TABLES IN "PLANNING, ENGINEERING AND CONSTRUCTION" SECTION OF ANNUM. REPORTS

(Thousands of Dollars)

Year

1948'19491950t195111952

!l953".:

1954195519561957

1958:1959196019611962

1 9 6 3 '•!196419651966 ...1967

'1968'"

Generation

48,12279,47286,63794,267

t 96,682

117,31176,64968,483

128,245151,738

• 126,20498,25182,50677,93959,741

49,30155,90890,420

.131,900154,889

192,772

Transformation

12,83919,17228,02525,14322,954

21,71115,36012,62413,46417,302

2b,68820,78816,62410,69311,754

12,10915,77518,73422,59330,128

38,270

Transmission

! 14,36922;06i30,34617,88615,628

15,44416,09110,82311,42419,295

20,80612,15912,23011,44621,118

22,39116,25019,72721,60726,774

53,439

Distribution

*13,514*23,827*19,521*22,725*23,033

25,36920,68919,17317,45917,581

19,98019,99618,12018,95413,102

18,07318,62318,06620,25622,280

23,276

Other

1,8335,5846,9514,5974,534

3,8004,0293,4692,4112,776

2,9782,9102,5594,6243,709

6,2832,5653,004

**14,908**18,075

**21,583

Total

90,677150,116171,480164,618162,831

183,635132,818114,572173,003203,692

190,656154,104132,039123,656114,424

108,157110,121149,951211,264252,146

329,340

CumulativeTotal

90,677240,793412,273576,891735,722

923,3571,056,1751,170,7471,343,7501,552,442

1,743,0981,897,2022,029,2412,152,8972,267,321

2,375,4782,485,5992,635,5502,846,8143,098,960

3,428,300

t 14 mo.

* Rural only - remainder in other

** Includes tools and equipment

to

i

- 13 -

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Tota

lm

$/kW

hso

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To

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M$

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1.32

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1.9

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1.7

63

2.19

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vo o r - oi coH CM CM CM CO

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MDOCOrl!-• H 00 rH COVO H I " VO 00

90.

150.

171.

164.

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1948

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I i i i i

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H H

CO VO O CM tm m CM CM co

CM ( N CM CM CM

!-• H vo m r»oo t- on m r-

en VD " vo r-

oo TT in co oo ocn co n

m vo on m on^ oi r T coCM H H I M CM

1 1 1 1 1

H CO CO * * CM

vo v co m on

(O N-HN ft

CMCOOH VOCO O B t-> Ho H vo m • *oo H IN on toTT m m m vo

moo CN co CMC O H r» o onvo oo m o to

00 CO H P» OH H H H CM

,, rr»inior~in m m in inon on on on on/

4.2

91

3.6

82

CMin CMOH

518

3655

CO VO

1 1 O CO

o o

U> H in VO CMvoinon

cnr .vov* * ,

• * vo vo in cor- t - CM ei vo

CM CN CM CM CM

vo in oo co en

to co co in H

oo H in co oP* H CO O COon o en m vo

CM r- •>* oi m

CM CM CN CN CM

CO COCM in

1 1 « CM ' « * •

CM CO

H

u> enl~ H onCM O U f l N^* i?vo r™" Is*

s* ro co co ^J*

vo oo on co cnen on CM co H00 fO OD OD O

r*- os cn on coto r- * - r- oo

V O T on to • *in o co m CM

o«s- ss co • *oi m co CM H

00 Ol O H CMin m vo vo vo

"cn^oi oi on oi1

* M on vo VDto *<• m o "G

cn CM H «i r-

7653

.84

45.

1065

5.10

228.

1291

6.

.689

368

6480

9572

6G87

76

ooooo

m m oo oo enon to !-> en * *

vomvovooo

CM CO CM CM VO

CM H O [M CO

CM CN CN CM CM

CM 00 CM r - H

00 VD CO * CF)

CM CM CO V I 1

vo m H o f-vMomin^r in o m ooP I ** en co CMCM CN CM CO "W

vo co CM vo on

vo oo in • * •»CM CM ra co ^*

.930

.166

.032

.283

.412

^ f DO CO CO CM

HHHHH

H H CO 00 VOv o w to oo

in oo CM r- onat oo on o H

r^r-i O1 CM H

oo o on H CM

r^r^ H CM CM

(o •«* m to f - ,vo vo vo vo vo

- cn an on on on -

3.4

82

CO

1577

3.00

21

H

792

O1

2.4

57

008

vo

00

536

.930

i*

m

.830

t-H

.681

| 13

4.3

4032

919

68

TABLE 4

COST OF CONSTRUCTION PER EXTRA KILOWATT PEAK CAPACITY

Year

194719481949195019511952

19531954195519561957

19581959196019611962

i9631964196519661967

196 8

Peak Capacity

TotalHW

205021662282273029423353

35654135453045524844

57616155652667347088

775677768199

i 84648995

10338

inc.HW

0116232680892

1303

15152085248625022794

371141054476 i4684

.5038;

i, 57065726614964146945

8288

Assumed

Cumulative Costsfrom Table 2

Gener.H$

048122

127594214231308498405180

522491599140;667623795868:947606;

: . r '•:f : : -.

1073 81011720611254567;

1332506!1392"247i;

14415481497456 i158787617197761874665

2067437

mean see

TotalMS

90677240793412273576891739722

9233571056175117074713437501552442

17430981897202202924121528972267321

23754782485599263555028468143098960

3428300

Fig.A-1

Costs per <sxtra kW peak capacityfrom cumulative increasesGener.$/kW

549.974315.046345.850310.959

344.879287.357269.203318.093339.157

289.359285.520280.288284.480276.349

252.637261.519258.233268.129269.927

249.449

265

Total$/kw

1037.905606.284646,739567.707

609.477506.559472.075537.070555.634

469.711462,169453.360459.628450.044

416.312434.083423.614443.844446.215

413.646

435

DifferenceS/JcW

-—

291.238300.889256.748

264.598219.202202.872218.977216.477

180.352176.649173.072175.148173.695

163.675172.564170.381175.715176.288

164.197

170

Utilization relativeto peak capacity

hr/yr

5598.805531.55.5155,315653,305287,21

5210.104814.755273.295887.965839.80

10 year Av-4964.205210.895333.595168,845175.51

4959.525287.425392.495664.465639.24

10 year Av.20 year Av,5302.38

21 year Av,

5300

5425.20

5279.625352-41

5350.03

I

- 15 -

FIG. 1

>/

h/

VJ\

m$/kWh SOLD

\ - **—

m(1949)$/kWh SOLD

/

1948 1952 1956 1960 1964 1968 1972 1976

YEAR

in f\j

s

•o

PEAK CAPACITYMkW

cr -M oo *o ( - • ui ISJ

. . . . - . . .

\ ;,. i j X • :;

v v ; . . ; \ r • . - • • '

^ : .

\

\

\

1%A

\\

\

s

%Vv%

X

\\

A

\

\

\±

I JRIC

EIN

DE

111*

\

\

\

1I/(

SI//5

\

-Xi

1\

o

000

o

000

o

000

vno

000'

o

000'

o

000' s

000'

-oo,000

oo,000

CT3

(S3

ENERGY SOLO GWh/yr

- 17 -

F IG . 3 ONTARIO HYDRO OPERATING EXPERIENCE TO 1968AND SUGGESTED PROJECTIONS

FROM 1968 IN 1968 DOLLAR VALUESFOR 7% ANNUAL EXPANSION

MILLIONS OF DOLLARS PER YEAR CORRESPONDING TO 1 m$/kWh

28.60 54.82 107.80 212.06 417.15 820.60 1614.25

CHARGE TO CUSTOMERS FOR ENERGY

DEBT PAYMENTSINm$/kWh SOLD

1948 1958 1968 1978 1988 1998 2008 2018

YEAR (AT CALENDAR YEAR END)

- 18 -

FIG. 4 AS F IG. 3 BUT WITH THE 1968 TRANSITIONSMOOTHED OVER FIVE YEARS

12

10 •

f

, CONSTANT\1968 DOLLARS

N

CURT

k—^RENT3 1%

/

/

rr 1DOLLARS8

s\— COAL

— - =

^^^NUCLEI• * ^ ;

;R

— —

1948 1958 19fe8 1978 1988

YEAR

1998 2008 2018

- 19 -

FIG. 5 EXAMPLES OF DEBT CONTRIBUTIONS TOPRICE FOR ENERGY

SHOWN AS DIFFERENCE FROM 8.00 m$/kWh SOLD

14

12

10

oto

E 6

— A

BC

D

FORINTELINECONS1992DEB1DEB1THE*DEB1HELI$M1.

B

C

D

A

ALL CRESTARLYTANT> - 201' OF -JVCONSi DISCr OF) CON:20 PEI

\\

y/I/

\

URVES SYSTRATE RISESTO 7.0% ATDEBT PER K3 DEBT DIS

JM2400 DISC5TANT-AT $^:HARQED AT(M2400 RISE3TANT TO V\ YEAR

* * *

EM EXFROM1995

1L0H/1•CHARC.HARGE12400$M12(

:s TO?88 T

BA

PANDS3.5SHT > O

TT CHiED A1:D ATFROM

) PERJM27

€ N D

AT ;AT '

i CON:PACI"

r $Mb'$M12(1968YEAR

31 BYSCHA

\

C * 1

'% PER968

5TANTrY TO50 PER3 PERTO 19

1973RGED I

\

YEAR

1992YEAF

YEAR88

THENIT

>

_t._.... .,..L

A

—

4 —

1948 1958 1968 1978 1988YEAR

1998 •2008 2018

- 21 -

Appendix 1

APPENDIX 1 - CASH FLOW AND BOOK-KEEPING ANALYSIS

Tables A-l and A~2 taken together combine the information from thefinancial "Statement of Operations" and "Balance Sheet" for 1967and 1968. Every item in the "Statement" and every change for theyear in the Balance Sheet is included and because both these accountsbalance, the composite must balance. However, the division between"Cash-Flow" and "Book-keeping" is to a small extent arbitrary,because of incomplete information on assignment of the charges in"Fixed Asset Retirement" and of interest on certain small funds.

The basic principle for constructing the Cash-Flow account is thatit should represent all cash transactions between Ontario Hydro andany other organization, together with direct payments for construc-tion, operation, maintenance and administration. All other itemsare assigned to the Book-Kaeping Account. Between the Cash-Flowand Book-Keeping Accounts there is essentially only a single nettransfer item, that is determined arithmetically, so that each ofthe two accounts balances individually. It happens that for bothyears certain small transfers to Operations and Construction werespecified and these appear in the "Cash-Flow".

The abbreviations used in Tables A-l and A-2 are as follow:

"p.107" etc. refers to a page number in theAnnual Report for the year.

Accounts given in the Annual Reports areidentified as

Ops = Financial Statement of Operations

Bal = Charqes for Year in Balance Sheet

D.C. = Deferred Charges and other Assets

F.A. = Fixed Assets

C.A. = Current Assets

C.L. = Current Liabilities

D.L. - Deferred Liabilities

Inv. = Investments

Eq. = Equity (1968)

Cap S R = Capital & Reserve (1967)

- 22 -Appendix 1

Note:

The "Statement of Source and Application of Funds" accounts havenot been used directly because these statements include itemssuch as "Depreciation charged to variousoverhead accounts $8.68million (1968)"and "Other items $3;31 million" which are notnegligible nor identifiable in detail. No assignment in theCash-Flow and Book-Keeping accounts appears inconsistent withthe relevant "Statement of Source and Application of Funds",

TABLE A l

.• C A S H ' F L O W " ' V '';".:.;•'•,. • • ;••';

; SOURCES (IN) (+)

New Borrowing; Bonds Issued, & Notes (net)Operations' Revenue ?••- ' : '\- • ::

Sale1 of Secondary EntirgySale; of retired Fixed AssetsProvi of Ont, for Rural Construction

From stabl. reserves for retail deficitFixed Asset retmt chgd to Plant in ronstr.

» « " " " Ops.From Funds (net)

Total

PAYMENTS (OUT) ?-)

Ops. Maint. S Admin.Fuel UsadPower Purchased 'Expenditure on Construction

Increase in Coal, Matls & SuppliesR e d e m p t i o n o f r B o n & s : j •:•••'•-' u-.-r-.Repaid;Advance frbmProy., of Ont.InterestT o F u n d s ^ C n e t ) ; , ;,•!'•;.• .v:,;••:',

Total

1968

ACCt.

P.107 & Bal.Ops.Ops.P.103

Bal. Eq. &Note 6Ops.P.103P.103

—

Ops.Ops.Ops.

P.103 & Bal.(F.A.)

Bal. (C.A.)P.107 & Bal.P.107 s Bal.

Ops.

MS

343.58414.961.946.571.07

9.840.180.55—

778.69

134.6854.9317.83329.34

1.99123.811.4683.9430.71778.69

P

1967

Acct.

.103 & Bal.Ops.Ops.P.99

Bal. Cap.fi

P

PP

Note 6

Ops.P.99P.99

Ops.Ops.Ops.

.99 & Bal.(F.A.)

Bal.(C.A).103 & Bal.103 & Bal.Ops.

M$

347.74366.722.593.111.03

4.340.080.22-

725.83

119.4944.5212.41252.15

9.83183.59

1 = 4084.3618.08

725.83

tou>

TABLE A2

i;n BOOK-KEEPING, Funds, Liabilities (+)

Accumulated depreciationFixed Assets Retired (less deductions)

:.-;:-'>.-7 ,• ; i.y •'.<!•: %:;••: :-p:. H: •.;:- i :;;s; : ! > •

Increase in Equity (less Prov.Ont.Rural

Increase in^Current L. (Accounts and7 1 interest payable)

Increase in Deferred Liability

Decrease in r Freq.Standn.deferred charges etc. Other

From PAYMENTS

o;J , f •..-•• •-:;. T o t a l

,:;•;';• . A S S E T S i(-) ^ ,/ ',' , . : ,' .

Depreciation-Debt 'retiremeh't f : : :

Amort J off Frieq. StandardizationTo stabilization reserve

1 Increase in llong term investmentsIncrease in cash & short term invests.Increase in accounts receivable

; Discount & Expenses on Bonds etc.From SOURCES

Total

1968

Acct.

Bal. (F.A.)P.103 & Bal.

(F.A.)

Bal.(Eq.)

Bal. (C.L.)

Bal. (D.L.)

Bal. (D.C.)Bal. (D.C.)

Ops.Ops.Ops.Ops.

Bal.(Inv,)Bal.(C.A.)Bal.(C.A. &

D.C.)Bal. (D.C.)

4214

58

27

0

120

30

193

5342162352821

2

193nan

M$

.19

.28

.42

.46

.25• 12.66

.7j,

.09

.00

.64

.13

.58

.11

.39

.64

.60-

.09

1967

Acct.

Bal. (F.A.)P.99 & Bal.

(F.A.)

Bal.(Cap & R)

Bal. (C.L.)

Bal. (D.L.)

Bal. (D.C.)Bal. (D.C.)

Ops.Ops.Ops.Ops.Bal,(Inv.)Bal.(C.A.)Bal.(C.A. &

D.C.)Bal. (D.C.)

M$

45.2012,99

53.94

35 .96

' 0.07

9.99(2iO2)

1 18;08

174.21

49.7840.2914,1378.43

(23.51)79.773.73

1.35-

174.21

- 25 -Appendix 2

APPENDIX 2 - DETAILS OF REVIEW AND PROJECTIONS

From the cash flow breakdown of costs in Appendix 1 the net chargeto customers for energy sold may for convenience be derived fromfive components identified as:

1. Fuel comprising

1.1 Coal or other conventional fuel used

1.2 Net cost of fabricated nuclear fuel lesscredit on spent fuel

1.3 Power purchased now a fairly large compo-nent, 13% of total energy but diminishingin the long term.

2. Capital expenditure on new Generating Capacity.

3. Other capital expenditure on Transmission, Trans-formation, Distribution and other (less proceedsof sales) .

4. Net payments on the debt composed of

4.1 Interest

4.2 Redemption of Bonds and repayment of Advances

4.3 New borrowing.

5. Operating, Maintenance and Administration.

The nine sub-components of these five groups are used for theprojections into the future. The projections are based partlyOn "the 1948rto 1968 records and the trends these disclose/ and; ;partly on anticipated technical changes.

Utilization .,'... •

One major means of reducing the price "to be charged is neglecteii7in the pro jections I- i; It is the possibility of improving the; ;/utilization of the generating capacity. Prom the record shownin Table 4 the effective utilization has ranged from a low of4815rhr/yr" in? 19543tdJa higli; of 5888 hr/yr In 1956"and the20 year average was 5350 with a drop from 5425 for the first to5280 for the second ten year period. Prom 1963 to 1967 thetrend was upward. A mean value of 5300 hr/yr appeared reason-able so as a base for projection the year 1968 was normalized to

- 26 -Appendix 2

its actual peak capacity of 10,338 MW and the energy sold to54,800 GWhr which corresponds to a utilization of 5300,83 hr/yr and both peak capacity and energy sold were projected asexpanding 7% per year at that constant utilization. The newcapacity to be built also expands at 7%/yr and was taken to be676.318 MW in 1968 as a consistent base since 7% of 10.338 MW =723.66M = 1.07 x 676.318.

Writing n as the number of years after 1968 (for 1969 n » i) wethen have

Peak Capacity = 10,338 (1.07)n MW

Energy Sold = 54,800 (1.07)n GWh

New Capacity = 676.318 (1.07)n MW

A cost of 100 M$ = 54.8

= 1.82482/(1.07)n m$/kWh

A cost of 100$/kW new = 100 * 676.318/54,800 m$/kWh

capacity = 1.23416 m$/kWh

The actual utilization of the generating capacity is always higherthan the effective utilization because of the transmission losses,together with the energy used within the system and that sold assecondary energy (see Table A-l). From the Annual Report theenergy generated in 1968 was 58 696 GWh or 7.073% more than thatsold as primary energy. The mean effective utilization of5300.83 hr/yr therefore corresponds to an actual utilization of5675.8 hr/yr or 64.75% of the full 8766 hr/yr. It could reallybe even higher than this because on an expanding, system the fullpeak capacity was not available throughout the year; on the otherhand the peak load, not being in the summer, may grow similarly.As the system develops and nuclear generating stations are placednearer to the centres of load, transmission losses should becomerelatively less. An allowance for this has been made in theprojection .when (computing fuel/costs./ .but no corresponding reduc-tion has been claimed in the cost of new generating capacity. Theallowance made was to write: .'.',. .. ...-. - . .... ".'.'.','.' : ^ • • - :

Transmission losses, etc. - 3000 + IbOO (1.07)n GWh/yr.

- 27 -Appendix 2

Although the actual utilization is quite high and an increase inthe effective utilization reduces the cost of power, it may alsobe possible to reduce this cost in another way that lowers theutilization by increasing water storage, coupled with extra hydrau-lic generating capacity and higher peak flows.

1. Fuel

1.1 Coal

In Table 3 the record shows that in 1968 the cost of fuel used was3.48 m$/kWh of energy generated. Moreover, as mentioned in thetext, the estimated cost of fuel for the new large Nanticokegenerating station is 3.11 m$/kWh based on coal of 13,200 Btu/lbat $9.12/short .ton (34.55 */MBtu) and a net station efficiency of37.9%. Rising safety standards in the mines seem likely toincrease the real cost of coal more than can be held by improvedhandling. It therefore seemed reasonable to take 3.40 m$/kWh asa constant for the projection. It seems likely that oil maybecome available at a lower cost but it is so easy to reckon theeffect of a change in fuel price that does not significantlychange the assignment of load between generating stations thatfor all projections for conventional thermal stations the onevalue has been used. Because the cost of conventional fuel isso much greater than that of nuclear fuel, nuclear generatingstations are given priority for taking load up to 7000 hr/yr.An even higher availability is to be expected as nuclear technologymatures.

1.2 Nuclear

Nuclear fuel costs are set at 0.7 m$/kWh up to 1980 and from 1981onward at 0.5 m$/kWh. The range is small so no more complexityseems justified. ;

1.3 Power Purchased

This sub-component is included in the Fuel group. As a cost com-ponent it is never large and may always be treated like a fuel cost.Analysis of the 1968 situation shows that the average cost of energypurchased was 2.1 ra$/kWh allowing only 4 m$/kWh for power from =Douglas Point. This cost is so low there would., seem to be no reasonfor replacing it but assuming that contracts expire the 1968 purchaseof 7000 GWh(without Douglas Point) or 12% of energy sold has beenreduced progressively from 1972 to 4500 GWh in 1984 and kept atthat figure thereafter still at 2.1 m$/kWh. By 1984 it has become

— 28 —Appendix 2

only 2.7% of the total energy sold.

2» Generating Capacity

The capital expenditure on new generating capacity in 1948-1968 isgiven in Table 2 and Fig. A-l, which shows the basis for assigning$265/kW peak as the reference value for 1968. Note that it isthe cumulative average from 1948 that is plotted because ofexcessive swings from year to year caused by the lengthy construc-tion time and variations between different hydro sites. Toreconcile this figure with the estimate of $120 to 140/kWe fornew conventional thermal plant and $254/kWe for large nuclearplant given in NQD-2 Supplement, it is assumed for the projectionthat as indicated in Fig. A-l the cost is rapidly falling to avalue of $180/kWe in 1969 for the mixture of hydro, conventionalthermal and nuclear plants actually being built. (The fall isthe main cause of the sharp drop from 1968 to 1969 in Fig. 4).The value of $180/kWe is kept until 1980, after which conventionaland nuclear plants are separated in the two projections. Thenconventional plants are set at $120/kWe throughout and nuclearat $220/kWe to 1984, at $180/kWe from 1985 to 1988, and $160/kWefrom 1989 onwards. The basis for these relatively low values(in 1968 dollars) is the effect of following the process of techni-cal development discussed in the main text. It is assumed thatfrom 1989 the unit size in the nuclear plants is 1500 MWe andthey will have either organic coolant or boiling light water, withcoolant channels of 5.25 inch diameter instead of 4.08 inch as inthe Pickering and Bruce stations. It will be recalled from thediscussion of utilization above that an extra $50/kWe adds only0.62 m$/kWh even at the low effective utilization of 5300 hr/yr.under the 7% annual growth and debt-free conditions postulated.

3. Other Capital Expenditure

The record is also shown in Fig. A-l and when considered in constant• dollars'-there seems good reason to expect these Transmission andother capital expenditures will continue -to decline.The basicreason is that with thermal generating capacity, particularly ifnuclear j the^transmission/distance arid icapital costs will growsmallle r i AIM as ;the syst^and transformer stations canbei meire uniformly loaded and so havea liigher utilizatiorii The capital cost has therefore been set at$170/kWe> the value indicated in Fig. A-l for 1968 ban fallinguniformly at $2.5/kWe each year until it reaches $120/kWe (1968dollars) in 1988, after which it remains steady at that value.

- 29 -Appendix 2

4. Debt

The record on the debt has been shown in Fig. 3, in Table 1, andis plotted in Fig. A-2. The suggested treatment of the debt inthe projection has also been discussed in the main text leadingto Fig. 4.

The low value of the interest rate 3.5% at 1968 has been examinedroughly in relation to the detailed lists of bonds payable givenin the annual reports. It is not possible to make a detailed checkbut even if some misinterpretation exists the projections shouldnot be seriously affected. It is clear that there are consider-able long term bond issues with interest rates less than 3.5% butit is also clear that later issues bear higher rates up to 7%.As a result the mean interest rate on the debt has been set toincrease annually at 0.15% until it reaches 6.8% in 1990, it isthen set at 6.9% for 1991 and finally 7.0% in 1992, after whichit remains constant. If the suggested debt reduction course isfollowed so that all debt is repaid by 2012 and the debt isrelatively small after 1992, the exact interest rate, althoughimportant, will not affect the general conclusions that may bedrawn from the projections. It may be noted in Fig. 3 thatbetween 1963 and 1967 two values of the debt payments are shown.The lower values are due to a temporary change in the method ofaccounting by which some of the interest was classed as a paymentinto funds.

The contribution from the debt to the price charged for energy isgiven by Interest + Bond Redemption (and repayment of advances)minus New Borrowing. This has been mentioned in discussingFig. 5. If the new borrowings are large enough the contributionmay be negative, but when the system carries a debt of $267/kWpeak capacity as it did at the end of 1967, interest even at 3.5%is an annual payment of 0,035 x 2400 = 84 M$ contributing : ~1.533 m$/kWh in 1968. At 7% the same debt per kW would be 3.065m$/kWh, which in the context of the indicated projections is anextremely .severe penalty, as may be seen from Figs. 3, 4 and 5.

4.2 Redemption of Bonds

For the projections the redemption of bonds has been assumed tobe 5% per year. This would correspond to 20 year bonds uniformlyspaced in time. In the presence of growth and changing unitcapital costs this correspondence does not hold. It seemedunnecessary, however, to make any more elaborate estimate.

- 30 -Appendix 2

5« Operating, Maintenance and Administration

It must be admitted that this is quite a large component on whichno detailed breakdown is available. For the projection the down-ward trend in constant" dollars evident in Table 3 after 1953 isassumed to continue to some extent. It is not clear whether thesharp upturn after 1965 should be interpreted as a temporaryvariation or of longer term significance. It is possible thatthe costs of operating conventional thermal plants, together withthe cost of training for nuclear operations, are responsible forthe increase, both should however reach a plateau in constant .dollars and let the earlier downward trend return. It is assumedthat with the larger system and reduction of the debt it is reason-able to expect a lower cost per kwh under the O.M, & A. heading.Accordingly a value of 2.25 m$/kWh is assigned to the normalized1968 and this is slowly reduced annually at 0.0125 rn$/kWh untilthe rate 2,0 m$/kWh is reached in 1968. Thereafter it isreduced initially more rapidly on a flattening curve to reach1.500 m$/kWh in 2018. The curve followed is given by 1.42 + 2.23/(1.07)n from a value of 1.996 in 1988 to 1.50 in 2018.

Analysis of Changes of Energy Costs

Table A-3 presents an analysis of the changes between 1972, 1992and 2012 underlying the values plotted in Pig. 4.

It is clear that between 1972 and 1992 the major difference betweenthe coal and nuclear curves is due to the difference in fuel costoffset only partly by the higher capital cost of the nuclear plant.Between 1992 and 2012 the largest contribution to the fall of bothcurves is the reduction of debt. The change in average fuel costcontinues to separate the coal and nuclear curves.

Quite a significant advantage for the nuclear curve is that after1984 it becomes possible to let the nuclear capacity absorb moreof the load so that coal fuel costs are reduced by using the coalplants only at times of higher—system-load-.--:.: The utilization ofthe coal plants falls to about 3000 hr/yr.

TABLE A-3

ANALYSIS OP CONTRIBUTIONS TO CHANGES OF ENERGY COSTS IN FIG. 4 FOR 1972, 1992 & 2012All costs in m$/kWh sold

1972 1992

Max, Coal Nucl. (2)

2012

Max. Coal Nucl.(2)

4.14.24.3

1 Coal2 Nuclear Fuel3 Power Purchased

Sub-totalNew Generating Capa-city

Hew Transmission,Trans-formation sc.capacityDebt ( Interest

J Bond RedemptionI New Borrowingv Sub-total

Operating, Maintenanceand Admin.

Total charged tocustomers

Change in Fuels &Power Purchased

Change in New Genera-ting Capacity

Change in TransmissionTransformation, Dis-tribution, etc.

Change in debt chargesChange in Operating,Maintenance & Admin.

Total Change

1.5721.9171.S36

1.449

2.221

1.975

1.553

2.200

9.398

2.5410.0640.034

0.5790.4320.000

2.629

1.481

1.481

0.4900.3650.034

0.5790.4320.000

0.889

1.975

1.481

1.011

1.860

7.216

Changes 1972 to 1992

Coal Nuclear

+1.190 -0.560

-0.740 -0.246

-0.926 -2.182

3.2240.0170.009

0.0000.0200.000

3.2501.481

1.481

0.1270.4720.009

0.0000.0200.000

0.6081.975

1.481

Changes 1992 to 2012

Coal Nuclear

+0.611 -0.281

0.000

0.000-0.991-0.326

-0.706

0.000

-1.598

- 33 -

F I G A - ICAPITAL COSTS OF SYSTEM EXPANSION

CUMULATIVE AVERAGE

a.o

UJ

a.oUJ

o

700

600

500

400

3000

200

100

A\

A""\

AA\jV

s/

' \\

A

" \\

TOTAL

f

Tl

»ENER/-—"^

?ANSM

IT ION

1 SSI 0

>

N AND

r—\>

OTHEI

1 flfCl

" 1966 Hoouncu •

MEAN

1968 ASSUMED

* .....

MLA!i

1968 ASSUMEDMr AN ...

1948 1952 1956 I960 1964

YEAR1968 1972 1976

- 34 -

400

FIG. A-2DE3T IN BONDS

NOTES AND ADVANCES

CONSTRUCTIONEXPENDITURE

1948 1952 1956 1960 1964YEAR

1968 1972 1976

Additional copies of this documentmay be obtained from

Scientific Document Diitribution OfficeAtomic Energy of Canada Limited

Chalk River, Ontario, Canada

Price - $1.00 per copy

2290-70

- ^ 7

„ r i~ {•-.