Economic limitations of the electrical transmission of energy

Front matter

Elconomic Lw'vtatiovvb

ECONOMIC LIMITATIONS

OF THE

Section Two; Discussion Concerning

Limiting Characteristics - 12 Part One; The Generating Station 12 Part Two; The Transmission Line - 31 Part Three; The Distributing System - 44 Part Four; Constants of the Community - 52 Part Five; Types of Communities - 61 Part Six; Increase in Costs 66 Part Seven; Wealth and Population of

the Community - - - 69 Part Eight; Miscellaneous Characteristics - 73

Section Four; Conclusions ----- 84 Appendix "A"; Application of Principles

Appendix "B" ; Tables and Calculations.

ECONOMIC LIMITATIONS

OF THE

ELECTRICAL TRANSMISSION OF ENERGY

Introduction

The process of producing Energy in the form of Electricity and of distributing this energy for any of the general purposes to which it may be adapted, has passed, so far as practical relation is concerned, from the position of a localized industry formed and operating in order to return a commensurate profit, to that of an Institution for the Public Service.

This has become so much of a truth that, in the minds of millions of people thruout the world, the failure of the supply of such energy, no matter if it be due to any one of a large number of unpreventable causes, falls almost in the same classification with the possible failure of their regulations for the protection of life or property. A careful survey thruout this country alone readily shows that such a failure is no longer comparable with the failure of the local coal supply or with a failure in the economical distribution of food; but has passed beyond and into a more highly developed relation to the population at large; so that when energy is produced for the general use and is carried to all parts of a territory by transmission and distributing lines and is, thruout such a territory, utilized by a large percentage of the population for lighting, cooking, heating, cooling, and for hundreds of other purposes, that process of producing, distributing, and securing the monetary return for the service of this energy, may no longer be carried on readily and easily, with an assurance that the net return financially may be equal to the apparent and normal risks of the business; but may only be carried on at the will and under the strict regulation of the Public to which the service is rendered, and such a process then becomes literally, a Public Service Institution.

Among the various regulations to which the Public subjects such an Institution, is that limiting the rate which may be legitimately charged for the service furnished by such a process as above outlined, to an amount which can return as a net earning to the Institution only a certain limited percentage of the appraised value of the property used in the process; and the Public reserves the right to make its own appraisal, thru the use of engineers employed by it for that purpose. By virtue of this regulation, two important and salient propositions are at once set up in the minds of the Directors of the Public Utility Company or "Institution". One is, if this percentage which may be earned, approaches that normally obtainable from investment in first class farm mortgages or other real estate securities, or from the securities of firmly established and well managed Railroads, then the devices which are used to extend and amplify the business of the Company, must be carefully and conservatively considered in order that, upon all the investments of new capital in these devices, this percentage surely may be earned without a sacrifice of the continuous service upon which the activity of the Company is based. While recourse may always be taken to the Public thru its regulating officials and, probably in time, a rate established in a territory where a failure to earn the permitted percentage has been made, which will in due course return such an amount upon the investment, the business may be wrecked financially, or very badly affected, before such a remedy can become operative. Realizing this, it becomes advisable for the Directors to establish a policy of extremely careful analysis and conservative action upon any new proposition which may require new capital expenditures, the reason for which is based upon an estimated increase in the net earnings, of an amount at least sufficient to return the limited percentage fixed by the Public, upon the new investment.

The other proposition, which is set up in the minds of the Directors of such an Operating Company because of this regulation by the Public, is that, since the Public thru its engineers will determine the value of the apparatus and property, which represents physically the results of any expenditure of new capital for the extension of the business of the Company or the general betterment from an economic and a service viewpoint of its existing property, and since in all probability, it will be upon this value so determined, and not upon the value of the capital actually expended for these purposes, that the limiting percentage established by the Public will apply in any determination of the permissible net earning, it is then necessary that any such expenditures made for such purposes shall result entirely in tangible property upon an inventory of which may be based an appraisal which when made with practically impregnable unit costs, shall fully equal the expenditures as originally made. In short that the great est care must be taken, that any such expenditures be made with an absolute maximum of business efficiency.

It is recognized that the Public might establish such limiting percentages that the economic danger from the pressure of risks in new developments made by such a Public Service Institution could be ignored to a very great extent, and also that such has been the case in certain instances; but these percentages have usually been afterward charged to more drastic figures, and in many cases the tendency has been in the opposite direction and in direct conformity with the apparent and mistaken fundamental idea of Public Service, which is to obtain at the lowest possible cost, the greatest possible service now, regardless of the effect upon the future financial characteristics of the Institution from which that service is obtained.

Despite these disturbing considerations, and the general idea in regard to the Public Utility C0mpany, the Directors of such processes may not disregard the great possibilities of the extension of their lines and services, to and into new and only partially developed territories which as yet, have not had the advantages of an economic source of electrical energy close at hand The development which has within the past ten years, been so remarkable, that of the construction of transmission lines to dis-

Figure One tribute electrical energy from a central station to the territory about it, until there are thousands of miles of high tension mains thruout the United States, has been a normal development. As the applications of electrical energy became more and more varied, more and more possibilities of broadening use became apparent, until transmission and distribution lines have been constructed through all the more densely populated portions of the country. The operating company having a large generating station (and some companies with small ones), and in its vicinity a number of cities and towns or community s of as few as one hundred people, seeing a possibility of development and of reasonably adequate return upon the necessary investments, has constructed transmission mains and distributing systems, at times of questionable capacity and design, to present to the people of these cities and towns the opportunity to avail themselves of the various advantages of electric service in return lor a reasonable charge. In general, the people have responded encouragingly, especially in those communities in which specialized industry forms a basis of existence, until the projects have mostly been successful ones. This has increased the tendency to proceed with a new territory and in this manner, the transmission development has proceeded naturally and with tremendous strides in the past few years, since the operating companies have felt more sure of their ability, until there are more than a thousand miles of thirty three thousand volt three phase transmission lines in Illinois alone.

In the future, however, in order that this transmission development may progress as rapidly and may in addition conform to the changing position of the operating companies relative to the Public, it will be imperative that the engineers, upon whom the Directors of these Companies depend for the analysis of new projects and developments, and upon whom lies to a great extent the responsibility of their successful future, shall be able to determine clearly and definitely, the limiting characteristics of a general situation which make a projected transmission development a wise one or which perhaps, indicate the inadvisability of further procedure .

These limiting characteristics are not always easily distinguished. This is perhaps most true in the more recently developed sections of the country, where the past rates of growth of wealth and population of any particular division cannot be accurately ascertained or are altogether missing, such as newly opened farming lands. T^is may also be true of some city or territory in which the progress of economic betterment is spasmodic and is dependent upon the activity of certain industries for its initiative; a good example being a community which depends for its wealth upon the activity of a coal mine, of which the operating expenses per ton are normally excessive, and which is economically productive only in periods of coal shortage. It is possible that this may be true of a city or community having otherwise entirely normal characteristics, but with certain impending changes of political or economic significance, which temporarily throw the final result in doubt. Unless a most careful survey is made in each case and certain well defined and carefully formulated principles are applied in the final determination of the feasability of the project, the result may easily be the failure to return even the permitted percentage upon the investment for interest and depreciation expenses.

It is the purpose of this thesis to present the more important of these limiting characteristics and the resultant principles upon which an operating utility should normally base the feasability of transmission line development of communities of less than ten thousand people within a radius of one hundred miles of the established central station, and to attempt to show the relation of these characteristics to the final working out of the project. In order to do this, it will be necessary -

First, to enumerate the most important of the limiting characteristics of a transmission line development.

Second, to present them successively with their relative location in, and effect upon, the transmission plan.

Third, to combine their several effects and attempt the deduction of the most important underlying economic principles* and,

Fourth, to interpret these principles and to indicate the limitations of the transmission idea.

If by this method the general economic bases upon which all successful transmission projects must be developed, can be clearly presented, together with a method of utilizing them, the purpose of the thesis will have been realized.

SECTION OWE kL'ILT^NG CHARACTERISTICS

In the enumeration of the characteristics of a transmission project which limit its application from a standpoint of success of failure, there must be considered, as most important, the following items:

(a) The total cost at the generating station

of a unit of electrical energy at generated voltage and at the point of entering the transmission system; with due regard to the various subdivisions of this cost.

(b) The total cost of the Transmission Line and its transforming apparatus with lightningprotection and substation equipment.

The fixed charges of Interest, Depreciation, Taxes and Insurance, upon this cost and the patrolling and maintenance costs, losses, and other expenses incident to the operation of the line.

(c) The total cost of the low voltage Distributing System at the end of the transmission line to deliver the energy to the consumer. The fixed charges upon this cost and the operating costs, losses and other expenses incident to the operation of this part of the whole System.

(d) The increasing costs of energy in Heat unit form, and the increasing costs of materials for maintenance and operation.

(e) The amount of energy to be transmitted, the Load Factor, and the probable Gross Hevenue, all of which may be determined generally from the population of the territory served; with the industrial development which may be made.

(f) The type of territory through which the development is to be made; its wealth, its industries; its self dependence, and the ability of its population to earn a surplus above the costs of living . necessities .

(g) The effect of these conditions when taken in connection with the development or past increase in the wealth and population of the proposed territory.

(h) Other less important characteristics, such as, the economic stability of the community, its newness, the characteristics of the local government, and others.

These, more than any others, are the characteristics which must be carefully noted in the preliminary survey of a transmission project. Upon them are based the costs of delivering energy in electrical form to the population to be served, the probable return from this population for the service rendered, the permanency which may be expected of the business which might be developed, and the limiting distances to which energy may be carried to a community of given population, which are the fundamental and deciding factors in the economy of any plan of this description.

DISCUSSION CONCERNING LI_MI_TI_NG CH^HnCTERI_ST^CS

Part One The Generating Station

The first and original factor which enters into the economic disposal of any acticle is the cost of its production. So, in the case in which the basis of the proposition is the sale of electrical energy at a price which is supposed to pay a reasonable profit over the total expense of delivering this energy at the point of sale, the total cost of transforming the heat units in the fuel into kilowatt hours, is the primary division of this total expense which should be carefully considered. For unless the cost at the output switchboard of a generating station lies within certain well defined limits, there is likely to be very little question as to the economic feasability of any project which depends upon the utilization of energy from that station for its success .

In order to properly understand the manner in which the various production expenses of the generating station operate to increase or decrease, within these limits, the output switchboard costs per kilowatt hour, it is necessary to briefly analyze the types and characteristics of generating stations. These may be divided into two major groups, upon a basis of switchboard cost of energy per unit:

(a) Those which operate condensing;

(b) Those which operate noncondensing.

Of these two groups, it is generally found that the total expense per kilowatt hour at the output switchboard is lower for the first than for the second, due exactly to the percentage of of efficiency, which is reached in the process of transforming the energy into electrical form. There are many examples of noncondensing generating stations at which the total costs per unit of energy output are less by remarkable amounts than at condensing stations of the same capacity, operating under relatively the same labor and fuel conditions. However, these are unusual situations and it may be considered that in, practically all cases, the relative efficiency rank of the various types of generating stations is that given above. Also, if in any particular proposition under consideration such is not the case, the phenomenon is usually so well emphasized that its effect cannot be over looked.

In these types of generating stations, the various costs which, added together, make up the total cost per kilowatt hour delivered from the station are as follows:

Superintendence

Employees

Fuel

Lubricants

Water

it)

Miscellaneous Charges

Maintenance

Depreciation, Interest, Insurance and Taxes

All of which, with the exception of the last group (h), are nicely defined by the Interstate Commerce Commission in its Classification of Railway Accounts; and a repetition of such definition is not deemed necessary here, since it is not especially required for the development of the discussion.

These costs are present in greater or less degree in all generating stations of both types noted, and only vary in quantity relatively, among the various stations.

Of all these costs there are usually four groups which are large in amount compared with the others, and which in practically all cases determine among themselves the output cost per unit of energy, for all purposes of comparison between any two types of generating stations. These groups are (b) Employees, (c) Fuel, (g) Maintenance, and (h) Fixed Charges, which last includes the items of a Depreciation reserve for replacing the operating equipment and property, Interest upon the investment, and Insurance and Taxes. The other costs which are necessary of consideration and at times of considerable magnitude, rarely attain to the proportions reached by these groups, and it is to these

Figure Two four divisions that most careful attention must be paid in a determination of the production cost per unit of energy delivered from any station.

The first of these groups, (b) Employees, has the predominating characteristic, that, for practically any realizable output of electrical units from a given condensing station during a given period, the cost is constant. If the station is of the noncondensing type, this cost varies slightly, directly with the output in electrical units, due to the increase in the boiler rooi organization at periods of heavy load upon the station. This variation however is not present if the noncondensing station is equipped to handle its fuel into the furnaces mechanically. But : every normal case and in every case in which full advantage is taken of mechanical devices, the employees cost, at any station, is fundamentally a constant quantity thruout any given period, so

Figure Three

far as the output in electrical units is concerned; and it only varies when, due to necessity of handling fuel normally, the periodically increasing output raises the quantity of fuel to be consumed by, and the handling capacity of, the normal organization.

Figure Two, which shows the relation of the actual employees cost to the output in electrical units from condensing generating stations of approximately fifteen thousand kilowatts capacity, and of five thousand kilowatts capacity, expresses excellently the normal condition which exists in a given station of this type. The cost of employees per period is constant over a wide range of output.

Figure Three, shows the actual variation which occurred

in the cost of employees, during periods in which the various

corresponding amounts of energy were delivered from the switchboard

of a thirty five hundred kilowatt noncondensing generating station, 16

Figure Four which employes almost entirely, manual labor for fuel handling. The cost of employees for the given conditions existing at the station, varied fifty percent with an increase in output of almost three hundred percent.

The cost of employees is constant only for a given set of conditions however, and varies directly with the capacity of the generating station, when other conditions, such as methods of handling and firing of fuel, number and type of units, and relative efficiency of total station, remain the same. This variation which can be expected between condensing stations of different capacities, having mechanical fuel handling equipment, water tube boilers of over one hundred and fifty pounds gauge steam pressure, turbine generators in units of three to five thousand kilowatts capacity, and which operate noncondensing with an overall efficiency of seven to ten percent, has been found to be very nearly that shown in Figure

Four. It is very probable that the results of an investigation of this kind into the records of a great number of stations having these characteristics, would show that this variation is in well defined steps instead of along the smooth curve shown; but for all practical purposes of discussion this rate of variation is sufficiently accurate.

The variation of the cost of (c) Fuel however, with relation to the units delivered from a generating station, shows a marked difference from that of the Employees cost. Instead of being practically constant for stations having certain major characteristics of capacity, type of equipment, and other general conditions, thruout all realizable ranges of output, it has been found that this cost varies practically directly as the output, for stations having more than two continually operating units, and a twenty four load factor of more than twenty percent, based upon the station peak load. Beyond this statement however, it is impossible to go with reference to the fuel cost, as in a given station under fixed conditions of operation, the relation of the cost of fuel to the output may vary greatly, due to varying conditions of circulating water temperature, cleanliness of condenser and boiler tubing, tightness of the boiler settings, and varying quality of the fuel itself. So that, while it has been determined that for all practical purposes the cost of fuel may be considered to vary directly as the output in units of energy, it is impossible to deduce any other fundamental rule by which the fuel cost may be determined when the major characteristics of the plant are known. Since the greatest effect upon the amount of fuel consumed for a given output, is that of other operating conditions, all of which must be determined in order to accurately predict the consumption of fuel per unit of energy.

Despite these facts, however, there is usually sufficient information available at any generating station, to permit the determination of the fuel consumed per unit of energy during a large number of periods of varying output; from which determination an average relation may be obtained which will be practically accurate thruout all possible variations in output, requiring the operation of more than two units of generating equipment, and beyond the load factor of twenty percent above mentioned, while all other conditions remain the same. Since the number of pounds of fuel consumed under any set of conditions may be measured with great accuracy, and the number of units of energy delivered from the station may also be accurately determined, at least commercially, the number of pounds of fuel per unit of energy delivered may be calculated and with the cost of fuel, per ton in the case of coal, or per gallon when oil is used, the cost per unit of energy delivered may be readily obtained. And if the cost of fuel at a generating station, for added load due to a new transmission project is desired, this method of determination may be used with confidence .

It is recognized that this cost of fuel, for any certain output and with all other factors remaining relatively constant, is widely different in condensing stations from the cost in noncondensing stations; but any attempt to show a definite relation between the two costs, other than that the former is practically always greater than the latter, would only result unintelligibly.

Figure Five

Figure Five shows the relation at various costs per ton, of the fuel cost per unit of energy to the pounds of fuel consumed per unit delivered. Upon such a chart may be based the determination of the total cost of fuel at a generating station, the operating characteristics of which are available for investigation.

The third division of the costs at the Generating Station, that of (g) Maintenance, has still a different relation to the total output in units of energy, from that, either of Employees, or of Fuel. The maintenance expense for any period,, while to a certain extent dependent upon the number of units of energy delivered from the station during that period, has been found to be more dependent upon the number of steam and electric generating units in the station and that percentage of the total hours in the period, during which the various units operate. That this however is not strictly true, may be easily perceived after investigation has proven that the cost of any part, which is subject to failure on an engine of one thousand rated horse power, is neither equal to, nor only one half as great as, the cost of a corresponding part, equally subject to failure, of an engine of two thousand rated horse power; but lies somewhere between such two cost figures. Likewise, as in the cost of fuel, the attention which the operating organization pays to the condition of the station equipment and the keenness with which slight departures from correct behavior of the steam and electric generating units, are met, are very important factors in determining the relation of the Maintenance cost to any other varying characteristics of the station

Despite these conditions, a careful investigation has shown that, for the practical purposes of determining the probable increase in Maintenance cost with increase in output, in stations of defined characteristics of equipment and within the realizable limits of output, a part of the total maintenance expense may be considered to be constant, and the remainder to vary as the output in units of energy and to remain constant per unit of energy delivered. Between these two parts of the maintenance expense, the ratio for condensing stations varies somewhat from that of noncondensing stations. In the case of the former the constant portion is a greater percentage of the total cost than in the latter. And in making determinations for practical cost figures, after having determined the total maintenance cost for a given period, it has been found to be sufficiently accurate to apportion, in the case of condensing stations, sixty percent of the total maintenance cost as the constant or fixed portion and forty percent as the varying portion, which latter, divided by the kilowatt hours delivered during a corresponding period, results in a constant cost

Figure Six

per unit of energy, upon which two figures may be based the increase in maintenance expense to be expected for any increase in output from the station. While, in the case of noncondensing stations, these portions are most accurately divided, so that each equals one half of the total expense.

It is recognized that such divisions of total maintenance expense will vary slightly with varying conditions from one period to the next; but investigation has shown that for long periods of from four to eight years, these percentages obtain with sufficient accuracy for all practical purposes. They are based however, upon steam turbine operation in condensing stations and upon steam engine operation in noncondensing stations, which have been for a number of years the standard processes of such operation.

For stations of varying capacity however, the relation of total maintenance expense to station capacity, for conditions of zz~

approximately constant station or utility factor, is still different from that above outlined in the case of output from a given station. Careful investigation has shown that the maintenance expense varies directly as the station capacity for stations having the same major characteristics of size and type of steam and electric generating units, the same methods of operation either condensing or noncondensing, and the same methods of handling fuel. This relation is illustrated graphically by Figure Six, the data for which is taken from the actual maintenance costs per year for typical condensing steam turbine stations with boiler units of four hundred horse power capacity each, turbine generator units of two to four thousand kilowatts capacity each, and mechanical fuel handling equipment. This relation, which may be considered accurate for stations of less than fifteen thousand kilowatts capacity having these character istics, may be expressed practically as -

3000 K - C plus 4000 Z 0 in which "K" denotes the station capacity in kilowatts and " C" , the total maintenance expense per year in dollars. From this relation may be obtained the maintenance expense, which in an analysis of station expenses may be divided as above outlined.

The fourth of these groups of station costs, that of (h) Fixed Charges, has in its relation to the total output, the same predominating characteristics as has the cost of Employees, and remains constant for a given station regardless of the output in units of energy. Since it is apparent that after a station is constructed, the output may vary from zero to the maximum obtainable at one hundred percent utility factor, if such condition might be reached without requiring additional investment in building or apparatus .

Figure Seven

So far as the size and type of station is concerned however, the total fixed charges per year will vary greatly as the capacity in kilowatts increases and as the type changes from condensing to noncondensing. Materially, this expense is also dependent upon the cost of construction materials and apparatus, and of labor at the time the generating station in question was originally constructed. While these costs are continually changing, the average total costs for labor and material, real estate, and overhead expense, per kilowatt of installed capacity are practically constant or show only a uniform variation as the size of the station in kilowatts varies. And if this variation is known within reasonable limits, the total cost of a station of standard type may be readily determined.

For the purpose of determining the total station costs, however, in order to analyze the practicability of a proposed

Figure Eight

addition to the output of a station, the only accurate method of determining the fixed charges expense, is to obtain first if possible, the actual construction cost of the station from records which may be available. This method if successful, results in a definite and reasonably accurate foundation upon which to base the determination of fixed charges expense. If it cannot be pursued, recourse must be taken to data compiled from actual construction costs for stations of the type desired. Figure Seven presents the results of a careful investigation of, and of experience with, the construction costs of steam turbine condensing power stations, located near adequate water supply and equipped with water tube boilers with natural draft, superheaters for 100° increase in temperature, steam turbine generators, and surface condensing equipment, housed in brick buildings with crane and coal handling