I would like to submit for the record a statement by Southwestern Public Service Company on the effect on its operations of S. 1777, National Petroleum and Natural Gas Conservation and Coal Substitution Act of 1975. Southwestern is an investor-owned electric utility serving 250,000 customers in parts of four states Texas, New Mexico, Oklahoma and Kansas. The Company is a New Mexico corporation. We have ten base-load plants with 27 individual generating units with a capability of 2-million, 109-thousand kilowatts. In addition, we have five gas turbine units with a capability of 92-thousand, 600 kilowatts. All of this equipment uses natural gas as a boiler fuel. We have oil standby equipment which would make it possible to operate just under half of the capability for a short period of time. To be specific on the operating capabilities of the oil-fired standby, insofar as time span is concerned, we could run 896-thousand, 500 kilowatts for 50. 3 hours; 830-thousand kilowatts for 74. 7 hours; 450-thousand kilowatts for 133 hours; and 40-thousand kilowatts for 320. 4 hours. That's the full-load oil tank capacity. Southwestern made the decision five years ago, insofar as the planning process is concerned, to not propose any additional generating capability with gas as a boiler fuel. We have a 350-thousand kilowatt coal-fired plant under construction and scheduled for service in mid-1976. A second unit of the same size and also coal-fired is scheduled for 1978 operation, with construction getting under way later this year. We also propose a 1980 coal-fired unit, with a probable capability of 500-thousand kilowatts. The Hon. Jennings Randolph June 6, 1975 When one considers the difference in construction costs between gasfired and coal-fired equipment, I think significance is added to the fact that we made the decision to get away from gas without a legislative or regulatory prod. We design our own generating facilities and supervise their construction. We were installing gas-fired capability for 100-dollars a kilowatt. Our first coal unit upped that installed cost per kilowatt to 250-dollars, and the 1978 unit is going to go to 350-dollars an installed kilowatt. So, the decision wasn't an easy or simple one, but it was sound. It will raise the rates our customers must pay in the immediate future, but it will stabilize rates for the long-range future and will assure the region of the electric power it needs to grow on. Speaking of growth, some 15-thousand new industrial jobs have been created in our service area in less than five years. There has to be more than one reason for this type of economic development, but an overriding consideration in each decision to locate new industry, or expand existing facilities in our service area, was confidence in Southwestern's ability to meet the electric service needs. We feel that our fuel source decisions contributed to that confidence. One final observation follows on Southwestern's obvious intent to get away from gas as a boiler fuel without legislative, or regulatory, prodding and, then, the details of the effects on us of S. 1777. We have offered to support the nuclear breeder reactor program with a plant site and 100-million dollars for the first gas-cooled breeder, which would have a capability of 300-thousand kilowatts. Under the most optimistic of schedules, we would estimate this unit to be in service in 10 or 12 years. On the solid line, the lower one, on Exhibit A, we have represented a five-year construction budget, the largest in our Company's history, of $371-million. On the basis of past records, we should be able to raise from 38% to 45% of this total from internal sources, but we would still need outside financing in the neighborhood of $200 to $250-million. We have no more than the normal concerns as to our ability to accomplish this financing. As this was being written, we had already raised $63. 5-million in outside financing in 1975 and were in the process of concluding an additional $21-million in pollution control bonds. Our bond rating is AA and, at the time of this writing, our common was selling comfortably above book value; so, what follows could not be construed as "crying wolf. " We would need to invest $576-million in conversion equipment, boilers and coal-handling facilities, between now and January 1, 1980, to carry out the The Hon. Jennings Randolph June 6, 1975 provisions of S. 1777. That's for Southwestern alone. To give you some feel of the magnitude of the problem, our present gross plant is slightly more than $600-million. S. 1777, without adding a single new KW of generating capability or replacing or adding other equipment, would require that we nearly double our plant investment. The broken line on Exhibit 1, shows the result, insofar as yearly construction investments are concerned, of laying the $576-million for conversion on top of the projected normal construction. There is no way that even a financially healthy utility, such as Southwestern, could finance the conversion investment through normal channels. Accordingly, I have created a hypothetical illustration, which could be classified as a "pay-as-yougo plan, "to point out the problems engendered by S. 1777. If we really had to accomplish a conversion to all-coal by January 1, 1980, we'd have to ask each customer to add $48.00 a month to his electric bill. Under this "pay-as-you-go plan," for which I doubt there would be great customer enthusiasm, each of our customer's share - we have 250,000 customers is $2,304.00, or $576-million. a month. Given four years to pay it out makes each year's share $576.00, or $48.00 In the course of working on S. 692, I came upon a letter written to one of your distinguished colleagues by the president of the Mississippi Power and Light Company, which I am attaching as Exhibit B. Taking the figures on gas consumption and known reserves on Page 2 and having their basic integrity checked by our information systems department, I made a Texas projection of the results shown in Paragraphs 3 through 6. In terms of 1975 dollars, it would take $15-billion to convert all of the gas-fired equipment in Texas to coal. Doing this would increase the country's natural gas reserves by six-tenths of a year 219 days. The cost to the electric utilities of Texas and that means their customers to add 219 days to our gas reserves would be $68-million a day. Exhibit C is the work of one of my colleagues, a mechanical engineer in our plant design and construction department. Using the location from which Southwestern's coal will come, he has made a statewide projection for Texas of the coal and coal-hauling requirements that complete conversion would require. Exhibit D, taken from the February, 1975, issue of "Coal Age," indicates that there will be 231-million tons of new coal available in the next four years, or the period in which the conversion must be accomplished. My colleague's The Hon. Jennings Randolph June 6, 1975 calculations indicate that conversion for Texas alone will require 79-million tons per year, a total of 306-million tons, or 75-million tons more new coal than will be available. Finally, Exhibit E is a bill stuffer we have prepared for our customers which summarizes a 15-month study which we have recently completed that establishes as did similar studies by Oklahoma Gas & Electric Company and Florida Power Corporation - that the all-electric home, with either heat pump or ceiling cable, is the most efficient user of energy. The full study and the expert testimony of our heating specialists are available to your Committee, if further testimony to this point is desired. What the study proves in a nutshell is that the domestic use of natural gas is a waste if its use for generation of electric energy is a waste. I doubt that the Committee is ready for that conclusion. In conclusion, a summary of Southwestern's activities to assure fuel supplies for its gas-fired equipment: The Company, through TUCO INC., a wholly-owned subsidiary formed in April, 1975, purchases natural gas at the wellhead and from processing plants under long-term contracts and provides or arranges for gathering and delivery systems. All of the natural gas purchased by TUCO is transported through intrastate pipelines. Substantially, all of the gas is sold to the Company for use as boiler fuel. The Company obtained approximately 13.4% of its natural gas fuel requirements through its gas acquisition operations in fiscal 1974 and expects to obtain approximately 20% in fiscal 1975. The purpose of TUCO is to make up for the deficiencies in interruptible gas contracts with firm gas. To do less would result in a complete collapse of our system. Our present and immediately proposed investment in pipelines from the wellhead to power plants is approximately 10-million dollars. Additional heavy investments are planned to make possible full utilization of our gas and accommodate take-or-pay requirements associated with gas already under contracts. Southwestern must not be denied the right to complete its short-term plans. Until such time as it can afford and build generation using alternate fuels, gas is an absolute necessity. Finally, some time, some place, somebody is going to have to say that the harassment of electric utilities must stop, unless those who do the harassing are prepared to take over the problems and responsibilities incumbent upon the franchised obligations that we have. For example, it's difficult to put the objectives of S. 1777 and the obstacles of H. R. 25 together. It is my best guess that, if H. R. 25 does become law, and, hopefully it will not, it will be at least four years before the law suits are settled and we're able to get the coal we have already purchased. If my estimate is accurate, how do we complete a total conversion to coal in that period? Is it really more wasteful than doubling the investment in plant and equipment, which effectively doubles the rates for our customers, just to add, relatively speaking, a handful of days to the life of the nation's natural gas reserves? At a final cost of bankrupting the gas-burning utilities? Reduced to its simplest terms, that's the question before this Committee. Let us work together for an orderly transition based on an economic foundation that considered both the consumer and the supplier. Respectfully submitted, EGW:bc encls. Edward G. Weber Vice President Public Affairs |