Growing uncertainty about the nation's future demand for electricity has increased the risk of building new power plants, utility experts said yesterday. But they differed over whether it is riskier to build too much new electric capacity or too little.
Confronted by a dramatic slump in demand created by conservation and the deep recession, utilities have canceled construction of dozens of nuclear and coal-fired plants in the past several years and are reluctant to begin new construction in the current environment.
Adding to the industry's anxiety is the threat of a major financial default by the Washington Public Power Supply System on two of five nuclear power plants it hoped to build. Now, only one of the five plants seems likely to be completed.
Speaking to a conference sponsored by Americans for Energy Independence, Energy Secretary Donald P. Hodel said yesterday that he expects demand for electric power to grow in step with increases in the nation's gross national product through the rest of the century, requiring new construction.
Alex Radin, executive director of the American Public Power Association, disputed that assumption and took a more conservative stance on the need for large amounts of new electricity-generating capacity.
Radin noted that demand for electricity during the first 21 weeks of the year was down 2.6 percent from the same months a year ago--although recovery is under way.
However, James O'Connor, chairman and president of Chicago's Commonwealth Edison, said that the fall-off in demand probably reflected a mild winter rather than any change in the relationship between economic growth and growth in demand for electricity.
Before the Arab oil embargo in 1973, demand for electricity grew 2 to 2 1/2 times as rapidly as the nation's GNP. The escalation in oil prices since then has triggered widespread energy conservation measures, cutting the ratio to 1 to 1.
But the benefits of future conservation will be limited, said O'Connor. "Conservation simply does not have the prospect for offsetting future growth," added O'Connor, who warned of dangers to ratepayers if there is delay in building plants needed for the future. "Some of us in our industry have developed a don't-build-at-any-cost attitude," he said.
In addition, the high cost of capital and the attitude of utility regulators, who have penalized managers for overbuilding, are discouraging construction, he said.
Former Federal Energy Regulatory Commission chairman Charles Curtis said regulators should err on the side of building because the costs of undercapacity would be higher than the costs of overcapacity.
Radin said that proponents of major increases in capacity should note that the unit costs of electricity are increasing now rather than decreasing as they have historically.
Radin also said that a Congressional Research Service study, amended by adding 20 percent to allow for reserve capacity, suggests the need for 710 thousand megawatts of capacity in 1990. "The North American Electric Reliability Council estimates that the industry has planned capacity of 724 thousand megawatts for 1990," he said. He also said that reserve capacity has been higher than the 20 percent "commonly considered prudent" and will remain so into 1990. In addition, some of future demand will be met by rebuilding and upgrading existing facilities as well as building new plants, he said.
The uncertainties in future demand and the high cost of building new capacity don't rule out the need for large power plants in the future, but do argue for building smaller, more local sources of generation that allow construction plans to be more flexible, Radin said.