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University: Micixjfilms International 300 N. Zeeb Road Ann Arbor, Ml 48106 8324697 C hilson, Gary C laude THE RELATION BETWEEN ORGANIZATIONAL SIZE AND TECHNICAL EFFICIENCY IN EIGHT MICHIGAN ELECTRIC UTILITIES Ph.D. M ichigan State U niversity University Microfilms International 300 N. Zeeb Road, Ann Arbor, Ml 48106 Copyright 1983 by Chilson, Gary Claude All Rights Reserved 1983 PLEASE NOTE: In all c a s e s this material h as been filmed in the best possible way from th e available copy. Problems enco u n tered with this d o cu m en t have b een identified here with a check m ark V ■ 1. G lossy p h otographs or p a g e s ______ 2. Colored illustrations, p ap er or p rin t______ 3. P hotographs with dark b ac k g ro u n d ______ 4. Illustrations a re poor c o p y _______ 5. P a g e s with black marks, not original copy_______ 6. Print show s through a s th e re I s text on both s id e s of p a g e ______ 7. Indistinct, broken or small print on several p a g e s ______ 8. Print ex ceed s margin re q u ire m e n ts, 9. Tightly bound copy with print lost in spine_______ 10. Com puter printout p ag es with indistinct p rin t______ 11. P a g e (s)____________ lacking w hen material received, and not available from school or author. 12. P a g e (s)____________ seem to b e missing in num bering only a s text follows. 13. Two pages num bered 14. Curling and wrinkled p a g e s ______ 15. O ther_______________________________________ _ _ _ _ _ _ _ ________________ 66 Text follows. University Microfilms International THE RELATION BETWEEN ORGANIZATIONAL SIZE AND TECHNICAL EFFICIENCY IN EIGHT MICHIGAN ELECTRIC UTILITIES by Gary Claude Chilson A DISSERTATION Submitted to Michigan S t a t e U n i v e r s i t y in p a r t i a l f u l f i l l m e n t of t h e req uirem en ts f o r t h e degree of DOCTOR OF PHILOSOPHY Department of Resource Development 1983 Copyright by Gary Claude Chilson 1983 ABSTRACT THE RELATION BETWEEN ORGANIZATIONAL SIZE AND TECHNICAL EFFICIENCY IN EIGHT MICHIGAN ELECTRIC UTILITIES by Gary Claude Chilson The notion of an op t im a l Economic a n a l y s e s , s iz e e x i s t s fo r every o r g a n iz a tio n . how ever, which do n o t s e p a r a t e t e c h n i c a l and p e c u n ia r y c o n t r i b u t i o n s t o ec o n o m ie s o f s c a l e , hav e f a i l e d t o f i n d e m p i r i c a l e v i d e n c e o f an optimum f i r m s c a l e . F o c u s in g on t e c h n i c a l e f f i c i e n c y , t h i s examination o f e i g h t Michigan e l e c t r i c u t i l i t i e s f o und evidence of an optimum o r g a n i z a t i o n a l s i z e . Defining t e c h n i c a l e f f i c i e n c y t o mean th e o r g a n i z a t i o n ' s e n e r g y u t i l i z a t i o n e f f i c i e n c y allowed th e use of an energy a n a l y s i s tec h niq ue t o measure th e e f f e c t o f f ir m s i z e on t e c h n i c a l efficien cy . Data f o r each f i r m ' s e n e r g y i n p u t s and o u t p u t s were c o l l e c t e d from published documents, p e r s o n a l i n t e r v i e w s , and a q u e s t i o n n a i r e c o m p l e t e d by a r e p r e s e n t a t i v e of t h e u t i l i t y . D i r e c t ( f u e l ) energy c o s t s a r e converted t o B r i t i s h thermal u n i t s ( B t u ' s ) . co sts are converted I n d i r e c t (goods and s e r v i c e s ) e n e r g y f r o m t h e i r d o l l a r e x p e n s e t o B t u ' s u s i n g an i n p u t - o u t p u t energy a n a l y s i s t e c h n i q u e . over the f iv e y e a r tim e These energy c o s t s a r e averaged fram e of th e stu d y o r g a n i z a t i o n ' s average k i l o w a t t - h o u r s s old an d d i v i d e d by t h e f o r a measure of t e c h n i c a l e f f i c i e n c y in B t u ' s p e r k i l o w a t t - h o u r d e l i v e r e d . Due t o th e small and non-random n a t u r e o f t h e s am p le s e l e c t e d , the resu lts may n o t be g e n e r a l i z e d t o t h e p o p u l a t i o n o f e l e c t r i c Gary Claude Chilson u tilitie s as a w h o le . F o r t h e sa mple e x a m i n e d , however, a U-shaped energy e f f i c i e n c y curve b e s t d e s c r i b e d t h e o b s e r v e d d a t a f o r o v e r a l l technical efficien cy . The o r g a n i z a t i o n ' s o p e r a t i o n s energy e f f i c i e n c y was a l s o found t o be s i g n i f i c a n t l y r e l a t e d t o o r g a n i z a t i o n a l s i z e and i s b est d escrib ed by an a s c e n d i n g l o g a r i t h m i c c u r v e . e f f i c i e n c y , however, was not d e p e n d e n t on o r g a n i z a t i o n a l D istrib u tio n size; i t is r e l a t e d t o t h e o r g a n i z a t i o n ' s d i s t r i b u t i o n d e n s i t y , o r customers per mile of l i n e , and i s b e s t d e s c r i b e d by a d e s c e n d i n g a s y m p t o t i c c u r v e . N e i t h e r power p l a n t s i z e o r age were s i g n i f i c a n t l y r e l a t e d t o power plant efficiency. I t is concluded t h a t , fo r the u t i l i t i e s size e x is ts for technical e ffic ie n c y . examined, an optimal This c o n c lu s io n r e i n f o r c e s th e n e e d t o e x p l o r e t h e i m p l i c a t i o n s o f an optimum t e c h n i c a l economic o r g a n i z a t i o n s i n g e n e r a l . size for ACKNOWLEGMENTS Numerous pe rso ns i n c l u d i n g u t i l i t y representatives, faculty, d e p a r t m e n t s t a f f and s t u d e n t s c o n t r i b u t e d t o t h e s u c c e s s fu l completion of t h i s d i s s e r t a t i o n . I am p a r t i c u l a r l y i ndebted t o Mr. Ron B u l t h i u s , D i r e c t o r o f R e g u l a t o r y and Data Research, Consumers Power Company, f o r h is a s s i s t a n c e in d e s ig n in g th e q u e s ti o n n a i r e used to c o l l e c t necessary data. the Dr. P e t e r Kakela, my major p r o f e s s o r , and t h e members o f my g r a d u a t e c o m m i t t e e a l s o encouragem ent, a d v ic e , deserve and h e l p f u l sp ecial thanks for th eir comments. I t i s t o my w i f e and f a m il y , however, t h a t I owe my h e a r t f e l t th a n k s . Their s u p p o r t o f b o t h my body and mind en ab led me to accomplish t h i s achievement. TABLE OF CONTENTS L i s t of F i g u r e s ................................................................................... L i s t of T a b le s ............................................................................................................. Chapter One: I n t r o d u c t i o n .................... vii viii 1 A Notion........................................................................................................ 1 Goal and O b j e c t i v e s ............................................................................... 2 Chapter One N o t e s .................................................................................... 4 Chapter Two: An A l t e r n a t i v e P e r s p e c t i v e ..................................................... 5 Economies of S c a l e .................................................................... 5 Economies of P l a n t S c a l e ................................................... Economies of Firm S c a l e . ................. Technical and Pecuniary C o n t r i b u t i o n s ...................... 5 .7 10 An A l t e r n a t i v e P e r s p e c t i v e ................................................................ 11 Energy Economies o f S c a l e ................................................. A C a v e a t ...................................................................................... 12 13 Chapter Two N o te s .................................................................................... 15 Chapter Three: The Problem.................................................................................. 16 Focus............................................................................................................... 16 H i s t o r i c a l P e r s p e c t i v e ....................................................... Economic P e r s p e c t i v e ..................................... 17 19 S i g n i f i c a n c e of Study ........................................................................... 21 A Changing Environment................................................ Adaptive S t r a t e g i e s .............................................................. 23 24 Chapter Three N o te s ................................................................................ 27 Chapter Four: Conceptual D e f i n i t i o n s ............................................................ 29 O r g an izatio n al S i z e ................................................................................ 29 Technical E f f i c i e n c y ............................................................................. 31 Chapter Four N o t e s .................................................................................. 34 iv Chapter Five: Methods............................................................................................. 35 S e l e c t i o n of A n a ly tic Technique..................................................... 35 System B o u n d a r ie s .................................................................. Survey I nst rume nt Des ign................................................... 35 37 I np ut-Output A n a l y s i s ........................................................................... 38 S e l e c t i o n of S e c t o r s ........................................................... Energy Content C o r r e c t i o n s .............................................. 40 41 S e l e c t i o n of S u b j e c t s ........................................................................... 46 S t a t i s t i c a l A n a l y s i s ............................................................................. 47 L i m i t a t i o n s ................................................................................................. 49 Chapter Five N o te s ................................................................................. 51 Chapter Six: R e s u l ts and A n a l y s i s .................................................................. 53 The Independent V a r i a b l e s .................................................................. 53 O r g a n i z a t io n a l S i z e .............................................................. D i s t r i b u t i o n D e n s i t y ........................................................... System P l a n t Age.................................................................... P l a n t Size and Age................................................................ 53 55 55 56 The Dependent V a r i a h l e s ....................................................................... 56 Total Power E f f i c i e n c y ....................................................... D i s t r i b u t i o n E f f i c i e n c y ..................................................... Oper at io ns E f f i c i e n c y ......................................................... Overall E f f i c i e n c y ................................................................ Pr odu ction E f f i c i e n c y ......................................................... Power P l a n t Overall E f f i c i e n c y ..................................... Power P l a n t Pr od uction E f f i c i e n c y .............................. Power P l a n t Ope rat ions E f f i c i e n c y .............................. 56 58 58 60 60 60 61 61 Analysis and Dis cuss ion of R e s u l t s .............................................. 63 Overall E f f i c i e n c y ................................................................ Total Power E f f i c i e n c y ....................................................... Pro ducti on E f f i c i e n c y ......................................................... D i s t r i b u t i o n E f f i c i e n c y ..................................................... O perati ons E f f i c i e n c y ..........................................v............ System P l a n t Age.................................................................... Power P l a n t Overall E f f i c i e n c y . . ................................. Power P l a n t P r od uction E f f i c i e n c y ................ Power P l a n t Oper at ions E f f i c i e n c y ....................... Power P l a n t Age...................................................................... 63 66 70 73 76 78 80 82 84 85 Chapter Six N o t e s.................................................................................... 88 v Chapter Seven: Summary and Recommendations.............................................. 89 Summary of Problem................................................................................. 89 Summary of C o n c l u s io n s ........................................................................ 93 Recommendations........................................................................................ 94 A Final Word............................................................................................... 97 References C i t e d ................................... 98 Appendix........................................................................................................ vi 181 L IS T OF FIGURES Figure 1. Figure 2. The lo n g -r u n average c o s t curve as an envelope curve c o n t a i n i n g th e minimum p o i n t s of su c c e ss iv e s h o r t - r u n av erage c o s t c u r v e s .................................................... 6 A h y p o t h e t i c a l long run average c o s t curve with te c h n i c a l and pec uniar y c o n t r i b u t i o n s s e p a r a t e d 11 The shape of th e proposed energy economy of s c a l e c u r v e .......................................................................................................... 13 The p r i c i n g problem in an i n c r e a s i n q - r e t u r n s - t o s c a l e i n d u s t r y ...................................................................................... 17 An economic model of how two d i f f e r e n t companies on d i f f e r e n t s h o r t - r u n average c o s t c u r v e s , y e t producing a t t h e same o u t p u t l e v e l , w i ll have d i f f e r e n t average c o s t s ................................................................. 65 Overall e f f i c i e n c y and b e s t f i t t i n g polynomial e q u a t i o n ................................................................................................... 66 Total power e f f i c i e n c y and b e s t f i t t i n g polynomial e q u a t i o n ................................................................................................... 70 Pro duc tion e f f i c i e n c y and b e s t f i t t i n g polynomial e q u a t i o n ................................................................................................... 72 Figure 9. D i s t r i b u t i o n e f f i c i e n c y a g a i n s t u t i l i t y s i z e ...................... 74 Figure 10. D i s t r i b u t i o n e f f i c i e n c y and th e s e l e c t e d asymptotic e q u a t i o n ................................................................................................... 76 Operations e f f i c i e n c y and b e s t f i t t i n g l o g a r i t h m i c e q u a t i o n ................................................................................................... 78 No r e l a t i o n s h i p between system p l a n t age and p roduction e f f i c i e n c y ...................................................................... 79 Power p l a n t o v e r a l l e f f i c i e n c y and b e s t f i t t i n g l o g a r it h m i c e q u a t i o n ......................................................................... 81 Power p l a n t p r o d u c t io n e f f i c i e n c y and b e s t f i t t i n g lo g a r it h m i c e q u a t i o n ......................................................................... 83 Power p l a n t o p e r a t i o n s e f f i c i e n c y and b e s t f i t t i n g lo g a r it h m i c e q u a t i o n ......................................................................... 86 No r e l a t i o n s h i p between power p l a n t age and power p l a n t o v e r a l l e f f i c i e n c y ................................................................ 87 F ig u re 3. Fig ure 4. Figure 5. Figure 6. Fig ure 7. Fig ure 8. Figure 11. Fi gure 12. Fig ure 13. Fi gure 14. Fig u re 15. Figure 16. vi i L IS T OF TABLES Table 1. Conversion f a c t o r s employed............................................................. 39 Table 2. S e le c te d Bureau of Economic Analysis s e c t o r s and t h e i r co r re s p o n d in g energy c o n t e n t values p er 1972 d o l l a r ........................................................................................ 42 Total energy consumed, g ross n a ti o n a l produ ct and the energy d e f l a t o r c a l c u l a t e d t o c o r r e c t energy c o n t e n t values f o r c o n s e r v a tio n s t r a t e ­ g ie s employed s i n c e 1972.................................................................... 44 P r ic e d e f l a t o r s used t o c o r r e c t c u r r e n t expen­ d i t u r e s f o r i n f l a t i o n s i n c e 1972................................................... 45 Example of i n f l a t i o n and energy co n s e rv a ti o n c o r r e c t i o n employed............................................................................... 45 Q uali fyin g s t a t i s t i c s of th e p a r t i c i p a t i n g e l e c t r i c u t i l i t i e s ................................................................................. 48 Table 7. The u t i l i t y - b a s e d in de pen de nt v a r i a b l e s ................................... 54 Table 8. S p e c i f i c p l a n t - b a s e d independent v a r i a b l e s ............................ 57 Tahle 9. System energy c o s t s : t h e dependent v a r i a b l e s ........................ 59 Table 10. P l a n t energy c o s t s : th e dependent v a r i a b l e s .......................... 62 Table 11. Overall e f f i c i e n c y s t a t i s t i c s ......................................................... 64 Tahle 12. Overall e f f i c i e n c y s t a t i s t i c s based on th e four most e f f i c i e n t u t i l i t i e s examined...................................... 66 Table 13. Total power e f f i c i e n c y s t a t i s t i c s ................................................ 68 Table 14. Total power e f f i c i e n c y s t a t i s t i c s based on th e f o u r most e f f i c i e n t u t i l i t i e s examined............................. 69 Table 15. Pro du ction e f f i c i e n c y s t a t i s t i c s .................................................. 71 Table 16. D i s t r i b u t i o n e f f i c i e n c y s t a t i s t i c s ...................................... 75 Table 17. Operations e f f i c i e n c y s t a t i s t i c s .................................................. 77 Table 18. System p l a n t - a g e s t a t i s t i c s ............................................................. 79 Table 19. Power p l a n t - o v e r a l l e f f i c i e n c y s t a t i s t i c s ............................... 81 Table 20. Power p i a n t - p r o d u c t i o n e f f i c i e n c y s t a t i s t i c s ........................ 83 Table 3. Table 4. Table 5. Table 6. vi i i Tahle 21. Power p i a n t - o p e r a t i o n s e f f i c i e n c y s t a t i s t i c s .......................... 84 Table 22. Power p i a n t - o p e r a t i o n s e f f i c i e n c y s t a t i s t i c s ex cl uding anomalous data p o i n t s ..................................................... 85 Table 23. Power p l a n t - a g e s t a t i s t i c s ................................................................. 86 Table 24. Summary of s t a t i s t i c a l r e s u l t s ......................................................... 92 ix CHAPTER ONE INTRODUCTION A Notion' In t o d a y ' s i n d u s t r i a l s o c i e t y we ar e c o n d iti o n e d t o eq u ate big with b e t t e r . The gen er al assumption i s th a t la r g e - s c a le undertakings a r e i n h e r e n t l y more e f f i c i e n t than s m a l le r ones. In f a c t , t h e claim o f e f f i c i e n c y i s commonly used t o j u s t i f y b i g n e s s . Yet i n t h e h i s t o r y o f i d e a s t h e n o t i o n o f an optimal s i z e i s b o t h a n c i e n t and r e c u r r a n t . A r i s t o t l e ^ may have begun t h e rec orded debate by c la im ing t h a t : To th e s i z e of s t a t e s t h e r e i s a l i m i t , as t h e r e i s t o o t h e r t h i n g s , p l a n t s , an im als, implements, f o r none o f t h e s e r e t a i n t h e i r n a t u r a l power when they ar e too l a r g e or too sm all. In Human S c a l e , K i r k p a t r i c k Sale summarized two thousand y e a r s o f t h o u g h t on t h e s u b j e c t o f an optimal s i z e , drawing on such d i y e r s e and o f t e n d i s p a r a t e d i s c i p l i n e s as p h i l o s o p h y , p o l i t i c a l and o t h e r s o c ia l s c ie n c e s as well as t h e n a tu r a l s c ie n c e s such as p h y s i c s , biology and m a t h e m a t i c s . ^ S a l e ' s major focus was on t h e human p e r c e p tio n of s i z e and t h e s i d e - e f f e c t s of l a r g e - s c a l e d s t r u c t u r e s and i n s t i t u t i o n s . Some o f t h e a d v e r s e i m p a c t s he c i t e s i n c l u d e a l i e n a t i o n , apathy, absenteeism , reduced p r o d u c t i v i t y , in n o v a ti o n and c r e a t i v i t y as w e l l a s o t h e r ps yc holo gica l a b e r a t i o n s . S a l e ^ ) con cludes t h a t : For every anim al, o b j e c t , i n s t i t u t i o n o r system, t h e r e i s an optimal l i m i t beyond which i t ought 2 not t o grow. Beyond t h i s optimal s i z e , a l l o t h e r elements of an animal, o b j e c t , i n s t i t u t i o n o r s y s t e m , w i l l be a f f e c t e d a d v e r s e l y . Goal and O b je c t iv e s The p u r p o s e of t h i s d i s s e r t a t i o n was t o c o n s t r u c t a t e s t of th e i d e a t h a t o r g a n i z a t i o n s can grow t o o b i g a n d t h u s i n e f f i c i e n t i n t h e s u p p l y o f goods and s e r v i c e s . bec o m e e n e r g y Several electric u t i l i t i e s in Michigan were s e l e c t e d as t h e o r g a n i z a t i o n s t o exa min e because: 1) t h e y r e p r e s e n t a broad range in o r g a n i z a t i o n a l s i z e ; t h e i r p u b li c n a t u r e allo w s ac c e s s t o t h e n e c e s s a r y d a t a ; u tilitie s 2) 3) e l e c t r i c a r e presumed t o b e n e f i t from economies of s c a l e ; and, 4) time and funding c o n s t r a i n t s p lus th e need f o r personal i n t e r v i e w s t o c o l l e c t some o f t h e data lim ited the geographical d istrib u tio n of the o r g a n i z a t i o n s to be examined. Four o b j e c t i v e s d issertation. m u s t be m e t t o a c h i e v e t h e goal o f t h i s The f i r s t i s t o g r a p h i c a l l y r e p r e s e n t th e o v e r a l l e n e r g y e f f i c i e n c y o f e l e c t r i c u t i l i t i e s over a range of s i z e s broad enough to cap tu re a d e s c rip tio n of the proposed r e l a t i o n s h i p . The s e c o n d o b j e c t i v e i s to a s c e r t a i n t h e r e l a t i o n s h i p , i f any, between the s i z e of th e o r g a n i z a t i o n and t h e a s s o c i a t e d energy c o s t s o f o p e r a t i o n (e xcluding prod u ctio n and d i s t r i b u t i o n energy c o s t s ) . The t h i r d and f o u r t h o b j e c t i v e s seek to determine th e r e l a t i o n s h i p s , i f any, between u t i l i t y s i z e and t h e energy c o s t s of t h e con ve rsion and d i s t r i b u t i o n of e l e c t r i c power r e s p e c t i v e l y . The r e m a i n i n g c h a p t e r s a r e or ga nize d t o : c l a r i f y t h e advantages o f an e n e r g y - b a s e d m e a s u r e o f an o r g a n i z a t i o n ' s t e c h n i c a l e f f i c i e n c y (Chapter I I ) ; e x p l a i n t h e s e l e c t i o n o f th e e l e c t r i c u t i l i t y i n d u s t r y as the focus of t h i s test case (C hapter I I I ) ; co n cep tu ally define o r g a n i z a t i o n a l s i z e and t e c h n i c a l e f f i c i e n c y (Chapter IV); d e s c r i b e t h e method used t o a s s e s s t e c h n i c a l efficiency ( C h a p t e r V); p r e s e n t th e r e s u l t s o b tain ed (Chapter V I ) ; f i n a l l y , t o summarize t h e c o n c l u s i o n s d r a w n a n d make r e c o m m e n d a t i o n s on s u b s e q u e n t a v e n u e s o f r e s e a r c h (Chapter V I I) . 4 CHAPTER ONE NOTES (1) A r i s t o t l e , P o l i t i c s , Book VII, Chapter 4. (2) K i r k p a t r i c k S a l e , Human S c a l e , (New York: Coward, McCann and Geoghegan, 1980). (3) Sale , op. c i t . p. 59. CHAPTER TWO AN ALTERNATIVE PERSPECTIVE ECONOMIES OF SCALE Even i f S a l e ' s l i t a n y o f a d v e r s e p h i l o s o p h i c a l , p s ycholo gica l and s o c ia l e f f e c t s of s i z e a r e g r a n t e d , i t may s t i l l be t o our ec on omic or social advantage to s u ff e r these e f f e c t s fo r a g reater to ta l return on our l i m i t e d r e s o u r c e s . In s h o r t , t h e advantage gained from economies o f s c a l e may outweigh th e p er ceiv ed i l l e f f e c t s t h a t r e s u l t . Economies of P l a n t S ca le Economic a n a l y s i s is powerful measure of optimal s i z e . when a s s o c i a t e d w i t h g e n e r a l l y c o n s i d e r e d t o be t h e most Here, A r i s t o t l e ' s "natural pow er," a b e s t o r optimum s i z e , i s analogous t o t h e low p o i n t on an e c o n o m i s t's l o n g - r u n a v e r a g e c o s t c u r v e f o r a p r o d u c t i o n unit. The l o n g - r u n a v e r a g e c o s t c u r v e i s an e n v e l o p e c u r v e t h a t c o n t a i n s th e minimum av erage c o s t o f a s e r i e s o f s h o r t - r u n a v e r a g e c o s t curves (see F igure 1 ). In t h e s h o r t - r u n , t h e f i x e d f a c t o r s cannot be changed and d im in is h in g marginal r e t u r n s t o f i x e d f a c t o r s g e n e r a t e t h e f a m i l a r " U - s h a p e d " c u r v e f o r t h e s h o r t - r u n average c o s t c urve. Over ti m e, however, th e f i x e d f a c t o r s can be changed ( e . g . , e n l a r g i n g p l a n t capacity). This c r e a t e s a s e r i e s o f s h o r t - r u n average c o s t c u r v e s . ^ 6 LRAC e 3 8RAC1 SRAC2 8RAC3 2 O utput M o u r e 1. The l o n g - r u n a v e r a g e c o s t c u r v e as an e n v e l o p e c u r v e c o n t a i n i n g t h e mini mum p o i n t s o f s u c c e s s i v e s h o r t - r u n a v e r a g e c o s t curves. (Redrawn from Robert H. Haveman and Kenyon A. Knopf, op. c i t . p. 202). A number of f a c t o r s tend to d e c r e a s e t h e s u c c e s s i v e average c o s t cu rves as th e s c a l e of p r o d u c tio n i n c r e a s e s . For example, some f a c t o r s o f p roductio n ar e "lumpier" th an o t h e r s (a machine may not come in small g r a d a t i o n s of o u t p u t ) , c o s t s p e r u n i t o f i n p u t may be l e s s e x p e n s i v e when p u r c h a s e d i n l a r g e r a m o u n t s , and e f f i c i e n c y may be g a i n e d by i n c r e a s e d s p e c i a l i z a t i o n in t h e d i v i s i o n of l a b o r . T h e r e i s a l s o th e f a c t t h a t th e volume o f p h y s ic a l o b j e c t s l i k e c o n t a i n e r s , b u i l d i n g s and v e h i c l e s i n c r e a s e w i t h t h e t h i r d power o f l e n g t h or r a d i u s and, t h u s , f a s t e r th an th e e x t e r n a l s u r f a c e a r e a . C o n s i d e r , a s an i l l u s t r a t i o n , t h a t t h e e x t e r n a l s u r f a c e a r ea of a cube i s s ix tim es th e sq uare of i t s l e n g t h and i t s volume i s th e l e n g t h cubed. As t h e l e n g t h i s i n c r e a s e d , t h e volume i n c r e a s e s a t a f a s t e r r a t e t h a n does t h e e x t e r n a l s u r f a c e area. S in c e t h e c o s t a s s o c i a t e d with t h e m a t e r i a l s and c o n s t r u c t i o n of a facility t e n d t o be r e l a t e d t o t h e e x t e r n a l surface area, la rg e r pr o d u ctio n u n i t s have a g r e a t e r volume o r c a p a c i t y per u n i t c o s t . E v e n t u a l l y , h o w e v e r , a minimum i s r e a c h e d i n t h e s c a l e o f a p r o d u c t i o n u n i t beyond which s u c c e s s i v e expansion l e a d s t o in c r e a s e d average c o s t s . These in c r e a s e d co sts due t o scale are called diseconomies and a r e g e n e r a l l y b e l i e v e d t o stem from t h e i n c r e a s e d c o s t s o f managing th e l a r g e r f a c i l i t y . suggests, In f a c t , as th e e m p ir ic a l evidence t h e p o i n t o f maximum e f f i c i e n c y or lowes t p e r u n i t c o s t in a s i n g l e p l a n t always ap pea rs b e f o r e m o n o p o l is t ic c o n t r o l of t h e i n d u s t r y o c c u r s . (3) Economies of Firm S c a le The d i s c u s s i o n o f e c o n o m i e s o f s c a l e and i n d i v i d u a l plants reviewed th e economic th e o r y and e m p i r i c a l e v i d e n c e t h a t s u p p o r t s t h e notion o f an o p t i m a l size for p r o f i t m axim ization. But s c a l e c o n s i d e r a t i o n s a t t h e f ir m le v e l t a k e on a very d i f f e r e n t a s p e c t because t h e f i r m , which may o p e r a t e s e v e r a l p l a n t s , i s th e s m a l l e s t organ ized system o f p r o d u c tio n de cision-making u n i t . leg itim ately view ed as an independent C onsid er in g firm s c a l e t h e n , S t e i n ^ says: [T]h ere i s s a i d t o be no problem of diseconomies due t o p l a n t s i z e b e c a u s e even a s s u m in g t h a t d i s e c o n o m l e s o f p l a n t s c a l e e x i s t above some point, g reater o u tp u t than t h a t p o i n t p e rm its merely r e q u i r e s r e p l i c a t i o n of t h a t e f f i c i e n t u n i t a s o f t e n as n e c e s s a r y . The i s s u e t h u s reduces i t s e l f to diseconom ies of firm scale when, f o r e x a m p l e , s e v e r a l such optimum p l a n t s a r e managed by a s i n g l e e n t e r p r i s e . Economies o f l a r g e - s c a l e o r g a n i z a t i o n s stem from a number of 8 factors. Some o f t h e s e a r e : managerial s k i l l s ; internally; 1) th e a b i l i t y t o make t h e most of s c a r c e 2) th e a b i l i t y t o r e c r u i t , t r a i n and p r o m o te s t a f f 3) t h e a b i l i t y t o spread r i s k by d i v e r s i f y i n g i t s p r o d u c t s ; 4) in c r e a s e d market power through a d v e r t i s i n g ; a n d , 5) a l a r g e - s c a l e d o r g a n i z a t i o n can f r e q u e n t l y o b t a i n l o w e r f i n a n c e c o s t s f o r c a p i t a l . Nonetheless, ac cording t o Blaug, economic th e o r y m a in ta in s t h a t even a t t h e l evel of th e firm t h e r e i s an optimal s i z e . ^ As i n d i s e c o n o m i e s o f p l a n t s c a l e , t h e d i s e c o n o m i e s o f f i r m s c a l e a r e thought t o a r i s e from problems a s s o c i a t e d with t h e management of la rg e , com plex system s. T o w n s e n d ^ 7 ) i l l u s t r a t e s t h i s by suggest ing t h a t : [ L l a r g e o r g a n i z a t i o n s may seem c h a r a c t e r i z e d by in fle x ib ility , unim aginativeness, unifo rm ity , c o m p le x ity , ro u tin e , s t r a t i f i c a t i o n , delay, d isp ersio n , tim id ity , u n re sp o n siv e n e ss, o f f i c i o u s n e s s , m e d io c r ity and s t a g n a t i o n . As f i r m s c a l e i n c r e a s e s , a number o f p r o b l e m s may becom e apparent in clu d in g : escallate; absenteeism , 2) 1) warehousing and in v en to ry c o n t r o l problems could l a b o r p r o b le m s s uch a s strik es, sp ecializ ed labor c o sts, g r i e v e n c e s and a l i e n a t i o n become major f a c t o r s ; 3) lo c k e d - i n machine p r o c e s s e s could make i n n o v a t i o n , f l e x i b i l i t y responsiveness t o c h a n g i n g m a r k e t c o n d i t i o n s more d i f f i c u l t ; and 4) d i s t r i b u t i o n c o s t s might i n c r e a s e d i s p r o p o r t i o n a t e l y ; a n d , 5) t h e r a t e o f r e t u r n should f a l l as a consequence. Yet t h e e m p i r i c a l e v i d e n c e i s l a c k i n g t o s u p p o rt o r r e j e c t t h e notion o f an optimal f ir m s i z e . Bain was u n a b l e t o f i n d e v i d e n c e o f s i g n i f i c a n t economies o f s c a l e f o r multi pi a n t firm s and Blaug was unable t o c i t e any evidence of diseconomies of firm s ize .^® »9 ^ Summarizing th e 9 empirical ev idence, Caves^10^ cl ai m s t h a t : To t h e b e s t o f o u r k n o w l e d g e , no p r o b le m s of l a r g e - s c a l e i n e f f i c i e n c i e s e x i s t . Sometimes th e l a r g e s t f ir m in an i n d u s t r y seems t o have h ig h e r c o s t s than some o f t h e m e d i u m - s i z e d o n e s . But we can never t e l l whether t h e s e h ig h e r c o s t s ar e an i n e v i t a b l e r e s u l t o f l a r g e s i z e , o r w h e t h e r t h e l a r g e firm i s j u s t p l a i n I n e f f i c i e n t , having l e t i t s c o s t s g e t a b o v e t h e minimum l e v e l a tta in a b le a t th a t scale. Normally, we assume t h a t firms seek to maximize t h e i r r e t u r n s as a b a s i s f o r an economic a n a l y s i s of e f f i c i e n c y . But t h i s may n o t be a v a l i d assumption because, as G a l b r a i t h s u g g e s t s , managers of l a r g e - s c a l e c o r p o r a t i o n s w ill c o n t in u e t o seek growth even i f i t i s a t t h e e x p e n s e of a higher r a t e of r e t u r n . I n s t e a d of maximizing t h e i r r e t u r n on i n v e s t m e n t , t h e s e m a n a g e r s s e e k only a s a t i s f a c t o r y o r t a r g e t r a t e of return ( s h a r e h o l d e r ' s e x p e c t a t i o n s must be s a t i s f i e d ) . Maximizing th e rate of return frequently incurs a higher le v e l of r i s k th an th e r i s k found with only a s a t i s f a c t o r y r a t e of r e t u r n . Co rp orate managers might even seek to minimize r i s k w i t h i n t h e c o n s t r a i n t of a s a t i s f a c t o r y r a t e o f r e t u r n by expending e f f o r t on o b t a i n i n g p o l i t i c a l and economic power - - an advantage of l a r g e r s i z e . I t i s t h e r e f o r e co n c e iv a b l e t h a t , beyond a c e r t a i n s c a l e , gains made t o pr oduct io n e f f i c i e n c y may b e g i n t o s l o w , s t a b l i l i z e and t h e n d e c r e a s e as th e fir m enlarges. The in c r e a s e d s i z e , however, c o n t in u e s t o i n c r e a s e th e f i r m ' s economic power and t h e s e g a i n s may mask t h e l o s s i n p r o d u c t i o n e f f i c i e n c y . The growth process becomes c y c l i c : expending some p o r t i o n o f th e f i r m ' s economic power t o c a p t u r e p o l i t i c a l advantage i n c r e a s e s t h e f i r m ' s ec on omic power and f u r t h e r masks t h e d e c l i n e in pro du ction e f f i c i e n c y . 10 Technical and Pecuniary C o n t r i b u t i o n s S tein d i s t i n g u i s h e s t h e two s o u r c e s t h a t c o n t r i b u t e t o economies of s c a l e : N ote t h a t i t i s p o s s i b l e to r e g a r d s c a l e e f f i c i e n c i e s as composed o f two d i f f e r e n t s o r t s : p e c u n i a r y and t e c h n i c a l . P e c u n ia r y economies ( e . g . c o s t o f c a p i t a l may be l e s s f o r l a r g e s i z e d b o r r o w e r s ) a r e her e regarded as a r t i f a c t s of th e economic system and t h u s r e l a t e d n o t t o t h e a b i l i t y t o s u p p l y goods and s e r v i c e s more e f f e c t i v e l y , g i v e n i d e n t i c a l o p p o r t u n i t y and f a c t o r c o s t s , b u t t o a b s o l u t e s i z e and t h e b e n e f i t s gained from i t . While some pec uniary economies of s c a l e may be l e g i t i m a t e forms o f economic po w er , such as l o w e r f i n a n c e and i n p u t c o s t s , o th er p e c u n i a r y e c o n o m ie s may be de r iv e d from p o l i t i c a l advantage and r e s u l t in th e e r e c t i o n o f b a r r i e r s t o e n t r y . include the a b i l i t y Examples o f t h e l a t t e r would of a la r g e o r g a n iz a tio n to acquire self-serving regulations, s u b s id ie s , t a r i f f s and t a x b r e a k s . power t o t h e e s t a b l i s h m e n t o f su ch p o l i t i c a l su ccessfu lly block They a l s o have t h e advantages f o r t h e i r c o m p e t i t o r s . C onsequently, even if p ro d u c tio n or te c h n ic a l efficiency dec rease s beyond t h e optimum s i z e , p e c u n i a r y eco n o m ie s o f s c a l e may con tinu e t o i n c r e a s e . Economic a n a l y s i s measures both th e te c h n i c a l and pecuniary c o n t r i b u t i o n s t o g e t h e r and c a n n o t d i s t i n g u i s h betw een them . The r e s u l t i s t h e i n a b i l i t y t o f i n d an optimum s i z e from an economic a n a l y s i s (see F ig u re 2 ) . In o t h e r w o r d s , be t h e y t e c h n i c a l or p ecuniary in n a t u r e , economic a n a l y s i s t r e a t s a l l th e f a c t o r s o f p r o d u c t i o n e q u a l l y . While t h i s a g g regation in an economic a n a l y s i s l e a d s t o im port ant i n f o r m a t i o n , 11 i t does not address th e s p e c i f i c problem of an optimum t e c h n i c a l s i z e . TECHNICAL TOTAL O utput F ig u re 2. A h y p o t h e t i c a l long run average c o s t curve with t e c h n i c a l and pecuniar y c o n t r i b u t i o n s s e p a r a t e d . An A l t e r n a t i v e P e r s p e c t i v e Stein defined technical e f f to su pply goods and s e r v i c e s more e f f e c t i v e l y . . . . " T raditionally, e f f e c t i v e n e s s i s measured by an economic a n a l y s i s in terms of c o s t p er u n i t produced. But, as d i s c u s s e d , an economic a n a l y s i s ca nno t s e p a r a t e p e a u n i a r y and t e c h n i c a l scale. R edefining c o n t r i b u t i o n s t o e c o n o m i e s / d i s e c o n o m i e s of effectiv en ess t o mean e f f i c i e n c y in en ergy u t i l i z a t i o n tr a n s f o r m s t h e d e f i n i t i o n of technical e fficien cy in to a ph ys ic a l measure o f th e c o n v e r s io n , d i s t r i b u t i o n and o p e r a t i o n p r o c e s s o f an o r g a n i z a t i o n . T h u s , t h e energy e f f i c i e n c y of c o n v e r ti n g i n p u t s 12 into the supply o f goods o r s e r v i c e s i s one m e a s u r e o f t e c h n i c a l efficien cy . The a d v a n ta g e gained from a focus on energy e f f i c i e n c y i s the to ability sep arate, ex p licitly , the te c h n ic a l and p e c u n i a r y c o n t r i b u t i o n s t o t h e l o n g - r u n average c o s t s of t h e i n d u s t r y . Only one p r e v i o u s a t t e m p t h a s been made t o compare firm s c a l e and energy e f f i c i e n c y (and then only in p a s s i n g ) . In a n a l y z i n g t h e energy c o s t s in t h e beverage i n d u s t r y , H a n n o n ^ ) s t a t e s t h a t : I t i s i n t e r e s t i n g t o compare t h e b o t t l i n g energy o f t h e m ajo r urban b o t t l e r w ith th e s m a l l e r l o c a l b o t t l e r . The r a t i o of s a l e s was a b o u t 10 t o 1. No 'e ner gy econon\y of s c a l e ' i s noted as t h e major b o t t l e r u s e s a b o u t 6 . 3 p e r c e n t more r e s o u r c e energy p e r g a l l o n of beverage. This i s due e n t i r e l y t o t h e f a c t t h a t t h e m ajor b o t t l e r h a s s i x b u i l d i n g s compared to th e l o c a l b o t t l e r ' s one and s p a c e h e a t i n g and l i g h t i n g ac co unt f o r a major s h are of b o t t l i n g ener gy. Energy Economies of Scale Given t h i s p e r s p e c t i v e , a " U - sh a p e d " l o n g - r u n average energy c o s t curve i s proposed (see F ig u re 3 ) . produced a r e th e r e s u l t of t e c h n i c a l Decreasing energy c o s t s per u n i t o r th erm odyna m ic e f f i c i e n c i e s g a i n e d by i n c r e a s i n g s c a l e up t o t h e optimum. diseco n o m ies of scale T hereafter, energy o c c u r as t h e r e s u l t o f d i s p r o p o r t i o n a t e l y i n c r e a s i n g energy c o s t s p er u n i t produced. 13 c 9 *» O o 9 G IU Organizational Size Figure 3. The shape of t h e proposed energy economy of s c a l e curve. A Caveat T h i s e x a m i n a t i o n of the p o s s i b l e r e l a t i o n s h i p between firm s i z e and energy e f f i c i e n c y uses energy as a measureable i n d i c a t o r o f a f i r m ' s technical efficiency. T h i s does n o t mean t h a t an energy s ta n d a r d of value i s proposed or t h a t a measurement o f energy c o s t s i s s u p e r i o r t o an economic v a l u a t i o n . As G e o r g e s c u - R o e g e n ^ ) c o r r e c t l y i n s i s t s : The e co nom ic p r o c e s s i s e n t r o p i c i n a l l i t s f i b e r s , y e t i t c a n n o t be r e d u c e d t o a v a s t th e r m o d y n a m i c s y s t e m . Economic v a l u a t i o n p r o c e e d s o v e r a web o f a n t h r o p o m o r p h i c , n o t physiochemica 1 , c a t e g o r i e s - - u t i l i t y , d i s u t i l i t y , and d i s t r i b u t i o n . No one, i t must be e m p h a s i z e d , h a s b e e n a b l e t o p r o v e t h e e x i s t a n c e of a general q u a n t i t a t i v e r e l a t i o n s h i p between t h e s e human a t t r i b u t e s and t h e e n e r g y consumed or s pen t in t h e i r p r o d u c tio n . Unlike an energy a n a l y s i s , an economic a n a l y s i s c a p t u r e s t h e 14 b e n e f i t s and c o s t s o f p r o d u c t i o n t h a t a r e e s s e n t i a l l y i n v i s i b l e in a physic a l s e n s e . For example, i n c r e a s e d r e c y c l i n g o f i r o n and s t e e l s cra p i s e n e r g e t i c a l l y but not economically f e a s i b l e J T h i s i s p a r t l y th e r e s u l t o f government p o l i c i e s t h a t e n c o u r a g e t h e o r e t o s t e e l process o v e r t h e r e c y c l i n g pr o c e ss through d i s c r i m i n a t o r y f r e i g h t r a t e s and ta x i n c e n t i v e s , as well as b i a s e d f e d e r a l r e s e a r c h , l a b e l i n g r e q u i r e m e n t s , and procurement p r a c t i c e s . These p o l i c i e s encourage th e o r e - t o - s t e e l scrap -to -steel by i m p o s i n g e c o n o m i c i n c e n t i v e s d i s i n c e n t i v e s on th e o t h e r . pro cess over the on t h e one and An economic a n a l y s i s , which i n c l u d e s t h e s e i m p o r t a n t economic e f f e c t s , c o r r e c t l y i d e n t i f i e s t h e e c o n o m i c a l l y sup erio r process but, a t t h e same t i m e , masks t h e energy impacts of t h e s e p o l i c i e s from view. An energy a n a l y s i s , however, does n ot measure t h e i n f l u e n c e of t h e s e economic p o l i c i e s because they do not c o n t r i b u t e to the energy requirem ents of th e two different processes. Consequently, energy a n a l y s i s i s a p a r t i a l a n a l y s i s which may be used t o c l a r i f y t h e energy impacts o f a l t e r n a t i v e economic p o l i c i e s . 15 CHAPTER TWO NOTES (1) R o b e r t H. Haveman and Kenyon A. Knopf, The Market System, Third E d i t i o n , (New York: John Wiley and Sons, 19/8) p. 202. (2) Haveman and Knopf, op. c i t . p. 233. (3) See, f o r e x a m p l e , R i c h a r d C a v e s , American I n d u s t r y : S t r u c t u r e , C o n d u c t , P e r f o r m a n c e , 5 t h e d i t i o n , ( Engl ewood C l i f f s ; P r e n t i c - H a l l , I n c . , 1982) pp. 23-24; Robert H. Haveman and Kenyon A. Knopf, op. c i t . pp. 202-204; o r Henry R. Seager and Charles A. Gu l i c k , T r u s t and C o r p o r a t i o n P r o b l e m s , (New York: Harper and Brothers P u b l i s h e r s , 1929) p. 76. (4) B a r r y S t e i n , S i z e , E f f i c i e n c y a n d Community E n t e r p r i s e , (Cambridge: Center f o r Community Economic development, 19/4) p. 5. (5) Mark B l a u g , Economic T he ory i n R e t r o s p e c t , R e v i s e d E d i t i o n , (Homewood: Richard D. Irw in, I n c . , 1968) p. 463 and a l s o p. 498. (6) S t e i n , op. c i t . p. 5. (7) Harry Townsend, S c a l e , I n n o v a t i o n , Merger and Monopoly (London: Pergamon P r e s s , 1968) p. 21. (8) J o e S. B a in , "Economies of S cale, C onc entratio n and th e Condition o f E n t r y i n Twenty M a n u f a c t u r i n g I n d u s t r i e s , " AER 44( 1): 15-39, March 1954. (9) Blaug, op. c i t . p. 466. (10) Caves, op. c i t . p. 72. (11) John K. G a l b r a i t h , Economics and th e P u b li c Pu rp ose, (New York: Houghton M i f f l i n Co. 1973) pp. 7 / - 8 b . (12) S t e i n , op. c i t . p. 95. (13) B r u c e Ha n n o n , " S y s t e m E ne rg y and R e c y c l i n g : A Study o f t h e B e v e r a g e I n d u s t r y , " CAC Document No. 23, ( U rb a n a : C e n t e r f o r Advanced Computation, u n i v e r s i t y or I l l i n o i s , 1972) p. 24. (14) Nicholas Georgescu-Roegen, "Myths About Energy and M a tt e r , " Growth and Change 10(1.):16-22, January 1979. p. 16. (15) B r u c e Ha n no n a n d J . B r o d r i c k , " S t e e l R e c y c l i n g and Energ y C o n s e r v a t io n , " S c ie n c e 216:485-491, April 1982. (16) P e te r J . K akela, March, 1975. " R a i l r o a d i n g S c r a p , " Environment 1 7 ( 2 ) : 2 7 - 3 3 , CHAPTER THREE THE PROBLEM Focus The e l e c t r i c power i n d u s t r y was s e l e c t e d t o t e s t th e notion of an optimal firm s i z e because e l e c t r i c u t i l i t i e s a r e presumed t o b e n e f i t from e c o n o m ie s o f s c a l e . I n d e e d , t h e p r o d u c t io n and d i s t r i b u t i o n of e l e c t r i c power i s commonly b e l i e v e d t o be a good exa m ple o f a n a t u r a l monopoly. Natural monopoly i n d u s t r i e s enjoy i n c r e a s i n g r e t u r n s t o s c a l e up t o o u t p u t s r e l a t i v e l y l a r g e i n comparison t o market demand. ^ This i s due to a d e c r e a s i n g l o n g - r u n a v e r a g e c o s t c u r v e o v e r su ch a l o n g range of o u t p u t t h a t diseconomies of s c a l e , i f they e x i s t , do not appear — a t l e a s t over th e range o f s c a l e th e i n d u s t r y c u r r e n t l y e x h i b i t s . Whenever a f i r m e x p e r i e n c e s a c o n tin u o u s ly d e c r e a s in g long-r un av erage c o s t c u r v e t h e m a r g i n a l c o s t s w i l l average co sts of p r o d u c t i o n . a l w a y s be l e s s t h a n t h e O p e r a t i n g on t h e b a s i s o f p r o f i t maximization, th e f ir m would s e t marginal revenue equal t o marginal c o s t and p r o d u c e a q u a n t i t y o f o u t p u t l e s s t h a t d e s i r e d a t a p r i c e t h a t exceeds average c o s t (X^, P^ in F i g u re 4 ) . Consequently, n a t u r a l monopolies a r e p u b l i c l y r e g u l a t e d investor-ow ned u t i l i t i e s ! municipal u t i l i t i e s ) . (as in o r p u b l i c l y owned (as in f e d e r a l , s t a t e and The goal o f p u b l i c i n v o l v e m e n t i s t o e q u a t e a v e r a g e c o s t and t h e demand f o r e l e c t r i c i t y , thereby i n c r e a s i n g o u tp u t and lowering t h e p r i c e (X2 , P2 i n Fig u re 4 ) . 16 17 i O Pi AC p2 MC MR it Output F ig u re 4. The p r i c i n g p r o b le m i n an i n c r e a s i n g - r e t u r n s - t o - s c a l e industry. (Redrawn from Robin W. Boadway, op. c i t . p. 155). P ublic reg u latio n o r o w nership allow s access to th e data n e c e s s a r y t o d e t e r m i n e a v e r a g e c o s t s , a n d , by e x t e n s i o n , t h e n e c e s s a r y t o make an energy a n a l y s i s of t e c h n i c a l e f f i c i e n c y . d ata In most c a s e s , p r o p r i e t a r y i n t e r e s t s would p r o h i b i t an independent e v a l u a t i o n of t h e d o l l a r o r energy c o s t s of p r o d u c tio n . But t h e p u b l i c u t i l i t y n a t u r e o f t h e e l e c t r i c power i n d u s t r y e l i m i n a t e s t h i s p o t e n t i a l b a r r ie r to a p r e l i m i n a r y e v a l u a t i o n o f an energy economy of s c a l e . H istorical Perspective The h i s t o r y of expansion and agglom eration in t h e e l e c t r i c power i n d u s t r y a l s o s u g g e s ts t h a t some firm s may be beyond t h e o p t i m a l size. In t h e f o u r decades f o llo w in g t h e f i r s t Edison e l e c t r i c company i n 1882, 18 t h e number of e l e c t r i c companies r a p i d l y in c r e a s e d t o about 6,5 00 i n th e e a r l y 1920s. By t h e b e g i n n i n g o f World War I I . however, b ecau se o f a d v a n c e s i n t e c h n o l o g y and a s h i f t in th e i n d u s t r y ' s f o c u s , t h e number of independent e l e c t r i c c o m p a n i e s had d r o p p e d t o o n l y 3 , 6 0 0 . F o l l o w i n g t h e war t h e t r e n d continued u n til only 1000 e l e c t r i c g e n e r a t i n g companies remain today with ne arly 80 p e r c e n t of t o t a l power produced from a mere 250 inve stor-ow ned u t i l i t i e s . ^ In th e e a r l y y e a r s many s m a ll, i n d e p e n d e n t e l e c t r i c u t i l i t i e s l o c a t e d in d e n sely p o p u la te d a r e a s . Nearly every s i z a b l e town had a p r i v a t e e l e c t r i c company o f t h e i r own. T h i s was due p r i m a r i l y t o t h e g r o s s l y i n e f f i c i e n t g e n e r a t i n g and t r a n s m i s s i o n technology a v a i l a b l e a t t h a t time. These i n e f f i c i e n t systems f o r c e d t h e i n d u s t r y t o f o c u s on b o t h e l e c t r i c and steam p roduction f o r d i s t r i b u t i o n in a l o c a l i z e d ar ea b e c a u s e n e i t h e r p r o d u c t c o u l d be d e l i v e r e d o v e r any g r e a t d i s t a n c e w i th o u t p r o h i b i t i v e energy t r a n s m i s s i o n l o s s e s . S i g n i f i c a n t improvements i n e l e c t r i c t r a n s m i s s i o n and g e n e r a t i n g te ch n o lo g y , however, allowed c e n t r a l i z a t i o n to c a p t u r e economies of s c a l e . In a d d i t i o n , t h e f e d e r a l g o v e r n m e n t l a u n c h e d t h e r u r a l e l e c t r i f i c a t i o n program and e s t a b l i s h e d t h e Tennessee Valley A u t h o r it y as a benchmark p e r f o r m a n c e s t a n d a r d f o r p riv a te electric companies. These c h a n g e s i n t e c h n o l o g y and t h e i n c r e a s e in p u b l i c o v e r s i g h t e n c o u r a g e d t h e c h a n g e i n t h e i n d u s t r y ' s focus t o th e p r o d u c tio n o f e l e c t r i c i t y a lo n e . In a d d i t i o n t o t h e e n a b l i n g t e c h n o l o g y incentiv es, and i n s t i t u t i o n a l t h e g r ow th i n e l e c t r i c power demand a l s o encouraged t h e r a p i d c o n s t r u c t i o n of new f a c i l i t i e s which could t a k e a d v a n t a g e o f t h e new c o n d i t i o n s . D u r i n g t h e f i r s t t h r e e decades s i n c e 1947, s a l e s of e l e c t r i c power doubled ev er y t e n y e a r s f o r an a v e r a g e gr ow th r a t e o f 19 seven p e r c e n t a n n u a l l y . In o t h e r words, t o t a l e l e c t r i c power consumed r o s e from 255 b i l l i o n k i l o w a t t - h o u r s i n 1949 t o a p p r o x i m a t e l y 2000 b i l l i o n kilowatt-hours in 1 9 7 9 . ^ A major r e s u l t of t h i s r a p i d growth was t h a t t h e mix o f p o w e r p l a n t size s and number c h a n g e d from p r e d o m i n e n t l y s m a ll and numerous t o i n c r e a s i n g l y l a r g e and few. As an i l l u s t r a t i o n , th e t o t a l number o f power p l a n t s i n t h e U.S. r e a c h e d i t s peak i n 1930 w i t h 4 , 0 4 3 p l a n t s in o p e r a t i o n . By 1970, t h i s number was reduced t o 3,519 p l a n t s . ^ This b r i e f h i s t o r i c a l review i n d i c a t e s t h i s i n d u s t r y ' s change in market s t r u c t u r e from i t s h ig h ly d e c e n t r a l i z e d infa ncy to i t s r e l a t i v e l y c e n t r a l i z e d c o n d i t i o n t oday. As a r e s u l t , some firms a r e very l a r g e and t h e r e f o r e i t i s p o s s i b l e t h a t they may have grown beyond some optimum size for t h i s industry. Economic P e r s p e c t i v e To t e s t t h e n otion t h a t some firm s may have exceeded t h e optimum size, I u l o ex am ined t h e e l e c t r i c an alysis. ^ in d u stry using l i n e a r r e g r e s s i o n H is goal was t o d e t e r m i n e i f s i z e , as measured by t o t a l a sse ts, to ta l e l e c t r i c property, to ta l u t i l i t y property, k ilo w a tt-h o u r s s o l d o r g e n e r a t i n g c a p a c i t y , could be c o r r e l a t e d t o u n i t e l e c t r i c c o s t s measured i n d o l l a r s . I u lo concluded t h a t , "Each o f t h e measures used t o r e f l e c t d i r e c t l y t h e s i z e of an i n d iv id u a l u t i l i t y was found to be not sig n ifican t. "^ ) I u l o ( 8 > went on to sa y, however, t h a t : [T]he r e l a t i o n s h i p b e tw e e n th e s i z e of s t e a m - e l e c t r i c producing u n i t s and u n i t e l e c t r i c c o s t s i s t h e u n d e r l y in g c a u s e o f a s u b s t a n t i a l p o r t i o n o f any e c o n o m i e s t h a t m i g h t e x i s t . Consequently, once t h i s r e l a t i o n s h i p i s a l l o w e d 20 f o r , th e rem aining r e l a t i o n s h i p (p erh ap s a t t r i b u t a b l e t o such f a c t o r s a s t h e a b i l i t y t o a c h i e v e f i n a n c i n g , s u p e r v i s o r y and managerial eco nom ies ) i s t o o i n t a n g i a b l e t o r e s u l t i n a s i g n i f i c a n t r e l a t i o n s h i p between o v e r a l l u t i l i t y s i z e and u n i t e l e c t r i c c o s t s . In o t h e r w o r d s , I u l o found t h a t economies of p l a n t s c a l e e x i s t b u t was unable t o s u p p o r t or r e f u t e t h e notion of an optimum f i r m s i z e . N e v e r t h e l e s s , t h e q u a l i f y e r s t o h i s conclus io n p r e s e n t e d sev er al l e a d s to t h i s i n v e s t i g a t i o n . I u l o ' s f i r s t q u a l i f y e r was t h a t t h e u t i l i t i e s he examined were predom inently l a r g e u t i l i t i e s — sm all co m pan ies and a l l u t i l i t i e s were e x c l u d e d from t h e a n a l y s i s . ^ public The range in firm s i z e was th us l i m i t e d to a narrow band w i t h i n a l a r g e s iz e d c a t a g o r y . Second, t h e r e l a t i o n s h i p b etw een s i z e and u n i t e l e c t r i c c o s t s may n o t be t h e s i m p ! e l i n e a r r e l a t i o n s h i p t h a t I u l o assumed in h is an aly sis. "That i s , " a s I u l o s a i d , " t h e r e l a t i o n s h i p between u t i l i t y s i z e and u n i t e l e c t r i c c o s t s may be su ch t h a t , lev el of u t i l i t y siz e is reached, a f t e r some s t r a t e g i c u n i t e l e c t r i c c o s t s would have a tendency t o d ecr ea se more slowly o r remain f a i r l y c o n s t a n t , o r even t o i n c r e a s e . " ^ 10) F i n a l l y , and most i n t r i g u i n g , I u l o ^ ^ sta te s that: The n e t r e g r e s s i o n c o e f f i c i e n t (which i n d i c a t e s t h e ch an g e i n u n i t e l e c t r i c c o s t s a s s o c i a t e d with a change in th e inde pe nd en t v a r i a b l e w h i l e h o l d i n g t h e o t h e r in d e p e n d e n t v ariab l.es s t a t i s t i c a l l y c o n s t a n t ) was p o s i t i v e i n each t o t a l s iz e catagory - in d ic a tin g in creasin g c o s ts w ith i n c r e a s i n g s iz e though n o t s t a t i s t i c a l l y s i g n i f i c a n t usin g l i n e a r regression. I n c r e a s i n g c o s t s w i t h i n c r e a s i n g s i z e im plies diseconomies of firm s c a le . At t h e very le a st, Iu lo claim s th at, "the common 21 p r e s u m p t i o n t h a t l a r g e r u t i l i t i e s ar e per se a b le t o produce e l e c t r i c power a t l o w e r u n i t c o s t s does n o t seem t o be b o r n e o u t by even th e g r o s s r e l a t i o n s h i p between s i z e and u n i t e l e c t r i c c o s t s . " ^ 12^ Iu lo l e a v e s th e q u e s ti o n o f an optimal f ir m s i z e unanswered due t o h i s assumptio n of l i n e a r i t y and t h e d i s t o r t i o n s imposed by i n c l u d i n g p e c u n i a r y and t e c h n i c a l f a c t o r s . long-run average c o s t curve, All t h a t can be d i s c e rn e d i s t h a t th e o v e r t h e nar ro w s c a l e o f p r o d u c t i o n analyzed, does not c o n t in u e t o d e c l i n e a t a c o n s t a n t r a t e . The i n v e r s e r e l a t i o n s h i p between s i z e and u n i t e l e c t r i c c o s t s may slow, s t a b l i z e o r even r e v e r s e i t s e l f and begin t o i n c r e a s e . o n l y upon t e c h n i c a l An en e r g y a n a l y s i s f o c u s e s e f f i c i e n c y and i s c a p a b l e o f c l a r i f y i n g some of these facto rs. S i g n i f i c a n c e of Study Given t h e c u r r e n t s i g n i f i c a n c e of l i q u i d f o s s i l f u e l s in th e U. S. economy ( n e a r l y 56 p e r c e n t of end-use energy c o n s u m p t i o n ) an(i our d e p e n d e n c e on i m p o r t s , t e m p o r a r y d i s r u p t i o n s i n s u p p l y such a s o c c u r e d d u r i n g t h e Arab o i l embargo o f 19 73- 1974 have immediate and l a s t i n g e f f e c t s on t h e econon\y. But more d i s t u r b i n g in th e l o n g r u n i s t h e p r o s p e c t of dwindling l i q u i d f o s s i l fuel r e s e r v e s . A change 1n th e energy b a s i s of th e econoniy seems i n e v i t a b l e . An a l t e r n a t i v e energy b asis for so ciety is e le c tr ic ity . E l e c t r i c i t y may be a h i g h l y fav ore d a l t e r n a t i v e t o l i q u i d f o s s i l because of: 1) e l e c t r i c i t y ' s v e r s a t i l i t y ; 3) t r a n s p o r t a b i l i t y ; fuels 2) c o n c e n t r a t i o n o r q u a l i t y ; 4) conv en ienc e; a n d , 5) i t s r e l a t i v e l y low c o s t 22 co n sid e rin g its high s o c ia l value. However, t h e m a j o r i t y o f t h e e l e c t r i c i t y produced i n t h e U.S. i s a form o f en e r g y t h a t d e p e n d s on a r e l a t i v e l y i n e f f i c i e n t c onversio n pr o c e ss from o t h e r energy s o u r c e s . F o r t u n a t e l y , t h e f u e l s t o produce e l e c t r i c i t y come in a v a r i e t y of abundant form s. P u t t i n g economic and i n s t i t u t i o n a l c o n s i d e r a t i o n s a s i d e , n u c l e a r power so u rce m a t e r i a l s from b r e e d e r r e a c t o r s may l a s t f o r a s much as 4,000 y e a r s a t a c o n s t a n t world consumption r a t e of 275 quads ( 1 0 15 B tu ) p e r y e a r J 14^ An i n d e f i n i t e l i f e - e x p e c t a n c y may be p o s s i b l e if fusion reacto rs become feasib le. But among th e tru e ly " in e x h a u s ta b le " energy s ourc es f o r e l e c t r i c i t y a r e t h e d i r e c t o r c l o s e l y a s s o c i a t e d s o l a r a l t e r n a t i v e s such as p h o t o v o l t a i c s , hydro, w i n d - p o w e r , and b io m a ss c o n v e r s i o n . F i n a l l y , t h e m ost p r o b a b l e t r a n s i t i o n fuel t o w a r d t h e s e " i n e x h a u s t a b l e s " i s c o a l , which Hubbert^®^ p r e d i c t s w ill not r e a c h i t s peak o f d o m e s t i c p r o d u c t i o n u n t i l w e l l i n t o t h e 22nd ce n tu r y i f t h e p r e s e n t r a t e of consumption i s n ot g r e a t l y i n c r e a s e d . Following C o t t r e l l ' s th esis, " t h a t t h e amount and k i n d s o f e n e r g y employed c o n d i t i o n man's way of l i f e m a t e r i a l l y and s e t somewhat p r e d i c t a b l e l i m i t s on wh at he c a n do a n d on how s o c i e t y org an ized ," w ill be a s h i f t toward a dependence on e l e c t r i c i t y w ill have a s i g n i f i c a n t i m p a c t on t h e U nited S t a t e s ' so cioeconom ic system . H i s t o r i c a l l y , th e growth r a t e of e l e c t r i c power demand has a lr e a d y made an impact. This i s r e f l e c t e d in t h e p e r c e n ta g e s h a r e o f energy consumed by t h e e l e c t r i c UnitedStates. u tilitie s to th e to tal energy co n s u m e d i n t h e In 1949, f o r example, e l e c t r i c power p r o d u c t io n r e q u i r e d 15 p e r c e n t o f t h e t o t a l e n e r g y consumed. In 1979, e l e c t r i c power p r o d u c t i o n consumed 31 p e r c e n t of t h e t o t a l . Y et t h e p ro d u ctio n of e l e c t r i c i ty , perhaps even m ore 23 sig n ifican tly t h a n i t s consumption, w i l l a l s o e f f e c t th e s t r u c t u r e and f u n c t io n o f s o c i e t y in t h e f u t u r e . For e x a m p l e , many h av e q u e s t i o n e d t h e a d v i s a b i l i t y of promoting t h e pr o d u ctio n of e l e c t r i c i t y from n u c l e a r power i n i t s v a r io u s f o r m s . ^ 18) Weinberg, a n u c l e a r pro pon en t, s e t th e s t a g e by c a l l i n g f o r a " p r i e s t h o o d of r e s p o n s i b l e t e c h n o c r a t s . j n a " F austian B a r g a i n , " W e i n b e r g 's n u c l e a r p r i e s t h o o d o f f e r s u n l i m i t e d electric power i n r e t u r n f o r c o n t r o l over th e r e s u l t i n g plutonium econoniy. G iv e n t h e p o t e n t i a l im portance of e l e c t r i c i t y ' s r o l e i n any f u t u r e s o c ia l t r a n s f o r m a t i o n p r o c e s s , i n s i g h t s i n t o th e s t r u c t u r e o f th e in d u stry th a t produces significant. th is s i g n i f i c a n t commodity a l s o becomes This i s e s p e c i a l l y t r u e g i v e n t h i s i n d u s t r y ' s l i m i t e d f l e x i b i l i t y in a r a p i d l y changing environment. A Changing Environment Until about t h e mid-1960s, t h e e l e c t r i c u t i l i t y i n d u s t r y e x i s t e d w i t h i n a h ig h l y f a v o r a b l e e n v i r o n m e n t . co sts stea d ily declined, P r o d u c t i o n and d i s t r i b u t i o n c o n s u m p t i o n and r e v e n u e s s t e a d i l y rose, e a r n in g s tended t o i n c r e a s e every y e a r and i n v e s t o r s r e a d i l y p r o v i d e d t h e a d d i t i o n a l c a p i t a l f o r exp ansion. Re gulat ion o f t h e s e o r g a n i z a t i o n s was minimal in an atmosphere o f f r i e n d l y c o o p e r a t i o n — P u b l i c U t i l i t y Commissions o c c a s i o n a l l y met t o h ear an appeal f o r lower r a t e s . On top o f a l l t h i s , plannin g problems were few — demand grew a t a s t e a d y and p r e d i c t a b l e r a t e ; s i t i n g d e c i s i o n s were uncomplicated; r i g h t s of way f o r t r a n s m i s s i o n l i n e s were a v a i l a b l e with l i t t l e o p p o s it o n ; i n f l a t i o n r a t e s were low; and c o n s t r u c t i o n or l i c e n s i n g delay s were s h o r t . By 1975, h o w e v e r , t h e s e a s p e c t s o f t h e s o c i a l , ec onom ic and 24 in stitu tio n al environment changed. F irst, due t o t e c h n i c a l design problems and in c r e a s e d p u b l i c concern f o r s a f e t y , t h e r e were a gro w in g number o f d e l a y s i n p l a n n i n g , new n u c l e a r f a c i l i t i e s . c o n s t r u c t i o n , and s e c u r i n g approval f o r I n c r e a s i n g i n t e r v e n t i o n by r e g u l a t o r y a g e n c i e s f o r the i n s t a l l a t i o n of environm ental c o n tro l p l a n t s came q u i c k l y t h e r e a f t e r . s yst em s on c o a l - f i r e d These d i f f i c u l t i e s led to cost i n c r e a s e s w h i c h , b e c a u s e o f i n c r e a s e d c i t i z e n p a r t i c i p a t i o n in r a t e c a s e s , were ag gravate d by dela ys in r a t e a d j u s t m e n t s . I m p p e c i s e demand p r o j e c t i o n s , which l e d t o l o w e r t h a n e x p e c t e d s a l e s and a consequent decline in re v e n u e s, p lu s in c r e a s e d fu el c o s t s r e s u l t e d in reduced earnings. Eroded e a r n i n g s d i m i n i s h e d i n v e s t o r c o n f i d e n c e and t h i s , t o g e t h e r w i t h h i g h i n t e r e s t r a t e s and i n f l a t i o n , exacerbated the problems of c a p i t a l f i n a n c i n g . ^ 2°) T h e s e d e v e l o p m e n t s c r e a t e d an u n p r e c e d e n t e d s i t u a t i o n f o r th e e l e c t r i c power i n d u s t r y . The s t e a d y and p r e d i c t a b l e g r o w t h r a t e i n e l e c t r i c power demand f e l l t o l e s s than h a l f i t s pr ev io u s r a t e . l e d t o s i g n i f i c a n t r e g io n a l impacts on power p r o d u c e r s . This For e x a m p l e , some p r o d u c e r s now f i n d t h e m s e l v e s c a r r y i n g 35 t o 56 p e r c e n t excess c a p a c ity w hile s t i l l bein g committed t o d e v e l o p m e n t p r o g r a m s . ^2 ^ expensive n u clear power The growing number of such problems around t h e countr y l e d Daniel Yergin t o conclude t h a t t h e e l e c t r i c i n d u s t r y i s an " in d u str y in t r o u b l e . " ^ 22^ Adaptive S t r a t e g i e s One m a j o r p r o b l e m facin g the e l e c t r i c i n d u s t r y i s how t o minimize th e c o s t of p r o v id i n g t h e energy n e e d e d by c o n s u m e r s i n t h i s r a p i d l y changing environment. Yet t h e a d a p t iv e s t r a t e g i e s a v a i l a b l e t o 25 electric p ro d u cers are lim ited . S tra te g ie s th a t are e s s e n tia lly f u n c t io n a l in n a t u r e ar e v i r t u a l l y ex haus ted. Functional changes a r e de f in e d her e t o mean t e c h n i c a l e f f i c i e n c y adju st m en ts in the p r o d u c t i o n , d i s t r i b u t i o n or o p e r a t i o n p r o c e ss t h a t do n ot, by t h e m s e l v e s , functional require stru c tu ra l (i.e. s t r a t e g i e s open t o t h e e l e c t r i c siz e ) changes. in d u stry The in clu d e the s t r a i g h t f o r w a r d e n e r g y and economic c o n s e r v a ti o n t a c t i c s a v a i l a b l e to v irtu a lly all organizations. turned o f f , F or e x a m p l e , e n g i n e s n o t i n u s e may be s u p e r f l u o u s l i g h t i n g and h e a t i n g / c o o l i n g of o f f i c e s may be e l i m i n a t e d and t i g h t e r management c o n t r o l s on c o s t s i n g e n e r a l may be im p le m e n t e d t o d i r e c t l y improve te c h n i c a l e f f i c i e n c e s . But f u n c t io n a l improvements a l s o i n c l u d e advances in technology which may l e a d t o , but do not r e q u i r e , s t r u c t u a l changes. The last half cen tu ry improvements in t h e t h e r m a l system s. h a s b e e n m a r k e d by s i g n i f i c a n t e f f ic ie n c y of the i n d u s t r y 's production As S c h u r r e x p l a i n s , "In th e 1960s, i t took l e s s than h a l f as much coal t o g e n e r a t e a k i l o w a t t - h o u r o f e l e c t r i c power as i t had t a k e n in 1 9 2 5 ." ^ 3 ) Such i m p r o v e m e n t s i n m a t e r i a l s and technology allowed u t i l i t i e s to achieve h i g h e r co nver si on e f f i c i e n c i e s u s i n g c o n v e n t i o n a l R ankine s team c y c l e e q u i p m e n t (39 p e r c e n t in 1965 compared to only 17 p e r c e n t i n 1 9 2 0 ). g u t even h ig h e r e f f i c i e n c i e s would now r e q u i r e , " . . . e x o t i c , expensive m a t e r i a l s a n d / o r r i s k i m p o s i t i o n o f u n a c c e p t a b l e re lia b ility p en a ltie s," according t o B a u e r and H i r s h b e r g . ^5) Consequently, they conclude t h a t , " .. . c o n t e m p o r a r y , r e l i a b l e g e n e r a t i n g technology now appears t o have reached a p l a t e a u . . . While th e improvements i n con ver sio n e f f i c i e n c y could be a p p l i e d t o l a r g e r power p l a n t s , enabling u t i l i t i e s t o c a p t u r e econom ies of 26 s c a l e , t h e im p ro v e m e n ts were e s s e n t i a l l y f u n c t i o n a l because of t h e i r a p p l i c a b i l i t y to any s c a l e . The same i s t r u e f o r t h e im p ro v e m e n t i n m a t e r i a l s and t e c h n o l o g y f o u n d in th e u t i l i t y ' s d i s t r i b u t i o n systems. The u s e o f h i g h v o l t a g e t r a n s m i s s i o n lin es, how ever, w ith th eir a s s o c i a t e d r e d u c ti o n in t r a n s m i s s i o n l i n e l o s s e s p r i o r t o d i s t r i b u t i o n , promoted an i n c r e a s e in t h e s p a t i a l a r ea served by a s i n g l e u t i l i t y and a r e s u l t a n t i n c r e a s e i n b o t h t h e number o f c u s t o m e r s se rved and th e o r g a n i z a t i o n ' s power demand. The l i m i t e d u tilities fu n ctio n al stra te g ie s l e f t open t o e l e c t r i c s u g g e s t t h a t t h e next major changes t h a t w i l l o c c u r i n t h i s i n d u s t r y may be s t r u c t u r a l i f , t h a t i s , t h e r e a r e any energy e f f i c i e n c y gains t o be made by such changes in o r g a n i z a t i o n a l and s i z e o f i n d i v i d u a l question. power p l a n t s . s i z e o r t h e number T h i s s t u d y f o c u s e s upon t h i s 27 CHAPTER THREE NOTES (1) Robin W. Broadway, P u b l i c S e c to r Economics, (Cambridge: Winthrop P u b l i s h e r s , I n c . , 19/9) p. l b l . (2) Marc M e s s i n g , H. Paul F r i e s e m a and David M o r e l l , C e n t r a l i z e d Power, (Washington D.C.: Environmental P olicy I n s t i t u t e , 1979) pp. 14-45. (3) Douglas Bauer and Allan S. H irsh be rg , "Improving th e E f f i c i e n c y of E l e c t r i c a l G e n e r a t i o n and U s a g e ," in John C. S a w h i l l ' s ( e d i t o r ) E n e r g y , C o n s e r v a t i o n an d P u b l i c P o l i c y , (Englewood C l i f f s : Prentice-Ha11 I n c . , 1979) p. 144. (4) U.S. D e p a r t m e n t o f E n e r g y , " T a b l e 14: S a l e s o f E l e c t r i c i t y by E n d - U s e S e c t o r , 1 9 4 9 - 1 9 7 9 , " EIA Annual R e p o r t t o C o n g r e s s , October, 1980. (5) Mike W a l s h , O f f i c e o f E n e r g y I n f o r m a t i o n S e r v i c e s , Energy Infor mation A d m i n i s t r a t i o n , U.S. Department o f Energy, Washington, D.C. Personal communication, August 11, 1981. (6) W i l l i a m I u l o , E l e c t r i c U t i l i t i e s - C o s t s and P e r f o r m a n c e , (Washington S t a t e U n i v e r s i t y P r e s s , 1961). (7) I u l o , op. c i t . p. 92. (emphasis added) (8) I u l o , op. c i t . p. 92. (9) I u l o , op. c i t . p. 92. (10) I u lo , op. c i t . p. 93. (11) I u l o , op. c i t . p. 94. (12) I u l o , op. c i t . p. 167. (13) U.S. Department o f Energy, The Annual Report t o Congress, op. c i t . " T a b l e 6 : U . S . E n e r g y S u p p l y / D e m a n d B a l a n c e : R T s t o r y and P r o j e c t i o n s f o r Three Base S c e n a r io s , 1965-1995", p. 13. (14) Samual H. S c h u r r , Energy in America's F u tu re : The Choices Before Us, ( Baltimore : John Hopkins P r e s s , 1979) p. 2 4 / . (15) M. K i n g H u b b e r t , " E n e r g y R e s o u r c e s " i n R e s o u r c e s and Man, Committee on Resources and Man, National Academy o f Scienc es ( e d . ) (San F r a n c i sc o : W. H. Freeman and Co., 1969). (16) F r e d e r i c k C o t t r e l l , Energy and S o c i e t y : The R e l a t i o n Between E n e r g y , S o c i a l C h a n g e and Economic D e v e l o p m e n t , ( W e s t p o r t : Greenwood P r e s s , 1955) p. v i i . 28 (17) U.S. D e p a r t m e n t o f E n e r g y , Annual R e p o r t t o Congress, op. c i t . "Table 2: Consumption of Energy by tnd Use S e c t o r , " p. 5. (18) See f o r ex a m p le : Amory Lovins, The Energy C o n tr o v e r s y , Hugh Nash ( e d i t o r ) , (S an F r a n c i s c o : F r i e n d s o f t h e E a r t h P u b l i c a t i o n s , 1 9 7 9 ) ; K i r k p a t r i c k S a l e , op. c i t . ; a n d , Langdon W in n er , "Do A r t i f a c t s Have P o l i t i c s ? , " Daedalus 109(1):12 1-135, 1980. (19) A l v i n M. W e i n b e r g , " T e c h n o lo g y and Ecology: I s There a Need f o r C o n f r o n t a t i o n ? , " BioScience 2 3 ( l ) : 4 1 - 4 6 , 1973, p. 43. (20) H i s t o r i c a l r e v i e w drawn from R o b e r t J . K a l t e r and W i l l i a m A. V o g e l y , Energy S u p p l y and Government P o l i c y , ( I t h a c a : Cornell U n i v e r s i t y P r e s s , 19/6) p. 216. (21) See t h e Michigan Gongyer, August 4, 1981 f o r (22) Quo ted i n : P h i l i p S h e r o n , "Many E l e c t r i c U t i l i t i e s S u f f e r as C o n s e r v a t i o n Holds Down Demand, Wall S t r e e t J o u r n a l , October 9, 1980 pg. 1. (23) S ch ur r, op. c i t p. 89. (24) Bauer and H i r sh b e r g , op. c i t . p. 154. (25) Bauer and H ir s h b e r g , op. c i t . p. 154. (26) Bauer and H ir sh b e r g , op. c i t . p. 154. Michigan examples. CHAPTER FOUR CONCEPTUAL DEFINITIONS O r g a n iz a tio n a l S iz e S i z e can be d e f i n e d as " a phy sic a l magnitude, e x t e n t or bulk: r e l a t i v e or p ro p o rtio n a te d i m e n s i o n s . T h i s d e s c r i p t i o n of s i z e uses a phy sical measure, and t h i s r e s e a r c h e r has sought t o a p p l y s uch a measure to o r g a n i z a t i o n s . Monetary measures of an o r g a n i z a t i o n ' s s i z e a r e r e j e c t e d because d o l l a r s a r e a means of exchange and not a measure o f s i z e . What c o s t s a l o t may be v e r y s m a l l , l i k e a diamond, while something t h a t c o s t s very l i t t l e may be very l a r g e , l i k e an a c r e - f o o t o f w a t e r . "... Iulo s ta te d t h a t , t h e a b s e n s e from physical measures of d i s t o r t i o n s in tro d u c e d i n t o monetary measures ar gues s t r o n g l y f o r t h e use o f ph ysical m e a s u r e s a s a more r e l i a b l e i n d i c a t o r o f r e l a t i v e u t i l i t y s i z e . " ^ But a p a r t from th e p o s s i b l e d i s t o r t i o n s i n t r o d u c e d by m o n e t a r y m e a s u r e s o f s i z e , p h y sica l m easure of tech n ical efficien cy (such as B tu 's a per k i l o w a t t - h o u r d e l i v e r e d ) i s b e s t compared t o a n o t h e r p hys ic a l measure. I d e a l l y , a p h y s i c a l m e a s u r e o f s i z e would q u a n t i f y t h e t o t a l amount o f e n e r g y c o n t a i n e d w i t h i n organization. the stru c tu re s owned by t h e A power p l a n t c o n t a i n s t o n s of s t e e l , c o n c r e t e , g l a s s and a h o s t of o t h e r m a t e r i a l s i n va rying amounts. Each o f t h e s e m a t e r i a l s r e q u i r e d e n e r g y f o r t h e i r f a b r i c a t i o n and d i r e c t f u e l r e q u i r e d t o assemble them t o g e t h e r i n t o a power p l a n t . i n p u t s were The sum o f t h e e n e r g y r e q u i r e d t o produce a power p l a n t i s t h e embodied energy of th e 29 30 power p l a n t . The embodied energy of an o r g a n i z a t i o n would then be the sum o f th e d i r e c t ( f u e l ) and i n d i r e c t (goods and s e r v i c e s ) energy i n p u t s r e q u i r e d t o f a b r i c a t e and e r e c t t h e p h y s i c a l s t r u c t u r e s owned by the organization. The ph y s ic a l magnitude of an o r g a n i z a t i o n would i n c l u d e t h e em bodie d e n e r g y c o n t a i n e d i n t h e o r g a n i z a t i o n ' s power p l a n t s , s u b s t a t i o n s , s e r v i c e r o a d s , t r a n s m i s s i o n and d i s t r i b u t i o n l i n e s , o f f i c e and s e r v i c e b u i l d i n g s , t y p e w r i t e r s , v e h i c l e s , e t c . U n f o r tu n a te l y , Noguchi demonstrated t h e l a c k o f a v a i l a b l e d a t a t o c a l c u l a t e t h e embodied energy c o n t a i n e d in even a s i n g l e power p l a n t , le t alo n e th e em bodied e n e rg y o f an e n t i r e o rg a n iz a tio n .^ ) Consequently, an a l t e r n a t i v e p hys ic a l measure o f s i z e must be u s e d t h a t corresponds to the em bodied en erg y of th e organization . This a l t e r n a t i v e approach must meet f o u r e s s e n t i a l c r i t e r i a : 1) i t must v a r y d i r e c t l y w i t h t h e em bo died e n e r g y o f an o r g a n i z a t i o n ; 2) i t must be a p p l i c a b l e to a l l o r g a n i z a t i o n s in th e s tu d y ; 3) i t must be m e a s u r a b l e i n physical u n i t s ; and, 4) i t must be c o n s t r u c t e d from r e a d i l y a v a i l a b l e and r e l i a b l e d a t a . A fundam ental assum ption made h e r e f u n c t i o n ; t h a t i s , an o r g a n i z a t i o n ' s p h y s i c a l upon t h e o r g a n i z a t i o n ' s f u n c t i o n . i s t h a t form f o l l o w s s tr u c t u r e is dependant As d e f i n e d h e r e , the functional d e f i n i t i o n o f an e l e c t r i c u t i l i t y i s t o g e n e r a t e and d i s t r i b u t e e l e c t r i c power to custom ers. Three s t r u c t u r a l c h a r a c t e r i s t i c s of e l e c t r i c u t i l i t i e s a s s o c ia te d w ith th e s e f u n c t i o n a l i d e n t i f i e d and m e a s u r e d : c a n be r e a d i l y 1) power g e n e r a t i o n and pur ch as e; d i s t r i b u t i o n ; a n d , 3) s e r v i c e t o c u s t o m e r s . p u r c h a s e c a n be m e a s u r e d task s in term s 2) power Power g e n e r a t i o n and o f p e a k p o w e r demand, power d i s t r i b u t i o n can be computed in terms o f m i l e s o f l i n e , and c u s t o m e r s 31 se rved i s d i r e c t l y a v a i l a b l e . One o f t h e s e three c h a ra c te ristic s, peak power demand, i s d i r e c t l y r e l a t e d t o th e embodied energy w ith in th e o r g a n i z a t i o n s . Peak power demand r e q u i r e s both i n s t a l l e d power c a p a c i t y ( a s s o c i a t e d with th e c o n s t r u c t i o n of power p l a n t s , s e r v i c e r o a d s , fuel f a c i l i t i e s , e t c . ) th e and t r a n s m i s s i o n / d i s t r i b u t i o n system ( r e p r e s e n t i n g to n s of s t e e l , copper, c o n c r e t e and o t h e r m a t e r i a l demand. in p u ts ) necessary to handle the The g r e a t e r t h e peak power demand, th e g r e a t e r th e embodied energy. While p r o p o r t i o n a t e t o t h e o r g a n i z a t i o n ' s t o t a l embodied ener gy , peak power demand does n o t c a p t u r e a l l embodying e n e r g y i n t h e o r g a n i z a t i o n . th at an o r g a n i z a t i o n w ith g reater of th e v a r i o u s stru ctu res But i t i s reaso n ab le t o assume p e a k p o w e r dem and m u s t own p r o p o r t i o n a t e l y l a r g e r o r more numerous s e r v i c e and o f f i c e f a c i l i t i e s as wel 1. The u n i t s o f m e a s u r e f o r t h e t h r e e v a r i a b l e s follow from the d e f i n i t i o n o f th e v a r i a b l e s : peak power demand i s measured in M eg aw atts ( e l e c t r i c ) ; power d i s t r i b u t i o n i s m e a s u re d i n m i l e s ; an d customer s served i s th e number of c u s to m e r s b i l l e d . O perational d e f in tio n s of s i z e f o r t h e o r g a n i z a t i o n s as well as a d d i t i o n a l independent v a r i a b l e s t o be s tu d i e d a r e developed in Chapter VI. Technical E f f i c i e n c y As p r e v i o u s l y d i s c u s s e d , t e c h n i c a l e f f i c i e n c y i s def ined as th e energy e f f i c i e n c y o f t h e p r o d u c t io n , d i s t r i b u t i o n and o p e r a t i o n p r o c e s s (see Chapter I I ) . As such, t e c h n i c a l e f f i c i e n c y i s a modified thermal 32 e f f ic ie n c y concept. d irect fuel Thermal e f f i c i e n c y i s g e n e r a l l y taken t o mean th e i n p u t s compar ed t o t h e o u t p u t o f a p r o d u c t i o n p r o c e s s , r e p o r t e d as a r a t i o of o u t p u t t o i n p u t . Thermal e f f i c i e n c y i s a narrow p e r s p e c t i v e i n t h a t t h e p r o c e s s i s c o m p l e t e a t t h e p o i n t w here t h e o u t p u t l e a v e s th e p r o d u c tio n p r o c e s s . The m o d i f i c a t i o n s us ed h e r e f o r t e c h n i c a l e f fic ie n c y are a s i g n i f i c a n t d e p a r t u r e from a c l a s s i c a l d e f i n i t i o n o f thermal e f f i c i e n c y . F irst, t e c h n i c a l e f f i c i e n c y broadens t h e p e r s p e c t i v e t o i n c l u d e a l l th e energy i n p u t s r e q u i r e d t o d e l i v e r t h e o u t p u t t o t h e c o n s u m e r . means t h a t tech n ical efficien cy This in c lu d e s th e energy r e q u i r e d in d i s t r i b u t i o n and o p e r a t i o n s as well as t h a t u s e d i n p r o d u c t i o n a l o n e . More i m p o r t a n t l y , i t in c l u d e s t h e i n d i r e c t energy of goods and s e r v i c e s r e q u i r e d in th e o v e r a l l re p o rte d in the r a t i o efficiency ra tio . process. Sec ond, t e c h n i c a l efficien cy is o f i n p u t s t o o u t p u t s , t h e i n v e r s e of a thermal This convention i s used in o r d e r to r e p o r t t e c h n i c a l e f f i c i e n c y i n t e r m s o f t h e energy i n p u ts r e q u ir e d t o d e l i v e r a u n i t of e l e c t r i c i t y t o t h e cons um e r and i s a n a l o g o u s t o d o l l a r s p e r u n i t . T e c h n i c a l e f f i c i e n c y , however, i s r e p o rte d in terms of B r i t i s h thermal u n its (B tu's) per k ilo w att-hour delivered. The t e c h n i c a l e f f i c i e n c y o f an e l e c t r i c u t i l i t y i s d iv id e d i n t o se ver al components. to tal O v e r a l l t e c h n i c a l e f f i c i e n c y i s t h e sum o f t h e power e f f i c i e n c y , efficiency. d istrib u tio n e f f i c i e n c y and o p e r a t i o n s Total power e f f i c i e n c y c o n s i d e r s t h e d i r e c t f u e l e n e r g y consumed i n t h e u t i l i t y ' s power p l a n t s p l u s t h e d i r e c t and i n d i r e c t energy embodied in any purchased e l e c t r i c i t y . D istribution e ffic ie n c y c o n s i d e r s t h e e l e c t r i c l i n e l o s s e s i n c u r r e d in both t r a n s m i s s i o n and distribution. 33 O perations e f f ic ie n c y such a s e l e c t r i c i t y i s t h e sum o f t h e d i r e c t energy i n p u t s , and n a t u r a l gas u s e d t o pow er , l i g h t an d h e a t o f f i c e s and s e r v i c e f a c i l i t i e s , p l u s t h e i n d i r e c t e n e r g y i n p u t s of m a t e r i a l s and s e r v i c e s r e q u i r e d in t h e o p e r a t i o n o f t h e power p l a n t s , t r a n s m i s s i o n / d i s t r i b u t i o n n e t w o r k , and t h e a d m i n i s t r a t i o n o f t h e o rganization. O p e r a t i o n s e f f i c i e n c y does not i n c lu d e th e e l e c t r i c i t y consumed a t th e power p l a n t s t o e x c i t e g e n e r a t o r s o r to power and l i g h t th e p l a n t s . This c o s t i s subsumed under t o t a l power e f f i c i e n c y a s n e t a v a i l a b l e power f o r d i s t r i b u t i o n . Oper ations e f f i c i e n c y does in c l u d e t h e embodied energy o f o p e r a t i o n , maintenance, r e p a i r s , d e p r e c i a t i o n and a d m i n i s t r a t i v e a c t i v i t i e s such as r e n t s , i n s u r a n c e , b i l l i n g , a d v e r t i s i n g and th e l i k e . O perational follo w in Chapter VI. d e f i n it i o n s of th e se dependent v a r ia b le s 34 CHAPTER FOUR NOTES (1) Web ster's New C o l l e g i a t e D i c t i o n a r y , (G. and C. Merriam Co ., 1981) p. IU7ff.--------------------------------------------- (2) I u l o , op. c i t . p. 42. (3) T e t s u s h i N o g u c h i, Energy Requirement of a 1000 Mw(e) P r e s s u r i z e d W a te r R e a c t o r Power S t a t i o n , R e s o u r c e A n a l y s i s Group Research Paper E-42 (Cnicago: u n i v e r s i t y of Chicago, 1978). CHAPTER FIVE METHODS S e l e c t i o n of A n a ly tic Technique 1 In t h e o r y , t h e p u r p o s e o f an energy a n a l y s i s should determine t h e s y s t e m b o u n d a r i e s t o be used. In p r a c t i c e , however, t h e system bound aries and th e c h o ice of a n a l y t i c methods to employ a r e c o n s t r a i n e d by th e kind and a v a i l a b i l i t y of d a t a . F o r e x a m p le , t h e p r o d u c t i o n and d i s t r i b u t i o n o f e l e c t r i c i t y r e q u i r e s s i g n i f i c a n t im pacts on t h e n a t u r a l e n v i r o n m e n t ' s c o n t r i b u t i o n t o u s e f u l work done i n t h e r e g i o n . ^ L a rg e power p l a n t s and long t r a n s m i s s i o n l i n e s t o g e t h e r r e q u i r e t h o u s a n d s o f a c r e s o f l a n d which m i g h t o t h e r w i s e be d e v o t e d t o b i o l o g i c a l r e g io n 's overall productive ca p a c ity . p r o c e s s e s neces sary t o th e This d e f i n i t i o n o f t h e s y s t e m ' s b o u n d a r i e s , while i deal t h e o r e t i c a l l y , i s u n accep tab le because th e data n ec es sa ry f o r i t s q u a n t i f i c a t i o n i s u n a v a i l a b l e o r d e r i v e d from g r o s s e s t i m a t e s of ecosystem processes. For t h i s re a so n , e c o e n e r g e t i c s , t h e method used in an a n a l y s i s o f t h e t o t a l man-nature system i s i m p r a c ti c a l a t t h i s time. System Boundaries By s t e p p i n g bac k from t h e a l l - i n c l u s i v e man-nature b o u n d a r ie s , one beg ins to focus on t h e more t i g h t l y d e f i n e d p r o c e s s e s i n v o l v e d i n t h e system defined by t h e e l e c t r i c u t i l i t y ' s p roductio n and d i s t r i b u t i o n of e l e c t r i c i t y . For t h e p u r p o s e o f t h i s e x a m i n a t i o n , t h e r e f o r e , the s y s te m 's boundar ies a r e d e f i n e d by t h e le g a l d e s c r i p t i o n of t h e e l e c t r i c 35 36 s e r v i c e d i v i s i o n of a p u b l i c u t i l i t y . This d e s c r i p t i o n o f th e s y s t e m 's boundar ies e l i m i n a t e s t h e o t h e r p o s s i b l e f u n c t i o n s of t h e u t i l i t y such as water and sewerage s e r v i c e s o r n a t u r a l gas d i s t r i b u t i o n . In m u l t i - s e r v i c e u t i l i t i e s , only t h e e l e c t r i c power d i v i s i o n ' s i n p u t s of f u e l s , m a t e r i a l s and s e r v i c e s a r e c o n s id e r e d . F u rth e rm o re , d e s p i t e the closely associated n a tu r e of c o g e n e r a ti o n or d i s t r i c t - h e a t i n g s t e a m p r o d u c t i o n and d i s t r i b u t i o n , t h e b o u n d a r i e s c h o s e n a l s o e l i m i n a t e s t h e steam s e r v i c e s provided. This d e c i s io n i s made r e l u c t a n t l y because o f t h e p o t e n t i a l s i g n i f i c a n c e o f c o g e n e r a t i o n and d i s t r i c t - h e a t i n g on o v e r a l l t e c h n i c a l e f f i c i e n c y In t h e extreme c a s e , e l i m i n a t i n g steam o u tp u t from c o n s i d e r a t i o n s i g n i f i c a n t l y impacts t h e s y s te m 's o v e r a l l e f f i c i e n c y . I f steam demand i s th e c o n t r o l l i n g f a c t o r in determining t h e s y s t e m ' s o u t p u t s o f s te a m and e l e c t r i c i t y , t h e n t h e e l e c t r i c power p r o d u c t i o n e f f i c i e n c y i s greatly reduced. F o rtu n ately , t h e u t i l i t i e s t o be e xam in ed do n o t approach t h e e x t r e m e . ^ The s y s t e m bo undar ies s e l e c t e d a l s o exclude t h e energy value of human l a b o r . an aly sis. ^ T his is a g en erally accepted p r a c tic e in energy By e x t e n s i o n , t h e c o s t s a s s o c i a t e d with wages, s a l a r i e s and b e n e f i t s ar e excluded wherever p o s s i b l e . Though t h e s e d o l l a r c o s t s im p a c t an eco nom ic a n a l y s i s th e y do not c o n t r i b u t e to or diminish th e energy requ ire men ts o f t h e p r o c e s s . S im ilar reasoning a ls o excludes such p e c u n i a r y e f f e c t s a s t a x e s o r paym en ts made in l i e u o f t a x e s . A d d i t i o n a l l y , f i n a n c e ch ar ges p aid f o r borrowed c a p i t a l and t h e d o l l a r c o s t of purchased f u e l s and e l e c t r i c i t y a r e excluded. The bound aries s e l e c t e d a tte m p t t o c r e a t e a s t a t i c p i c t u r e o f t h e p r o c e s s f o r t h e t i m e f ra m e u n d e r e x a m i n a t i o n . Thus, th e d i r e c t 37 energy i n p u t s t o t h e p r o c e s s a r e i n c l u d e d as w ell a s t h e i n d i r e c t ( m a te ria l and s e r v i c e ) i n p u t s n e c e s s a r y t o o p e r a t e , manage, m a i n t a i n , and r e p a i r t h e s y s t e m . An i m p o r t a n t s u b s e t of maintenance and r e p a i r expenses under t h e s t a t i c c o n d i t i o n s imposed ar e d e p r e c i a t i o n e x p e n s e s i n c u r r e d due t o t h e d e p r e c i a t i o n of e x i s t i n g s t r u c t u r e s . Depreciation e x p e n s e i s assumed t o r e p r e s e n t t h e r e p l a c e m e n t v a l u e o f f a c i l i t y d eterio ratio n . C o n s e q u e n t l y , c o n s t r u c t i o n o f new f a c i l i t i e s , not brought o n - l i n e during t h e time frame, a r e not c o n s id e r e d . The d e f i n i t i o n o f t h e system boundaries p r e se n te d i n c l u d e s th e energy c o s t a s s o c i a t e d w i t h t h e e l e c t r i c u t i l i t y ' s e l e c t r i c power. d e liv e ry of the The o u t p u t boun d ar y e x t e n d s up t o and i n c l u d e s the e l e c t r i c m e t e r a t t h e end o f t h e u t i l i i t y ’ s r e s p o n s i b i l i t y f o r t h e e l e c t r i c power. But t h e i n p u t b o u n d a r y i s more complex. To avoid l o c a t i o n a l advantage in t h e comparison o f t e c h n i c a l e f f i c i e n c i e s , the e n e r g y c o s t of c a p t u r i n g and d e l i v e r i n g th e d i r e c t energy in p u t s t o th e u tility 's gate are not co n sid e red . Likew ise, t h e e n e r g y c o st of d e l i v e r i n g t h e m a t e r i a l s and s e r v i c e s r e q u i r e d a r e n o t c o n s id e re d . Only th e h e a t c o n t e n t of t h e d i r e c t ( f u e l s ) energy and th e embodied energy of t h e i n d i r e c t ( p u r c h a s e d e l e c t r i c i t y , m a t e r i a l s and s e r v i c e s ) energy inputs are considered. co st. These v a l u e s r e p r e s e n t t h e p r o d u c e r ' s e n e r g y T hu s, t h e e n e r g y c o s t o f f u e l s , m a t e r i a l s and s e r v i c e s a r e not i n c r e a s e d by t r a n s p o r t a t i o n and "middleman" expenses. Survey In str u m e n t Design The s y s t e m b o u n d a r i e s s e l e c t e d allow t h e use of e i t h e r pr o c e ss or inp ut-o utp ut an aly sis tech n iq u es. a v a i l a b i l i t y of data c o n s tr a in the f i n a l A gain, th e kind c h o i c e o f method t o and be 38 employed. W ith t h e a ssistan c e o f Mr. R. H. B ulthuis, ( D i r e c t o r of Regulatory and Data Rese ar ch , Consumers Power Company) and members o f his s ta f f , a q u e s t i o n n a i r e was d e v e l o p e d t o c a p t u r e t h e i n p u t s and o u tp u ts o f th e system d e f i n e d (see Appendix). i n s t r u m e n t ' s design a r e : Two key f e a t u r e s i n t h e 1) t h e m a j o r i t y of th e in fo r m a tio n r e q u i r e d i s a v a i l a b l e from p u b l is h e d d o c u m e n t s ; ^ and, 2) t h e a v a i l a b i l i t y of d ata allowed th e use o f a f i v e y e a r time frame to average t h e annual f i g u r e s . The s e c o n d f e a t u r e i n t h e i n s t r u m e n t ' s desig n i s deemed ne ces sary to smooth u n u s u a l e x p e n s e s i n c u r r e d a s a r e s u l t o f u n f o r e s e e n s y s t e m f a i l u r e s and t o reduce t h e v a r i a b i l i t y i n th e y e a r t o y e a r d a t a . The kind o f d a t a s o l i c i t e d in t h i s manner determined t h e method o f a n a l y s i s t o be a m o d i f i e d i n p u t - o u t p u t t e c h n iq u e . Direct inputs, such as c o a l , n a tu r a l g a s , e t c . ar e r e p o r t e d i n e i t h e r t o t a l o th e r physical B tu 's or u n i t s such as t o n s , mcf, e t c . consumed (se e Table 1 f o r c o n v e rsio n f a c t o r s em ployed). In d ire c t inputs such as o p e r a t i n g , m a i n t e n a n c e , d e p r e c i a t i o n and a d m i n i s t r a t i o n c o s t s a r e r e p o r t e d in current d o llars. Of t h e a n a l y t i c t e c h n i q u e s a v a i l a b l e , only an i n p u t - o u t p u t energy a n a l y s i s method can c o n v e r t th e d o l l a r expenses i n t o t h e i r e q u i v a l e n t energy c o s t s . I n p u t- O utp ut Analysis This a n a l y t i c te c h n iq u e , d e v e l o p e d by members o f t h e Energy Research Group a t t h e Center f o r Advanced C o m p u t a t i o n , U n i v e r s i t y o f Illin o is a t Urbana - Cha mpa ign, i s based on t h e economic i n p u t - o u t p u t model u s e d t o d e s c r i b e t h e f lo w o f goods and s e r v i c e s i n t h e U .S. 39 Table 1. Conversion f a c t o r s employed. E l e c t r i c i t y (per kilow att-hour) d i r e c t (heat eq uivalent) *Total Coal ( in to n s) di r e c t 3,412 Btu's/Kwh 13,056 Btu's/Kwh 25,000,000 B t u ' s / t o n Natural Gas (in mcf) di r e c t 1,012,000 B t u ' s / m c f Fuel Oil (in Bbls) di r e c t 5,882,898 B tu 's /B b l B l a s t Furnace Gas (in mcf) di r e c t Nuclear Fuel ( in GMs) di r e c t Steam ( in l b s ) di r e c t 9,500 B t u ' s / m c f 104,958,843 Btu's/GM 1,000 B tu 's/lb *used f o r purchased power Source: f o r e l e c t r i c i t y , n a t u r a l g a s , b l a s t f u r n a c e gas and steam: P e t e r K a k e l a , " T a b l e A - l , Energy C o n v e r s i o n F a c t o r s E m p l o y e d , " i n " P e l l e t i z e d vs. Natural Iro n Ore Technology: Energy, Labor and C ap ital Changes," CAC Document No. 251 (Urbana: CAC o f U n v e r s i t y o f I l l i n o i s ) December, 1977. p. 62; f o r coal and fuel o i l : c a l c u l a t e d average based on data s u p p lie d by p a r t i c i p a t i n g u t i l i t i e s ; f o r n u c l e a r f u e l : from company data based on a coal e q u i v a l e n t . 40 economy. ^ Every i n d u s t r y i s placed i n t o a s e c t o r de f in e d by a common c h a r a c t e r i s t i c , such as p r o f e s s i o n a l s e r v i c e s , m a i n t e n a n c e and r e p a i r construction, etc. fin an cial s e r v i c e s , e l e c t r i c a l a p p a r a t u s m anufacturi ng, The economic a c t i v i t y in each s e c t o r i s r e p r e s e n t e d by a l i n e a r e q u a t i o n t h a t c o r r e s p o n d s to each of t h e i n p u t s e c t o r s r e q u i r e d to produce a d o l l a r ' s worth o f t h e g i v e n comm od ity. By t r a c i n g e a c h o f t h e s e in p u ts back t o t h e c o n t r i b u t i o n made by t h e d i r e c t energy s e c t o r s , such as petr ole um, c o a l , e l e c t r i c i t y , e t c . , an en e r g y i n t e n s i t y can be determ ined. I t i s t h e n p o s s i b l e t o c a l c u l a t e t h e d i r e c t and i n d i r e c t energy embodied i n a d o l l a r ' s worth o f goods and s e r v i c e s purchased from any s e c t o r of t h e economy. S e l e c t i o n of S e c t o r s A f i r s t s t a g e a p p r o x i m a t i o n of t o t a l i n d i r e c t energy c o s t s can be made by simply m u l t i p l y i n g t h e t o t a l d o l l a r s s p e n t by th e t o t a l B t u ' s consumed i n t h e U .S . economy t h a t y e a r and d i v i d i n g by th e number of d o l l a r s in th e gro ss n a t i o n a l p r o d u c t (GNP). This r a t i o i s o f t e n u s e d t o e s t i m a t e e n e r g y c o s t s when t h e n a t u r e of t h e d o l l a r c o s t s cannot be s t a t e d more e x p l i c i t l y . ^ The q u e s t i o n n a i r e used in t h i s a n a l y s i s , however, s e p a r a t e d t h e t o t a l o p e r a t i o n c o s t s i n t o 10 Bureau o f Economic A n a l y s i s (BEA) i n d u s t r i a l c l a s s i f i c a t i o n s e c t o r s based on t h e Michigan P u b l i c S e r v i c e Commission's (MPSC) Uniform System of Accounts f o r C la s s A and B E l e c t r i c U t i l i t i e s and v e r i f i e d by Mr. B u l t h u i s as t h e g r e a t e s t e x t e n t th e d a ta may be d i s a g g r e g a t e d i n t o c o n s i s t e n t c a t a g o r i e s . v D es pite t h i s l e v e l o f r e f i n e m e n t , t h e d a t a c o l l e c t e d r e p r e s e n t s a h ig h d e g r e e o f a g g r e g a t i o n . The MPSC system of ac co un ts l i s t s 130 s e p a r a t e a c c o u n t num ber s t h a t c o n f o rm t o t h e s y s t e m b o u n d a r i e s as 41 d e f in e d . But municipal u t i l i t i e s a r e not r e q u i r e d to r e p o r t to th e MPSC and each f ir m , t h e r e f o r e , uses i t s own, i n d i v i d u a l l y de signe d s y s t e m o f records. A p a r t form t h i s problem, t h e r e i s a l s o t h e r e l u c t a n c e on th e p a r t o f u t i l i t y e x e c u t i v e s t o p a r t i c i p a t e in v o lu n t a ry r e s e a r c h e f f o r t s . According t o Mr. B u l t h u i s , c o l l e c t i n g t h e data on a l l 130 ac c o u n ts f o r a f i v e - y e a r time frame i s an u nreason able r e q u e s t t o make. The r e s u l t i n g l e v e l o f a g g r e g a t i o n e l i m i n a t e d t h i s l a t t e r o b j e c t i o n and allowed f o r i n d i v i d u a l i t y in a cco u n tin g systems. T a b l e 2 shows t h e 10 s e c t o r s s e l e c t e d and t h e c o r r e s p o n d i n g i n p u t - o u t p u t m odel's energy c o n t e n t v a lu e s . In 1972, t h e t o t a l energy consumed in t h e U.S. economy was 71.63 q u a d r i l l i o n B t u ' s ^ ^ and GNP was 1.1075 t r i l l i o n dollars. Thus t h e a v e r a g e B t u ' s per d o l l a r was 64,677 i n 1972. None o f t h e i n d u s t r i a l s e c t o r s chosen s u r p a s s t h i s a v e r a g e v a l u e a n d , in d e e d , s e v e ra l s e c t o r s f a l l c o n s id e r a b l y below t h e average. While h i g h l y a g g r e g a t e d , t h e l e v e l o f a g g r e g a t i o n c h o s e n r e p r e s e n t s a second s t a g e approximation. Energy Content C o r r e c t i o n s The l a t e s t economic data a v a i l a b l e t o c a l c u l a t e t h e i n p u t - o u t p u t energy v a lu e s a r e based on 1972 d a t a . Consequently, t h e embodied energy p e r d o l l a r ex p en d ed m ust be c o r r e c t e d not only f o r i n f l a t i o n but a l s o f o r th e c o n s e rv a tio n s t r a t e g i e s employed s i n c e th at d ate. T his i n t r o d u c e s an unknown degree of e r r o r I n to th e c o r r e c t e d v a l u e s . The Her endeen-Bullard a p p r o x i m a tio n u s e d t o u p d a t e t h e e n e r g y c o n t e n t values i s a two s t e p p r o c e s s . ^ 3 ) p i r s t , th e changing energy t o GNP r a t i o i s used t o a d j u s t t h e energy c o n t e n t v a l u e s f o r eco nomy- wide conservation s tr a t e g i e s . Second, t h e changing p r i c e index i s used t o 42 Table 2. S e le c te d Bureau of Economic An alys is s e c t o r s and t h e i r cor respon ding energy c o n t e n t values p er 1972 d o l l a r . D e s c r ip tio n B t u ' s / $ (1972) BEA S e c to r New c o n s t r u c t i o n , p u b l i c u t i l i t i e s 64027 1103 Maintenance and r e p a i r 62551 1202 O f f i c e s u p p li e s 61778 8200 Regulatory s e r v i c e s 52075 7903 C r e d i t and f i n a n c i e l acco unting 43784 7002 Educational s e r v i c e s / p u b l i c r e l a t i o n s 40294 7704 A d v e r tisin g 39717 7302 • Mis cellaneous bu s in e s s s e r v i c e s 22211 7301 Insurance 15099 7004 R entals and rea l e s t a t e 12110 7102 Source: Bureau of Economic An alys is s e c t o r s and t h e i r d e s c r i p t i o n s from C l a r k W. B u l l a r d , P e t e r S. Penner and David A. P i l a t i , Energy Analysis Handbook, CAC Document No. 214 (Urbana: CAC o f U n iv e r s i ty ot I l l i n o i s , 1976) pp. 3 2 - 3 5 ; an d e n e r g y c o n t e n t v a l u e s from Bruce Hannon, Energy Cost of Goods and S e r v i c e s , 1972, Energy Research Group Document No. 307 ( U n iv e r s ity of I l l i n o i s a t Urbana - Champaign, 1981). 43 adjust the values for in flatio n . T able 3 p r e s e n t s th e energy c o n s e r v a tio n d e f l a t o r s and Table 4 shows t h e p r i c e d e f l a t o r s e m p lo y e d . The e n e r g y c o n t e n t v a l u e , s e c t o r in a g i v e n y e a r m ultiplications. is o r energy i n t e n s i t y , f o r a given i n d u s t r i a l th erefo re calcu lated by a s e r i e s of For example, $100 s p e n t on o f f i c e s u p p l i e s in 1977 i s e q u i v a l e n t t o 3,885,639 B t u ' s (see Table 5). Table 3. Year Total energy consumed, gross n atio n al product and t h e energy d e f l a t o r c a l c u l a t e d to c o r r e c t energy c o n t e n t value s f o r c o n s e r v a tio n s t r a t e g i e s employed s i n c e 1972. Energy Consumed ( in Q u a d r i l li o n B t u ' s ) Gross National Product ( in T r i l l i o n 1972 $) B t u ' s / $ ( 1972) (xlOOO) Energy Deflator 1972 71.63 1.1075 64.68 1.0000 1977 76.33 1.3697 55.73 0.8616 1978 78.18 1.4386 54.34 0.8402 1979 78.91 1.4794 53.34 0.8247 1980 75.91 1.4740 51.50 0.7963 1981 73.91 1.5026 49.19 0.7605 Source: T o t a l e n e r g y consumed from th e Energy Information A d m in istr a ti o n , 1981 Annual Report t o Congress, V o l . I I , Energy S t a t i s t i c s , USDOE, May 1982; Gross National Product from th e U.S. Department of Commerce, "Table 1 .2 : GNP i n C o n s t a n t D o l l a r s , " Surv ey o f C u r r e n t B u s i n e ss 62(7>:23 J u ly 1982: Energy D e f l a t o r e q u a ls B t u ' s ( y ) / B t u ' s (1972) X GNP(1972)/GNP(y) from Robert A. Herendeen and Clark W. B u l l a r d , Energy Cost o f Goods and S e r v i c e s , 1963 and 1976, CAC Document No. 140 (Urbana: CAC of U n iv e r s i ty of I l l i n o i s , 1974) p. W . » i 45 Table 4. P r i c e d e f l a t o r s used t o c o r r e c t c u r r e n t e x p e n d i t u r e s f o r i n f l a t i o n s i n c e 1972. Index y e a r , 1972 = 1.000. Industrial C lassificatio n (BEA S e c to r s ) 1977 1978 Year 1979 1980 1981 S er v ic es (7301;7302;7704) 0.701 0.655 0.605 0.552 0.508 Finance (7102;7002;7004) 0.752 0.686 0.640 0.587 0.544 C o n s tru cti on (1103;1202) 0.635 0.575 0.503 0.440 0.409 Government (7903) 0.702 0.659 0.618 0.570 0.521 Manufacturing (8200) 0.730 0.689 0.652 0.604 0.558 I m p l i c i t Price Source: U.S. D e p a r t m e n t o f Commerce, " T a b l e 7 . 2 2 : D e f l a t o r s f o r G ross N a t i o n a l P r o d u c t by I n d u s t r y , " Survey of C u r r e n t Business 62( 7): 115 J u ly 1982. Table 5. Example of i n f l a t i o n and energy c o n s e r v a t i o n c o r r e c t i o n employed. s t a r t with $100 in o f f i c e supply expense in 1977 tim es i n f l a t i o n d e f l a t o r $100.00 (X) 0.730 $ 73.00 tim es energy c o n t e n t p er 1972 $ (X) 61,778 4,509,794 ti m e s energy d e f l a t o r o f f i c e supply energy expense (1977 $) (1972 $) B t u ' s / (1972 $) B tu 's's (X) 0.8616 3,885,639 B tu 's's 46 S e l e c t i o n of S u b j e c t s A random sample from t h e p o p u l a tio n of 1000 e l e c t r i c g e n e r a t i n g companies in th e United S t a t e s , though i d e a l f o r a s t a t i s t i c a l a n a l y s i s , i s r e j e c t e d as being both i m p r a c ti c a l and i n a p p r o p r i a t e a t t h i s time due to u n a v o i d a b l e c o n s t r a i n t s and t h e need f o r d a t a c o n s i s t a n c y . For e x a m p l e , time and funding c o n s t r a i n t s r e q u i r e d a s e l e c t i o n of u t i l i t i e s from th e s t a t e o f Michigan. requ ired to In mo st c a s e s , p e r s o n a l i n t e r v i e w s were i n t r o d u c e t h e p u r p o s e o f t h e r e s e a r c h p r o j e c t and t o d e s c r i b e t h e n a t u r e of involvement r e q u i r e d by th e p a r t i c i p a t i n g company executives. This personal c o n t a c t a l s o i n s u r e d a c o n s i s t e n t d e f i n i t i o n o f th e d ata r e q u i r e d . Thus t h e p o p u l a ti o n t o be s am p led i s r e d u c e d t o th e 47 g e n e r a t i n g companies in Michigan. Of t h e s e 47 companies, s i g n i f i c a n t d i f f e r e n c e s in t h e i r l e v e l o f s e l f - s u f f i c i e n c y in g e n e r a t i n g power t o meet t h e i r power demand r e q u i r e d f u r t h e r w in n o w in g . The goal i n t h i s p r o c e s s was t o look only at co m p a n i e s t h a t p r o d u c e d a t l e a s t t h e m a j o r i t y o f t h e i r t o t a l power demand. Companies t h a t o p e r a t e p r i m a r i l y a s d i s t r i b u t o r s o f e l e c t r i c power do n o t co n f o rm t o t h e d e f i n i t i o n o f an e l e c t r i c g e n e r a t i n g and d i s t r i b u t i n g company as de f in e d in Chapter IV. h o w e v e r , f o r t h o s e c o m p a n ie s t h a t , An a l l o w a n c e was made, f o r acco unti ng purpose s , c o n s i d e r power o b t a i n e d fro m f a c i l i t i e s t h a t t h e y own i n w h o l e o r p a r t a s p u r c h a s e d power. This req uire m en t reduced th e t o t a l number of e l e c t r i c companies t o 10 i n Michigan t h a t conform t o t h e d e f i n i t i o n . T h i s winnowing p r o c e s s l e f t o n l y t h o s e companies in Michigan t h a t d i f f e r e d from each o t h e r on t h e b a s i s o f s i z e and t e c h n o l o g y . In 47 order t o compare c o m p a n i e s o n l y on t h e b a s i s o f s i z e , th e kind of g e n e r a t i n g u n i t s and t h e i r age had t o be c o m p a r a b l e a s w e l l . The w e i g h t e d average d a te a company's pr o d u ctio n system was brought on l i n e i s c a l c u l a t e d by weig hting th e d ate each u n i t w i t h i n a power p l a n t i s brought on l i n e by th e u n i t ' s r a t e d c a p a c i t y . th e w eighted average d a te f o r a l l For multi pi a n t companies, power p l a n t s is calcu lated by w e i g h t i n g t h e w e i g h t e d a v e r a g e d a t e o f each power p l a n t by t h e ne t k i l o w a t t - h o u r s p r o d u c e d by t h e p l a n t . com panies None o f t h e 10 r e m a i n i n g i n M i c h i g a n were e l i m i n a t e d from t h e sam ple u s i n g t h i s tech n iq u e because th e companies d i d n o t d i f f e r by more t h a n 10 y e a r s from each o t h e r . F i n a l l y , t o i n s u r e t h a t th e kind of g e n e r a t o r s employed by each company was comparable, f o s s i l - f u e l e d power p l a n t s a r e r e q u i r e d t o make up t h e m a j o r i t y o f t o t a l in s ta lle d capacity. T h i s e l i m i n a t e s t hose companies t h a t a r e l a r g e l y dependent on n u c l e a r o r hydro-power, assuming th a t these f a c i l i t i e s a r e t e c h n i c a l l y incomp ariable with conventional f o s s il-fu e l technologies. This re quire m ent e l i m i n a t e d only one company w h i c h u s ed h y d r o - p o w e r aq i t s ppedominant energy s o u rc e . p r e s e n t s th e e i g h t p a r t i c i p a t i n g e l e c t r i c an aly sis. T a b le 6 c o m p a n ie s examined i n t h i s While 9 c o m p a n ie s q u a l i f i e d under th e c o n s t r a i n t s imposed, one company r e f u s e d t o p a r t i c i p a t e . S t a t i s t i c a l Analysis Both l i n e a r and polynomial r e g r e s s i o n a n a ly s e s (with a p p r o p r i a t e data t r a n s f o r m a t i o n s ) a r e used to t e s t t h e s t r e n g t h o f any c o r r e l a t i o n between th e v a r i a b l e s p r e s e n t e d in Chapter In each c a s e , the 48 Table 6. Qualifyin g s t a t i s t i c s of t h e p a r t i c i p a t i n g e l e c t r i c u t i l i t i e s . Self-Sufficiency (%) Power produced Company to t o t a l power s a l e s Average Date Pro du ction system was o n - l i n e Fossil-fueled Capacity [%) Total in s ta lle d capacity A 86.98 1966 95.13 B 76.00 1965 71.30 C 99.93 1964 99.10 D 31.18* 1960 84.20 E 93.56 1962 100.00 F 89.49 1969 93.46 G 93.55 1959 99.53 H 70.46* 1968 94.29 * T h e s e companies "purchase" power from f a c i l i t i e s they own in whole or p a r t f o r accounting purposes and q u a l i f y a t t h e 70 p e r c e n t l evel i f t h i s purchased power i s c o n s id e re d in-h ouse ge n e r a te d . S o u r c e : s t a t i s t i c s c a l c u l a t e d from d a t a i n t h e Energy I n f o r m a t i o n A d m i n i s t r a t i o n , "Table 6: E l e c t r i c Ge ne ra tion Uni ts by S t a t e , Company, P l a n t and C o u n t y , " I n v e n t o r y o f Power P l a n t s i n t h e U . S . , USDOE June 19 81 p p . 125 - 1 3 7 ; an d t h e E l e c t r i c World D i r e c t o r y o f E l e c t r i c U t i l i t i e s , 8 9 t h e d i t i o n , (New York: McGraw H i l l , I n c . , i960) pp. 381 159: 49 null h y p o t h e s i s s t a t e s t h a t no r e l a t i o n s h i p e x i s t s . The a l t e r n a t i v e hypotheses a r e t e s t e d a g a i n s t th e o b s e rv e d d a t a and a r e l a t i o n s h i p i s c o n c l u d e d t o e x i s t i f t h e p r o b a b i l i t y of i n c o r r e c t l y r e j e c t i n g th e null h y p o th e sis (a Type I e r r o r ) i s l e s s than f i v e ch ances o u t o f a h u n d r e d (P = 0 . 0 5 ) . When more than one a l t e r n a t i v e hyp o th esis may be a c c e p t e d , then the a l t e r n a t i v e t h a t b e s t d e s c r i b e s the data and s a t i s f i e s t h e o r e t i c a l a n d /o r em pir ic al c o n s t r a i n t s i s s e l e c t e d . Lim itations The primary l i m i t a t i o n in t h i s a n a l y s i s stems from th e small and h i g h l y s t r u c t u r e d n a t u r e o f th e sample. C o n c l u s i o n s may be drawn b u t only on t h e d ata c o l l e c t e d . Beyond t h e l i m i t a t i o n s o f any p r e l i m i n a r y r e s e a r c h e f f o r t , however, ar e th e i n h e r e n t l i m i t a t i o n s a s s o c i a t e d with t h e n a t u r e o f t h e data i t s e l f . For example, coal i s a h ighly heterogenous energy source with a g r e a t deal o f v a r i a b i l i t y in i t s Btu c o n t e n t . One pound o f c o a l w i l l d i f f e r from the ne xt pound due t o th e v a r i a b i l i t y in th e g eological p r o cess es t h a t , c r e a t e d i t and th e m o i s t u r e a b s o r b e d i n t h e c o a l j u s t p r i o r t o combustion. p iles Yet an average h e a t c o n t e n t value was used t o a s s s e s s t h i s s i g n i f i c a n t energy s o u rc e . F in ally , employed. th ere a r e t h e l i m i t a t i o n s im posed by t h e meth ods Converting c u r r e n t d o l l a r s e x p e n d e d i n v a r i o u s i n d u s t r i a l s e c t o r s back t o 1972 d o l l a r s to o b t a i n t h e i r embodied energy i n c u r s both i n f l a t i o n and energy c o n s e r v a t i o n u n c e r t a i n t i e s . Beyond t h e s e p r o b l e m s t h e r e ar e a l s o t h e general l i m i t a t i o n s of an i n p u t - o u t p u t a n a l y s i s . For example, c l a s s i f y i n g expenses i n t o a given s e c t o r may i n t r o d u c e an e r r o r due t o t h e l e v e l o f a g g r e g a t i o n in t h a t s e c t o r . The a c tu a l purch as es w i t h i n t h e s e c t o r nay be made o f goods o r s e r v i c e s t h a t a r e n o t t y p i c a l to th a t sector. F u r t h e r , t h e r e a r e u n c e r t a i n t i e s in th e computed energy c o s t per d o l l a r f o r t h e 3 5 7 - s e c t o r model t h a t stem from d i s a g g r e g a t i n g th e 9 0 - s e c t o r model. 51 CHAPTER FIVE NOTES (1) David E. Gushee ( e d i t o r ) , Energy Accounting as a P o lic y An al ysis T o o l , C o n g r e s s i o n a l R e s e a r c h S e r v i c e , ( W a s h in g t o n B . C . : U.S. Government P r i n t i n g O f f i c e , June 1976) p. 5 (2) Howard T. Odum, e t . a l . , "Energy C o s t - B e n e f it An alys is Applied t o Power P l a n t s Near C y r s ta l R i v e r , F l o r i d a " i n C h a r l e s A. S. Hall a n d J o h n W. Day ( e d i t o r s ) , Ec osys te m M o d e li n g i n T he ory and P r a c a t i c e , C h a p t e r 21 , (New York: John Wiley and s ons, 1 9 / / ) pp. 507-645. (3) For example, t h e Michigan S t a t e U n i v e r s ity d i s t r i c t - h e a t i n g system was examined a s a p a r t o f t h e s u r v e y i n s t r u m e n t ' s d e s i g n and development. T e n t a t i v e f i n d i n g s i n d i c a t e d t h a t i n c l u s i o n of th e s te a m o u t p u t r a i s e d o v e r a l l e f f i c i e n c y t o a p p r o x i m a t e l y 52 percent. (4) F our o f t h e e i g h t u t i l i t i e s examined pro vide steam s e r v i c e s but o n l y one a t t a i n s a s te a m o u t p u t ( i n B t u ' s ) t h a t a p p r o a c h 8 . 5 p e r c e n t o f t o t a l o u tp u t ( in B t u ' s ) . In c o n t r a s t , steam o u t p u t of t h e MSU system i s app rox im ately 85 p e r c e n t o f th e t o t a l . (5) P. F. Chapman, "Energy Costs: A Review of Methods," Energy P o l i c y , Ju ne 1974, p. 93. (6) See, f o r example, Gushee, op. c i t . (7) Ea ch e l e c t r i c u t i l i t y f i l e s e i t h e r an Annual R e p o r t t o t h e Economic Regulator y A d m i n i s t r a t i o n (form ERA-412) o r an Annual R e p o r t t o t h e M ic h i g a n P u b l i c S e r v i c e Commission (MPSC form P-521). (8) C l a r k W. B u l l a r d , P e t e r S. P e n n e r and David A. P i l a t i , Energy A n a l y s i s Handbook, CAC Document No. 214, ( U n i v e r s i t y of I l l i n o i s a t Urbana-Champaign, 1976). (9) B u l l a r d , e t . a l . , op. c i t . p. 20. (10) Energy In fo rm at io n A d m i n i s t r a t i o n , 1981 Annual Report t o C ongres s , V o l . I I , Energy S t a t i s t i c s , ( W a s h i n g t o n , D.C.: U.S. Department of Energy, May 1982). (11) U.S. D e p a r t m e n t o f Commerce, Business S t a t i s t i c s , 1975 e d i t i o n , May 1976. (12) Robert A. Herendeen and Clark W. B u l l a r d , Energy Cost of Goods and S e r v i c e s , 1963 a n d 1 967, CAC Document No. 140 ( U n i v e r s i t y o f I l l i n o i s a t Urbana-Champaign, 1974) p. 16. (13) Herendeen and B u l l a r d , op. c i t . p. 16. 52 (14) Kenneth Dimoff, S t a t i s t i c a l P l o t t i n g On-Line Command System U s e r ' s G u i d e , MSU P e s t Management Yechnical Report No. 13, Department of t n t o m o l o g y , M i c h i g a n S t a t e U n i v e r s i t y , 1977 ( p e r i o d i c a l l y update d). (15) T e k t r o n i x , I n c . , O p e r a t i o n s Manual and t h e P l o t 50: S t a t i s t i c s , Volume 3 (Beaverton: T e k tr o n i x , I n c . , 1976). CHAPTER SIX RESULTS AND ANALYSIS The Independent V a r ia b le s Organizational Size The p rim ary organizational siz e . in d ep en d en t v ariab le in t h i s an aly sis As th e s i n g l e b e s t i n d i c a t o r o f th e p h y s i c a l o f an e l e c t r i c u t i l i t y , I u l o recommends using peak power demand. is size As Iu lo e x p l a i n s , peak power demand " re c o g n iz e s both th e c a p a c i t y t h a t must be b u i l t i n t o t h e d i s t r i b u t i o n s y s t e m and t h e c a p a c i t y t h a t must be provided by t h e p r o d u c tio n system in o r d e r t o m ee t t h e maximum demand p l a c e d upon t h e u t i l i t y . " ^ Iulo, power demand i n h i s because an aly sis c o n s i s t e n t l y r e p o r t peak power demand. how ever, was unable t o use peak his data sources did not But one of t h e advantages of th e small sample s e l e c t e d and t h e perso nal c o n t a c t i t p e r m i t s w i t h u t i l i t y execu tives is th e a b ility u t i l i t y ' s peak power demand. t o o b t a i n a con s i s t a n t m e a s u re o f t h e Consequently, t h i s a n a l y s i s follows I u l o ' s re c o m m e n d a tio n and u s e s peak power demand as t h e measure of u t i l i t y size. Each company's f i v e y e a r average value f o r peak power demand and th e o t h e r u t i l i t y - b a s e d i nde pe nd en t v a r i a b l e s a r e r e p o r t e d i n T a b l e 7. The average peak power demand i s c a l c u l a t e d by averaging th e f i v e annual peak power demand f i g u r e s r e p o r t e d by t h e company. 53 T a b le 7 . Company U t i l i t y Size Peak Power Demand (Mw) The U t i l i t y - B a s e d Independent V a r ia b le s D istribution System (in Mi) Customers Served D istribution Densi t y (Customers per Mile) Production System Age (Average Date On-Line) A 7083 41,073 1,735,235 42.2 1966 B 4731 54,368 1,293,221 23.8 1965 C 371 1,280 77,613 209.3 1964 D 140 3,076 58,588 19.0 1960 E 61 208 13,707 65.7 1962 F 43 244 13,481 55.2 1969 G 33 110 8,375 76.1 H 28 79 6,711 85.0 Note: ’ All values except System Age values ar e averages based on t h e f i v e y e a r time frame. 1959 1968 55 D i s t r i b u t i o n Density The c o m p a n i e s ' e n e r g y c o s t s in d i s t r i b u t i n g e l e c t r i c power may be dependent upon th e d e n s i t y o f c usto m ers w i t h i n t h e i r s e r v i c e a r e a . As t h e f i g u r e s i n T a b l e 7 show, t h e p a r t i c i p a t i n g companies d i f f e r in t h e i r f i v e y e a r a v e r a g e m i l e s o f l i n e and c u s t o m e r s s e r v e d . T hese d i f f e r e n c e s ar e made more d i s t i n c t i n t h e d i s t r i b u t i o n d e n s it y column of Table 7. D i s t r i b u t i o n d e n s i t y i s c a l c u l a t e d from th e f i v e y e a r av erages f o r c u s to m e r s served and d i s t r i b u t i o n miles and equals customers served p e r mile of l i n e . System P l a n t Age The l e v e l o f t e c h n o l o g y employed in th e s y s te m 's power p l a n t s may a l s o e f f e c t th e energy e f f i c i e n c y o f t h e c o m p a n i e s . may be l e s s e f f i c i e n t than more modern p l a n t s . Older p l a n t s The proce ss of s e l e c t i n g th e p a r t i c i p a t i n g companies in t h i s e x a m i n a t i o n a t t e m p t e d t o m i n i m i z e t h i s p o t e n t i a l l y confounding v a r i a b l e . As Table 5 showed, th e weighted average date o n - l i n e f o r th e power p l a n t s in o p e r a t i o n do not d i f f e r by more t h a n 10 y e a r s . N o n eth eles s, t h i s f a c t o r may s t i l l play a p a r t in c o n t r i b u t i n g to th e s y s t e m 's energy e f f i c i e n c y . The c a l c u l a t i o n f o r d e t e r m i n i n g t h e system p l a n t age shown in Table 7 was d e s c rib e d p r e v i o u s l y . To r e i t e r a t e , t h e system p l a n t age i s a w e i g h t e d a v e r a g e b a s e d on t h e i n s t a l l e d c a p a c i t y of th e i n d i v i d u a l u n i t s w ith in a power* p l a n t and t h e d a t e t h e u n i t s were b r o u g h t o n - l i n e w ith in the p la n t. Thus l a r g e r u n i t s w i t h i n t h e p l a n t have a l a r g e r i n f l u e n c e on th e c a l c u l a t e d o v e r a l l age of t h e p l a n t . For m u l t i - p i a n t u t i l i t i e s , th e system p l a n t age i s c a l c u l a t e d by weighting t h e weighted average age of each p l a n t by t h e n e t k i l o w a t t - h o u r s p r o d u c e d by t h e 56 plant. Thus t h e l a r g e r u n i t s w i t h i n t h e p l a n t and th e l a r g e r p l a n t s have a p r o p o r t i o n a t e l y g r e a t e r i n f l u e n c e on t h e age of t h e system. This p r o c e d u r e f o r d e t e r m i n i n g t h e s y s t e m 's average age i s used because th e m a j o r i t y o f th e power p r o d u c e d i s b a s e - 1 oad power and t h i s power i s produced p r i m a r i l y by t h e l a r g e r p l a n t s and u n i t s w ith in th e p l a n t s . P l a n t Size and Age It is p o ssib le th at d e p e n d e n t upon t h e s i z e power p l a n t e n e rg y e f f i c i e n c i e s are of the power p l a n t a n d / o r t h e t e c h n o l o g y employed i n t h e p l a n t . lev el of T hus , i n o r d e r t o more c a r e f u l l y pe r c e iv e th e impact of power p l a n t s i z e and age on t h e s y s t e m ' s o v e r a l l e n e r g y e f f i c i e n c y , o p e r a t i n g s t a t i s t i c s on e i g h t power p l a n t s were o b tain ed from t h e p a r t i c i p a t i n g companies . over th e time fram e, Changes i n r a t e d c a p a c i t y from r e t i r e m e n t o r a d d i t i o n t o p l a n t c a p a c i t y , gen er at ed data f o r e s s e n t i a l l y 11 d i f f e r e n t p l a n t s based on s i z e . s i z e i s b a s e d on i n s t a l l e d c a p a c i t y . a v e r a g e age o f t h e i n d i v i d u a l previously. Plant The p l a n t ' s age i s th e weighted u n i t s w i t h i n th e p l a n t as d e s c r i b e d Table 8 p r e s e n t s t h e p l a n t s i z e s and ages examined. The Dependent V a r i a b l e s Total Power E f f i c i e n c y As d e f i n e d i n C h a p t e r IV, t o t a l power e f f i c i e n c y combines th e h e a t c o n t e n t of t h e d i r e c t e n e r g y consumed i n t h e p r o d u c t i o n p r o c e s s w i t h t h e d i r e c t and i n d i r e c t h e a t c o n t e n t of t h e e l e c t r i c i t y purchased from o t h e r e l e c t r i c p r o d u c e r s . The d i r e c t h e a t c o n t e n t o f t h e e l e c t r i c i t y purchased i s m u l t i p l i e d by i t s energy i n t e n s i t y (from Table 57 Table 8. S p e c i f i c P l a n t-B a se d Independent V a r i a b l e s Size Average Date P l a n t No._____________________ (Mw(e) c a p a c i t y ) _________________ On-Line 1 3280 1973 la 3014 1973 2 1905 1960 2a 1775 1960 3 1369 1974 3a 650 1965 4 510 1954 5 386 1964 6 70 1958 7 34 1970 8 17 1968 Source: S i z e b a s e d on i n s t a l l e d c a p a c i t y from c o l l e c t e d d a t a ; av erage d a t e o n - l i n e i s a w e i g h t e d a v e r a g e b a s e d on d a t a f r o m t h e E n e r g y I n f o r m a t i o n A d m i n i s t r a t i o n , " T a b l e 6: E l e c t r i c G e n e r a ti n g U nits by S t a t e , Company, P l a n t and County," op. c i t . pp. 125-137. 58 1) t o c a l c u l a t e b o th t h e d i r e c t and i n d i r e c t e n e r g y embodied in th e power made a v a i l a b l e t o th e d i s t r i b u t i n g company. T o t a l B t u ' s consumed i n t h e d i r e c t con ve rsion of f u e l s and in t h e purchase of e l e c t r i c i t y ar e t o t a l e d over t h e f i v e y e a r s t u d y p e r i o d f o r an a v e r a g e v a l u e . T h i s a v e r a g e i s th e n divided by t h e f i v e y e a r average of th e c o m p a n y 's t o t a l k ilo w a tt-h o u r s a le s to c a l c u l a t e the average energy c o s t per k i l o w a t t - h o u r s o l d . The dependent v a r i a b l e s ar e r e p o r t e d i n Table 9. D is trib u tio n Efficiency L i n e l o s s e s i n c u r r e d as t h e i n e v i t a b l e r e s u l t of t r a n s m i t t i n g . . . . and d i s t r i b u t i n g t h e e l e c t r i c power produced and purchased a r e m e a s u r e d i n k i l o w a t t - h o u r s and co n v e r te d t o B t u ' s via t h e s t r a i g h t c onversion of e l e c t r i c i t y i n t o h e a t (see Table 1). The f i v e y e a r average h e a t c o n t e n t o f t h e s e l i n e l o s s e s a r e d iv id e d by t h e average k i l o w a t t - h o u r s s o ld f o r t h e d i s t r i b u t i o n energy c o s t s p e r k i l o w a t t - h o u r d e l i v e r e d (Table 9 ) . Ope rations E f f i c i e n c y D o l l a r c o s t s o f o p e r a t i n g th e s y s t e m 's power p l a n t s (ex c lu d in g t h e c o s t o f f u e l s ) , t r a n s m i s s i o n / d i s t r i b u t i o n system and t h e c o m p a n y ' s a d m i n i s t r a t i v e f u n c t i o n s ar e c o n v er ted t o B t u ' s using t h e i n p u t - o u t p u t energy a n a l y s i s t e c h n i q u e p r e v i o u s l y d e s c r i b e d . B tu 's, Once c o n v e r t e d t o t h e an nual o p e r a t i o n s energy c o s t s were summed f o r a f i v e y e a r av erage and divided by t h e av erage k i l o w a t t - h o u r s s o ld (Table 9 ) . T a b le 9 . Company Megawatt-hour sal es (Mwh) System energy co s ts : th e dependent v a r i a b l e s . Production (Btu*s/Kwh) To tal* Power (Btu1s/Kwh) Operations (B tu1s/Kwh) D istribution (Btu's/Kwh) Overall** (Btu1s/Kwh) A 35,782,121 12,623.0 12,799.5 276.4 248.1 13,324.0 B 26,608,582 11,651.0 12,250.7 235.7 295.5 12,781.9 C 2,209,191 11,542.9 11,541.2 242.1 140.1 11,923.4 D 758,499 11,891.1 13,573.1 256.0 306.4 14,135.5 E 255,078 15,414.6 15,312.4 215.7 266.5 15,794.6 F 201,591 13,665.4 13,614.0 224.7 174.7 14,013.4 G 156,539 14,763.8 14,760.0 193.7 134.6 15,088.3 H 137,754 11,641.4 12,256.2 205.5 179.6 12,641.3 *Tota1 power energy c o s t s pe r k i l o w a t t - h o u r d e l i v e r e d i s the sum of pr od uct io n and purchased e l e c t r i c energy c o s t s pe r k i l o w a t t - h o u r d e l i v e r e d . **0v erall energy c o s t s pe r k i l o w a t t hour d e l i v e r e d i s the sum of Total Power, Operations and D i s t r i b u t i o n energy c o s t s pe r k i l o w a t t - h o u r d e l i v e r e d . 60 Overall E f f i c i e n c y A c o m p a n y 's a v e r a g e o v e r a l l d e l i v e r e d i s t h e sum o f t h e k ilo w att-h o u r deliv ered energy c o s ts per k i l o w a t t - h o u r com pany's for d i s t r i b u t i o n ; and, 3) o p e r a t i o n s . the average energy catagories: co sts 1) t o t a l per p ow er; 2) A lternatively, the average c o s t per k i l o w a t t - h o u r d e l i v e r e d may be computed by summing t o t a l annual energy c o s t s f o r a f i v e y e a r average and d i v i d i n g by th e average k i l o w a t t - h o u r s sold (Table 9 ) . Production E f f i c i e n c y P r o d u c t i o n e f f i c i e n c y i s t h e energy c o s t of t h e f u e l s consumed in th e company's p ro d u ctio n system and ex cludes a l l i n c l u d i n g purchased e l e c t r i c i t y . in c o n v e r tin g fu els to o th e r energy c o s ts The f i v e y e a r average energy consumed e le c tric ity is d i v i d e d by t h e average k i l o w a t t - h o u r s s old (Table 9 ) . Power P l a n t Overall E f f i c i e n c y U nlike th e output of the electric company i t s e l f , where k i l o w a t t - h o u r s d e l i v e r e d forms t h e denominator of t h e e n e r g y c o s t s p e r u n i t measure o f e f f i c i e n c y , t h e o u t p u t o f th e power p l a n t i s measured a t t h e p l a n t ' s g ate j u s t p r i o r t o d i s t r i b u t i o n . The power p l a n t ' s g r o s s electric p o w e r p r o d u c t i o n , minus p l a n t - u s e , e q u a l s t h e n e t power produced. The p l a n t ' s av erage n e t power produced i s then c a l c u l a t e d . The n u m e r a t o r f o r power p l a n t o v e r a ll e f f i c i e n c y i s t h e sum of th e d i r e c t energy consumed i n c o n v e r s i o n p l u s t h e i n d i r e c t e n e r g y o f o p e r a t i n g c o s t s ( e x c l u d i n g t h e d o l l a r c o s t of f u e l s ) . The o p e r a t i n g c o s t s were r e p o r t e d i n d o l l a r s and a r e c o n v e r t e d t o B t u ' s u s i n g t h e 61 in p u t - o u t p u t energy a n a l y s i s te c h n i q u e . The average energy c o s t i s then c a l c u l a t e d and d iv id e d by th e average n e t power produced. This produces t h e power p l a n t o v e r a l l energy c o s t p e r n e t k i l o w a t t - h o u r produced (see Table 10). Power P l a n t Pro duction E f f i c i e n c y Power p l a n t o v e r a l l e f f i c i e n c y i s t h e sum of th e power p l a n t p roduction e f f i c i e n c y and t h e power p l a n t o p e r a t i o n s e f f i c i e n c y . Power p l a n t produ ction e f f i c i e n c y i s t h e average d i r e c t ( f u e l ) energy consumed div id e d by the average n e t k i l o w a t t - h o u r s produced (Table 10). Power P l a n t Oper atio ns E f f i c i e n c y Power p l a n t o p e r a t i o n s e f f i c i e n c y , th e l a s t component in power p l a n t o v e r a l l e f f i c i e n c y , i s t h e energy c o s t of t h e goods and s e r v i c e s r e q u i r e d t o o p e r a t e the p l a n t . These i n d i r e c t energy c o s t s , r e p o r t e d in d o l l a r s , a r e co nv er ted t o B t u ' s usin g t h e i n p u t - o u t p u t e n e r g y a n a l y s i s te c h n i q u e . The average o p e r a t i o n s energy c o s t i s divided by th e average n e t power produced (Table 10). 62 Table 10. P l a n t energy c o s t s : t h e dependent v a r i a b l e s . Net Power Produced P rodu cti on P l a n t No.__________ (Mwh)_________ ( B t u 1s/Kwh) Operation s (Btu's/Kwh) Overall (B tu*s/Kwh) 1 15,591,794 9864.6 90.8 9955.4 la 17,467,673 9688.2 79.1 9767.3 2 7,160,991 10468.4 122.6 10591.0 2a 6,142,878 10575.9 144.6 10720.5 3 7,690,944 9410.0 87.3 9497.3 3a 3,546,307 9497.7 100.4 9598.1 4 2,784,377 10809.6 113.5 10923.1 5 1,183,854 11651.8 122.9 11774.7 6 257,337 14162.7 120.8 14283.5 7 169,055 14202.3 129.5 14331.8 8 125,380 11261.0 140.5 11401.5 63 A n a ly s is and D is c u ss io n of R e s u l t s Overall E f f i c i e n c y The r e s u l t s o f t h e s t a t i s t i c a l a n a l y s i s (Table 11) confirm th e nu ll h y p o t h e s i s , so t h a t a t t h e 5.0 p e r c e n t le v e l o f s i g n i f i c a n c e , n a y c o n c l u d e t h a t no r e l a t i o n s h i p e x i s t s betw een u t i l i t y overall e ffic ie n c y . one s i z e and But an e n t i r e l y d i f f e r e n t conclus io n i s r e a c h e d i f only th e most e f f i c i e n t u t i l i t i e s ar e examined. This d i v i s i o n of th e d ata assumes t h a t t h e f o u r mo st e f f i c i e n t , u tilitie s, which r a n g e from t h e l a r g e s t t o t h e s m a l l e s t (companies A,B ,C , and H r e s p e c t i v e l y ) , efficien cy u tilities. are o p e r a tin g clo ser to t h e optimum o b t a i n a b l e a t t h e i r s c a le than are the rem aining fo u r Figure 5 i l l u s t r a t e s an economic model t h a t u n d e r l i e s t h i s assumption. The LRAC c u r v e i n F i g u r e 5 i s t h e t h e o r e t i c a l envelope curve composed of th e minimum p o i n t s o b t a i n a b l e from s u c c e s s i v e SRAC c u r v e s . But e m p i r i c a l data i s s o l e l y o b t a i n e d from o r g a n i z a t i o n s o p e r a t i n g somewhere along a SRAC c u r v e . Two o r g a n i z a t i o n s may p r o d u c e t h e same q u a n t i t y o f o u t p u t y e t be on d i f f e r e n t SRAC c u r v e s . The assumption being made h e r e i s t h a t t h e most e f f i c i e n t u t i l i t i e s are operatinq c l o s e r t o t h e minimum c o s t p o i n t on t h e i r r e s p e c t i v e SRAC curves and t h e r e f o r e , r e p r e s e n t a c l o s e r a p p r o x im a ti o n o f t h e maximum e f f i c i e n c y o b t a i n a b l e a t t h e i r s c a l e on th e LRAC curve. T a b le 1 1 . O v e r a ll e f f i c i e n c y s t a t i s t i c s . (x = peak power demand, y = o v e r a ll energy c o s t s ) Hypothetical R e la ti o n s h ip (Y = General Form) A a + bx 13940 a + b/x 13270 a + b(logx) 15110 a + bx + cx2 14057 a + b( lo g x ) + c ( l o g x ) 2 17294 Constants B -0.143 C Coefficients R R2 Two-Tailed P (Type I) - -0.303 0.092 0.4660 30690 - 0.332 0.110 0.4224 -600.0 - -0.442 0.196 0.2726 -0.419 0.175 > 0.30 -0.468 0.217 > 0. 20 -0.851 -2485 0.0001 354.2 65 SRAC1 c1 SRAC2 K c2 LRAC x Output -To-it't- !5. An economic model of how two d i f f e r e n t companies on h-; •• t s hor t-r un average c o s t c u r ves , y e t producing at the same c u t o u t 1 e*ve-1 , wi l l *ave d i f f e r e n t averane c o s t s . Making t h i s assumption i s b o l s t e r e d by p r eced en t. al. chose to look o p e r a t i o n . •-) only at th e most e f f i c i e n t most e f f i c i e n t in u tilitie s But u s i n o t h e d a t a from o n ly t h e f o u r in creases s ta tis tic a lly sian ifican t re su lt. is power p l a n t s This examination al s o looks a t the eneroy e f f i c i e n c y of th e most e f f i c i e n t u t i l i t i e s . u tilitie s Messino, e t . tested , the the d i f f i c u l t y of f in d in g a When t h e complete d a t a s e t o f e i g h t d e g r e e s o f fre ed om a s s o c i a t e d w i t h t h e s tu d e n t's t d is tr ib u tio n i s s i x ; whereas th e s m a lle r data s e t allo w s only two d e g r e e s of f r e e d o m . N o n e t h e l e s s , b a s e d on t h e f o u r most e f f i c i e n t u t i l i t i e s , a U-shaped r e l a t i o n s h i p betw ee n u t i l i t y o v e r a l l e f f i c i e n c y e x i s t s (see Table 12 and F ig u re 6 ) . s i z e and T a b le 1 2 . O v e r a ll e f f i c i e n c y s t a t i s t i c s based on th e f o u r most e f f i c i e n t u t i l i t i e s examined (x = peak power demand, y = o v e r a ll enerqy c o s t s ) Hypothetical R e la ti o n s h i p (Y = General Form) A Constants B 0.139 a + bx 12240 a + b/x 12700 a + b( log x) 11900 a + bx + cx^ 12310 -0.05 a + b(log x) + c ( l o g x ) 2 16292 -3553. C Coefficients R R* Two-Tailed P (Type I) - 0.826 0.683 0.1737 -3120. - -0.094 0.009 0.9060 267.7 - 0.517 0.267 0.4831 2 . RE-5 0.862 0.743 > 0.10 715.R 0.9R7 0.974 < 0.02 66 O o 4) 4> u 3 £0 1 ■*s O £ u ua. •K o o oc U J 6292 - 3553 log(X) + 715.8 (log(X))’ o 1000 10 100 10000 Utility Size (Peak Demand in Megawatts) F ig u r e 6. Overall e f f i c i e n c y and b e s t f i t t i n g polynomial e q u a t i o n . This r e l a t i o n s h i p , however t e n t a t i v e , d em o n str ate s t h e e x i s t a n c e o f t h e p r o p o s e d e n e r g y economy of s c a l e curve ( F ig u r e 3 ) . re p re s e n ts the f i r s t em pirical technical As such, i t evidence of a r e la tio n s h ip betw een e f f i c i e n c y and o r g a n i z a t i o n a l size. In t e r m s o f o v e r a l l e f f i c i e n c y , based on t h e most e f f i c i e n t u t i l i t i e s examined, t h e optimum s i z e of an e l e c t r i c u t i l i t y i s appr oximate ly 300 Megawatts of peak power demand ( F ig u r e 6 ) . Overall e f f i c i e n c y , h o w e v e r , is the r e s u l t of the combined e f f e c t s of s evera l f a c t o r s . Total Power E f f i c i e n c y As e x p e c t e d , t h e energy c o s t of making e l e c t r i c power a v a i l a b l e t o consumers c l o s e l y p a r a l l e l s t h e u t i l i t i e s ' o v e r a l l energy c o s t s . fact, In t h e energy c o s t of p r o d u c t io n and purchase equals 96.7 p e r c e n t of 67 overall energy c o s t s . Thus , t h e d a t a us ed t o g e n e r a t e Table 13 a r e a p p r o x i m a t e l y 3 . 3 0 p e r c e n t l o w e r t h a n t h e d a t a p o i n t s used i n the overall efficiency c a lc u la tio n . The s t a t i s t i c a l a n a l y s i s of th e complete data s e t aoain showed no r e l a t i o n s h i p betw ee n u t i l i t y efficien cy (T able 13). s i z e and t h e u t i l i t y ' s Exam ininn only total power t h e f o u r most e f f i c i e n t u t i l i t i e s , however, su n g ests t h a t t h e u t i l i t i e s ' t o t a l power e f f i c i e n c y is d e p e n d e n t upon u t ilit y s i z e (Table 14). The a l t e r n a t i v e hyp o th esis s e l e c t e d i s e s s e n t i a l l y th e same as th e U-shaped curve s e l e c t e d f o r t h e u t i l i t i e s ' o v e r a l l e f f i c i e n c y r e l a t i o n s h i p ( F ig u r e 7 ) . As shown in F ig u re 7, t h e optimum s i z e (based on th e t o t a l power e f f i c i e n c y of th e most e f f i c i e n t u t i l i t i e s examined) i s 35n Megawatts of peak demand o r 50 M eg aw atts g r e a t e r t h a n t h a t o b s e r v e d f o r o v e r a l l efficiency. Because t o t a l power energy c o s t s r e p r e s e n t th e energy c o s t s o f making e l e c t r i c power a v a i l a b l e t o t h e s y s t e m h u t n o t t h e c o s t s o f d i s t r i b u t i o n or o p e r a t i o n s , th e 50 Megawatts d i f f e r e n c e in optimum s i z e may be th e r e s u l t o f d i s t r i b u t i o n and o p e r a t i o n s energy c o s t s . N evertheless, total power e f f i c i e n c y a p p e a r s to be th e maior f a c t o r in d e t e r m in i n g t h e o b s e r v e d s h a p e o f t h e e l e c t r i c overall e ffic ie n c y curve. u tilitie s' T o ta l power energy c o s t s i n c l u d e t h e f u e l s consumed in th e companies' power p l a n t s and t h e energy c o s t of purchased e l e c t r i c power. When t h e s e c o s t s a r e d i v i d e d by t h e e l e c t r i c power a c t u a l l y . s o l d by t h e u t i l i t y , th e t o t a l power e f f i c i e n c y c-urve hecomes a m e a s u r e of t h e u t i l i t y ' s load management e f f i c i e n c y . The r e l a t i o n s h i p between s i z e and t h e a b i l i t y t o c o o r d i n a t e power s u p p l y w i t h power demand (load management e f f i c i e n c y ) i s c l a r i f i e d by. th e r e s u l t s o b tain ed f o r p r o d u c t io n e f f i c i e n c y . T a b le 13. T o ta l power e f f i c i e n c y s t a t i s t i c s . (x = peak power demand, y = t o t a l power eneroy c o s t s ) Hypothetical R e l a tio n s h ip (Y = General Form) Two-Tailed P (Type I) A Constants B a + bx 13510 -0.16 - -0.339 0.115 0.4121 a + b/x 12760 34990. - 0.378 0.143 0.3564 a + b(loc|x) 14790 -657 - -0.483 0.233 0.2253 a + bx + cx2 13638 - 0.89 1. IE— 4 0.452 0.204 > 0.20 a + b(logx) + c ( l o p x ) 2 17158 384 0.508 0.258 > 0.10 -2700 C Coefficients R R2 T a b le 1 4 . T o ta l power e f f i c i e n c y s t a t i s t i c s based on the f o u r most e f f i c i e n t u t i l i t i e s examined. (x = peak power demand, y = t o t a l power energy c o s t s ) Hypothetical R e la tio n s h ip (Y = General Form) A a + bx 11860 a + b/x 12210 a + b( logx) 11630 a + bx + cx^ 11939 a + b(logx ) + c ( lo g x ) 2 15734 Constants B 0.116 C Coefficients R R* Two-Tailed P (Type I) - 0.771 0.594 0.2293 -148. - -0.450 0.250 0.9950 200. - 0.433 0.187 0.5674 3.2E-5 0.835 0.697 > 0.10 667.6 0.978 0.956 < 0.05 -0.103 -3363. 70 oo jC ■o o 2 0 > T a u 3 £O ? T £ 2- a» o 2 o 0a. 4^ <0 o o ok_> 0 O uC *— 15734 - 3363 log(X) + 667.6 (log(X))5 o o +**1— 1 F ig u re 7. 10 100 1000 1 0 000 Utility Size (Peak Demand In Megawatts) Total power e f f i c i e n c y and b e s t f i t t i n g polynomial e q u a t i o n . P r o d u c ti o n E f f i c i e n c y A s i g n i f i c a n t and U - s h a p e d r e l a t i o n s h i p a l s o e x i s t s between u t i l i t y s i z e and pro d u ctio n e f f i c i e n c y based on th e f o u r most e f f i c i e n t u t i l i t i e s (Table 15). total But u n l i k e t h e r e l a t i o n s h i p found f o r o v e r a l l and power e f f i c i e n c y , the best a l t e r n a t i v e p o l y n o m i a l : y = a - bx + c x ^ . here is th e sim ple F i g u r e 8 i l l u s t r a t e s th e r e l a t i o n s h i p found. Based only on t h e energy c o s t s of e l e c t r i c power p r o d u c tio n , th e curve in F ig u re 8 s u g g e st s t h a t th e optimum s i z e o f an e l e c t r i c u t i l i t y i s 2500 M e g aw atts o f peak demand. The l a r g e d i f f e r e n c e between th e optimum s i z e i n d i c a t e d by pro d u ctio n ( a t 2500 Megawatts) and t o t a l power efficien cy (at 350 M e g a w a t t s ) s u g g e s t s t h a t t h e e n e r g y c o s t s o f c o o r d i n a t i n g p u r c h a s e d power i n p u t s and i n - h o u s e power t o meet t h e T a b le 1 5 . P ro d u c tio n e f f i c i e n c y s t a t i s t i c s . (x = peak power demand, y = pro duc tion enerqy c o s t s ) Hypothetical R e l a tio n s h ip (Y = General Form) A Constants B C Coefficients R R2 Two-Tailed P (Type I) - -0.280 0.078 0.5015 - 0.394 0.155 0.3340 - -0.442 0.195 0.2733 1.5E-4 0.431 0.186 > 0.20 670.8 0.498 0.248 > 0.20 - 0.809 0.655 0.1908 -96734. - 0.331 0.110 0.6688 1.1E+4 264.8 - 0.581 0.337 0.4193 *a + bx + cx2 1.2E+4 -0.274 5.8E-5 0.999 0.999 < 0.001 *a + b( loqx) + c ( l o g x ) 2 1.3E+4 -1699. 368.1 0.760 0.578 > 0.20 1.3E+4 a + b/x 1.2E+4 a + b(loqx) 1.5E+4 o i -n .1 6 a + bx a + bx + cx2 1.3E+4 -1 .1 0 a + b(loqx ) + c ( l o q x ) 2 1.9E+4 -4270. *a + bx 1.2E+4 0.12 *a + b/x 1.2E+4 *a + b(loqx) 4.3E+4 • *Rased on th e four most e f f i c i e n t u t i l i t i e s . 72 c o m p a n y ' s power demand i s t h e major f a c t o r in d eter mininq th e optimum s i z e o f an e l e c t r i c u t i l i t y . p e rc e n t of i t s In s h o r t , i f the u t i l i t y p r o d u c e d 100 power demand t h e n t h e optimum s i z e i n d i c a t e d by t h i s a n a l y s i s would be app roximate ly 2500 Megawatts o f peak demand. pro p o rtio n of t o t a l As t h e p o w e r made up by p u r c h a s e d power i n p u t s i s i n c r e a s e d , problems of e f f e c t i v e power c o o r d i n a t i o n a p p e a r and r e d u c e t h e observed optimum s i z e . JC * \X I > 5 0 X 1 a *o £ & 3 k. > O>I 0) c Ui 1 1 6 4 3 .2 - 1 F ig u re 8. 0 .2 7 4 X + 0 .0 0 0 0 5 8 3 X1 100 10 1000 10000 Utility Size (P e a k D em and in M egaw atts) Pro duc tion e f f i c i e n c y and b e s t f i t t i n g polynomial e q u a t i o n . One o f t h e p r o b le m s of e f f e c t i v e power c o o r d i n a t i o n may be th e untimely a d d i t i o n of purchased power t o t h e system w h i l e t h e c o m p a n y ' s power p l a n t s are still o n -lin e. T h i s may o c c u r as t h e r e s u l t o f c o n t r a c t u a l arrangements t h a t a u t o m a t i c a l l y dump power i n t o t h e s y s t e m i r r e s p e c t i v e of th e power demand a t th e ti m e. For example, demand might i n c r e a s e s u f f i c i e n t l y ov er th e p r o d u c tio n s y s t e m ' s c a p a c i t y t o meet t h e 73 demand. T h is t r i g g e r s t h e p u r c h a s e o f power from an o u t s i d e sourc e. But th e c o n t r a c t u a l arrangement i s f o r bulk power which may be in exces s o f the increm ental amount o f a d d i t i o n a l power a c t u a l l y needed. As a r e s u l t , the power produced from some or a l l o f th e power p l a n t s o n - l i n e becomes s u p e r f l u o u s . This a n a l y s i s , however, did not c o l l e c t th e d ata nece ssa ry to f u l l y e x p l o r e th e s i g n i f i c a n c e of p r o d u c t i o n v e r s u s t o t a l power e f f i c i e n c y . N e v e r t h e l e s s , t h e very high c o r r e l a t i o n c o e f f i c i e n t (0.999) and very low p r o b a b i l i t y o f a Type I e r r o r (0.001) o b s e r v e d f o r t h e p o ly n o m i a l r e l a t i o n s h i p in p roductio n e f f i c i e n c y s u g g e st s t h a t the p r o p o r ti o n of t o t a l power produced i n- hous e i s a s i g n i f i c a n t v a r i a b l e in deter mining th e o v e r a l l optimum s i z e f o r t h i s i n d u s t r y . D istribution Efficiency With 9 6 . 7 0 p e r c e n t of th e o v e r a l l energy c o s t s c o n ta i n e d w i t h i n t h e p r o d u c t i o n and p u r c h a s e o f e l e c t r i c po w er , t h e r e m a i n i n g 3.30 p e r c e n t i s d i v i d e d b e t w e e n t h e u t i l i t i e s ' d i s t r i b u t i o n and o p e r a t i o n s energy c o s t s . The e n e r g y c o s t o f d i s t r i b u t i n g e l e c t r i c power was i n i t i a l T y " t h o u g h t t o be second in importance t o th e energy c o s t of t o t a l power but t h i s i s not t h e c a s e . D i s t r i b u t i o n en er gy c o s t s a v e r a g e d 13 B t u ' s p e r k i l o w a t t - h o u r d e l i v e r e d l e s s th a n o p e r a t i o n s energy c o s t s . The d i f f e r e n c e i s not s i g n i f i c a n t and i t appea rs t h a t d i s t r i b u t i o n o p eratio n s equally. energy and c o s ts d iv id e the rem aining 3.30 p e r c e n t alm ost Fig ure 9 p l o t s d i s t r i b u t i o n energy c o s t s a g a i n s t u t i l i t y s i z e . 74 LO CSj-1 CO o CO 4) {inV,'| , « ~1 Figure 9. ♦n»t-.. .......... . <■ 10 1 00 1000 10000 Utility Size (P eak D em and in M egow otts) D istrib u tio n efficien cy against u t i l i t y size. The p l o t t e d d a t a a p p e a r t o d i v i d e i n t o two s e p a r a t e g r o u p s . With two d i s t i n c t g r o u p s , b o t h c o v e r i n q a l m o s t t h e e n t i r e ra nge of u t i l i t y s i z e s in t h e s tu d y , t h e p l o t t e d data s u g g e st t h a t e i t h e r samples from two s e p a r a t e p o p u l a t i o n s a r e being examined or t h a t u t i l i t y s i z e i s not t h e d i s t i n g u i s h i n g v a r i a b l e . In t h i s i n s t a n c e , u t i l i t y s i z e was s u s p e c t e d a s b e i n g i r r e l e v a n t and d i s t r i b u t i o n d e n s i t y was used as th e independent v a r i a b l e (see Table 16). Theas ym ptotic e q u a ti o n (y = a + b/x) c o n s i s t e n t l y s u r p a s s e s th e l evel of s i g n i f i c a n c e r e q u i r e d and i s c h o s e n as b e s t r e p r e s e n t i n g the r e l a t i o n s h i p between d i s t r i b u t i o n d e n s it y and d i s t r i b u t i o n energy c o s t s d e s p ite th e f a c t t h a t th e log equation e x p lain s the observed slig h tly b etter (Table 16). data This choice seems r e a s o n a b l e bec au se some thermodynamic l i m i t t o d i s t r i b u t i o n e f f i c i e n c y m ight be e x p e c t e d . The 75 a s y m p t o t i c e q u a t i o n s e l e c t e d d e s c e n d s t o a l i m i t o f 138.3 B t u ' s per k i l o w a t t - h o u r d e l i v e r e d . Of c o u r s e , d e t e r m i n a t i o n o f t h e a c t u a l lim it r e q u i r e s a l a r g e r s a m p le s i z e . F i g u r e 10 i l l u s t r a t e s t h e asympto tic eq u a tio n s e l e c t e d f o r t h i s r e l a t i o n s h i p . Table 16. D istribution efficiency s t a t i s t i c s . (x = customers p e r m il e o f l i n e , y = d i s t r i b u t i o n energy c o s t s ) Hypothetical R e l a t i o n s h i p (Y = General Form) Constants A B Coefficients R R2 Two-Tailed p (Type I) a + bx 276.2 -0.805 -0.701 0.492 0.05262 a + b/x 138.3 3524.0 0.835 0.698 0.00985 a + b( logx ) 525.2 -175.8 -0.836 0.699 0.00970 * a + bx 283.3 -0.749 -0.902 0.813 0.09840 * a + b/x 130.0 4173.0 0.980 0.961 0.01969 * a + b(logx) 520.4 -168.0 -0.986 0.972 0.01432 *Based on t h e f o u r most e f f i c i e n t u t i l i t i e s . Because d i s t r i b u t i o n e f f i c i e n c y i s r e l a t e d to d i s t r i b u t i o n density, but not to u t i l i t y size, i t s canno t be d i r e c t l y observ ed. Moreover, an o r g a n i z a t i o n a t any s c a l e may b e n e f i t from a high d i s t r i b u t i o n d e n s i t y . Its i m p a c t on o v e r a l l e f f i c i e n c y Consequently, and in l i g h t o f v e r y s m all c o n t r i b u t i o n t o o v e r a l l e n e r g y c o s t s , d i s t r i b u t i o n e f f i c i e n c y may be ig no re d i n subsequent i n v e s t i g a t i o n s o f t h e o p t i m a l s i z e of e l e c t r i c u t i l i t i e s . 76 in cm - J o f C H (O j i * X gj CM J o c: k. 3O IA CM CM Y * 138.3 + 3 524/X o CJ G O1 1/3 H L O^ CM -f~ "b 25 50 75 D istric jtio r F i g u r e 1C. enuat i on. D istribution 100 125 150 175 200 225 D ens’ty ( C u s to " 'e r s p e r MUe' efficiency and t h e s e l ? c t e H ■■s y m r t o t i c Oper at ions E f f i c i e n c y The remaining component of o v e r a l l e f f i c i e n c y i s t he enerqy c o s t of o p e r a t i n g t h e u t i l i t y . A r e l a t i o n s h i p c l e a r l y e x i s t s between u t i l i t y s i z e and t he energy c o s t of o p e r a t i o n s (Table 17). While t he asympt ot i c e qu a t i on ( y = a - b / x ) i s s u p e r i o r t o t h e logarithm ic equation, at least for the observed data in this exami nat i on, t h e o r e t i c a l c o n s i d e r a t i o n s argue f o r c a u t i o n i n a c c e p t i n g the asym ptotic equation. An a s y m p t o t i c equation sungests a thermodynamic l i m i t t o t h e amount of energy an o r g a n i z a t i o n can ex pen d i n o p e r a t i o n s y e t no l i m i t t o t h e s i z e o f t h e o r g a n i z a t i o n . l o g a r i t h m i c e q u a t i o n f o l l o w s e s s e n t i a l l y t h e same p a t t e r n The as t h e a s y m p t o t i c e q u a t i o n and a l s o q u a l i f i e s a t t h e l e v e l of s i g n i f i c a n c e 77 chosen, yet does not imply a lim it o r a a n i z a t i o n can spend on o p e r a t i o n s . to the a m o u n t o f e n e r o y an Thus t h e l o o a r i t h m i c equat i on y = a + b ( l o q x) b e s t d e s c r i b e s t h e observed r e l a t i o n s h i p between o p e r a t i o n s e f f i c i e n c y and u t i l i t y s i z e (see Fi gure 11). Table 17. Oper at i ons e f f i c i e n c y s t a t i s t i c s . (x = peak power demand, y = o p e r a t i o n s energy c o s t s ) Hypot het i cal Re l a t i o n s h i p (Y = General Form) Const ant s A B a + bx 221.1 a + b/x 254.8 a + b(logx) 180.9 * a + bx 219.4 * a + b/x 252.9 * a + b(logx) 177.4 Coefficients R R2 Two-Tailed p (Type I) 0.660 0.436 0.0748 -0.843 0.710 0.0086 21.6 0.764 0.583 0.0275 0.007 0.795 0.632 0.2053 -0.804 0.646 0.1964 0.830 0.689 0.1700 0.007 -1625. -1344. 21.67 *Based on t he f our most e f f i c i e n t u t i l i t i e s . T h i s o b s e r v e d r e l a t i o n s h i p i s s i g n i f i c a n t d e s p i t e i t s small c o n t r i b u t i o n t o an e l e c t r i c u tility 's overall enerqy c o s t s . Of t h e v a r i a b l e s e xami ned i n t h i s a n a l y s i s , only o p e r a t i o n s e f f i c i e n c y may be ap p l i e d t o o r g a n i z a t i o n s i n g e n e r a l . The o t h e r v a r i a b l e s exami ned a r e s p e c i f i c to the e l e c t r i c u t i l i t y industry. But a l l o r g a n i z a t i o n s f ace s i m i l a r o p e r a t i o n e x p e n s e s such a s f a c i l i t y m a i n t e n a n c e , repair, d e p r e c i a t i o n , day t o day o p e r a t i o n i n p u t s of goods and s e r v i c e s and t he energy c o s t s o f managi ng t h e o r n a n i z a t i o n . f i t t i n g logarithmic equation Consequently, the b e s t ( F i g u r e 11) f o r o p e r a t i o n s e f f i c i e n c y s u g g e s t s t h a t t h e e n e r g y p e n a l t y f o r gr owt h i n o r g a n i z a t i o n a l size 78 becomes l e s s as t h e o r g a n i z a t i o n becomes l a r g e r . r* CM Y « 180.9 + 21.6 log(X) * o tn CSJ | & I * % oo £ 1/3 CSJ CSJ o o CSJ ■'t ■ t I H H t | 1 10 I 100 I IH H I| 1000 10000 Utility S ize (P e a k D em and in M egaw atts) F i g u r e 11. Oper at i ons e f f i c i e n c y and b e s t f i t t i n g l o g a r i t h m i c e q u a t i o n . T h i s r e s u l t i m p l i e s t h a t i f t h e energy economy of s c a l e curve hol ds f o r o r g a n i z a t i o n s i n g e n e r a l , i t i s more t h e r e s u l t of p r o d u c t i o n or to ta l power e f f i c i e n c y d e c l i n i n g beyond t h e optimum s i z e r a t h e r t han t h e i n f l u e n c e of o p e r a t i o n s e f f i c i e n c y . In s h o r t , s e r v i c e o r g a n i z a t i o n s t h a t do not have a pr od u c t i o n or t o t a l power component may not e x h i b i t a t e c h n i c a l optimum s i z e . System P l a n t Age The l a s t u t i l i t y - b a s e d v a r i a b l e t o exami ne i s t h e p o t e n t i a l c o n t r i b u t i o n made by t h e s y s t e m ' s l e v e l of technology, a s m e a s u r e d by t h e weighted average date o n - lin e of the p la n ts in the production system. No r e l a t i o n s h i p e x i s t s between t h e s e v a r i a b l e s ( T a b l e 18 and 79 Figure 12). Table 18. System p l a n t - a g e s t a t i s t i c s . (x = wei ghted aver age d a t a o n - l i n e , y = pr od u c t i o n energy c o s t s ) Hypot het i cal R e l a t i o n s h i p (Y = General Form) Const ant s A B 300000 a + bx Coefficients R R2 -146. 6 Two-Tailed p (Type I ) - 0. 344 0.119 0.4035 a + b/ x -280000 5.7E+8 0.345 0.119 0.4028 * a + bx - 80130 46. 80 0.157 0.025 0.8427 * a + b/x 100000 -1.8E+8 - 0. 1 58 0.025 0.8422 *Based on t h e f o u r most e f f i c i e n t u t i l i t i e s . * oo X 1/3 - \ I I O *O ooo 2 2 •) o. l. % o o o I I 1960 I 1------- 1-------1 I I 1 1965 I I 1969 S y s te m A verage D ote O n -L in e F i g u r e 12. efficiency No r e l a t i o n s h i p b e t we e n s y s t e m p l a n t age and p r o d u c t i o n A m a j o r f a c t o r i n t he s e l e c t i o n of t he u t i l i t i e s t o be examined was t h e a t t e m p t t o c o n t r o l efficiency. t h e p o s s i b l e i n f l u e n c e o f t e c h n o l o o y on The average age of t h e pr oduct i on systems in t he u t i l i t i e s acc e pt e d f o r a n a l y s i s d i f f e r e d by no more t han t e n y e a r s of e ach o t h e r . The s t a t i s t i c a l r e s u l t s shown i n Table 18 and i l l u s t r a t e d in Fi gur e 12 d e m o n s t r a t e t h e l a c k o f any s i g n i f i c a n t d i f f e r e n c e i n t h e l e v e l of technol ogy employed. Power P l a n t Overall E f f i c i e n c y In o r d e r t o b e t t e r u n d e r s t a n d t he c o n t r i b u t i n a f a c t o r s t o t he total power e f f i c i e n c y r e l a t i o n s h i p , t h i s examination in clu d es an a n a l y s i s of t h e p o s s i b l e r e l a t i o n s h i p s between energy e f f i c i e n c y and t he power pr od uc t i o n system. power p l a n t overall Beginning with an a n a l y s i s o f p l a n t s i z e and efficiency, s t r o n g s u p p o r t was f ound f o r t h e e x i s t a n c e of a r e l a t i o n s h i p between t h e s e two v a r i a b l e s (Table 19). The l o g a r i t h mi c equ at i on y = a - b ( l o g x) i s c l e a r l y s u p e r i o r to t h e l i n e a r e qu a t i on though both succeed in e x p l a i n i n g t h e o b s e r v e d d a t a at better than the level of s i g n i f i c a n c e chosen. Mo r eover , t h e l o g a r i t h m s ug ge s t s a r a p i d l y d e c l i n i n g curve which f l a t t e n s o u t as t h e scale increases. This mi r r o r s t h e economic model of economies of s c a l e f o r power p l a n t s . F i g ur e 13 i l l u s t r a t e s t h e b e s t f i t t i n g l o g a r i t h m i c equation. 81 T a b l e 19. Power p l a n t - o v e r a l l efficien cy s ta tis tic s . (x = i n s t a l l e d c a p a c i t y , y = power p l a n t - o v e r a l l enerqy c o s t s ) Hypot het i cal R e l a t i o n s h i p (Y = General Form) Cons t ant s A P Coefficients R R2 Two-Tailed P (Type I) a + bx 12270 -0. 929 - 0. 6 40 0.409 0.0341 a + b/x 10730 43070. 0.465 0.216 0.1500 a + b(loax) 15500 -1623. -0. 755 0.570 0.0072 * a + bx 11040 -0. 395 - 0. 564 0.318 0.1137 * a + b/ x 10330 19150. 0.452 0.205 0.2215 * a + b( l ogx) 12510 -705. -0. 609 0.371 0.0818 *Based on t he four most e f f i c i e n t u t i l i t i e s . o CD *D 4> O O Oo Y = 15500 - 8 1625 log(X) Q_ L 3_ 0 1 o* o .C *-< "cflj o t> a. v> O o» «c> O UJ Oi 10 100 1000 10000 Plont Size (Installed Capacity in Megawatts) F i g u r e 13. eq u a t i o n . Power plant, o v e r a l l e f f i c i e n c y and b e s t f i t t i n g l o g a r i t h m i c 82 Four c o n c e r n s make t he r e l a t i o n s h i p shown i n F i g ur e 13 s u s p e c t : 1) t he observed r e l a t i o n s h i p does not h o l d when o n l y t h e power p l a n t s o p e r a t e d by t h e most e f f i c i e n t u t i l i t i e s r e s e a r c h by M e s s i n g , e t . a r e exami ned; 2) p r evi ous a l . ^ 3 ^ i n d i c a t e s t h a t no r e l a t i o n s h i p e x i s t s between p l a n t s i z e and t h e r ma l efficiency; 3) a t h e o r e t i c a l lim it e x i s t s f o r c o n v e r s i o n e f f i c i e n c y which t h e observed r e l a t i o n s h i p does not s u g ges t ; and, 4) t he very low c o e f f i c i e n t of d e t e r m i n a t i o n observed s u g g ests t h a t very l i t t l e expl ai ned by t h i s r e l a t i o n s h i p . observed, the r e s u l t s (0.570) o f t h e v a r i a b i l i t y i n t h e dat a i s Nonet hel ess, based on t he smal l sampl e show a c o r r e l a t i o n between power p l a n t s i z e and power p l a n t o v e r a l l e f f i c i e n c y . Power P l a n t Pr oduct i on E f f i c i e n c y As e x p e c t e d from t h e r e s u l t s o b t a i n e d i n t h e a n a l y s i s of t he system's to ta l power e f f i c i e n c y , the direct conversion of fuels c o n s t i t u t e t h e m a j o r f a c t o r i n t h e power p l a n t ' s o v e r a l l e f f i c i e n c y . Once aga i n, t he l o g a r i t h m i c equ at i o n i s c l e a r l y s u p e r i o r t o t h e l i n e a r a l t e r n a t i v e (Table 20). D espite these observed r e s u l t s , the concerns expressed for a c c e p t i n g t h e s i m i l a r r e l a t i o n s h i p found f o r p o we r p l a n t overall e f f i c i e n c y may a l s o be a p p l i e d t o t h e observed r e l a t i o n s h i p shown in Fi gure 14. 83 Table 20. Power p l a n t - p r o d u c t i o n e f f i c i e n c y s t a t i s t i c s . ( x = i n s t a l l e d c a p a c i t y , y = power p l a n t - p r o d u c t i o n energ y c o s t s ) Hypot het i cal R e l a t i o n s h i p (Y = General Form) Cons t ant s A B Coefficients R R2 Two-Tailed p (Type I) a + bx 12140 -0. 918 -0. 637 0.405 0.0352 a + b/ x 10630 424500. 0.461 0.213 0.1535 a + b ( l ogx) 15340 -1607. -0. 753 0.567 0.0075 a + bx 10910 -0. 384 -0.561 0.315 0.1162 ★ a + b/ x 10220 18550. 0. 448 0.201 0.2260 ★ a + b ( l ogx) 12340 -686. 6 -0. 606 0. 368 0.0834 * *Based on t h e f o u r most e f f i c i e n t u t i l i t i e s . oO o *Vo oo o o •O 2 Y = 15340 - £ 1607 log(X) Q_ 03 O 1 O XL o* — o 2 *-> t> c t> Q. X O L. m oo «c> Ui o O) 10 100 1000 10000 Plant Size (Installed Capacity In Megawatts) F i g u r e 14. P o we r p l a n t logarithmic equation. production efficiency and b e s t f i t t i n g 84 Power P l a n t O p e r a t i o n s E f f i c i e n c y The rem aining energy costs in the power p l a n t ' s o v e r a l l e f f i c i e n c y stem from t h e o p e r a t i n g energy c o s t s . The compl et e d a t a s e t s u g g e s t s t h a t no r e l a t i o n s h i p between power p l a n t s i z e and o p e r a t i o n s e f f i c i e n c y e x i s t s (Table 21). Table 21. Power p i a n t - o p e r a t i o n s e f f i c i e n c y s t a t i s t i c s . (x = i n s t a l l e d c a p a c i t y , y = power p l a n t o p e r a t i o n s enerny c o s t s ) Hypot het i cal R e l a t i o n s h i p (Y = General Form) Const ant s A B Coefficients R r2 Two-Tailed p (Type I) a + bx 126.5 -0.011 -0. 580 0.336 0.0615 a + b/x 107.6 618.6 0.526 0.277 0.0965 a + b ( l ogx) 156.3 -15.92 -0. 584 0.341 0.0591 * a + bx 126.9 -0.011 -0. 540 0.291 0.1337 * a + b/ x 107.0 580.9 0.478 0.229 0.1927 * a + b( l ogx) 164.4 - 18. 38 -0. 553 0.306 0.1225 *Based on t he f o u r most e f f i c i e n t u t i l i t i e s . T h i s may be due t o two anomalous dat a p o i n t s o r i q i n a t i n n from a s i n g l e power p l a n t a t two d i f f e r e n t c a p a c i t y l e v e l s ( p l a n t number 2 and 2a). By e x c l u d i n g t h e anomalous dat a a d i f f e r e n t concl us i on i s drawn. The r e s u l t s now s t r o n g l y s u p p o r t t h e e x i s t a n c e o f a r e l a t i o n s h i p and c o n s i s t a n t l y i n d i c a t e t h e l o q a r i t h m i c a l t e r n a t i v e , y = a - b ( l o g x) , as t h e b e s t model (Table 22). about the possibility production e f f i c i e n c y , Unlike t h e t h e o r e t i c a l o b j e c t i o n s e x p r e s s e d of a r e l a t i o n s h i p b et ween p l a n t s i z e and no known o b j e c t i o n s e x i s t f o r a l o g a r i t h m i c r e l a t i o n s h i p b et wee n p l a n t s i z e and o p e r a t i o n s e f f i c i e n c y . Indeed, 85 a p p r o x i m a t e l y 87 p e r c e n t o f t h e o b s e r v e d v a r i a b i l i t y in t he dat a i s e x p l a i n e d by t he b e s t f i t t i n g l o g a r i t h m i c e qu a t i o n i l l u s t r a t e d in Fi gure 15. Table 22. Power -pl ant o p e r a t i o n s e f f i c i e n c y s t a t i s t i c s excl udi ng anomalous dat a p o i n t s (x = i n s t a l l e d c a p a c i t y , y = power p l a n t - o p e r a t i o n s energy c o s t s ) Hypot het i cal R e l a t i o n s h i p (Y = General Form) Const ant s A B Coefficients R R2 Two-Tailed p (Type I) a + bx 123.9 -0. 014 -0.841 0.707 0.00455 a + b/x 99.57 805.90 0.767 0.588 0.01591 a + b( logx) 169.2 -23. 57 - 0.931 0.866 0.00027 * a + bx 122.6 - 0. 013 -0. 809 0.654 0.02773 * a + b/ x 97.87 745.9 0. 744 0.554 0.05510 * a + b( l ogx) 177.6 - 26. 12 -0. 927 0.860 0.00264 *Based on t he f o u r most e f f i c i e n t u t i l i t i e s . Power P l a n t Age The l a s t analysis of power p l a n t e f f i c i e n c y attem pts to det ermine i f a r e l a t i o n s h i p e x i s t s be t we e n t h e w e i g h t e d a v e r a g e d a t e o n - l i n e f o r t h e p l a n t s e x a mi ne d, as a measure of t h e p l a n t ' s l e v e l of t echnol ogy, and t h e p l a n t ' s o v e r a l l data, efficiency. From t h e o b s e r v e d ( T a b l e 23 and F i g ur e 16) , t h e only co n c l u s i o n t o be drawn i s t h a t no r e l a t i o n s h i p e x i s t s between t h e da t e o n - l i n e and t h e p l a n t ' s o v e r a l l efficiency. This concl us i on r e i n f o r c e s t h e observed r e s u l t s f o r system average dat e o n - l i n e and pr oduct i on e f f i c i e n c y . 86 O Q_ O O169.2 - O) 23.57 log(X) o- co 10 100 1000 10000 Plant Size (Installed Capacity in Megawatts) F i g u r e 15. Power p l a n t logarithmic equation. Table 23. operations efficiency and b e s t f i t t i n g Power p l a n t - a g e s t a t i s t i c s . (x = aver age dat e o n - l i n e , y = power p l a n t - o v e r a l l energy c o s t s ) Hypot het i cal R e l a t i o n s h i p (Y = General Form) a + bx a + b/x * a + bx * a + b/x Const ant s A B 155700 -133000 131900 -110600 -73.55 2.8E+8 -61.77 2.4E+8 *Based on t h e f ou r most e f f i c i e n t u t i l i t i e s . Coefficients R R2 Two-Tailed p (Type I) - 0. 292 0.085 0.3842 0.291 0.085 0.3852 -0. 526 0.277 0.1455 0. 525 0.276 0.1464 87 o lO-i o » 13 •o e Q. O JZ k» o 2 u & •ttO o F I 2 & - Plant Average Date On-Line F i g u r e 16. No r e l a t i o n s h i p b e t w e e n power p l a n t aqe and power p l a n t overall efficien cy . 88 CHAPTER SIX NOTES (1) I u l o , op. c i t . p. 43. (2) Messing, e t . a l . , C e n t r a l i z e d Power, op. c i t . p. 9. (3) Messing, e t . a l . , op. c i t . p. 9. CHAPTER SEVEN SUMMARY AND RECOMMENDATIONS Summary of Problem In t h i s d i s s e r t a t i o n , t h e r e l a t i o n s h i p between t h e physi cal s i z e of economic o r g a n i z a t i o n s and t h e i r t e c h n i c a l poods and services with the hopes of e f f i c i e n c y in sup ply ing discoverino an o p t i m a l o r g a n i z a t i o n a l s i z e was examined. Economi es of s c a l e f o r i n d i v i d u a l p l a n t s i z e e x i s t and ar e well documented f o r a v a r i e t y of p r o d u c t i o n t e c h n o l o g i e s . studies fail But e m p i r i c a l t o i n d i c a t e an opt i mal f i r m o r o r g a n i z a t i o n a l s i z e . One reason f o r t h i s l ack of empi r i ca l evidence may be t h a t economic anal ys es f a i l t o d i s t i n g u i s h between t h e two s ources c o n t r i b u t i n g t o economies of s c a l e c a l c u l a t i o n s : t e c h n i c a l and pecuni ar y economies. As t h e scale of a firm approaches i t s optimum s i z e , both t e c h n i c a l and pecuni ar y economies may be expect ed t o c o n t r i b u t e t o t h e d e c l i n i n g l o n g r un a v e r a g e c o s t cur ve. Beyond t he optimum, pecuni ar y economies coul d c o nt i nu e t o decr ease a v e r a g e c o s t s t h r o u g h t h e f i r m ' s u s e of m a r k e t and p o l i t i c a l power. But t h e t e c h n i c a l c o n t r i b u t i o n t o decr eased average c o s t s may slow, s t a b i l i z e , or even r e v e r s e i t s e l f . As t h e f i r m ' s s c a l e c o n t i n u e s t o i n c r e a s e , t e c h n i c a l diseconomies may be bal anced o r outweighed by t he pecuni ar y c o n t r i b u t i o n s t o e c o n o m i e s o f s c a l e whi ch would con t i nu e t o d e c r e a s e t h e average c o s t s . As a r e s u l t , i t would n ot be p o s s i b l e t o d i s c e r n a t e c h n i c a l l y optimum f i r m s i z e wi t h an economic a n a l y s i s . 89 90 Transforming the measure of t e c h n i c a l e f f e c t i v e n e s s or e f f i c i e n c y from a monetary measure i n t o a phys i cal measure of e f f i c i e n c y a l l o w s t h e two c o n t r i b u t i n g s o u r c e s t o be d i s a s s o c i a t e d . p h y s i c a l me a s u r e o f e f f i c i e n c y i s t h e firm 's e f f i c i e n c y in co n v e rtin g inputs into outputs. energy One such utilization I f an optimum t e c h n i c a l e f f i c i e n c y r e l a t i o n s h i p e x i s t s i t s h o u l d p r o d u c e a U- shaped c u r v e a n a l o g o u s t o t he econ o mi s t ' s U-shaped long run average c o s t cur ve. vertical axis, The h o we v e r , woul d he me a s u r e d i n e n e r g y c o s t s p e r u n i t produced i n s t e a d of d o l l a r c o s t s per u n i t produced. The Michigan e l e c t r i c power i n d u s t r y was s e l e c t e d t o t e s t t h i s n o t i o n b e c a u s e t h e i n d u s t r y i n c l u d e s f i r m s of v a r i ou s s i z e s from t he very small mu ni ci pal regulated, u tilitie s. to th e very l a r g e i n v e s t o r - o w n e d , bu t p u b l i c l y Apart from t he range of s i z e , t h e p u b l i c u t i l i t y n a t u r e o f t h e i n d u s t r y a l s o meant t h a t t h e d a t a n e c e s s a r y analysis to the was a v a i l a b l e and n o t s u b j e c t t o p r o p r i e t a r y i n t e r e s t s . Another advantage i s t h e e x i s t a n c e of a wi del y c i t e d economi c a n a l y s i s o f e c o n o mi e s o f s c a l e i n t h e e l e c t r i c industry. I u l o ' s r e s u l t s , as d i s c u s s e d i n Chapt er I I I , could n e i t h e r s uppor t nor r e f u t e t h e not i on of an optimum s c a l e . The e x a m i n a t i o n of size and t e c h n i c a l e f f i c i e n c y in the p r o d u c t i o n and d i s t r i b u t i o n o f e l e c t r i c power r e o u i r e d objectives. f o u r main F i r s t i s an a s s e s s m e n t o f t h e p a r t i c i p a t i n g companies' t o t a l energy c o s t i n d e l i v e r i n g e l e c t r i c power t o i t s c o n s u m e r s . This t o t a l c o s t , however, i s composed of t h r e e s e p a r a t e c o n t r i b u t i n g f a c t o r s . There i s t h e e n e r g y indirectly, cost of fuels consumed i n generation t h e e n e r g y c o s t s o f purchased e l e c t r i c power. and, Then t h e r e a r e t h e i n e v i t a b l e energy c o s t s o f t r a n s m i t t i n g and d i s t r i b u t i n g t h e 91 power a v a i l a b l e t o t h e s y s t e m . On t o p o f t h e s e c o s t s ar e t he energy c o s t s of o p e r a t i n g t he system such as h e a t i n g , l i g h t i n g , a d m i n i s t r a t i v e functions, and t h e goods and s e r v i c e s r e q u i r e d in mai ntenance, r e p a i r , d e p r e c i a t i o n and everyday o p e r a t i o n . In a d d i t i o n t o t he main o b j e c t i v e s i n t h i s s t udy, dat a was a l s o c o l l e c t e d on t he p o t e n t i a l i m p a c t t h a t t h e s i z e and age o f a f i r m ' s p r o d u c t i o n s y s t e m m i g h t have on t h e e n e r g y e f f i c i e n c y o f p r o du c i n g electricity. In s h o r t , energy economies of p l a n t s c a l e and t he l evel of t e c h n o l o g y empl oyed i n t h e p l a n t m i g h t be t h e c o n t r o l l i n g f a c t o r s i n det er mini ng t h e f i r m ' s o v e r a l l energy e f f i c i e n c y . S t a t i s t i c a l a n a l y s e s performed on t h e c o l l e c t e d dat a determined t h e n a t u r e and s t r e n g t h o f t h e r e l a t i o n s h i p s b e t w e e n t h e technical various e f f i c i e n c y c o mpo ne nt s and t h e s i z e of t h e e l e c t r i c u t i l i t y . Both l i n e a r and p o l y n o m i a l r e o r e s s i o n t e c h n i q u e s were u s e d , with a p p r o p r i a t e d a t a t r a n s f o r m a t i o n s , t o t e s t whether s ever al a l t e r n a t i v e hypothetical equations f i t the data b e t t e r than t h e null h y p o t h e s i s . A c c e p t a n c e of an a l t e r n a t i v e h y p o t h e s i s r e q u i r e d t h e p r o b a b i l i t y of i n c o r r e c t l y r e j e c t i n g t h e null h y p o t h e s i s (a Type I e r r o r ) t o be l e s s t h a n 5 . 0 p e r c e n t on a t w o - t a i l e d s t u d e n t ' s t d i s t r i b u t i o n . In t h os e i n s t a n c e s where more t han one a l t e r n a t i v e hy p o t h e s i s coul d be a c c e p t e d , t h e c o e f f i c i e n t o f d e t e r m i n a t i o n ( t h e per cen t ag e of v a r i a b i l i t y i n t he d a t a e x p l a i n e d by t h e l e a s t - s q u a r e s r e g r e s s i o n l i n e ) d is tin g u is h the best f i t t i n g alternative. was u s e d t o Beyond t h i s . d i s t i n g u i s h i n g s t a t i s t i c , t h e o r e t i c a l a n d / o r e mpi r i ca l c o n s t r a i n t s wer e a l s o r e o u i r e d t o be s a t i s f i e d by t h e a l t e r n a t i v e h yp o t h e s i s s e l e c t e d . t h e s t a t i s t i c a l r e s u l t s i s p r e s e n t e d i n Table 24. A summary of Table 24. Dependent Var iabl e (Y) Summary o f s t a t i s t i c a l Independent Var i abl e (X) results. Re l a t i on s hi p (Y = ) Over al 1 Peak demand i n Megawatts 16292 - 3663 l o g ( x ) + 715.8 ( l o o ( x ) ) 2 Total Power Peak demand i n Megawatts 15734 - 3363 l og( x) + 667.6 ( l o g ( x ) ) 2 Producti on Peak demand in Megawatts 11643 - 0.274(x) + 0.0000583(x)2 Production Distribution Distribution System age Peak demand in Menawatts Customers per mile NONE NOME 138.3 + 3524/(x) Operations Peak demand i n Megawatts 180.9 + 21.6 l og(x) Plant-overall P l a n t c a p a c i t y in Megawatts 15500 - 1623 l og(x) Plant-overall P l a n t age HONE P l a n t - pr o du c t i o n P l a n t c a p a c i t y in Megawatts 15340 - 1607 l oq(x) Plant-operations P l a n t c a p a c i t y in Menawatts 169.2 - 23.57 l on(x) 93 Summary of Conclusions Several relationships v a r i a b l e s examined. w e r e o b s e r v e d t o e x i s t bet ween t h e However, t h e small and h i g hl y s t r u c t u r e d s ampl e o f e i g h t e l e c t r i c companies i n Michigan does not allow t h e s e co n c l u s i o n s t o be g e n e r a l i z e d t o t he e l e c t r i c power i n d u s t r y a s a wh o l e . The e n t i r e p o p u l a t i o n of e l e c t r i c g e n e r a t i n g u t i l i t i e s in t he United S t a t e s number appr oxi matel y 1000 s e p a r a t e f i r ms . Consequently, t he sample s e l e c t e d i s i n s u f f i c i e n t both in s i z e and randomness t o s t a t i s t i c a l l y r e p r e s e n t t he population. Conclusions may be drawn, h o we v e r , f o r t h e n a t u r e o f t h e r e l a t i o n s h i p s found f o r t he p a r t i c i p a t i n g u t i l i t i e s . Most i mpor t ant i s t h e f a c t t h a t t h e s e r e s u l t s form t h e f i r s t body o f e m p i r i c a l evidence t h a t , however t e n t a t i v e , suppor t t he e x i s t a n c e of a r e l a t i o n s h i p between t ec h n i c a l e f f i c i e n c y and o r g a n i z a t i o n a l s i z e . The m o s t im portant c o n trib u tin g r e l a t i o n s h i p f oun d bet ween o v e r a l l factor i n t h e U- s h a p e d e f f i c i e n c y and u t i l i t y s i z e was d e t e r m i n e d t o be t h e e n e r g y c o s t s a s s o c i a t e d with t he c o o r d i n a t i o n of power s u p p l y t o t h e u t i l i t i e s ’ c o n s t a n t l y c h a n g i n g p o w e r d e m a n d . A p p r o x i m a t e l y 97 p e r c e n t of o v e r a l l energy c o s t s were co n t ai ned in t he total power v a r i a b l e which m e a s u r e s t h e u t i l i t y ' s effectiveness. The observed r e s u l t s found f o r pr oduct i on e f f i c i e n c y , a p a r t i a l measure of load management e f f e c t i v e n e s s , organizational load management s u g g e s t an optimum s i z e o f 2500 Megawat t s o f peak demand. This i s in c o n t r a s t t o t h e 350 Megawatts o f peak demand i n d i c a t e d by t o t a l efficiency. power I t was concluded, t h e r e f o r e , t h a t t h e c o o r d i n a t i o n of power supply t o power demand i s t h e c o n t r o l l i n g f a c t o r i n d e t e r m i n i n g t h e shape of t h e o v e r a l l e f f i c i e n c y r e l a t i o n s h i p . 94 The o t h e r f a c t o r s e x a mi n e d , though s i g n i f i c a n t i n t hemsel ves, wer e deemed i n s i g n i f i c a n t i n d e t e r m i n i n g t h e s h a p e o f t h e o v e r a l l efficiency relationship. In combi nat i on, d i s t r i b u t i o n and o p e r a t i o n s energy c o s t s a c c o u n t e d f o r o n l y 3 . 3 p e r c e n t o f t o t a l Moreover, distribution efficiency energy c o s t s . was f o u n d t o be r e l a t e d d i s t r i b u t i o n d e n s i t y and not t o u t i l i t y s i z e . to The observed r e s u l t s f o r o p e r a t i o n s e f f i c i e n c y , whi l e c o r r e l a t e d t o u t i l i t y s i z e in an i n c r e a s i n g logarithmic r e l a t i o n s h i p , i n d i c a t e a d e c r e a s i n g energy p e n a l t y f o r increased organizational size. This d e c r e a s i ng pe n a l t y may be p a r t l y t h e r e s u l t o f i n c r e a s e d o p e r a t i o n s e f f i c i e n c y i n l a r g e r power p l a n t s . Recommendations The r e s u l t s of t h i s examination demonst rat e t h e need t o cont i nue i n v e s t i g a t i n g t h e r e l a t i o n s h i p between o r g a n i z a t i o n a l s i z e and t e c h n i c a l efficiency. Three p o s s i b l e r e s e a r c h avenues a r e suggest ed i n t he hopes of promoting f u t u r e e f f o r t s . 1) Repeat t h i s i n c r e a s e d s a mpl e s i z e . e x a m i n a t i o n o f e l e c t r i c u t i l i t i e s w i t h an The knowl edge g a i n e d from t h i s e x p l o r a t o r y e f f o r t i n d i c a t e s t h a t system power c o o r d i n a t i o n may be t he c o n t r o l l i n g f a c t o r i n t h e U- s h a p e d t e c h n i c a l utilities. efficiency curve fo r e l e c t r i c Be c a u s e o p e r a t i o n s energy expenses ar e t h e most d i f f i c u l t dat a t o o b t a i n and t o c o n v e r t from d o l l a r s t o B t u ' s , future research i n t o t h e t e c h n i c a l e f f i c i e n c y of e l e c t r i c u t i l i t i e s might focus on t o t a l power, p r o d u c t i o n and d i s t r i b u t i o n e f f i c i e n c y t o v e r i f y and r e f i n e t h e eq u a t i o n s found i n t h i s a n a l y s i s . The m a j o r i t y o f t h e d a t a n e c e s s a r y f o r such an exami nat i on i s 95 a v a i l a b l e t h ro u g h f e d e r a l and s t a t e r e g u l a t o r y a g e n c i e s . The remainino i n f o r ma t i o n r e q u i r e d , such as f u e l s consumed and peak power demand, must be ob t a i n e d from t he p a r t i c i p a t i n g companies t o i n s u r e dat a c o n s i s t a n c y . A random sample from t h e recommended, however, 1000 g e n e r a t i n g companies cannot be b e c a u s e o f t e c h n o l o g y d i f f e r e n c e s and t h e d i f f e r i n g degree of g e n e r a t i n g s e l f - s u f f i c i e n c y ; 2) technical Examine t h e r e l a t i o n s h i p b e t we e n o r g a n i z a t i o n a l s i z e and efficiency in a production-oriented in dus tr y. An examination o f a p r o d u c t i o n - o r i e n t e d i n d u s t r y , such as t h e American i r o n and s t e e l i n d u s t r y , coul d c l a r i f y the importance of the production e f f i c ie n c y r e l a t i o n s h i p f o r o t h e r e n e r g y - i n t e n s i v e manuf act uri ng o r g a n i z a t i o n s . Dependent upon i t s e x i s t a n c e or s i g n i f i c a n c e t o o v e r a l l e f f i c i e n c y , t h e o rg an izatio n 's distribution of i t s p r o d u c t may be i g n o r e d and t h e r e s e a r c h e f f o r t could c o n c e n t r a t e on p r o d u c t i o n and o p e r a t i o n s efficiency. Organizational capacity. measured s i z e may b e s t be measured i n terms of raw s t e e l The d e p e n d e n t v a r i a b l e s woul d be p r o d u c t i o n e f f i c i e n c y , in B tu's per t o n o f raw s t e e l produced, and o p e r a t i o n s e f f i c i e n c y , a l s o measured in B t u ' s per t o n o f raw s t e e l p r o d u c e d . It would be necessar y t o d e l i n e a t e t h e energy i n p u t s r e q ui r e d in the a ct ual p r od u ct i o n pr ocess from t h e a s s o c i a t e d energy c o s t s o f o p e r a t i o n . For e x a m p l e , t h e e n e r g y c o s t s t o o p e r a t e t h e p r o d u c t i o n p l a n t s i ncl ude a l l o f t h e d i r e c t and i n d i r e c t e n e r g y i n p u t s e x c e p t w a g e s , salaries, b e n e f i t s , t a x e s , e t c . , and t he p r o d u c t i o n f u e l s themsel ves. Given t h e p o t e n t i a l contraction in this industry and i t s e n e r g y - i n t e n s i t y , such an examinati on may o f f e r i n s i g h t s i n t o t he f u t u r e s t r u c t u r e of t h i s and o t h e r e n e r g y - i n t e n s i v e i n d u s t r i e s . This i n s i g h t 96 nay be enhanced i f t he r e s e a r c h e f f o r t i n c l u d e s , b u t keeps s e p a r a t e , an exami nat i on of t he s c r a p - t o - s t e e l i n d u s t r y . w o u l d be t h e The v a r i a b l e s t o exami ne same i n b o t h i n d u s t r i e s b u t , because the underlying technol ogy i s d i f f e r e n t , t he two i n d u s t r i e s cannot be examined t o g e t h e r . In e i t h e r c a s e , however, o v e r a l l e f f i c i e n c y should m i r r o r t he pr o du ct i on e f f i c i e n c y r e l a t i o n s h i p and c o u l d be e x p e c t e d t o r e s e m b l e a U- s h a p e d c u r v e ; and, 3) technical Examine t h e r e l a t i o n s h i p bet ween o r g a n i z a t i o n a l s i z e and efficiency in a service-oriented industry. s e r v i c e - o r i e n t e d o r g a n i z a t i o n s do n o t have a p h y s i c a l Bec au s e commodity t o produce, i t may be d i f f i c u l t t o d i s t i n g u i s h t he e n e r g y i n p u t s r e q u i r e d f o r t he a c t u a l p r od u c t i on of t h e s e r v i c e from t h e energy i n p u t s r e q u i r e d for the o rg a n iz a tio n 's operation. c o m p o n e n t may be r e l a t i v e l y A dditionally, insignificant N o n e t h e l e s s , t h e o r q a n i z a t i o n ' s us e o f d i r e c t the production even if it exists. ( f u e l ) e n e r g y may be anal yzed s e p a r a t e l y from i t s o p e r a t i o n s energy c o s t s . Higher e d uc a t i o n i n s t i t u t i o n s may be a l i k e l y c a n d i d a t e f o r t h e examination of organizational service-oriented industry. s i z e and t e c h n i c a l As in p u b l i c u t i l i t i e s , u n i v e r s i t ie s are public i n s t i t u t i o n s i n v e s t i g a t i o n i n t o t h e i r energy c o s t s . t h a t t h e end o f t h e babyboom w i l l th is industry. efficiency many c o l l e g e s and and may, t h e r e f o r e , p e r m i t an Moreover, d e m o g r a p h i c s s u g g e s t c o n t i n u e t o f o r c e a c o n t r a c t i o n in F uture i n c r e a s e s in th e p r i c e o f e n e r n y e x a c e r b a t e t h i s process. in a can only Consequent l y, t h e r e s u l t s of t h i s exami nati on may c o n t r i b u t e t o t h e p l a n n i n g p r o c e s s by i n d i c a t i n g t h e t e c h n i c a l optimum s i z e of o u r p u b l i c i n s t i t u t i o n s of h i g h e r e d u c a t i o n . Optimum s i z e det ermined by an energy a n a l y s i s i s , of c o u r s e , o n l y one e s t i m a t e 97 of an o p t i m u m s i z e . efficiency, Trade-offs economi c e f f i c i e n c y , m u s t be made b e t we e n t e c h n i c a l and many o t h e r , non-quantifiabl e d et e r mi n a n t s of o p t i m a l i t y i n pr o vi d i n g q u a l i t y edu c a t i on . Or g an i zat i on al s i z e may be measured in t e r ms o f f l o o r s p a c e o r s e a t i n g c a p a c i t y whi l e t h e dependent v a r i a b l e , o v e r a l l e f f i c i e n c y , might b e s t be measured i n terms of B t u ' s per d e g r e e g r a n t e d . A distinction must be made, h owever , between t he d i f f e r e n t t ypes of h i g h e r edu cat i o n institutions. R e s i d e n t i a l and commuter c o l l e g e s pr ovide a d i f f e r e n t s e t o f s e r v i c e s in con.iunction with t h e degree gr a n t e d . This i s e s p e c i a l l y t r u e between t he s e r v i c e s provi ded by j u n i o r and s e n i o r c o l l e g e s . A Fi nal Word Whi l e t h e r e s u l t s caution, they do s u g g e s t investigations. o f t h i s ex a mi n a t i o n should be accept ed with an e x c i t i n g new a r e n a for productive The c o n cept of a optimum o r g a n i z a t i o n a l s i z e , based on energy u t i l i z a t i o n e f f i c i e n c y , may become a s i g n i f i c a n t p e r s p e c t i v e and p la n n in q tool a s t h e s u p p l y o f u s e a b l e e n e r g y becomes s c a r c e and, t h e r e f o r e , more e x pe ns i v e . for another, there is While one form of energy may be s u b s t i t u t e d no s u b s t i t u t e f o r e n e r g y i n q e n e r a l . Fut ur e energy p r i c e s may t h us r e s u l t i n a movement toward t he t e c h n i c a l optimum size as p e c u n i a r y c o n t r i b u t i o n s t o e c o n o mi e s o f s c a l e l o s e t h e i r r e l a t i v e importance. P r i o r knowledge of what t h a t optinun? s i z e i s f o r a g i v e n i n d u s t r y c o u l d prove t o be an i n v a l u a b l e pl anni ng advant aoe i n a t r a n s i t i o n t o a l e s s energy i n t e n s i v e s o c i e t y . LIST OF REFERENCES 98 REFERENCES CITED A r i s t o t l e , P o l i t i c s , Book VII, Chapter 4. J oe S. Bain, "Economi es o f S c a l e , C o n c e n t r a t i o n and t h e Condi ti on of Entry in Twenty Manufacturing I n d u s t r i e s , " AER 44(1) March 1954. Douglas Bauer and Allen S. Hi r shber g, " I m p r o v i n g t h e E f f i c i e n c y o f E l e c t r i c a l G e n e r a t i o n and Us a g e , " in John C. 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Michigan Gongyer N e w s l e t t e r , August 4, 1981. Hugh Nash, ( e d i t o r ) , The Energy Cont r over sy, (San Fr a n c i s c o: Fr i e nds of t h e Eart h P u b l i c a t i o n s , 1979). Tet sushi Noguchi, Energy R e q u i r e m e n t o f a lOOOMw(e) P r e s s u r i z e d Water R e a c t o r Power S t a t i o n , R e s o u r c e A n a l y s i s Group Resear ch Paper E-42, ( Un i v e r s i t y of Chicago P r e s s , 1978). Howard T. Odum, e t . a l . , "Energy C o s t - B e n e f i t Anal ys i s Applied t o Power P l a n t s Near Cr yst al River', F l o r i d a , " Chapt er 21 i n C h a r l e s A. S. 100 Hall and John W. Day, ( e d i t o r s ) , Ecosystem Modeling in Theory and P r a c t i c e , (New York: John Wiley and Sons, 1 9 / 7 ) . Samual H. Schur r, Energy i n A m e r i c a ' s F u t u r e : ( Bal t i mor e: John Hopkins P r e s s , 1979). The Choices Before Us, Henry R. Seager and Char l es A Gul i ck, T r u s t a n d C o r p o r a t e P r o b l e m s , (New York: Harper and Br o t h e r s P u b l i s h e r s , 1929). P h i l i p Sheron, "Many E l e c t r i c U t i l i t i e s S u f f e r as Conservation Holds Down Demand," Wall S t r e e t J o u r n a l , October 9, 1980. Barry S t e i n , S i z e , E f f i c i e n c y and Community E n t e r p r i s e , (Cambridge: Cent er f o r Community Economic Development, 1974). Tektronix, In c., Oper at i ons Manual, (Beaverton: Te kt r on i x , I n c . , 1976). , P l o t 50: I n c . , 1976). Statistics, Harry Townsend, S c a l e , I n n o v a t i o n , Pergamon P r e s s , 1968). ‘ " “ U. S. Department of Commerce, 1982. Vol. 3, (Beaverton: Te kt r on i x , M e r g e r and Monopoly, ~ — — (London: Sur vey o f C u r r e n t B u s i n e s s , 62( 7) J ul y Mike Wal sh, O f f i c e o f Energy I n f or mat i on S e r v i c e s , Energy I nfor mat i on Ad m i n i s t r a t i o n , U. S. Department o f Energy, Washington, D. C. . P e r s o n a l communication, August 11, 1981. Alvin M. Weinberg, " T e c h n o l o g y a n d E c o l o g y : C o n f r o n t a t i o n ? , " Bi o Sc i e nc e , 23(1) 1973. Langdon Winner, Is There a Need f o r "Do A r t i f a c t s Have P o l i t i c s ? , " Daedalus, 109(1) 1980. APPENDIX 101 APPENDIX ENERGY ANALYSIS QUESTIONNAIRE The f o l l o w i n g q u e s t i o n s formed t h e b a s i s of t h e survey i n s t r u me n t used in t h i s examination. The form o f t h e q u e s t i o n n a i r e s u b m i t t e d t o i n d i v i d u a l e l e c t r i c u t i l i t i e s d i f f e r s from t h a t p r e s e n t e d only i n t he a d d i t i o n o f s p a c e f o r t h e a n s w e r s f o l l o w i n g e a c h o f t h e y e a r s 1977 through 1931. P a r t 1; General I nf or mat i on 1) Total i n s t a l l e d power c a p a c i t y i n Megawatts (name-pl at e r a t i n g ) . 2) Total n e t o ut pu t from a l l n e n e r a t i n g f a c i l i t i e s in k i l o w a t t - h o u r s . 3) T o t a l e l e c t r i c p o w e r c o n s u m e d by e l e c t r i c u t i l i t y k i l o w a t t - h o u r s ( e x c l u d i n g e l e c t r i c power r e q u i r e m e n t s generating p l an t s) . 4) T o t a l e l e c t r i c t r a n s m i s s i o n and d i s t r i b u t i o n l i n e l o s s e s i n k i l o w a t t - h o u r s ( i n c l u d i n g unaccounted f o r l o s s e s i f any). 5) T o t a l e l e c t r i c power p u r c h a s e d p l u s n e t d e l i v e r e d i nt e r c h a n ge power in k i l o w a t t - h o u r s . 6) Total e l e c t r i c power sold i n k i l o w a t t - h o u r s . 7) T o t a l p o l e m i l a q e ( o v e r h e a d and u n d e r g r o u n d t r a n s m i s s i o n and d i s t r i b u t i o n power l i n e s ) . 8) Annual average number of e l e c t r i c cust omer s. 9) Peak demand f o r t o t a l 10) T o t a l f u e l s consumed a t g e n e r a t i n g f a c i l i t i e s i n B r i t i s h thermal u n i t s (by t ype of f u e l ) . 11) Total s a l a r i e s and wages paid ( e l e c t r i c d i v i s i o n on l y ) . 12) Total number of employees ( e l e c t r i c d i v i s i o n o n l y ) . Part II: in of system in Megawatts (60 minute r e a d i n g ) . S p e c i f i c P l a n t I nfor mat i on •• The f o l l o w i n g q u e s t i o n s r e f e r s p e c i f i c a l l y t o t h e (name of p l a n t ) power plant. 1) Total n e t o u t p u t i n k i l o w a t t - h o u r s . 2) Total i n s t a l l e d c a p a c i t y in Megawatts ( name-pl at e r a t i n g ) . 3) Total f u e l s consumed a t p l a n t in B r i t i s h thermal u n i t s (by f u e l ). t ype of 102 4) Total 5) Total fuel expense expenses). 6) Total r e n t expense ( i f any). 7) Total maintenance expense. 8) Total d e p r e c i a t i o n expense. Part III: o p e r a t i o n expense. ( c o s t of f u e l s burned excl udi ng fuel handl i nq General Pr o du ct i on Expenses 1) Total 2) Total fuel expense ex pen s es ) . 3) Total r e n t expense. 4) Total maintenance expense. 5) Total d e p r e c i a t i o n expense charged to production plant (stean, n u c l e a r , c o n v e n t i o n a l h y d r a u l i c , pumped s t o r a g e a n d o t h e r pr oduct i on p l a n t ) . ~ P a r t IV: o p e r a t i o n expense. ( c o s t of f u e l s burned excl udi ng fuel handl i ng General T r a n s m i s s i o n / D i s t r i b u t i o n Expenses 1) Total t r a n s mi s s i o n and d i s t r i b u t i o n o p e r a t i o n expense. 2) Total t r a n s mi s s i o n and d i s t r i b u t i o n r e n t expense ( i f any). 3) Total t r a n s mi s s i o n and d i s t r i b u t i o n maintenance expense. 4) Total d e p r e c ia tio n distribution plant. P a r t V: expense charged to transm ission and Customer Account s / Ser vi ce and Sal es Expenses The f ol l owi ng q u e s t i o n s r e f e r t o t h e e l e c t r i c d i v i s i o n onl y. 1) Total s u p e r v i s i o n expense. 2) Total meter r eadi ng expense. 3) T o t a l c u s t o m e r r e c o r d s and c o l l e c t i o n e x p e n s e ( e x c l u d i n g bad debts). 4) Total mi s c e l l a n e ou s customer accounts expense. 103 5) Total customer s e r v i c e and i nf or mat i onal expense. 6) Total s a l e s expense ( i f any). P a r t VI: Ad mi n i s t r a t i v e and General Expenses The f ol l owi ng qu e s t i o n s r e f e r t o t he e l e c t r i c d i v i s i o n onl y. 1) Total o f f i c e s u p p l i e s expense. 2) Total o u t s i d e s e r v i c e s employed expense. 3) Total pr o p e r t y i n s u r a n c e , i n j u r i e s 4) Total r e g u l a t o r y expense. 5) Total mi s c e l l a n e o u s general expense. 6) Total r e n t expense ( i f any). 7) Total maintenance of general p l a n t expense. 8) Total d e p r e c i a t i o n expense charqed t o general and common p l a n t . and damages pai d.