ML19210E105

Forwards Response to NRC Supplementary Financial Info Requests Numbers 8-10 Re Cw Smyth 791109 Request

ML19210E105
Person / Time
Site:	Three Mile Island
Issue date:	11/26/1979
From:	Hafer F GENERAL PUBLIC UTILITIES CORP.
To:	Vollmer R NRC - TMI-2 OPERATIONS/SUPPORT TASK FORCE
References
NUDOCS 7911290339
Download: ML19210E105 (175)

Text

, . GPU Service Corporation ONme 100 lnterp ce Parkway Parsippany. New Jersey 07054 201 263-6500 TELEX 178-482 Wnter's Direct Dial Nurnber:

(201) 263-6013 November 26, 1979 Mr. Richard H. Vollmer Director, Three Mile Island-2 Support Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission 7920 Norfolk Avenue Bethesda, Maryland 20014 -

RE: NRC Docket No. 50-289 -- TMI-l Restart Proceeding

Dear Mr. Vollmer:

In response to the NRC's supplementary requests for finan-cial information telecopied to C. U. Smyth on November 9, 1979, enclosed are 8 copies of the following:

1. Initial response to Supplementary Financial Information Request No. 8 (description of the GPU Companies' regu-latory environment).

2. Response to Supplementary Financial Information Request No. 9 (Pa PUC's Order requiring Met-Ed to "show cause why its certificate of public convenience should not be revoked."

3. Response to Supplementary Financial Information Request No. 10 (NJBPU's inquiry as to alternative means of sup-plying Jersey Central's service territory).

Please acknowledge receipt of this material by signing, I dating and returning the enclosed copy of this letter. A stamped, pre-addressed envelope is enclosed for that purpose. l 3cere,1y yours, c' .

M D. Hafer 143@ J58 Vice Presloent, Rate Case Management 4[

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FDH/ cod 79112 00 MI' -  % -

L cc: J. C. Petorcen - no enclosures; to be distributed by NRC H. Silver - no enclosures; to be distributed by NRC y[f f.

GPU Scrwce Corporat:on :s a subsidery of General Pubhc Utihtees Corporation

Person Responsible for Preparation:

F. D. Itafer, Vice President - Rate Case Management, GPU Service Corp.

Telephone : (201) 263-6013 Da te : November 26, 19'i l GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Company, Pennsylvania Electric Company and Jersey Central Power 6 Light Company NRC Docket No. 50-289 Three Mile Island Unit No. I Restart Proceeding Response to NRC Staff's Supplemental Financial Information Request No. 8, telacopied 11/9/79 (item number refers to initial request dated 9/21/79):

"(10.b ) A description of each licensee's regulatory environ-ment wa s no t submitted. See item 10 b of thic Staff's request dated September 21, 1979."

Response

In response to this request, enclosed are profiles of the Pennsylvania and New Jersey state commissions prepared by Argus Research in March (Pa PUC) and October, 1979 (NJBPU). -

The Pennsylvania Commission has jurisdiction over Met-Ed's and Penelec's retail electric sales, which together account for about 56% of GPU's total electric sales. Jersey Central's retail sales, representing about 39% of GPU's total sales, are regulated by the New Jersey Commission. Also enclosed is a copy of Argus' research notes dated 11/15/79 that describe the backgrounds of the three new Pennsylvania Commissir,ners that were confirmed by the Pennsylvania State Senate on 11/13/79.

A descripticn of the state commissions' regulatory policies as they have been applied to the GPU companies, as well as a brief description of GPU's federal regulatory environment, will be furnished in a subsequent response.

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RESEARCH NOTES

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PENNSLVANIA November 15, 1979 THREE COMMISSIONER NOMINEES CONFIRMED On November 13, 1979, the Pennsylvania Senate confirmed Governor Thornburgh's three nominees to the Pennsylvania Public Utility Commission. They are expected to be sworn in during the next week. The paragraphs that follow contain brief bio-graphical information concerning the appointees:

Linda C. Taliaferro (Ind.) is 31 years of age and is presently an attorney with Westinghouse Electric in Pittsburgh.

.She joined Westinghouse in 1976 and is manager of Government Support Programs for the corporation's Advanced Power Systems Division. Prior to joining Westinghouse, she was a staff ,

attorney with New York Life Insurance Company from 1973 to 1976.

Miss Taliaferro graduated from Skidmore College in 1969 and .

received a law degree from the Boston University School of Law in 1973. She has been appointed to a 10-year term running to April 1989.

James H.CaWiey (Dem.) was appointed to the unexpired term previously held by Louis Carter, which runs to April 1981.

Mr. Cawley is 34 years of age, and has been chief counsel to the Senate Democratic Majority since 1977. From 1975 through 1977, he was counsel to the Senate Consumer Affairs Committee and as such, participated in the drafting of legislation revising the acts governing tne Public Utility Commission. He has participated in a private law practice since 1974. Mr. Cawley graduated from St. Bonaventure University in 1967 and Notre Dame Law School in 1970.

fe W Susan Sc'hanam6n (Rep.) was appointed to the. unexpired term previously held by Helen O' Bannon, which runs to April 1983.

Ms. Schanamen is 33 years of ago and has served as legal counsel to the Senate Republicans since 1975. From 1971 thru 1975, she was an assistant counsel for the PUC. Ms. Schanamen graduated from Lebanon Valley College with a B.A. in Psychology in 1968 and from Dickinson School of Law in 1971.

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• BASIC ANSIS PENNSYLVANIA March 1979 Regulatory Authority Pennsylvania Public Utility Commission P.O. Box 3265 Harrisburg, Pennsylvania 17120 (717-783-1704) -

The Pennsylvania Public Utility Commission (PUC) con-sists of five full-time members appointed by the Governor for 10-year terms. Members must be confirmed by a two-thirds vote of the Senate before assuming office on a permanent basis. The Chairman of the Commission is appointed by the Governor and ,

receives an annual salary of $42,500. Each other Commissioner receives an annual salary of $40,000. The Governor, Richard

'y

(?;_ Thornburgh (Rep.) is serving an initial four-year term which runs to January 1983.

Became Term Commissioners Party Age Commr. Ends Background W. Wilson Goode Dem. 40 3/15/78 4/1/87 Headed non profit (Chairman) agency involved in low and moderate-income housing.

Robert K. Bloom Rep. 53 1/19/71 4/1/79* Sales exec., Executive Secretary to Governor.

Louis J. Carter Dem, 54 11/10/71 4/1/81 Pvt. law pract., PUC Asst. Counsel, law lecturer.

Michael Johnson Dem. 66 12/16/75 4/1/85 Exec. V.P. of Pa'.

, AFL-CIO, labor lobbyist.

Vacancy- -- -- --

4/1/83 ---

• Commissioner Bloom is currently recovering from heart surgery and is not expected to return to the Commission prior to the end of his present term, however, he has been nominated for a new term by Governor Thornburgh.

General Information .

There are 599 staff positions allotted to the PUC, of which approximately 575 are currently filled. The Commission's budget is S15.7 million for the fiscal year ending June 30, 1979, Copyr ght 1975. Argus R*WJrch ForpO'af.on,140 Breadaav. New York, N Y.10005 Tel: (212) 425-7500

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and will approximate S16.6 million in fiscal 1980. Funds for the budget are raised by an assessment (a maximum of 3/10 of 11) *-

against the revenues of all regulated utilities in Members of the staff are selected by the Commission and, other the state.

than division chiefs, are covered by civil service. Commission hearings are generally conducted by Administrative Law Judges.

The staff furnishes information to the Commission and participates in cross-examination of witnesses. Following enactment of new legislation requiring that the PUC staff testify, the staff has taken a more active role and testifies in most rate cases.

The PUC has been substantially reorganized in the past couple 1976. of years, partly as a result of legislation enacted in Each Commissioner is now entitled to five personal as-sistants and one clerk. In addiuion, certain other staff personnel report directly'to the Commission. Most other staff personnel report to the newly created position of the Director of Operations, who is now responsible for the operation of the Commission on a day-to-day basis. As a result of the 1976 legislation, Planning was created,the Bureau of Conservation, Economics and Energy Law Judges, and Consumer Services.as were the Bureaus of Law, Administrative organization of the PUC appears to beWhile the structural re-complete, the. Chairman is attempting structure, to make numerous other changes within the present coming before sothe asPUC, to assure the timely handling of all matters and, in particular, rate increase petitions.

In addition to gas, the PUC has railroads, jurisdiction over private water and sewer companiestelephone, buses, hf . a transport, trucking and taxicab companies, intrastate air, water carriers and certain intrastate pipelines. The Commission holds a public meeting once a week, usually on-Thursdays.

sion decisions are made atIts sessions are open to the public and all Commis- -

these meetings. ,

Court of Review Commission decisions may be appealed to the Common- ..

wealth Court and then directly to the State Supreme Court.- A I

number of cases have been appealed to the Commonwealth Court in the past couple remanded cases of years and, in some instances, the Court has to the PUC for further action. -

July 7, West Penn Power Company appealed the Commission's 1976 order permitting it only a out of the $24.9 million sought on September 30,$9.9 million 1974. rate The hike Commonwealth Court remanded this case back to the PUC, additional findings. detail concerning the basis of the Commission'srequiring The PUC staff and -

of the remaining issues in this case.the company agreed to a settlement However, ,

Advocate objected to the proposed settlement and,the therefore, Consumer it is still awaiting final PUC action.

dated July Pennsylvania Gas and Water Company appealed a PUC order 7, 1976, only $1.3 million of the $2.6 million sought on January (h

15,in which the

• 1975.

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. ,w 7,f The Ccmmonwealth Court held that the PUC's finding concerning the j[# fair value of the company's property reflected " arbitrary and

-g capricious action on the part of the PUC and a manifest abuse of

,L its discretion." The Court therefore again admonished the Com-mission to " disclose in some detail in its adjudications the figures upon which its conclusions are based and the methods employed in arriving at those conclusions." The Court determined that a reasonable fair-value finding would have entitled the company to the full increase sought and, therefore, it remanded the case to the PUC and directed it to enter an order dismissing the complaints and allowing, as permanent rates, each of the rates proposed by the company.

There are a number of cases currently before the Commonwealth Court, probably the most significant being Bell Telephone of Pennsylvania's appeal of its most recent permanent rate decision. The company is appealing a number of issues, including the method of calculating taxes, but the most important issue is the way the PUC calculated fair value. Other, cases before the Commonwealth Court deal with the issue of fair value versus original cost.

megislative Information The Pennsylvania General Assembly is bicameral and meets annually, starting the first Tuesday in January. The present composition of the 50-member Senate is 27 Democrats and D._ 22 Repuclicans; there is one vacancy. The 203-member House of 0 Representatives is comprised of 103 Republicans and 100 Democrats.

Utility matters and the PUC have ranked high on the list of  :

attention-getting items of the General Assembly during the past_ -

few years, with 1976 being a particularly active year in which I several majpr pieces of legislation were enacted. During 1976, a  :

bill was passed providing for the creation of a Consumer Advocate j within the Department of Justice to be appointed by the Governor  !

with the approval of the Senate. Also passed were two bills '

(Senate Bills 1216 and 1217) proposed by the Senate Consumer  :

Affairs Committee, which is chaired by Franklin L. Kury (Dem.). l Senate Bill No. 121G amended the basic Act relating to the regu- ,

lation of public utilities. It provided that no general increase i may be suspended for longer than seven months beyond the proposed i' effective date, which is generally 60 days after filing. The enactment of this bill has led to more timely rate decisions by l

the PUC. Senate Bill No. 1217 amended the basic AJt that created the PUC and defined its powers and duties. It required the Commissioners to serve full time and increased their salaries. ,

The Office of Administrative Law Judge was created and the bill l provided for the establishment of Bureaus of Law; Conservation, l Economics and Energy Planning, and Consumer Services. It also "

required the staff to appear and present testimony in major rate  !

Cases.

A number o f bills were introduced during the 1977 and r 1978 sessions dealing with such matters as the proposed election u of Commissioners, rate structures, directory-assistance charges, fuel-adjustment clauses, and the establishment of a Department of Energy.' The only substantial legislation passed during this time t P l43 dh3

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_ span was legislation imposing a grens receipts tax on electrici*y produc2d in Pennsylvania and transmitted to another state. This , ..

legislation was enacted on December 21, 1977, effective retro-actively to January 1, 1977. ('

A number of utility-related bills are again pending in (

the General Assembly. The one that is probabl/ rocciving the greatest attention is Senate Bill No. 411. This bill has been referred to the Consumer Affairs Committee. It contains addi-tional provisions concarning ex parte communications, original-cost rather than fair-value rate base, particular requirements related to the use of a future test year, initial decisions, temporary rates, and the consideration of the effects of inflation or deflation when determining a reasonable rate of return on rate base, among other things. There seems to be increasing support this year for the mandating of original-cost rate base versus fair-value, and such legislation may well be enacted during the current session. .

Consumer Representation The PUC staff is charged with the responsibility of bringing all facts before the Commission in rate cases and, con-sequently, plays an important role in support of consumer interests.

Following legislation enacted in 1976, the staff has taken a more aggressive stance in presenti.ng cases before the PUC. In addition, the consumer advocate office brings another strong voice before ,

the Commission pleading the interests of consumers. The present 1 Consumer Advocate Offime is htaded by Mark Widoff. Funds for the '

consumer advocate's budget, which for fiscal 1980 is estimated at $1.4 million, are raised by an assessment against the revenues of the state's utilities. Major newspapers in the state include the Harrisburg Patriot-Evening News, the Philadelphia Inquirer, the Philadelphia Bulletin, the Pittsburgh Press, and the Pittsburgh Post-Gazette.

Regulatory Innovations In certain cases, the PUC allows a portion of non-revenue-producing construction work in progress to be included in rate base, and also has allowed a portion of land held for future use to be considered as part of rate base. The PUC had required flow-through of liberalized depreciation tax savings, but in some instances, has permitted normalization for post-1969 plant addi-tions. Tax savings attributable to interest on funds borrowed for construction projects may be normalized for rate-making purposes. Prior to the pact feu months, the PUC permitted state

-tax benefits to be normalized; however, it has required flow-through of these benefina 2:. recant cases, and we expect this treatment to become standard in the future.

The PUC requires the staff to extensively audit internally energy cost adjustment increase filings and regular rate case data.

The PUC has establinhed criteria for management audits and has an-nounced that it will conduct, or cause to be conducted, manage- (

ment audits of the major utilities in the state. The first

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If~f companies that were audited in 1978 core Pennsylvania Gas &

'57 Water, Pennsylvania Power, cnd Philadelphia Suburban Wator.

4{nl Philadelphia Electric is curreatly undergoing an audit. The i Commission has formed a 13-to-17 member Consumer Advisory Council, which meets quarterly, to keep the PCC informed about the public's thinking on utility matters. It also has created a Utility Technical Advisory Council to advise it on financial and technical matters relating to the regulation of fixed utilities.

Significant innovations relating to Pennsylvania regu-lation were brought about by legislative action during 1976.

These include substantial salary increases for the Commissioners, the requirement that they serve full time, and changes in the method and timing of approving rate increases. The new law required the Commission to set guidelines for future test year filings. The PUC has determined that future test years shall consist of a period of 12 consecutive months which shall start .

immediately after the historical year. Considering the time it takes a company to prepare a case and the PUC to prosecute it, the future test year is historical by the time rates can be made effective.

During 1978, the PUC implemented energy cost adjustment clauses for all of the state's utilities and also permitted emergency energy surcharges for certain companies. These actions are discussed more fully under the section on Adjustment Clauses.

During 1978, the PUC initiated a procedure known as

(}) " annual review." Under this plan, it is proposed that each major company meet annually with Commission and staff members, in a public session, to discuss the many issues and decisions made during the year and about which the parties could not communicate because law.

of ex parte and other restrictions in the public utility Among the items to be discussed are the company's construc-tion plans and forecasts, its financing plans, and its rate case results, and the reactlen to these by the financial community, the company's management and the public. The sessions will also provide the opportunity for review of management audits, consumer complaints and special problems devoleping with relation to a particular company. These annual reviews were initiated under the Chairmanship of Louis Carter and have been continued by Chairman Goode.

During 1978, the PUC adopted service standards and termination procedures for the utilities of the state. It also voted to give itself veto power over planned service disconnections of residential customers during the 1978-79 winter. In February 1979, the PUC issued an order defining reporting requirements of the utilities concerning service terminations.

The most recent regulatory innovation adopted by the PUC was its approval, on r4 arch 22, 1979, tariffs for Bell Telephone of Pennsylvania.of Aflexible pricing Research Note

(, providing early April.

additional detail on this action will be issued in

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• Chairman Goode, wiching to make regulation more responsive and timely than it has been in the past, has under-taken a review of all of the Cor. mission's processes and policies in order in to streamline the Commission for more effective action the future. Included in his program is a catalogue of all the -k policies previously determined by the Commission and a resolve to set policies in a nu=ber of areas so as to speed up the rate case process.

The Chairman's objective is to process rate cases in less than the nine months mandated by la'.i. PUC statements on a number this year. of policy issues are expected during the third quarter of Recent Commission Actions The PUC rate decisions issued since July 1974 are sum-marized on the table on pages 8 and 9. Most of the major rate decisions Notes contained issued shortlyinafter this table haveofbeen the date discussed in Research the decision.

For addi-tional detail priate Researchconcerning Notes. these cases, please refer to the appro-Major Cases Pending before the PUC. There are currently three major rate actions pending In addition, there are a number of generic actions being considered by the Commission. The highlights of the rate cases are outlined below.

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On October 27, 1978, West Penn Power, a subsidiary of Allegheny Power, requested a $71.6 million (19.5%) permanent  %.

electric rate increase. The company's petition was based on its request to carn a 14.5% return on commona stock equity (38.4% of capital) test periodand a 9.88%

ended June rate of return on a year-end rate base for a 30, 1978.

be issued in this case by late June,'nn ALJ decision is expected to required by August 30, 1979. (Docketand final PUC action is No.,R-78100685)

On December 29, 1978, Columbia Gas of Pennsylvania requested a permanent gas rate increast of $26.5 million (8.6%),

based (47.1%on of its petition capital) andtoa earn a 14.5'A return on common equity 9 . 9 's rate of return on a year-end rate base for a test period that ended September 30, 1979. An ALJ decision action in this case is required is expected28, by September by late July 1979 and final PUC 1979.

(Docket No. R-78120724)

On January 26, 1979, Duquesne Licht Compang requested a

$106.6 million (20.31) permanent electric rate increase based on its capital) of petition toand earn a a 14.51 return on common stock equity (36%

rate base for a test ueriod 'nded Captathcr9.88t30, over-all 1978. rate of return on a year-end The company of alternatively S93.3 million promptly.proposed it be permitted a lesser increase proposed that it would withdraw itsIf this increase was authorized, it has denied this request. pernanent request. The PUC in this case is October 27,The end oC the final suspension period 1979.

(Docket No. R-79010740) 143@) 366 m__.

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.,$.jf Regulatory Accounting i

The PUC permits normalization of investment tax credit

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.(. benefits. - a tha past, the Commission had required the flow-through of liberalized depreciation tax benefits related to all electric and gas utility ca tnt for those companies that did not elect normalization under v2 1969 Tax Reform Act. During the mid-70's, however, it permitted normalization of such tax benefits for property added after 1969. The PUC appears to have adopted a new stance concerning further changes, however, and has recently denied the requests of Pennsylvania Power Company and West Penn Power Company to adopt normalization for liberalized depreciation tax benefits. In a Philadelphia Electric rate order in which it discussed tax normalization, the PUC stated "we consider it improper to allow normalization except: (1) upon evidence that the deferred taxes will in fact be paid within the foreseeable future; or (2) whcre normalization is required by law in order to obtain the benefits of accelerated depreciation." In line with that policy, the company was treated on a flow-through basis for state income tax benefits. These same state tax benefi'ts were flowed through in the recent Pennsylvania Power case and in the Pennsylvania Electric case as well. Several companies have been permitted normalization of the tax benefits attributable to interest on funds borrowed for construction projects. This treatment was recently continued for Philadelphia Electric in its rate case, but the PUC indicated that this tax issue would be treated on a case-by-case basis in the future. ~

Adjustment Clauses

• The state's largest utilities have historically had some type of fuel-adjustment mechanism. Prior to 1978, some ci the companies had an energy-cost-adjustment clause and some a fuel-adjustment clause. During the coal strike, the PUC ordered that a temporary ceiling be placed on all clauses so that they not exceed the rette in effect in March 1978. The PUC ordered all the state's utilities to prepare for implementation of an energy clause. The Commission permitted Duquesne Light and West Penn Power, bota of which were hard hit by the coal strike, to imple-ment emergency energy surcharges. These were designed to allow the companies to recover extraordinary purchased power' expenses incurred as a result of the coal strike. As a result of the PUC action, each of the state's major electric utilities has now implemented a not energy clause. This clause requires the utilities to pass through to customers not gains from increases in inter-change sales, but also provides for recovery of net reductions in interchange transactions. The energy charge of the state's utilities contains an automatic factor which insures that the utilities collect only for the actual cost of energy consutced.

For most utilities in the state, the average lag in the electric.

energy cost adjustment clause is approximately five months. The PUC has also adopted a levelized gas cost rate adjustment clause.

g The Conmission has authorized the creation of an g( independent auditing team to completely check all fuel cost -

surcharges automatically passed on te customers by electric and gas utilities. Checks by these auditors end others have revealed 143df067 0* , . . . - . . , .d

MAJOR RAM DEClaIONS IN l'E'm YLVA'1IA SINCE 1ULY 197'4 .

Increase y Type Requested Increase . Test Attri-Company -

_ Authorized of tion Case Citation Amt. ~ Period Common Sve. Date Amt. ~ End Adj. Equity

($ Mil.) Date ' Rate ROR  % or Duquisne flight ($1111. ) ' Mo./Yr. Base as % ROE C-R.I.D. 89 Elec.

1 $ Mil. Cap.  %

C-R.I.D. 198 4/30/73 62.5 Elec. 11/27/74 7/30/74 74.8(I) "u,"

C-R.I.D. 373 80.6 YE/FV 8.75 Elce. 10/1/76 127.9 ' 7/13/76 -36.3(I) 7/74 32 9/28/78 YE/FV 9.3 14.3 Metropolitan Edison 81.6(I) 6/76 YE/FV 33 14.9 9.11 35 C-R.I.D. 1705171 Elce. 12.6 C-R.I.D. 434 7/26/74 71.7 Elec. 7/1/77 6/22/76 29.8(I)

.C-R-780_60r_ ?6 ., 44 5/3t/78 3/74 YE/FV 9.82

, Elec., 6 /30/,7.g __,18._8(R) 2.6 3/77 39 Pennsylvania Electric 3f22/78 (1),4_9E_,,, , _ 3/79 YE/FV 9.74 - 13.7 YE/FV 37 13.6 C-R.I.D. 1725173 9.67 35

-R.I.D. Elec. 7/29/74 68.0 13.4 392 Elec. 6/2/76 2/1/77 67.8 33.3(1) 3/74 YE/FV

y. 6/8/78 24.7(I) 9.53- 35 Pennsylvania Power 12/77 YE/FV 14.8 9.56 33 C-R.I.D. 243 Elec.

13.43 C-R-77110521 5/30/75 8.0 Elec. 11/28/77 1/27/77 4. l(I) 2/75 35.5 8/31/78 YE/FV 10.05 23.6 7/77 35 Pennsylvania Power & 1.i,ht YE/FV' 10.1- 14.7 t 36.1 C-R.I.D. 2216251 Elec.

13.5(E)$

3/31/75 78.3(R) 8/26/76 78.3(I) 7/75 s

Philadelphia Electric YE/FV 9.83 C-R.I.D. 51&60 31 14.28 cas 12/5/72 C-R.I.D. 129 12.0 9/*.0/74 Elec. 1/31/74 136.0 12.0(I) 9/72 C-R.I.D. 227 Gas YE/FV 8.24 C-R.I.D. 295 4/3/75 14.0 3/25/75 105.0(I) 6/74 YE/FV 36 Elec. 11/19/75 11/22/76 9. 2 (I) 9.92 10.3(F)

C-R.I.D. 438 94.6 12/74 YE/FV' 33 15 Elec. 2/3/77 72.0(I) 9.9 35 8/5/77 115.8(R) 12/28/78 8/7.5 YE/FV 14(E) 78.9(I) 12/77 9.91 34 West Penn Power YE/FV 9.84 14.1 C-R.I.D. 183 ~ Elec.

34 13.5 u C-R.I.D. 369 9/30/74 24.9 Elec. 9/29/76 7/7/76 9.9(I) ty:s 46.9 6/74 TE/FV 5/23/78 10.6(I) 6/76 8.63 Columbia Gas -

YE/FV 33.6 12.9 O 9.32' 35 y . .C. -R . I . D . 340 Gas'

> 14.16 00 . .' 5/.3/ 76

- 21.0 1/24/78 -

6.7(I) . '12/75 YE/FV 9.92

- 39 13.56 L:r- -

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• C-R.I.D. 135 Cas 3/29/74 10.9 8/20/74 9.4 12/73 YE/FV 9.3 -- --

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C- R . I . D . 317 Cas 3/31/76 19.5 9/13/77 11.3 12/75 YE/FV 9.94 42 13.6(E)

C-R.I.D. 78-040598 Gas 4/28/78 27.5 10/23/78 15.8(2) 12/77 YE/FV 10.19 13.4(E)

National Fuel Gas C-R-77110514 Gas 5/1/78 13.0 9/22/78 5.5(3) 12/'s7 -- -- -- -- --

, Pennsylvania Cas & Wtr.

1;C-R.I.D. 296 Cas 11/14/75 11.1 5/11/78 5.9(I) 8/75 YE/FV 9.52 34 13.68 coples Natural Gas C-R.I.D. 99 Cas' 6/29/73 17.7 9/10/74 12.2(I) 3/73 YE/FV 8.25(F) 52 10(F)

C-R.I.D. 205 Cas 12/31/74 17.1 3/17/76 13.5(I) 12/74 YE/FV 8.9(F) 50.5 C-R.T.D. 308 Gas 1/29/76 14.9 14.5(E) 7/25/77 2.2(I) 12/75 YE/FV 10.4 50 13.6 C-R-78010545 Caa 1/27/78 14.3 10/27/78 3.6 9/77 YE/FV 10.54 50 13.5 U.G.I. Corp.

C-77110518 Cas 11/28/77 12.6 8/25/78 4.6 3/78 YE/FV 10.14 40 13.4 Bell Tel of Pennsylvania E i

C-R.I.D. 196 Tel. 11/13/74 116.4 6/22/76 83.3(I) 7/75 YE/FV 9.88 55 12 C-R.T." 367 Tel. 11/5/76 139 12/15/77 38(4) 6/77 YE/FV 9.65 49 12.37 C-k-so120719 Tel. 12/12/78 156.3 3/22/79(1)77.3(5) 9/79 --

9.65 -- --

(1) Date of PUC vote. Formal order not yet issued.

(2) Rates became effective 10/23/78 following PUC acceptance of settlement.

__. (3) Settlement agreement approved by PUC.

43, (4) Revised to roughly 948 million 5/11/78. .

( ,s (5) Company agreed to lesser increase in order to stay within wage and price guidelines and implement ficxible pricing promptly. Based on ROR of last case.

O C - Case Number C7' F - Return on fair value

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FV - Fair value 1 - Interim increase implemented prior to issuance of final order '

L - Amount of request lowered while case was in progress (latest request shown)

R - Amount of requested increase raised while case was in progress (latest request shown)

ROE - Return on original-cost common equity ROR - Ovar-all rate of return on original-cost rate base YE - Yec r-end 6

what the Commission considers certain discrepencies. Accordingly, the PUC has issued a number of show-cause orders to the various utilities directing them to show cause why they should not refund m certain specific monies to customers coal purchase because of the failure to enforce contracts. The alleged excess prices were paid daring a period when suppliers were threatening to cut off utilities' coal supplies. No final PUC action has yet been taken

((3 in any will notofbethe cases, and it appears to us that refunds, if any, substantial.

certain state Surcharge taxes are clauses to pass on increases or decreases in permitted.

Regulatory Timing As a result of the public utility bills passed in 1976, substantial changes occurred in the regulatory timing in Pennsylvania.

Senate Bill No. 1216 provided that for cases filed subsequent to October permitted without a hearing. 7, 1977, no general rate increase was to be The Commission is permitted to suspend a proposed rate increase, but for not more than seven months beyond the proposed effective date. By the end of seven decision a months, andmajority of PUC members serving are to issue a final set forth the reason for their action. If no decision refund. When is issued, the filed rates become effective subject to 60 days notice, filing for a rare increase, the company must give bringing the total elapsed time from a rate application to'a rate decision to nine months. A requested increase therefore,of 3% or less is not considered a general increase and j is not subject to these hearing and suspension pro-visions.

rate hike is A utility may seek " extraordinary rate relief" if a "immediately necessary for the maintenance of financial stability," and if the increase will provide "no more than in itsthe rate last of return on the utility's common equity" allowed case.

The PUC has adopted a policy requiring that comprehensive financial and operating data be filed with a request for extraordinary interim rate increases. Requests musti be accompanied by information showing the increase is needed to maintain financial stability, continue normal maintenance and service, and to prevent substantial job reductions. The PUC must hold and conclude hearings and must for extraordinary relief within 30 days. issue Under decisions the on neurequests law, no temporary rates are active charges) will result. involved and, thus, no recoupment (or retro-Rate Base Deteremination Regulatory law in Pennsylvania requires that a be allowed a utility and useful in the public service."" fair return on the fair-value of its property used determination, In arriving at its fair-value the original cost of construction of the property and its re-the Commis production cost at fair average prices.

supposed to happen, what clearly appearstoWhile is this is what is happen in the state {.,

that the. dollar

~

( amount of the rate increase is determined by ij ) '

vri

y.g . ; - ,

?~..,

.w.

_11_ .

n- .

. m'

'71/

considering the return on original-cost common cquity. Generally

17. a return in the range of 12.5-14% is selected and, following

])~' its s selection, the return on fair-value rate base is determined arithmetically. Year-end rate base is customarily used, with annualizing adjustments made to the income statement accountc.

Senate Bill No. 1216 provides that, in supporting a rate increase under the new rules, a utility may utilize a future test year.

Such rules have been promulgated by the PUC, but they provide that the future test year must start immediately after the historical year,are the new rates which generally placed makes it historical by the time into effect. In certain instances, the PUC has permitted amounts of construction work in progress in rate base when certain standards are met. The property must generally be completed within a short time after the end of the test period and be non-revenue producing.

Rate of Return In recent electric rate cases, the PUC has permitted returns on criginal-cost rate base in the 9.11%-10.1% range and returns on equity of between 12.6% and 14.16%. Common equity has comprised between 33% and 37% of the capital structures. In the most recent gas company cases, the utilities were permitted rates of return of 10.14%-10.54% and returns on equity of 13.4%-13.68%.

Common equity comprised 40%-50% of the capital structures of these utilities. (For additional detail concerning rates of

/

return authorized on rate base and on equity by the PUC since July 1794, refer to the table on pages 8 and 9.)

R.;,

Rate Structure During 1976, the State Senate and House passed joint resolutions requiring tha PUC to examine the subject of rate structure and to look specifically into such alternatives as:

inverted rates, seasonal peak and off-peak pricing, higher tail block prices, energy conservation discounts, and lifeline rates.

The PUC responded by conducting an investigation (PRMD-7) into electric utility rate structures to determine whether rate structure redesign would conserve power and benefit consumers.

The socio-economic considered effects of rate structure revisions were also in the inquiry.

the General Assembly in December 1977,The noting PUC filed its conclusions that the data with gathered to possible contained support internal inconsistencies alternative policies. The and that it was often report to be both " generic and preparatory." PUC considered its sidered the recommendations not the end, but the It therefore con-beginning. The Commission reported that it learned that there is no single rate structure or group of structuros that will solve, in a simple manner, Pennsylvania's electric energy problems.

The Commission decided to commence the implementation of certain recommend.ations where applicable and appropriate.

Among these' recommendations are the following: (1) that electric

-( rate (2) structures shoold be based on cost-of-service principles:

certain prefer appropriate regular(ntial rate rate schedules should be merged into schedules; (3) declining block rates

'43ffd71 H4

should be phased out; (4) optional load factor rates should be offered to all large residential customers; (5) extensive load -

studies should be undertaken; (6) experimental time-of-day rates Q[

should be offered; (7) off-peak rates should be promoted; (8) the maximum single peak monthly peak demand should be utilized for all demand metered rates; (9) master metering should be limited to existing locations and all new construction initiated prior to January 1, 1978; and (10) marginal cost concepts should be con-sidered in the development of electric rates.

The PUC has continued to move relat'ively slowly in the' area of rate structure, but has made some changes. In Pennsylvania Power's last case, it permitted the company to implement a customer charge, with no energy in this block, and _,

required the flattening of its residential rate structure. In ' '

Pennsylvania Electric's case it provided for a customer charge .

and a flat rate for all energy used. The company was required to discontinue its special heating rate in the future and to provide a time-of-day rate for residential. customers, wi'th a premium to be charged to these customers, The PUC-has also introduced some

~

new rate structure ideas in the telephone industry. Its most innovative action came just days ago when, on March 22, 1979, it approved flexible pricing tariffs for Bell Telephone of. - ,

"annsylvania. This ccse will be more fully discussed in a _

Research Note to be issued by early April.

For Additional Information

• r ,

For general information, contact David M. Bramson, k 3 Director of Public Relations (717-787-5722); William P. Thierfelder, Director of Operations (717-783-5331); or Joseph J. Klovekorn, Director of the Office of Special Assistants (717-787-1827).

.For financial, accounting and rate information, contact Robert L.

Packard, Director, Bureau of Rates (717-787-4886).

1.rgus Evaluation Until very recently, regulation in Pennsylvania was highly politicized and extremely slow. The most certain thing about regulation in Pennsylvania was that it would be most un-certain. As a result of legislation enacted in 1976, the time lag in the PUC's decisions on rate cases has improved materially.

In addition, there s,eems to be a sincere desire on_the part of the PUC to react to the utilities' petitions more pro...ptly and consistently. Based on the changes in the law and the PUC's more ,

constructive action in its most recent major rato cases,'we recently raised our rating of Pennsylvania regulation from "below average" to "slightly below average."

WGP

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• l \ g

,p i u c.. c a p . k t<e r . cn zw g . Pretax Incl.S.T. Co . u .3 of Beginalng Coverage M:

Tot.Rev. Debt s% End of Year Approx.

. 2v .f: l 9 -

Major Utiliti.J 1978 of Fixed Eff. FlT F rs .Cust': -

in Pennsylvaala 12/31/78 To.. Cap. Common Equity Charges r.

(SMil.) ($ Mil.) 12/31/78 1977 1978 Rate (Cents) i.

1977 _1978 1978 1976_ 1977 .

ELECTRIC .

Dugnesne Light S 573 $ 1,795 32.2% 9.4% 8.4's 2.6x 2.3x 26 4.7 5.1 Metropolitan Edison (a) 311 1,091 33.9 13.1 12.9 3.4 NA 20 4.5 4.9 Fennsylvania Electric Co. (a) 4 32 1,235 33.2 ,

10.3 9.9 2.8 NA 31* 4.1 4.5 Pennsylvania Power Co. (b) ,119 422 35.6 9.0 7.1 2.2 2.0 9 4.1 4.0 Pennsylvania Power & t Light 789 2,975 33.0 14.3 11.7 3.2 2.9 25 3.6 3.9 Philadelphia Elec-tric 1,457 4,302 34.3 9.6 6.3 2.3 2.4 25 4.9 5.3 West Penn Power Co. (c) 440 4 997 34.1 14.5 13.1 3.9 GAS NA 39* 3.3 3.4  :

Equitablo Gas Co. 194* 262* 44.8* 11.9 NA 3.3 NA 39* -- --

National Full Gas 550 430 46.0 9.7 10.3 2.9 2.9 31 -- -

Peoples Natural Gas (d) 227* 208 55.4* 8.6 NA 3.3 NA 41* -- --

UGI Corp. 220* 244*  :

43.3* 10.6 NA 3.4 NA 38*

{ TELEPHONE ,

L^Uell Telephone of '

Pennsylvania 1,456* 2,935* ,'

• 58.4 10.1 NA 4.3 NA 41* -- -

k[peneralTel.ofPa. 118* 267* 42.6* 11.8 NA 3.2 NA 41* -- --

u (a) A subsidiary of General Public Utilities (b) A subsidiary of Ohio Edison (c) A subsidiary of Allegheny Power (d) A subsidiary of Consolidated Natural Gas

• 1977 Results Mrch 1979 hk

i 8 NEW JERSEY October 1979 Regulatory Authority New Jersey Board of Public Utilities 101 Commerce Street Newark, New Jersey 07102 (201-648-2017)

The New Jersey Board of Public Utilities (BPU) consists of three full-time mebers appointed by the Governor for over-lapping six-year terms. Members must be approved by the Senate before assuming office. Legislation was enacted in 1977 creating the Department of Energy (DOE). The Act created a new cabinet-level department and transferred the old Department of public Utiliites and its functions to the Board of Public Utilities, which is a part of the DOE. The President of the BPU is desig-nated by the Governor (with the consent of the Senate). Each Commissioner is paid an annual salary of $49,000. The present Governor, Brendan Byrne, (Dem.), is serving a second four-year term, which will conclude in January 1981.

Became Term -

Commissioners Party Aqp- Commr. Ends Background George H. Barbour Dem. T2 10/5/76 3/15/79* State Assembly Ass't.

(President) Majority Leader, State Deputy Atty.

Gen., pvt. law practice.

Richard B. McGlynn Rep. 40 3/3/76 3/15/83 County Ass't. Prose-cutor, State Dep.

Atty. Gen., County Dist. Court Judge.

Edward H. Hynes Dem. 33 3/16/78 3/15/81 Private law practice, State Assemblyman.

• May continue to serve pending appointment and confirmation of successor.

General Information

he

. staff of the BPU consists of approximately 230 members and its budget for fiscal 1980 is roughly $6 million.

Funds for the budget are raised by a maximum one-sixth of one percent assessment against the revenues of all regulated utilities in the state. Most of the members of the staff are selected on J

v ' (

7 the basis of Civil Service examinations. As a result of 1978 legislation, hearings in contested cases are now conducted by Administrative Law Judges (ALJ's) assigned by the state Office of Administrative Law. If no BPU action is taken on an ALJ's proposed order within 45 days of issuance, then the proposed order becomes final. The Commissioners sit in on some portions of special cases and also hear oral argument on particular issues.

During 1979, all three Commissioners heard the entire Jersey Central Power & Light Company case. They did so because of the urgency of the matters in the case, which was related to the Three-Mile-Island incident. Staff members, from time to time, appear as witnesses and present testimony in certain proceedings, and the staff regularly furnishes the Board with position papers on major issues.

In addition to gas, telephone, and electric utilities, the BPU has jurisdiction over private water companies, sewage and solid-waste disposal companies and cable TV companies. Regular Board conferences are generally held on Thursday mornings and o decisions are usually issued fol'1owing these meetings. All maj'r Board meetings are now open to the public.

Court of Review a BPU decisions may be appealed to the Appellate Division of Superior Court of the State of New Jersey and then to the New Jersey Supreme Court. By and large, state court decisions have upheld the Board on most major issues.- On September 29., 1977, the Appellate Division issued a decision which essentially called on the Board to issue its rate decisions more promptly. The Appellate Division order came in a ruling on a case filed by Lambertville Water Company on June 28, 1974. A final decision was not issued in that case until March 25, 1976, with rates to become effective May 1, 1976. The Court ruled that the new rates should have become effective as of May 1, 1975, in line with state statutes providing that rate cases must be acted upon within eight months. The BPU appealed this decision, was granted certiorari and, on May 7, 1979, the State Supreme Court ruled that the original BPU action was appropriate and it therefore reversed the Appellate Division ruling. This action means that Lambertville Water will not be permitted to collect the rate increase retroactively. The Court ruled in this way because the final Board action was taken following a company request for reconsideration. It noted that the initial Commission order had been issued in a timely fashion, considering the company consent to a 30-day extension. The Court noted that as long as the Board has a rational basis for its action, its decisions will be con-trolling. The Court action leaves unclear whether a utility may be permitted to collect a rate increase retroactively if the BPU fails to act during the prescribed suspension period.

During 1978, the New Jersey Superior Court's Appellate Division upheld a 1976 decision of the BPU that had denied, in its entirety, New Jersey Bell Telephone's request for a permanent rate hike of $157.8 million. The Court held that the company had not demonstrated that the Commissioners were irresponsible in the way they carried out their duty. Also during 1978, the New Jersey Supreme Court ruled that the Board had exclusive juris-diction concernin'g consumer fraud complaints against a a i 1L3 cJ75

utility company. The Court noted that the company's cost of capital would rise if indivicual customers were permitted to sue the utilities and collect damages from them, thereby increasing the cost of service to all other customers over the long run.

Late in 1977, the Supreme Court issued a decision in the Redi-Flow case, which tended to question the legality of fuel-adjustment clauses in the state. There were no further challenges to fuel-adjustment clauses for a couple of years, since the Board began holding hearings under the procedures of the levelized fuel-adjustment clause. However, the Division of Rate Counsel has challenged Atlantic City Electric Company's recent bid for a fuel-adjustment increase, contending that it does not fulfull the necessary conditions of the state statutes authorizing rate increases. The Rate Counsel requested the BPU to dismiss the fuel-adjustment request, but the Board denied this proposal. The Rate Counsel appealed the Board action, and it may be finally adjudicated in the State Supreme Court. In this particular instance, the issue is not so much whether the company should be entitled to collect revenues to offset higher fuel costs, but the timing of the revenue collection.

Legislative Information The New Jersey legislature is bicameral, with the Governor having veto power. It meets annually and the normal meeting days throughout the year are Mondays and Thursdays. The makeup of the Assembly is 53 Democrats, 26 Republicans, and there is one vacancy; that of the Senate is 27 Democrats, 12 Republicans, and there is one vacancy. During 1977, a number of utility bills were introduced, discussed and not adopted. However, a sig-nificant utility-related bill was enacted -- establishing the Department of Energy. The Act created a new cabinet level department and gave it broad powers to regulate the production, distribution, conservation and consumption of energy. It abolished the old Department of Public Utilities, which is a part of the new Department of Energy. Joel R. Jacobson was installed as Commissioner of the DOE and Governor Byrne appointed Commissioner Barbour to be President of the Board of Public Utilities, re-placing Mr. Jacobson in that position. The Board was designed to be " independent of any supervision or control by the Department or any officer or employee thereof, except as otherwise expressly provided" in the Act. The Act provides that only the BPU be involved in determining utility revenue requirements. During the 1978 and 1979 sessions, there have been substantial discussions concerning the possible reorganization of the state Department of Energy so as to eliminate excess bureaucracy. Among the pro-posals is one that would fold the BPU into the Department of Energy, so as to form one strong agency. Under the proposal being discussed, the new agency might have three commissioners, rathe:- than the four Commissioners (three at the BPU and one at the DOE) under the present organizational structure. The com-bination of the two organizations may well occur before the end of 1979.

( i l4) d[b

-t-On October 16, 1978, the DOE presented its Energy Master Plan to the Governor and the legislature. This plan is a policy document whicn establishes long-range energy goals for New Jersey. The document reflects the intention of n 9' DOE to determine the future energ/ needs for the state and to play an integral part in the decisions on tne siting of whatever type: tf energy facilities are proposed to be constructed in New Jersey.

The Energy Master Plan does make recommendations to the BPU relative to the pricing of natural gas and electricity. These recommendations suggest development of cost-of-service methodologies incorporating marginal and incremental cost considerations, among other things; however, to a large extent, these methodologies are already used by New Jersey utilities.

During 1978, the legislature enacted life-line legis-lation that largely proved unworkable. Consequently, during 1979, new legislation was enacted. Under the present law, the state raised the casino gambling tax from 8% to 12% and deter-mined that the revenue from this higher tax be used to pay a portion of the utility bills of approximately 400,000 needy-elderly or disabled residents of the state. The disbursements are scheduled to begin in October of this year, and will be made as S100 payments toward the electricity or natural gas bills of disabled New Jersey citizens or those elderly with annual income of $9,000 or less (S12,000 annually for couples). 21igibility for the payment is largely established by verifying participation in the states pharmaceutical assistance program. If customers receive both electric and gas service, they will receive the first $50.00 of each service without charge beginning in October.

The legislation calls for the benefits to rise to $125.00 in 1980 and with the credits to begin with July utility bills. As dis-cussed earlier, the legislature also created the state Office of Administrative Law, with its ALJ's assigned to conduct contested rate cases.

Consumer Representation Early in 1974, the state created a Department of Public Advocate. A sector of that Department is the Division of Rate Counsel, which is charged with representing the public's interest before the Board. The current Public Advrcate is Stanley Van Ness and the Director of the Division of Rate Counsel is William Gural. Various consumer groups also represent private interests before the Board in many rate cases. Senior citizens' groups have been appearing before the Board with increasing frequency and effectiveness in recent years. The only New Jersey newspaper circulated statewide is the Newark Star Ledger.

Regulatory Innovations The BPU allows certain utilities to include a portion of construction work in progress (CWIP) in rate base with no offsetting credits to income. Another major policy stance of the BPU is that it has increasingly leaned toward the leveling of rate structure to encourage energy conservation and to recognize cost of service. The introduction of life-line rates for electric and gas service is discussed under the Legislative Information section. The Board also ordered New Jersey Bell to inspitute a life 411ne offering in its 1976 case. ] 4 j h .)/ 7

In an effort to reduce regulatory lag, the Board en-courages the parties involved in rate cases to stipulate to certain matters in pending cases so as to facilitate the pro-cessing of the cases in a timely manner. This practice has been increasingly successful during the past couple of years, but its success has been somewhat uneven. It appears likely that in future major rate cases, many of the issues which involve lesser number of dollars will be stipulated to by the principal parties in the cases.

The Board is continuing to look very closely at the rate structure area, and has taken certain actions related thereto. It has ordered Jersey Central Power & Light and Public Service Electric & Gas Company to offer curtailable rates to large industrial customers and they have done so. There is considerable agitation in the state for the Board to be inno-vative in this particular area and the Board continues to en-courage time-of-day pricing experiments and also actual tariffs based on time-of-day charges.

The BPU initiated an investigation, in 1976, into the construction practices of the state's utilities. This generic investigation was largely concluded in February 1979, when the BPU generally determined that the practices of the ccmpanies were satisfactory and that the utilities were doing an adequate job of forecasting future needs. The investigation included a view of '

the construction alternatives of the companies; the New Jersey Department of Public Advocate recommended the use of small coal-fired generators, while the utilities supported use of nuclear units. The BPU determined that it would not usurp the pre-rogatives of management in determining the long-run power supply in the state, so long as the companies pursued reasonable and acceptable alternatives. The BPU also considered the appropri-ateness of Public Service Electric & Gas Company's construction spending on its Salem generating unit. The Public Advocate had recommended that the company be ordered to reduce rates because of overspending on the unit. However, on March 29, 1979, the BPU issued an order which concluded that the company managed the construction of its Salem unit in a reasonable and prudent manner and that no Salem expenditures should be excluded from rate base.

In early 1977, a majority of the New Jersey Board ordered the state's utilities to provide interest-free funding for home insulation. The companies are required to offer cus-tomers interest-free loans of up to $500 for three months. After three months, the loans incur a 12% annual interest charge.

Among other things, the utilities are responsible for checking on the quality and pricing of the work done by the contractors.

The BPU took innovative action in a recent water case, in which Toms River Water was proposing to-acquire Green Island Water for a price above book value. Owing to the benefits expected to accrue to the customers of Green Island Water, the BPU determined that the company will be permitted to amortize the acquisition costs above book value above the line. This was the first time such an action had been taken in New Jersey. Also during 1979, the utilities were required to increase from 6% to 9% the interest 14% ng

paid on customer deposits. The only other substantial innovation in the racemaking practices of the state occurred in relation to the BPU's treatment of General Public Utilities and the Three-Mile-Island incident. -Because of the unusual nature of this case, there.were a number of BPU actions which did not fit the mold of its actions in previous circumstances. In one of the most unusual actions, because of the urgency of the case, all three Commissioners sat on the hearings and heard them in their entirety and issued a very prcmpt decision. Further innovative regulatory response will probably be required before the full ramifications of this incident are over. Presently, the BPU is considering retaining a consulting firm, to study and report on the options open to GPU or to the state so as to better assure continued electric service to the customers presently served by General Public Utilities. Among'the alternatives to be con-sidered are the merger of Jersey Central with other utilities in the state and the examination of the use of public power. Any such study would be paid for by JCP&L.

Recent Board Actions Since mid-1974, the BPU has issued one or more permanent rate decisions for each of the largest uew Jersey utilities.

These decisions are outlined in the table on pnges 8'a'nd 9.

Comments concerning the permanent rate decisicas issued by the BPU in the last 18 months are outlined in the paragraphs below.

On May 19, 1978, the BPU approved rate increases totaling 5153.1 million for Public Service Electric & Gas Company (PSE&G). The BPU action permitted the company to raise its electric rates by $130.7 million (8.9%) and itn gas charges by

$22.4 million (3.6%), effective June 1, 1978. In approving the rate hike, the BPU accepted a stipulation entered into by all the active parties in the case on May 10, 1978. The case was originated on November 21, 1977, when PSE&G filed for a-$304.4 million (20.7%) electric increase and a $90.6 million (15.2%) gas rate hike. This filing was based on the company's petition to earn a 9.19% rate of return on a year-end rate base for a test period ending June 30, 1978. The return requested on common equity was 14%. The company revised its request downward from a total of

$395 million million gas) ontoFebruary

$351.3 million ($276.5 million electric and $74.8 24, 1978. The updated filing was based on an over-all rate of return of 9.28%.

On May 10, 1978, the New Jersey Public Advocate's Office and all intervenors in the case signed a stipulation calliag for electric and gas hikes totaling $153.1 million. At the time the stipulation was filed, PSE&G effectively withdrew its request to earn a cash return on an additional S250 million of CWIP. The stipulation was approved by the BPU on May 19, 1978. She authorized electric and gas rate increases were based on the same 13% return on equity allowed in the company's last rate case and on an over-all rate of return of 8.83% on a year-end rate gase for a.. test period ending June 30, 1978.

~

As part of the. stipulation, $226.8 million of PSE&G's investment in a pro-pos'ed'off-shore nuclear station was removed from rate base, with vi '

Od

the parties agreeing that PSE&G would be able to amortize this investment over a 20-year period, should the unit be cancelled.

The BPU order made it clear that it would further review the investment in the nuclear unit to assure that only the legitimate costs related to the project would be passed on to the ratepayer.

As part of the stipulation, the company was required to agree not to file for additional ir.;reases in base rates that would become effegtive before March 1, 1980. The company also stipulated that if the tax rate were actually reduced from 48% to 46% it would reduce rates accordingly and this required a 317 million rate reduction, effective January 1, 1979. (For a more detailed summary, see Reserach Note dated May 24, 1978.)

On January 31, 1979, the BPU permitted New Jersey Bell Telephone (NJBT) a $51.2 million rate hike. This case had been initiated by the company on November 30, 1977, when it requested a $148.8 million rate hike based on its petition to earn a 14.5%

return on common equity and a 9.31% rate of return on a year-end rate base for a projected calendar-1979 test year. On January 31, 1978, the BPU ruled that the test year to be considered would be the 12 months ended June 30, 1978. The company amended its petition in line with this test year and subsequently entered into a stipulation which had the effect of reducing its request to S97.6 million. NJBT agreed not to press for new methods for computing federal income taxes and the Public Advocate's Division of Rate Counsel agreed not to propose double leverage. The revised rates would have produced a 9.34% rate of return on a year-end rate base for a test year ending June 30, 1978, ac-cording to company calculations. By the time the case was ready for decision, it became clear that during the first full year the rates would be in effect, a 46% federal income tax (FIT) rate would be in effect, versus 48% previously. Although the company did not officially revise its request, it did not oppose the utilization of a 46% FIT rate. The BPU decision permitting a rate hike was based on its authorization of a 13% return on common equity (43.12% of capital) and an 8.89% rate of return on a year-end rate base for a test period ended June 30, 1978. (For a more detailed summary, see Research Note dated February 15, 1979.)

Also on January 31, 1979, the BPU allowed Jersey Central Power & Light Company (JCP&L), a subsidiary of General Public Utilities, a phase-two increase of $33.8 million. This case was initiated by JCP&L on October 15, 1976, when it requested a $107 million rate increase. It was permitted a 420.2 million phase-one increase on September 1, 1977 and, during the course of the proceedings, eventually finalized its phase-two request at an additional $62.8 million. The phase-two request was based on the I . comsany's (34.46% ofpetition capital)toand be apermitted 9.7% ratea of 13.5% return return on a on equity rate year-end base for a test period ended August 31, 1978. The company's phase-two request was largely dependent on its placing in service its Three-Mile-Island (TMI) unit No. 2. The BPU considered this unit as plant in service in the test period, even though it did not begin commercial operation until December 30, 1978. The,BPU decision was issued following a stipulation ent i t. the

M/LIOR NEW JERSEY RATE DECISIONS SINCE JULY 1974 s Attri-Increase Increa se Test tion Common Type Requested Authorized _ Period Adj. Equity Company of Amt. Amt. End Rate ROR  % or as % ROE Case Citation Sve. Date ($ Mil . ) Da te ($ Mil.) No./Yr. Ba se  % $ Mil. Cap._  %

Atlantic City Electric D-738-679 Elec. 8/31/73 14.2 7/11/74 12.1 12/73 YE/0C 8.31 35.74 13.00 D-748-640 Elec. 8/30/74 30.8 6/27/75 10.7 12/74 YE/0C 8.47 33.5 13.00 D-758-842 Elec. 8/15/75 28 1/29/76 9.3 12/75 YE/0C 8.65 32.4 13.00 D-772-113 Elec. 2/11/77 16.5 1/19/78 8.0 12/76 YE/0C 8.88 36.6 13.00 D-783-253 Elec. 3/31/78 35.7 6/27/79 24.8 (1) 12/78 YE/DC 9.14 38.6 13.07 Jersey Central P6L D-743-184 Elec. 3/5/74 56.7 6/5/75 47.3 (I) 12/73 YE/0C(P) 9.1 36.22 13.0 D-759-899 Elec. 9/2/75 125 (L) 6/10/76 59.2 3/76 YE/DC(P) 9.7 34.15 13.5 D-7610-1021622 . El ec . 10/15/76 107(1) 9/1/77 20.2(1) 3/77 YE/0C(P) 9.7 34.46 13.25 D-7610-1021 Elec. --

62.8(2) 1/31/79 33.8 (.2) 8/78 YE/0C(P) 9.62 33.25 13.25 D-7 95-4 27 Elec. 5/4/79 11343) 6/18/79 45.0(3) - - -- -- -- --

Pub)Ic Sve. Elec. & Ga s D-744-335 EKG 4/30/74 257.4 10/31/75 217.9(1) 12/74 YE/DC(P) 8.82 34.18 13.0 4 D-7 61 -8 E&C 1/5/76 318(L) 10/14/76 136.5 6/76 YE/0C(P) 8.83 35.81 13.0 i D-7711-1107 E6G 11/21/77 351.3(L) 5/19/78 153.1 (4) 6/78 YE/0C(P) 8.83 36.01 13.0 Rockland Electric D-7412-84 9 Elec. 12/2/74 11.0 (R) 2/5/76 8.3 (I) 12/74 YE/0C 9.88 35.1 13.0 D-7 611-1100 Elec. 11/10/76 7.9 11/23/77 5.8 3/77 YE/0C 9.89 36.8 13.0 Elizabethtown Gas D-748-641 Gas 8/30/74 13.0 9/11/75 9.5(I) 6/74 YE/DC 10.4 43 13.5 D-789-1319 Gas 9/1/78 16.6 9/21/79 11.3(1) 6/78 YE/0C 10.89 4 9.28 13.5 New Jersey Nat. Gas D-759-901 __. Gas 9/3/75 9 7/8/76 2.9(5) 6/75 YE/0C 9.23 35.?3 13.25 D-7 610-1023 43. Gac 10/15/76 8.4 12/8/77 3.4 9/76 YE/0C 9.61 37.8 13.5 D-7812-1681 (so Gas 12/29/78 14.4 6/27/79 9.2 9/78 YE/OC 10.3 37.7 13.5 M

South Jersey Gas D-7412-872 C' Gas 12/11/74 6.1 (L) 12/22/75 5.3 (I) 8/74 YE/0C 9.14 32.8 13.75 9/28/76 8.7 3/2/78 6/76 YE/DC 9.86 39.7 13.5 D-7 69-988 (($ Cas 2. 2 (.6)

n a:

New Jersey Bell D-747-522 Tel. 7/18/74 154.9 9/18/75 79.4 3/75 YE/0C 8.56 42.30 12 D-7512-1251 Tel. 12 /2 /75 151.5 (L) 11/5/76 6/76 YE/0C 8.49 42.75 12 D-7711-1136 Tel. 11/30/77 97.6 (L) 1/31/79 51.2 6/78 YE/0C 8.89 -C- 43.12 13 (1) Interim decision by EPU settled first phase of case. Fuel clause revenues were simultaneously reduced by a roughly similar dollar amount. Final decision deferred until THI#2 nuclear generating statioa was placed in service.

(2) Phase II of 30/15/76 case. Fuel clause revenne sms simultaneously reduced by roughly $25.5 million.

(3) Sought to recover THI replacement energy costs over 12 month period. Order granted recovery over 18 months and reduced base rates by $29 million to reflect removal of carring costs of TMI-2 unit which is out of service.

(4 ) Increased based on BPU approval of a stipulation between the parties in the case. Amount later reduced by $17 million to reflect 46% FIT rate.

(5) Parties to cace had stipulated to $4.5 million increase.

(6) BFU order followed stipulation by the parties.

KEY:

D - Docket Number b E - Estimated 8 I - Interim increase implemented prior to issuance of final order.

L - Amount of requested increase lowered while case was in progress (latest request shown).

PC - Original Cost P - Partial inclusion of CWIP in rate base without AFC offset.

R - Amount of requested increase raised while case was in progress (latest request shown).

ROE - Return on common equity.

POR - Over-all rate of return.

(E - Year-end .

mmO O

, Ls4 D

c C

N

parties concerning most of the major issues in the case. The rate decision was based on a 13.25% return on common equity (33.25% of ccpital) and a 9.52% rate of return on a year-end rate base for the company-proposed test year. At the same time the Board approved a permanent rate hike, it also approved a revised leveli=ed fuel-adjustment charge, which reduced customer charges by approximately $13.3 million annually. The rate structure implemented reflected somewhat greater summer / winter energy and demand differentials and also provided that space heating rates and riders be climinated. (For a more detailed summary, see Research Note dated February 8, 1979.)

On June 18, 1979, the BPU took further action con-cerning JCP&L. This action permitted the company to raise its rates by $74.7 million annually via the leveli=ed fuel-adjustment clause and required a $29 million decrease in base rates. This case was initiated on May 4, 1979, when JCP&L requested a net rate increase of S113 million. The company proposed to trim base rates by approximately S9 million to reflect elimination of one-half of the common equity return on its TMI No. 2 generating unit, which was out of service owing to an accident. The BPU decision required that the full carrying charges related to the TMI No. 2 unit be eliminated from base rates and, therefore, it required a base rate reduction of $29 million. The over-all increase in customer charges as a result of this action was $45.7 million. Also in this rate action, the BPU adopted a staff proposal that JCP&L not be permitted to pay dividends to the parent company during the remainder of 1979. (For a more detailed summary of this action, see Research Note dated June 22, 1979.,

On June 27, 1979, the BPU approved a permanent $9.2 million rate increase for New Jersey Natural Gas Company. This case was initiated on July 29, 1978, when New Jersey Natural re-quested a $14.4 million (13.7%) permanent gas rate increase based on its petition to earn a 15% return on common equity (41.15% of capital) and a 10.94% rate of return on a year-end rate base for a test period ended September 30, 1978. The BPU action followed a stipulation entered into by the parties in the case. The increase approved implies a 13.5% return on common stock equity (37.75 of capital) and a 10.3% rate of return on a year-end rate base for the company-proposed test period. The new rates became effective July 1, 1979 and, as part of the stipulation, the company will not be permitted to make a further increase ef-fective prior to April 1, 1981.

Also on June 27, 1979, the BPU allowed Atlantic City Electric (ACE) a permanent rate hike of S24.8 million. This action came in a case that was initiated by ACE on March 31, 1978, when it sought a S35.7 million increase. This filing was based on its petition to earn a 13.5% return on common stock equity (37.85% of capital) and a 9.15' rate of return on a year- ,,

end rate base for a calendar-1978 test year. The company was permitted to implement a partial rate hike of $14.8 million on j4j 30)

Julyg l9, 1978 and, therefore, the BPU action permitted an addi-tional increase of SLO million. The BPU did not address all the issues in the case, but its decision essentially approved a stipulation entered into by the parties. The increase approved

implies a 13.07% return on common equity and a 9.14% rate of return on a year-end rate base for a calendar-1978 test year.

The new rates became effective for service on and after July 1, 1979. As part of the stipulation, ACE will not be permitted to seek a further base rate increase to become effective before July 1, 1980. The largest difference between the amount granted by the BPU and the request supported by the company was accounted for by the failure of a stipulation to include rate base and operating expenses related to the company's participation in the construction of the Salem No. 2 generating unit. It now appears that this unit will not be in service at any time during 1979.

(For a more detailed summary of this rate action, see Research Note dated July ll, 1979.)

On September 21, 1979, the BPU issued a definitive order indicating its reasons for permitting an $11.3 nillion permanent rate hike for Elizabethrown Cas Company, a subsidiary of National Utilities and Industries. '2 tis case was initiated on September 1, 1978, when Elizabethtown Gas requested a permanent rate hike of $16.6 million and an interim rate rise of $6.2 million. The permanent rate hike was based on the company's petition to be permitted a 15% teturn on common equity (44.4% of capital) and cn 11.2% rate of return on a year-end rate base for a test period ended Jure 30, 1978. The company was authorized an interim rate hike of $5 million on March 21, 1979. The BPU

. decision permitting an interim increase was based on its autho-rization of a 13.5% return on common equity (49.26% of capital) and a 10.89% rate of return on a year-end rate base for the company-proposed test year. (For a more complete summary cf this rate action, see Research Note dated September 25, 1979.)

Major Cases Pending Public Service Electric & Gas currently has electric and gas rate petitions aending BPU action and Rockland Electric Company is seeking on electric rate increase. The highlights of thene petitions are discussed in the paragraphs that follow.

On April 2, 1979, PSE&G filed an application for a

$289.6 million (17.8%) electr;c rate increase and an W84.9 mil-lion (11.4%) gas rate hike. The company seeks a 14.25% return on common equity (36.8% of capital) and a 9.5% rate of return on a calendar-1979 year-end rate base. Owing to sharp increases in fuel costs, the company also proposed that the BPU authorize the recovery of approximately $100 million of anticipated unrecovered fuel costs at December 31, 1979, over a two-year period. The company seeks a cash return on an additional S250 million of CWIP and also seeks amortization of the Atlantic generating station 3, loss over a 20-year period.

COs '

}43 hbk On May 1, 1979, Rockland Electric Company, a subsidiary of Orange & Rockland Utilities, requested a $4.5 million (7.9%)

permanent electric rate increase. This request was based on the company's petition to earn a 14.8% return on common stock equity (40.5% of capital) and a 9.95% rate of return on a year-end rate base for a calendar-1979 test year. BPU action is not expected on this request until February 1980.

Reculatory Accountina The BPU permits investment tax credits and job develop-ment credits to 'eo accrtized over the life of the property in-volved. Job development credits are generally permitted to earn at the over-all rate of return, In recent years, the Board has generally permitted normalization of rapid depreciation tax benefits for elect ic and gas utilities for post-1969 property additions. The BPU has permitted the two largest electric companies to cease accruing allowance for funds credits on certain portions of construction work in progress that it has included in rate base.

Adjustment Clauses Fuel adjustment and purchased gas _ adjustment clauses are permii.ted. For the major electric companies, the clauses are, in effect, levelized energy adjustment clauses and include purchased power. The state's electric utilities were required to institute levelized energy adjustment clauses during 1977. The clauses are similar to previously required levelized gas raw materials adjustment cicuses. Under the levelized clause, the energy adjustment charge is based on the projected average cost of energy produced, purchased, and interchanged, over base costs, for a 12-month period, during which the charge remains in effect.

Any under- or over-recovery is collected in the following 12-month period. A change in the charge can be instituted during the 12-month period if there is a significant increase or decrease in the cost of Laergy, but only following BPU hearings and ap-proval. A 1977 New Jersey Supreme Court decision in the Redi-Flow case cast some doubt on the legality of fuel-adjustment clauses and their legality is presently being challenged by the Rate Counsel in a fuel-adjustment procedure concerning Atlantic City Electric. Owing to the fact that extensive hearings are held and audits are conducted of all fuel-adjustment collections, the Courts may well uphol6 the fuel-adjustment procedure currently utilized by the BPU. When the levelized clauses were adopted, the BPU rolled more fuel cost charges into base rates. The unamortized electric fuel costs which remained were spread over a period of years, to be recovered through base rates. On July 2, 1979, the BPU granted PSE&G's request to increase its electric energy adjustment clause for the 12 months ended June 30, 1980 to reflect projected increases in energy costs and to recover ap-proximately $33 million of previously uncollected amounts. The new charge increased annual revenues by opproximately $147 million.

Owing to subsequent unit outages and fuel cost increases, the company now believes that this amount will under-collect costs by approximately $150 million during the current 12-month period and, therefore, it has proposed to recover a portion of this under-collection in its permanent rate case.

} 4}( .]85 o s, In January 1976, PSE&G was permitted to implement a levelized raw materials adjustment (RMA) surcharge. It was designed to stabilize the sharp fluctuation in gas cost increases and, at the same time, allow the company to recover its purchased, natural and synthetic gas expenses more quickly. In determining the new adjustment factor, differences between recoveries and actual periods.

costs are deferred and reflected in costs for subsequent

A comprehensive adjustment clause was approved for New Jersey Bell in 1974 on a trial basis. In a rate decision issued on September 18, 1975, the BPU indefinitely suspended any further implementation of this clause.

Regulatory Timing The BPU is required by law to act on all rate petitions within eight months of the requested ef fective da te. Since the company filing for a rate increase must give 30-day notice, in effect, there is a nine-month scatutory limit within which the Board must act. When an interim increase is permitted, it is usually conditioned upon the company's waiving its right to collect the full increase at the end of the statutory period.

Prior to 1976, most cases took more than a yerr to process; however, the BPU cmbarked on more accelerated hearing schedules in 1976 and, as a result, final decisions have generally been forthcoming within six to 12 months. Since 1976, the timing of Board action on rate caces has importantly depended on whether or not stirulations.had been entered into by the parties. Where the partier have.been willing to stipulate major issues, the action of the BPU has been accelerated considerably. The Board is authorized to grant interim rate increases, and has occasionally done so in recent years.

Rate Base Determination The Board uses a depreciated original-cost investment rate base. In most recent major rate canes, it has used year-end rate base, although average race base is used occasionally. The BPU permits a company to submit a future test year, but only once has it issued a rate decision based upon a test period that has not already been completed. In that case, which was the 1978 PSE&G case, the rate decision was stipulated to by the parties and the company was prohibited from filing for a future increase for a substantial period of time following the decision. Certain post-test-year changes are recognized. In PSE&G cases, the BPU includes all construction work in progress in rate base and directs that no allowance for funds credits be taken on a portion of that CWIP, thereby allowing the company a current return on at least a portion of its funds. JCP&L is allowed to include a portion of CWIP in rate bast without an AFC offset to net income.

Rate of Return During 1977, 1978 and 1979, the BPU has permitted 13%

to 13.5% common equity returns for the major utilities. The over-all rates of return permitted have ranged roughly from 8.1%

to 10.9% during the last three years. (For additional detail concerning the Board's rate of return findings, refer to the table dn pages.8 and 9.)

Rate Structure The subject of rate structure continues to be hotly}

jg}

debated in the state. In recent decisions, the Board has generally required the energy companies to implement flattened

rate structures and has moved toward increasing summer / winter differentials for the electric companies in the interest of conservation. The legislature has enacted life-line legislation, whien is discussed more fully under the Legislative Information section. In its decision on New Jersey Bell Telephone's rate increase request, issued in 1976, the BPU approved the initiation of a life-line rate which permits low-use residential customers to receive a lower rate, with an allowance of 20 message units.

The base rate for these customers is set at 70% of the basic residential rate, with additional message units over 20 charged at $0.10 each. The Board explained that this service "is to enable senior citizens and others on fixed or low incomes to have a vitally important service in their homes at a price they can more easily afford."

In the 1976 PSE&G case, the BPU authorized the company nn interruptible rate schedule. A curtailable schedule for large industrial customers has subsequently been ordered for Jersey Central Power & Light Company. In March 1977, the BPU authorized an experimental peak-load pricing test for 700 residential cus-tomers of PSE&G. As part of the 1978 PSE&G case, the company was also authorized to implement a time-of-day rate schedule for its largest industrial customers and to implement an optional time-of-day rate schedule for residential customers.

For Additional Information For general administrative information, contac.

Anthony Zarillo, Executive Officer (201-648-2015); for financial and economic information, contact Dr. Fred Grygiel, Chief Public Utility Economist (201-648-3860); and for revenue requirement information, contact Gerry Tobia, Chief, Bureau of Rates (201-648-3595).

Argus Evaluation During the past couple of years, New Jersey regulation has become more consistent and its act' ions have been taken on a more timely basis. Particularly during the past 12 months, the Board has generally acted in a manner which has provided the utilities a greater opportunity to earn the rates of return allowed. For these reasons'and those discussed throu report, we regard New Jersey regulation as " average."ghout this WGF

\kb]

• r

Tot. Cap. Ret. on Avg. Pretax Avg.

Incl.S.T. Com Eq. of Beginning & Coverage Approx. Rev./KWH Tot.Rev. Debt as % End of Year of Fixed Eff. plt Res.Cust.

Major Utilities -" 1978 12/31/78 Tot. Cap. Common Equity Charges Rate (Cents)

In New Jersey 4h* (SMil.) ($ Mil.) 12/31/78 1977 1978 1977 1978 1978 1977 1978 LN ELECTRIC AtlanticCity23$

Electric cx) $255 $610 38.0% 10.0% 10.5% 3.2x 3.6x 39% 4.9 5.1 Jersey Central Power & Light (a) 591 1,671 34.8 12.7 10.1 3.0 2.6 29 5.4 5.5 Orange & Rockland Electric 258(b) 466 36.7 9.7 12.7 2.6 3.4 40 7.2 7.9 Public Service Electric & Gas 2,220 (c) 4,410 39.6 10.8 10.9 3.5 3.8 40 6.3 6.6 GAS b w

i National Utilities 6 Industries (d) 108 112 40.2 9.9 7.1 3.0 2.0 33 -- --

New Jersey Natural Gas (d) 100 87 43.7 11.1 12.7 2.5 3.3 44 -- --

South Jersey Gas Co. (f) 99 94 37.2 11.5 11.8 3.1 3.2 40 -- --

TELEPHONE New Jersey Bell (g) 1,536 2,834 59.8 11.0 11.4 5.9 5.6 43 -- --

(a) Subsidiary of General Public Utilities.

(b) Aporoximately 21% of revenues are derived from service in New Jersey.

(c) 70% electric; gas 30%.

(d) Fiscal years end September 30.

(e) Approximately 11% of revenues derived from non-utility operations.

(f) Subsidiary of South Jersey Industries, Inc.

(g) Subsidiary of American Telephone & Telegraph Company, n-

• che - in70

Person Responsible for Preparation:

F. D. Ilafer, Vice President - Rate Case Management, GPU Service Corp.

Telephone : (201) 263-6013 Date: November 26, 1979 GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Company, Pennsylvania Electric Company and Jersey Central Power & Light Company NRC Docket No. 50-289 Three Mile Island Unit No. 1 Restart Proceeding Response to NRC Staff's Supplemental Financial Information Requ'st No. 9, telecopied 11/9/79 (item numbers refer to initial requests datet 9/21/79):

"(10.b and 10.c) Subsequent to our September 21, 1979 request, it was reported (Wall Street Journal, Novemb'er 2, 1979, p. 12) that the Pennsylvania Public Utility Commission (PPUC) issued a show cause order to Met-Ed regarding the company's ability to provide utility service in Pennsylvania. Provide copies of the PPUC order and copies of Met-Ed's response to the order, when available. Continue to keep the NRC Staff informed of all developments in the show cause proceeding. Provide copies of all subsequent PPUC orders and other directives and Met-Ed -

responses related to this proceeding."

Response

A copy of the Pa PUC's Order entered 11/1/79 in Docket No.

1-79040308 requiring Met-Ed to "show cause why its certifi-cate of public convenience should not be revoked" was included with our supplementary response to Financial Information Re-quest No. 10-(c) dated 11/6/79. We will continue to keep the NRC informed of all developments in this and other regulatory proceedings af fec ting the GPU companies and are accord! ~ <' y enclosing copies of the following :

1. Pa PUC's Prehearing Order in Docket No. I-79040308 dated 11/16/79. This order consolidates the Pa PUC's joint Met-Ed and Penelec TMI-l show cause proceeding (see re-sponse to Financial Information Request No. 10-(c) dated 10/15/79, Item 23), Met-Ed's energy clause increase fil-ing (see supplementary response to Financial Information Re que s t No. 10-(c) dated 11/6/79, Item 2), and the Pa PUC's Me t-Ed franchise show cause proceeding (see supplementary response to Financial Information Request No. 10-(c) dated 11/6/79, Item 1).

2. Transcript of the initial prehearing conference, consoli-dated proceedings in Pa PUC's Docket No. I-79040308, held 11/13/79 in Harrisburg, lk ')

- eV n COMMONWEALTH OF PENNSYLVANIA g

PENNSYLVANIA PUGLIC UTILITY COMMISSION eg P. D. D OX 326 5. H ARRIS B U RG. PA.17120 November 16, 1979 3.s egPLV PbE&BE agFge TO DWR F4 L E I-79040308 TO ALL PARTIES OF RECORD Pennsylvania Public Utility Commission, et al.

v.

Metropolitan Edison Company and Pennsylvania Electric Company NOTICE We attach hereto copy of a prehearing order in connection with the above entitled proceeding.

Very truly yours,

• lA -~ ik y,_ _

William P. Thierfelder Secretary Attachment I,

I \

,i' s

1436090

- 4e -

PENNSYLVANIA PUBLIC UTILITY COMMISSION Harrisburg, PA 17120 Pennsylvania Public Utility  :

Commission, et al.  :

v.  : Docket No. I-79040308 Metropolitan Edison Company and  :

Pennsylvania Electric Company,  :

Respondents  :

PREHEARING ORDER At the Public Meeting on November 8, 1979, the Commission ordered the consolidation of the following matters at this docket, for the purpose of hearing: .

1. the Order to Show Cause adopted September 20, 1979 against Metropolitan Edison Company (" Met Ed") and Pennsylvania Electric Company ("Penelec") regarding the used and useful status of TMI-1,

2. the Petition For Modification filed on Novemoer 1, 1979 by Met Ed requesting an increase in its levelized energy cost rate, and

3. the Order to Show Cause adopted November 1, 1979 against Met Ed regarding revocation of its certificate of public convenience.

Those consolidated matters were the subjects of a prehearing conference at this docket held on November 13, 1979 before presiding commissioners W. Wilson Goode, Chairman and Michael Johnson. This order contains the rulings and determinations at that prehearing conference.

143[g 09I A. Conduct of the hearings The Commission will preside at the reception of the evidence and will render a decision based on the record without the interjection of a recommended decision by an administrative law judge. It is the intent and desire of the presiding commis-sioners that any new members of the Conmission who may be confirmed while this record is open should participate fully in the final

..v'.

determination on the record, to the extent consistent with according all parties due process of law.

Advisory counsel may be permitted to question witnesses on the record. The Commission's advisors in this proceeding are, in addition to commissioners' assistants and the staff of the Office of Special Assistants, Steven A. McClaren, William T. Hawke, Frank Dorsey, John Steslow, Jack Polk, Glenn Bartron, and Ken Villwock.

All filings and submittals should be addressed to the

, mretary unless otherwise directed. Attached to this order is a tentative service list of persons upon whom service must also be made. All persons not included on that list who desire to be parties in this proceeding should make that request in writing to the Commission and should appear at the continued prehearing conference scheduled for November 27, 1979. The official service list will be made final sub-scquent to that continued prehearing conference.

B. Parties The presiding commissioners recognized as parties or allowed the intervention of the following persons:

1. Respondents, Metropolitan Edison Company and Pennsylvania Electric Company

2. Commission staff

3. Consumer Advocate

4. St. Regis Paper Company of York, Airco Speer Carbon Graphite of St. Marys, Autex Corporation of Meadville, Avtec Fibers, Inc. of Lewistown, and P.H. Glatfelter Company of Spring Grove, jointly

("St. Regis, et al.")

5. Patricia Street, Dr. Timothy Percarpio, and Three Mile Island Alert, Inc., jointly

(" Patricia Street, et al.")

6. Senior Power Action Group of York and Louise Riley, jointly (" Senior Power Action Group, et al.")

7. Holly Keck and Deep Run Farm, Inc.,

jointly (" Holly Keck, et al.")

1

8. Bethlehem Steel Corporation 143/vL92

9. Standard Steel Division, Titanium Metals Corporation of America (" Standard Steel")

10. Citibank, N.A., Agent ("Citibank")

> s..

Attorneys, John Fullerton and C.B. Zwally, were listed on the Commission's appearance sheet on behalf of what appears to be unspecified industrial customers of Respondent. These counsel did not respond or appear when the presiding commissioners asked if cther counsel were present who desired to request the inter-vention of other persons; nor are we aware that they have filed a written request to intervene.

The Commission had previously received a complaint docketed at C-79101682 and filed by Limerick Ecology Action and Louise Dufour.

At the request of one of the complainants, Louise Dufour, the complaint at C-79101682 was consolidated for purposes of hearing with these pro-ceedings at Docket No. I-79040308.

Mrs. Patricia Smith appeared and stated her desire to represent the people of Newberry Township, York County. The presiding commissioners deferred ruling on her request to intervene until receipt of a written statement from Mrs. Smith.

C. Issues The presiding commissioners stated their views on the issues to be addressed, as follows:

The Commission is of the opinion that the brcader issues of the viability of Met Ed as a public utility and of the long-term actions to be taken by the GPU Companies as a result of the TMI accident must be develop'ed on the record before the Commission can consider and address the narrower ratemaking issues presented by the Order to Show Cause regarding the used and useful status of TMI-l and the request of Met Ed to increase its energy cost rate. The Commission comes to this prehearing conference unwilling to set rates for Met Ed and Penelec without considering the long-term circumstances of Met Ed and the GPU Companies.

T.herefore, the following matters should be developed on the record early in this proceeding:

a. a statement by the GPU Companies describing, in chronological order, every significant action that Met Ed, Denelec and GPU are or will be taking within the next four years. (for example, major securities

.2 issuances, studies of feasibility of converting the TMI plants, changes in management structure),

b. a study by the GPU Companies of its sources and uses of funds, by month and by major category, over the next four years, 143E093

, k,

c. a projection by the GPU Companies, by month, of the revenues to be required from ratepayets over the next four years, and

d. a projection by the GPU Companies, by month and by major category, of the revenues to be required from securities financing over the next four years.

The Commission expects and requests of the prosecutory staff, in memorandum or testimony, its recommendations on the most appropriate analysis for the Commission to employ in assessing che long-term financial viability of Met Ed as a public utility, In presenting a recommended analysis, the staff should include consideration of the costs to be incurred by Met Ed, its ability to finance those costs through securr. ties financing, and the probable required 1cvel of rates or revenues to be collected from ratepayers.

The narrower issues before the Commission in this proceeding appear to require that the following matters be developed on the record:

a. a description of the status of TMI-1,

b. a detailed breakdown of the costs associated with TMI-1 which are currently reflected in the base rates of Met Ed and Penelec, and

c. a detailed presentation of the monthly energy costs projected to be incurred by Met Ed through the ecd of. calendar year 1980.

All counsel were directed to submit to the Commission, not later than November 23, 1979, memoranda addressing the parties' positions with respect to the issues to be addressed in these proceedings, the order in which those issues should be addressed, and identifying any special witnesses to be presented.

Further definition of the issues will be considered at the prehearing conference to be continued on November 27, 1979.

D. Scheduling of hearings }43 d94 The. presiding commissioners set November 27, 1979, at 10:00 a.m. in Hearing Room No. 1 in Harrisburg, Pennsylvania for the continuation of the prehearing conference.

• A ,

The hearings in this proceeding will begin December 10, 1979 and contin.le thereafter on a schedule to be determined.

Remaining matters relating to the conduct of these proceedings will be dealt with at the continued prehearing conference.

This order may be amended or supplemented as additional matters relating to the conduct of these proceedings are considered.

./A W. Wilson Goode, Chairman Michael Johrfson Commissioner Presiding Commissioners DATED: November 16, 1979 It ' (

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,  ??. TELS0!i GOODE, CMII21AN 10 MICIIAEL JGIEE05, CD'O'ISSIONER 4

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! Frincical Advi::or to the Commissicn 12 i SidiUEL 3. EUSSELL, ESQ.

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~

qAFPEAPECES

(Continued) t 20 WALTER CGHEM, ESQ., Concumer Advoccte '

y! CRh1G BiJRGRAFF, ESO,

l. DAVID BARAS0H, ESQ.

}! l 1425 Strc:faerry S'uare q

.(. j Ecrricburg, Pennsylvania i

! i s For - Office of Censumer Advocate f,

JGIN 3. FULLERTCR, ESQ.

0 1 407 north Frcut Stroct Hcrrisburg, Pennsylvania 17101 7 and C. B. ZMALLY, ESQ.

8 1801 North Front Strcot Harricburg, Pennsylvania 17108 9

For - National Forge Co., ct al 10 GERALD GCETISH, ESQ.

12th Fleor, Packard Building 11 Philadelphic, Pennsylvanic 19102 12 For - Citibcnk. N. A., Agent

{.-

13 I JOSEPH MALATESTA, ESQ.

AIJ3ERT W. JOHNSON, III, ESQ.

14 North Office Building ,

Earrisburg, Pennsylvania 15 For - PUC Trial Staff MAURICE FRATER, ESQ.

16 100 Pine Stract Earrisburg, Pennsylvania 17 ,

l

/ .10 For - Avecx, Inc., et 900R BR;GINAl LERNARD J. RYAN, ESQ. i 19 i 000 North Third Street Hcreiaburg, Pennsylvania

! 1 20 For - Bethlchem Secal Corp.

STEEEEN A. GEORGE, ESQ.  :

21 600 Grant Otrcot PittsburSh, Pennsylvcnia 22 l For - Secndard Stac1 Division of Tituiua Metals ';

l Corporation of Arerica j

LOUISE DUFGUR

( 24 l Een 10 l43[ d97 O\\

i ocho, Pennsy.lvania 19456 25, For - Litorich Ecology Action

. =rar c:s o v.xx:r.t m . - er ::. :.c c:an: t.w r.vt. - Frxece.;.2, ra. :r: s:

_ _ - . - - - ~

2A

( 5. APPEAPJ2NCES: (Continued) 2 PATRICIA A. SMITH Bo= 52, R. D. No. 1 3 Etters, Penncylvania For - Heifacrry Township, DII Steering Committee 4

5 7

30CRBRIGEL 8

9 10 11 12 0 13 14 15 16 17 18 19 20 il 22 20

( 24 1436198 ,

25 570EMCACI a I*AMS7 tat., "W.= L7 N. L0cxWILLow /#w-HARIt:CDUMO, Pf 17112

3 v i L;

i-g .I .: T H E C IIA I RFIAli: We would like to call thic 1 3 hlpre

-hearing conference to or6cr. Uc vo tid like to be ac T)sV inforunl ac possible, but very well or;;anized, and co we will.'

h 9 di{ proceed and I have a mtmber of things to cover and thon I f aj b  !

will get to the point of having your inp:tt into thic  ;

i

• 1 "r t conference. ,

l 7 This is a pre-hearing conference in the caso of 0 Penncylvania PUC versus liotropolitan Edison and Pennsylvania 9 I Electric Company, Docket number is I-79040308.

10 At the public meeting on November 8, 1979, 11 " the Commis0 ion ordered the concolidation for the purpose U> of hearing of tbo follouing mattern at this- docket. Humber U cne, the order to chow cause adopted September 20, 1979 1"eY*n against Met Ed and Penelce regarding the used and ucefulness 15j of THI-1 and number two, the petition for modification 10 filed on November 1, 1979 by Met Ed requesting an increase i

17 d in its levelized energy cost rates and number three, the 10 crdor to show cauce adopted Nove.nber 1,1979 against IIet Ed 19i. regardinC revocation of its certificate of publio 20; convenience, i

31: Thece consolidated mattera are the cubjects 2 of thic pec-hearing conference. The Commission has decidol, l 2I 30 hear the evidence and to render a dacision based upon

.- j l b Ei3bthe record withcut the interjection of a recommanded decia".on C3 by the Adminit>urative Law Judge. ,p 9

-:..= : ~e c. re.-m : n . . . -v r:. o::w::. 7.c a n . =:n r::, ra. m: - -I

i-7...__... . . _ . . - - . . . _ . _ . _ . . _ . . _ _ _ . _ _ _ . _ . . . _ . . . . . . _

f

- - It in che 6ecire of 31m Cormiccion ti.".c ai:7 E' ' , n a r 11c a b er:: of che Comnicc10n ':he uay bo confir. rod rhile thit L

n ti

' n. :' acrd in o;en r.hould participate fully 1-- the final 1: .

d. Jotormination on the recor6 to the entant concincent p <

0h uith according all partiec due procesc of lau. j G .

b From tino to time, during the conduct of o ,

,, t -:1 (1( these proceedings, the preciding Conniccioners nay confer ,'

ti guu with the advising counac1 and may permit advising councel j

a .

li l O 'l to question witncscos on the record. In order to fully o

II e d

/-

adviceallpartiesintheproceedingcandadvisethefunctioq 11 I of the staff in this proceeding, we will identify advisors i

U ,D i of the Comnission.

t i 13 h In addition to the Commiccion's ascistance b

1 and staff of tile Office of Special Assistants, the Corr.missioW s

-9 n D: principal advisor 1: Stephen A. McClaren, Deputy Chief d i

,,o .

L r Counsel, along rith the following staff memberc: Frgm ca ,

i. ,

U,. ' Lar Eureau , t.'illir.m IIawk. Proa che Office of Special IE I.cciatanhc, Frank Dorecy; from the liureau of P.aten, John 3,  :

Sucsler anS Jack Folk; from tha Eureau of Audite,  !

i i

2 ^' ' Glenn Bartron and frcm the Burnau of CEEP, Ken Villwock. j

/. .. Procecuacry Staff is raady to identify all 12 parties of the 16ani:it:r of the Froaecutory Staff in these

.3 proceedinga. Do you tav3 thosy ramcc down, i'Ir. I.ialatesta?

( .M . I E .liA L.t.T E S T A : I can propare a document with  !

i

c. '

all namec.

= . .. . n . . w.= . . .

. c.=1.,4 M. .~10.0 -

P001DHlN; .-

S

,f

!- T ? E C E A I Iifi?.U : f.11 fili.nys and cut:r.ittclo u

,? should be cddressed to the Secretary unlecc othertilse '

(; ,

3j directel. Subsecuent to thic pre-hearing conference, a

'l

.* .:. '. : the Ocm'11ccion will distribute an official service list >

's 5 lj of personc upon v:hom service must cico be made, which L-ill .

$, consist of c11 active partiec and our principal advisor.

i -

1 y" liG will follow an outline during thic procOCd.4.nCi I

1 i

6 t

in order to, though it be informal, to try and develop j 9 ;i some ordcr that we may expeditiously dispone of the matters d

i 10 [ we have to dispose of this morning.

11; i

The topics for discussion at this pra-hearing

?

12 conference are as follows:

13 Number one, identity of parties with their i

J..f i participation.

15 Two, icsues to be addressed.

i' 16  ;

Third, scheduled hearings.

t yg Mumtcr four. crder of cvidence, witnesses.

f Numbs.r fire, tatters of discovery and submission;

...c  ; of direct costincny.

y,g The Commission recom11ces a necoucEry party

..,.. te this proce3 ding, th3 reGpon6ent, not Ed and Panelec.

[

.i  :

s. - .; '!c trould like to csk Caunsel for TIei. Ed and Penelee at this  !

I p; a tima cc identify yourc.lf nr.d ctate your full name and ,

1  :

(~ g{.ddre30 fo" the purpoa3 of service documents and also {

7;' j 16entify anyonc else who ic with you, Mr. P.uscell.

Y d1 ~  : . .: .  : : : :. -. ~. : :.c . ::: c. v::. . . :n.~.- m=.. , r: c . t : - ~~~~i 14 o 10

._ . .. o_ -

iJt. I'USSELL: My na:r.3 ic Ennuc1 E. 10 0 e 2.1, Post Officc Dor 699, Reading, Peancylvania, 19603 an.

)

ancociated with me in this orces:CnG are Meccrc. U. ".Muin  ;

.r

j'. CCden and I.lan M. Seltner of our firm of Ryan, Ruccell & .,

P [l.McCenaghy of the same cddrecs. l.

n.

With me at uhe table ic fir. Fred D. Kafer, j t

,. t d

Vice-President of Raten of GPU Service Corporation. .

n1 *

< Mr. Eugene Carter, Assistant Vice-President, Rates, of v... t i

I

.c 5

same company and Mr. Floyd J. Smith, Senior Vice-President  !

i 10 i of Metropolitan Edison Company.

O i l THE CHAIRMAN: Is that it? Will you represent I

^^ i. the respondent in all mc.tters before this Commiceion in this G -

1. hee. ring?

N MR. RUSSELL: I expect to and we may very well

' O . have further. participation in the legal representation on 'she i l'

1 p> ;.

part of these respondents by James B. Lieberman of the firm u

A,' ' of Ecrlach,. Israel & Lieber: san of How York.

AT THE CH/ IIP. MAN: rould cour:sel for the f d.. , '-

prosecutory staff identify yourtelf and state your full k nonc and eddress for the purpece of service of documents?

M. MR. i.-IALO.2ESTA : Joreph J. Malatectc., Jr.

N and Uith re ic ".?.bcrl. W. Johnson, III: both of us cE.n be IU' served at Roca G-.28, !!crth Offico E il5ing, Harricburg, 1.1 Penncylvania. 17120.

N THE AD:iINISTRATIVE LAW JUDGE: For the

.. ~ -..=:.._...: :-. , - .. , . : . . .:. :. .. r . ......-.,e3.-..,2,,...

m , .. _

P00R ORG R . . - -

?

0 -,

l!

i prosecutory sts.ff. uil:- vou particip:.te fully in c.11 natters 9

~~

before thic Commiscion?  !

t i'R. MICATESTI.: '?es, cir. Wo , rill.

i

/. i THE CHAIRiIlm We would lil:e to ask tho 5 Consumer Advocate if you may identify yourself and state G

your full nace and address for the purpose of service of l

7 documents and alec the name of the parties that you represem},

8 i t the public, of course and the name and address for service o;

i and reason for it et cotera. The reason for intervention 10 and so on.

11 MR. COHEN: Walter W. Cohen, Consumer n"o Advocate and Assistant Consumer Advocate's Craig Burgraff 13 i and David Bt.rasch,1425 Strawberry Square, IIarrisburg, 4

14 *-

Pennsylvania 17120 representing the Office of Consumer i

Advocate and the Consumers under our mandate through che N 3catute creating the office. I 194 And i:e till be present on all issues in the 10! proceeding.

10 THE CHAIRMAN: Okay. There are some persono 2 here who filed petitions to intervene. Some of those we i

3N have accepted and de.e.lt with. We would like to have each of 2Ef' those persons identify yourself 3 name of counsel, nams of I I

E ahe partiec you rapracanc, ntna and ad. dross for purposes  !

> l I

( Ed.i of service and the reason for irtervention. .

"* If you forget the fcur things I mentioned, you Y- t:c:=: . c : caux :.v-. x=. -: ::. :.u: .-.:w.sv: r.,:. -. n:.w::=.r==. r.=. :21:

\ AY \N

8

.j i

(~ may proceed, sir.  !

o

]!

MR. FRATEu: saurice A. Prator, McNecc,blallace, 3 & Nurick, P. O. Box 1166, Harrisburg, Pennsylvania.17108 "I representing St. Regis Paper Company of York, Pennsylvania, 5 Airco Spear Carbon Graphite of St. Marys, Pennsylvania, 6

Autex Corporation, Meadville, Pennsylvania, Avtec Fibers, 7

Inc., Lewistown, Pennsylvania and P. H. Glatfelter Company, c 8

Spring Grove, Pennsylvania, all of'which are customers of 9 either of the respondent companies in this proceeding.

10 We plan to participate en the issue of'the 11 Met Ed rate' increase request and on the issue of the show cause order with respect to the certificate of public

( 13

convenience.

1 ._

.54

~~

Cur witnesses on each of those cases are D*

15

expected to/ presented.

10 i MR. WIDOFF: My name is Mark P. Widoff, 4

II for purposes of service of documents and our address is 18 P. O. Box 1547, Earrisburg, Pennsylvania 17105 We have thl i 10 -

morning filed with the Comnission a petition to intervene t

7,0d on behalf of Patricia Street, Dr. Timothy Forcarpio and I

-e i

'" t Three Mile Island Alert, Incorporated. Patricia Street 9

"3 [t; is a customer of Metrooclitan Edison Company as is no!

"" Dr. Percarpio, Three tillo Island Alert is the Pennsylvania

. I o^-

- " # 1j; Mon-profit corporation which has many members who are

!i "S customers of Metropolitan Edison Company and many others who

-  ::c:me.es o ::i.ne:c,: m=. .-::n. t.w:mu.cw xer. -- nr.nm:uune, n. m u -

f ;

9

1

- t F 2-i reside n ar the nuclser reactor at Three Mile Islctd. [I t

f At thic point, ue trould tentatively say, e

Mr. Chairman, that we are hopeful of being able to participate 4 in all three issues that are beforc you, but we would have to cay that that rould dcpend, a great deal, on the decinians 6

that are made today reEcrding scheduling and the time frame 7 within which we might te able to prepare.

8 The reason for our participating as customers o

of respondent Metropolitan Edison Company as we allege in our 10 petition, customere have a strong interest in any decisions 11 that might be made regarding all three issues in this proceec~ ing 1 '

and petitioner, Three Mile Island Alert has a strong interest G

both because of its membership of customers of Metropolitan N Edison Company and the many residents of this area who are

-r

deeply concerned about the decisions that may be made in 16 the coming ueeks by this Commincion.

17 ! MR. LINIEE: My name is Alan Linder from 1

10 i Contral Pennsylvania Legal Services. Finiling address for E , , service of documents wculd .,e 10 South Prince Street, 20 Lancaster, 17603. We represent the Senior Power Action t

. ;i 4 ', Group of York and Louise Riley. Louise Riley is a customer 22- ! of Metropolitan Edison. All the members of the Senior Power Action Group of York are customers of Metropolitan 2'.') Edison. They are all low income and elderly persons.

20 l We partic5 pated in the previous proceedings in LIOTr/4M O Fit!' CUT.I !W:. -2*/ N. LOC'" 7LtcVI /NI:. - MJtmfitJRG pN.1711R V. 143% 105

10 n i h  !

0  :

• n t R

tu e case and uc have petitioned tc .:.nuervane ca uct i'cric c e n

1. ' l that we are customers cf I;atropolitan Edison and cartier.?.arly 4 i e

! t

- lot; income and elderly cr.stcmsra.

- We would lihe to participate in all three j t* i insucc before the Commiccion. Wo do not know the extent cf

.,l 6d our participation at thir. time.

7 THE CHAIRiiAH: Thank you.

b My name ic John Bowers, papers MR. BOWEFS:

C can be served on ne at the address R.D. 7, Box 380A, York, s

10 l Pennsylvania 17402. I represent two intervenore. One is 15 Holly Kcck and the other, Deep Run Farm, Incorporated, to

~

both of which are conswrer ratepayers of respondent 15 Metropolitan Edison Ccapany.

14 We expect to participate in this proceeding "r

i with respect to all icanas before thic Commission and in u,

particular, to assict in whatever way ne can in developing a

• i n b

- ' '; record t:hich will cdee.w.toly encble thin Corr.incion to caka a Actormination t.: to UF.sther I'otropolitan Edison t Coupany 10 capabic of provid:~.na; nefe end roliable servico I-

'c'( p' at just and reasonable rates.

,.b,

- - T3E CHAIR!iAI-i: 1.re there any c,ther attorneys i-herc?

43[106

"[ ..

<*i I7R. IiTAII: Yes. .

\ ' @ ,F,'

( i; THE CHAIRTII.II: Will ycu take a seat here, 9 ."

sir?

- - - r:::m.=:. -: n :u r:.1., a:.-: u. w::x. .. ev, x::. ur.r.::nur. , c; m:r. _

.t i

L 00 . -

5 t,

'f. 1R. F.R :: i'y nc. n 2 lc 3 rn,rG Ff:cc;.

I can be t h !' scrved at C00 licrbh Th. :?S Stra t. ~:crricburm Fcanarivanit  ;

il ,

E 3  !

17102. On behalf of Ee3hlthem Sun.'. Corpc?aticn, tre aave  !

4 i

{ filed a petition to continue our '.nuervenor statuo in thic  ;

i  !

I is i procccding. We nich to be able to participate cs the t 0 proceedingc develop on all three insuen, clthat[;h the exact f

? scope of our participation cannot _be deterr.ined at this title.

U Our primary interest is in the statuc of I

OI Three Mile Island Unit No. 1 and the impact that these  !

10 proceedings may have both en the rates charged for the Ti cervice which Bethlehen receives from both utilities a.s well 12 Es the continued availability of adequate and reliable li

' 13 electrical service sufficient to meet utr needs in the future .

14- t MR. GEORGE: My name is Stephen A. George.

1F I am with the Pittsburgh firm of Euchanan, Ingersoll, f.(; Redcrald, Kyle & Buerger. Service address is my offico,

', 57th Flocr, 500 Grant Streab Pittchurr;h, 15219. Ue filed .

..J:;, e patition to intervenc cn beht.lf of Standsrd Steel Divisicn t-i of Titaniun Tctalc Co:?toration of imcrica. Standard Steel I

2') 10 a larGe inductriti cuctcmer of the Penelec Ccr.1pany and F

3,j 31:e interant in this procoeding: Ic going to be confined to I U 3:e,l. iscue number one3 cs it cppeart in your notice of Kovcmtar

) ('is

3

per

aly

.us cedor cc chou catsa concerning the uced and '

( 3.) treful ctatuc of Thraa Mile Island Unit No. 1. 143 107' y; We could not be participating in the proceeding, re::n .::r n urn .:.. m . . r n. .a: x u rci ve . - wment no, vc. n i u --

e P00RORHIL 1, e i i i g ..

I to the extent it conce.rna cho requoc'- by Metropolittn  :

3, Edis on Cor.pany for an increase in ic: icycliced cosc rat a I E'

or the proceciins concerning its cercificate of public i i t convenience. 6 1

i 0 IIR. GORNISH: My nano is Gerald Gornish, 0 i and for cervice purposes, Uc1f, Dlcel:, Schoor and Solis-Cohen, 7 Twelfth Floor Pachard Building, Philadelphia, Pennsylvania 0 19102. Our firm represents Citibank,I!.A., Agent, uhich in 9 a creditor of the utility iletropolite.n Edison. I intend to 10 file a petition to intervene momentarily, as coon as I can 11 prepare it.

We were just retained yasterday. We, at this U

point, are not cure how far we will participate, but 14 obviously, we have a strong interest, especially in the 13 third iscue before the Commission, and depending on the 16 coheduling and uhat elce happens, thic will depend on the

?.7 I extent of cur participttion.

2E ; TEE CHAIIli!AN: Are there any other attorneyc 10 hcrc uho represent any clientc? Is there any objection by 20 any of the partica to the intervention of those who have

{

21 j indicated their desire to intervone?

23 $ (No retponse) 2

' 143-l 108 miiE CHAIRiiiLI!: No ob;iectienc?

( 2fl "t> mR. RUSSELL: ITo.

25 THE CHAIRMAli: The Ocmmiccion nill rule that thc r.:c:. n.e ::: s we m me. -. :- n. .:=:::.m.:.v:: r::x =.a::= r.=, v:.. m 1=

. l . __

?.3

!a .

I p

(  : f,[ pcrtica irar intervor:e c.nd cenS a ccc er:ar$ al ic;,,er do esch. ,

I f,; '.4 also ht vc befora un a complaint filed t'

[ Limerick Ecolog:; Action, ar.d Louic: Dufour. In there comaonc;t

)q . I hero uho represents the cccplainant? You do. Do you trant

</] '  ;

P1 your complaint concolidated with thic proceeding?

'l MS. DUFCUR: Yes.

,, i t j THE CHAIIU?AN: Mould you come forvard and i

G '

junt state for the record - - I will just indicate again for o

the record that a complaint han been filed by the Limerick 70 Ecology Action and Iouice Dufour. Uould you state your na'.ie

.f *[

^^ and who you reprecent, please?

n i'

^~

i.IS. DUFOUR: My name is Louice Dufour and I j represent Limerick Ecology Action, tuo of our membars were N  ! parties to the initial proceeding and they are unable to i

attend co as co-ordinator of the group, I would like to 10 ,

represent them. Chr.rlos Brocini (phonetic spelling) and M Philip Mocter (phonetic spelling). I believe they petitionebl

.. > 5 - ,

1

.. n T3E CH/.IRMIJI: They hn e filed a potition on 3

3 compicint. Do you know whether they filed it? 4 i

~! i;3. DUFOUR: They did file a complc. int. I I. . ; -

THE CHAIRE M: Do you hava any record of i i

i b~ f ^, i cn:rthius t'lled, !?r. IIcClarsn? I t

1 lh i

/ MR. McCLAREN: I!o . j4 D; THE CEftIEMAli: Uc hE.ve no record of anything I l

- -- r - - .?. e. . . r. - .. .z., . . .. , r . .. , c. .z. . .a,,,;, ..,_ ,., m ..

.. r ,., , m .

.. _._..___.~.___....._....;..__..

14 l

l

- i bains filed. Houover, if the Corr.ission at any titz l

n l receives a complaint or petition, they at that time will I* '

act upon it. We do not have anyt'. ling before uc Et thic

~

- time other than a complaint filed by you n". Docket Ho. C-79171602.

U!

Docket lio. 79101682. And you ansucred in the affirmative that you did trant thic complaint consolidated with these proceedings. Is that correct?

MS. DUFOUR: Yes, it is. ,

o THE CHAIRHAN: The Coir. mission will act to 10 consolidate the complaint with the proceeding before us.

11 Is there any other parties here who represent ye

the public?

U MRS. SMITH: My name is Mrs. Patricia Smith.

1st'

I am a resident and interested party and I would like to i

U represent the people of Neuberry Township, York County.

II) I would like to participate to the fullost extent the

~

g good Commissien will accord re es an interected party.

,d,[

THE CHAIRMAN: Do you plan to have an attorney

. . . fi Ri or do you plan to simply represent yourself?

I 0,3 i MRS. SiIITH: No, sir. No attorney. I uill reprocent myself and the people.

l43 T', THE CHAIRMAN: Thank ycu very much.

2- M113. SMITH: One additional statement.

b 2/i We awe here because we are consumsrs of Metropolitan Edison.

d, Thank you.

V i-

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t

- , . - . .- . . . - ~ . ~ . . . - . - .- . . . - - - . - -

c

.t .>

5:  !

q ;,! TE CHAIP.'il.li: I'c11. .-~ ,;r nt c o c s h di ?_ y o'.t fi..e r 0 .

\

2.1 h l*

a doeur.:ent with our CommicLlon , yet?

P 3 iCS . SUITH: A lette" Ubich acys rc .^?: .

f. , a pcrty of interest s.nd I have somathing here tc give co t 1

5 someone. -

t 0 TE CHAIP.MAU: You ehould file that with us i

?-1 so that us can cet upcn chat document that you referred to.  ;

8 MRS. SMITH: Ohc11 I give it to this gentleman?

I 9 I4R. McCLA7EN: You chould file it with the I.

I 10 p Occretary. }

i 11 MitS. SPIITH: May I do it this morning?

12 MR. IicCLAREN: Yes.

.' 13 THE CHAIRMAN: Is there any other person, 14' attorney within the room here uhe deciros to participate 15, uno has not stated your nan.2 for our record?

I 16't (iio response) 17 THE CHAIRMAU: The cecond item on our agenda i

1G cc co had talked ras the issue to be addreased. The Comni.9ston 1 .

, s mi 9G of one opinicn tin.t the broader icene of the viability i 4 i

'C " e :' Met Ed as a public utility c.nd of the long torn actim *a'

' i I

31-, to teken by ch:- GPU ccapany as a result of the TMI accident !

i ,

p ]J l h ranct be dcirclopcd in che r:ccrd before the Ocamission can 15 f,. O. consider and tr.%rens the narror rtte rcaking icnuen shown i 3

I

.v a.; by the order to shcr cause rcgarding the used and usefulness{i 1

.,3 ; status of TMI-1 s.nd the request of Mot Ed to incroace its n ,

iL--  :. r- 4:..: :: .:.v:: :r.:.. r - u r:. r.:wce.:e. eux=. - :v- xr. . r. m m --

t

\

li o .

.: h I f " [. energy ccct rcte.

n y To juct ett that in plainer terma, and thet is i e,1;

' }

i that the Ocmmicsit.:n is of ahe cpinion thtt the or6er to l r

ohou cause issue on 1 Movember, 1979, concerning the l 5 i order to shou cause ac to hy the certifiente of public  !

6  !

l convenience should not be revoked Ghould be dealt uith initi(11y 7

and the other tuo items will be dealt with following that.

6 The Cotr;.tission comes to this prehearing conferer ce 9 l unwilling to set rates for Met Ed and Penelec without 10 l 1 considering the long ter:a situation of Met Ed and GPU l

11 companies. .Therefore, the following matters should be 12 developed on the record early in this proceeding.

A, a statement by the GPU companies describing 14 i in chronological order,cVery significant action that Met Ed, 15 Penelec and GPU are or vill be taking within the next four 16  ;

years. For example, mnjcr security icsues, studica of 17

! 1

.. ., h; feac1bility of converting uhe TMI r.lant, changen in manageneQt

1. h ouructure.

19fi a B, a ctudy by the GiU companies of the sources tj

'01

~i  ! nnd uce; of funds by conth tnd by najor category over the ol "!l next four years. i

,e

"'P 143 112  !

C, a projection by the GPU companies by ronth

-~y,h

, cf the re n nen to bc required frca ratepayers over the nr-t I D  ;

four years and; I p '

25p d D, a projection by the GPU companies by month

~::- :.m a tw :: :a n:::. - e ;ncn:x.n: i. -- exmmu..~, w m:r. _

17 t I l

g I. -

and by tajor catcsory of the rcvenues to be requirsd fron l i

, i o securities financing o- cr the next four years. Commission f l I

3 i carects and requests of the prosccutcry staff a r.ercrandum ,

i 1

4  ! or testimony, its recommendation of the most appropriate 5 '

analysis for the Commission to employ in assassing the 0 lens term financial viability of iiet Ed as a pub 2.ic utility 7 and in presenting a recor.n. ended analysis, the staff should 0 include consideration of the cost to be incurred by Met Ed, 9- its ability to finance those costs through securities 10 financing and a probable required level of rates or revenues 11 .

to be collected from ratopayers.

i 12 The narrow it.s as before the Commission in this O u -

proceeding appear to require that the following matters 14 I

., be developed on the record.

I 15 A, a description of the status of TMI-1.

16 B, a detailed breakdown of the costs associated i I

.l )

w ;, with Ti4I-1, which are currently reficcted in the base races 7.8 of Met Ed and ?cnelec and C, a detailed presentation cf the 0 i monthly energy costs projected to be incurred by list Ed to

%' [, the end of calender year 1900.

t' 21 1 These cc:mcents on the Ocmission? s viens of the [

i T..y fgstes co be addressed are for the 3;uidance of t:1e parties. l r  ;

.. - t -

^l We nch inrice the parties to co.unant and discuss the issues l M1 that we have put forth. Before tre proceed beyond c* his poirt.;l 1

,, R.. > {

s.

12. GEORGE:

i f.C'C.iC".* S I: I/.I.CUs".k.

Sip;withrespecttotheenergycOEl33 UIO. ** 7 II. I.CO*N'!CECYT [8.".. **/.UCI!CI.T.Os Eel IU IS -

143$113

_ x - - -. - - .. -.- - . - - .

18

)

}-

( "

of IIet Ed, I'm wondering if you soulda t want to include 2 I Penclec in that. I

(

3 1 THE CHAIRKtJI: Are you talkin;; about E that I j j.

mentioned last? A detailed breakdown of the costc? Unich 5

are you talking about?

6  !

MR. GEORGE: You were talking about the status 7

of TIII-l and then you said influence on current base rates 8

of both Met Ed and Penelec and then as I understood it, 9

you vere talking about the energy costs of Met Ed. Now, 10 was it the intention just to leave it there only because 11 Met Ed asked to -

12 TiiE CHnIRMAU: The intent was to leave it there.

O 13 But we have no indication from Penelec - -

14 MR. GEORGE: The matter of looking at that, 15 I uondered why not include them both?

16 THE CHAIR >iAI!: Uould you want me to review the i

1

~7 i

'. issues again?

l b j MD. RYAN: Ucul9 :cu read them again,1: lease, f

Mr. Chairman? l4) ll4 00

~

l TIIE CliftIRMAll: Vould I read them again?

l l I indicated that tha following iscues should bej '

" l' addressed during thcce procaedings.

, , - t i A, a statemant by che GPU companies describing !

5  !'

> 'v.

i in chronological order every significant action that Met Ed,i t

J

- r: .

l

~!I: Penelec and GPU are or till be taking within the nszt four u r.3 :m:; c:: e tw;;;;2, ixc. - r. n. ecstto*.i ".tr. - :: _*:r.!c: ;rs, M. tM :n i

.r s

19 l

r IIcj or secu~' icier iscucs. studios [

-- years and I gave cxti::ples.

i S of feasibility of conversion of the EiI plants and changes l 3 in management structure. Any n'ajor or significant item.

f

' ' ,  ?

B, a study by the GPU companies of the j sources and uses of funds by the month and by major 6

category over the next four years.

7 0, a projection by the GPU companies by month 3

of the revenues to be required from ratepayers over the 9 next four years and; 10 D, a projection by the GPU companies by month 11 and by major categories of the revc-nues to be required from

>m "

securitics financing cvor the next four years.

I then discussed what I felt were the narrou

~*'

issues.

15 A, a description of the status of TMI-1.

10 B, a detailed breal:down of the costs associated l'? iith EII-1, trhich are currently reflected in the base rates

-I 0 !i of Mat Ed and Pcnolec.

h

,! C, a detailed preacntation of the monthly "O'

i energy costs projected to be insurred by Met Ed through the i

~,

~

J'L '; cud of the calcudar year 1930. j

j r.ny Sh.. Is thero/ discussion of tl.eae items thus fat'?

o ,a

-+b , Or would ycu lil:e for me to - - yec: ::r IIalatenta?

1 M IIR. MALATEST!.: The last three itsras you read, .

,a

<-' j . sir. including the description of the costs ascociated with 1  !

c:r.:7.ct: rmnn.. :. e. .- p :.:. :.ecr :ua y . - w u wxt.c, : . em.

143(,i15

m -s- -

..s. _ u -

20 i

I' I

~~

TI~I-1, the base rates, are those evidenciary materials

{ {

?, 3 I that you expect from any pr.rticular party or do you expect that to be talten care of as we proceed?

4 THE CHAIRMAti: We vould expect that the I

6 I major party in presenting this material would be IIetropolital.

G Edison and Penelec. Ec would expect, however, that any 7

party who feels that the party has anything significant to 0

offer would do so.

r

~)

MR. 14ALATESTA: While I hiwe the microphone 10 in front of me, before it proceeds down the table, you 1

~ 'i~

read an expectation that the Commission has of the Commissio; 12 l Trial Staff in this proceeding and it was unclear to me O u whether that is an expectation that we are expected to 14 ll meet at tbo beginning of the proceeding or at the end of the 15 proceeding.

16 THE CHAIRMAN: During the proceeding.

r, si MR. MALATESTA: Thanit you, sir.

M9. 7.USS3LL: I Mink we would lilre to mal:e

.a a couple of comments. First of all, as far as the respondentu.

20 -

! are concerned, this prehearing conference today is premature.

,,.. t fanong other things, no have a prehsaring conference and o;e i "i proposed hearing schedule with respset to at least one natte[,

c a. ; I

"'i for enample, as to one of the respondents hs.s not been

' 4 l

O 116 o i I'd, [. prepared and hr4 time to file an ancuer. 1.43 -j nd

"' In Certainly, accie of the issues that the Commissil ner

~ :cc.: n= c r.m:x . ::c. -::- r:. :.:c:: uraz. ,re::.- um.:: cur.c, n m:: -

..-%%w.. . . , . . , _ , _ .

21

i. <

5: 1

(- Eh raised ::ould be Of rel:7tne; en one or r.. ore of tM l y-li

proceedings that it hcc concolidatei. Ce are quite caticfied i l I' there vill be me.ny more issues thtt will come up snd havc so!

, t 9 j be litigated in connection with the proceeding, j 5 ! But in view of the prcacture statue of this e i 3 0 i prehearing conference, wo are not prepared at this point 17 4 to identify and isolate the various issues that we think e !

i will be no arising in thic proceeding.

9 THE CHAIRMAN: You speak, Mr. Russell, of the 10 ,

fact that the twenty days will elapse on the 20th and 21ct 11 of next week. Of November.

12' M9. RUSSELL: That in the time period from O n- uhich we uculd like to file it before then. But I think I

'#4 1-2 would like to remind the Commission that there is a tendency 9d\i .

upon each unit of Government to accume that it is the only

> b j unit of Covernment to which a particular cutity in c : posed. !

i 1?j I can accure you chat ic not the cituction with respect to I I

I 10 thene respondents, f

M i' They havo very su3ctsntial demands on their

!i r.

'W time end enr-rgies '20 prc7ide all nenncr of materic.1 uith I

.' F. recpect to Governuanta' units et all levels of OcVerntent r

l'

.' ,.' p and I thin'.: thie Co;aitision thould give consideration to tha9 1

.. , i

.Pr Wfect if due prncess of la in to be accorded to these bhj n.

respondents in this proceeding. }43t,l}[ 1

~3 THE CHAIEMAli: The Conmission is willing to

. .. tf I

.:e : . :: :. :r:ne.. . :.:.- a v. 22 rzan 2.v.. - nur.urenc, ri.. :: s:: t

22 I .I L give cny consideration to any nateor "hich in pracsnted l

.% F to us in the proper form. It'. Ruccell, and we ta:ce very

, i i

S serious the matter o due process and if counsd not han c i i j 4l statement uhich he wants to maho, the Commicsion will listen! -

5 to the statement.

6 MR. EUSSELL: I'm stating to the Commission j I

r(.

that this prehearing conference is prenature with recpect O to any number of the issues. I think that more timely l 9 prehearing conference and a more timely hearing schedule 10 would be most appropriate.

11 THE CHAIRMAli: Do you want to discuss those 12 schedules today?

13 - MR. RUSSELL: I think one of the issues in the Secret;. rial lotter with respect to this prehearing conferc.a'l 15 did discuss hearing schedules as one of the items.

16 THE CHAIRMAll: Yes. That is the next item on 17 our list.

i 10 j I4R. RUSSELL: Yes.

19 THE CIIAIR siill: We till be very glad to move 20{i g to the next item.

,.r 4.i. ;g

-i -

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l' I: T (Transcript centfnuo on r.snt page) jj8 4

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er *

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23 i  !

$ I

(- il MR. EURGRAFF: Ue ':ould  !

.1 like to make one state !i elj ment if we could,. Mr. Chairman. He think the Com.aission has i i

3.,,gone to the essence of demands in chic case by not piece-3' l mealing the issues and by, in essence, deciding to conEider I

g the quest.' n on long-ters viaoility as the paramount 1scue.

1 Eb I

think that is the real question.  !

6 '

f n We would li.ke to put the parties on notice d {

that we have commissioned a study of the options available in bhis 8 .

area concerning what type of systen offers the best resulte 9

sl!far as long term viability is concerned and serving the service 10  ! territories involved.

11 We think that parhaps the order of what we are doing 12 lis not as important as the timing. I think Mr. Russell has maele ,i i

C 13 s me inroads into that area. I would just say that if this

,4

.t is going to be done adequately, we are not going to~ piecemeal this matter. It may be necessary to withstand the timeframe 13 that has been listed at least in the prehearing order.

16

( THE CHAIRMAN: We said that wewould move next I  ? l

• p-- unicss there is some ot.her question to a discussion of li 10[ schedulin[;. Yes?

e:

19 p IIR. FRI;TER: .?-

Mr. Chcirnan,'I uould like to ask '

I g the;Cossumer Advocate's Office if it vere appropriete to i

,t advise us of who has been comiscioned to perform the study

-p

. enc what the paramoters of the comiresion to tnat study orga

.i.

M. ~t r

1. j" '_

[cacionare. " hat are their instrunio.o$s.

9, l4 llg Df' -

2i3. BU?.GRAFF: 'Je have no objection to h N telling Mr. Frater the e:: tent of t'n study. He would with- '

,2 -6 3

i hold the nate of the party at thie point in time. We have

a. e r - :ic e..: c-c- : : ace mee ws -- tun.mac: m W:-

E L!

r, H 1'

, i E

no problems in inforcing the parties rho thE. person is

{ c o I

, at .mch time as we thini: it is appropriate. The study j r

T. uill consider the bankruptcy issue. It uill deal with al' I i  !

g i the options that perhaps are open to considerat.".on in.this y

l case, including recrganization, including divestiture of l either partial or total. It may not go beyond this to consider the public authority.

7 These are some of the general parameters.

B We would ask that we certainly not be restricted to some o

! of the examples that wa are giving. It may well encompass I

w more than we have . I think that's a general idea of the type 11 of study we are talking about.

n MR. FRATER: Thank you.

O u ens enA1 amin: Are there ear other commeate

, from counsel on the issues. We are talking about issues

, only, now. Yes. Use the microphone, sir.

15 )

l MR. LINDER:. At one point, an~ order was issued i

"f by this Commission instituting a nanagement investigation 1

17 into GPU companies and to to some extent that might be ld[relevanttooneoftheissuesthatweareconsideringhere, f

.f;[ and I wcnder if the Comrission is considering consolidating i

I that managoment investication into these proceedings cr how that would tie into thace proceedings.

4 120 i THE CH.11RMAN: The Commissior is not considerir(3.

. .; L i

. ! a consolide. tion of tha canagement audit and investigation i m i,

~

'"l Into the management practices of GPU in this proceeding. I b kl: would note that the Co:naission order on management practices b

,1 40 dec.ls with the GPU systcru at least PENELEC and Matropolitan

.- r.;cyn a rm.=:a:.:.. ::=. - = :. m: :va: :u :=:. ~ w nm:m:r.c. c:. =u = -

25 0

._3 d

c 15 Edison. Our order cf 1 I:cvz::bar,1979 deals only tith -

', .! Hetrepolitan Edison. The cchelule for the Commission of the ;

1

,qb manatement audit will go into the year 1980 and therefore. nould i  !

, not be appropriate, available for thece proceedings that we hE7e 4

.. before us. t v I Yes, sir? l MR. BCUERS: Mr. Chairman, in our judgment, 1 g

7 I

the issues as you have outlined them are more narror than G

we expected to be the case based upon your November 1 order 9 l to show cause. In our judgment, it is absolutely essential 10 for this Commission to adequately and properly dispose of the 11 question that it has set for itself in its November 1 order t shou cause for this Commission to give very careful and 12 thorough consideration to conclusions.

The Nuclear. Regulatory Commission, in assessing civil penalties against Metropolitan Edison, to which the 15 6

, Comnission made reference in paragraph 6 of its order to 16 i show cause and to the conclusions of the Presidential I

17 i Comnission with respect to Metropolitan Edison's management 18 capability to operate a nuclear power plant safely to which 79( the Commiscion trade rsfernnce in caragraph 7 of its order to show cause.

7 i

e We feel that the people or the aut horities e

c ,

1S under uhone supervision these reports were prepared should

. .,3 be subpoenaed to appear bercre this Commission in preEent n ,, !-

proceedings and offer testitany and allow themselves to bc I 1

h Mfcrosseraninedandwewouldalsosuggestthattheconclusions, 23 of those official bodies conetitute or make a prima facie

~EIroWl?tgEitiS;31'eWoi35ff 56f liidYs6h"ff "iH ~ FEE ~df 56fM5!id.trlTCT 1

143 6 121

26 I

. t; 2 operating its nuclear 62nerctinE facilities in E. cafe ,

1 3llU manner and that this Commission should inpose upon Ketropolitda l

3l! Edison the burden of cc: ring forth with evidence to rebut l l

,j that prima facie showing.

5

• /  ; l 3 Secondly, we would hope that this Comm1Esion in\

o the course of these proceedings, vould give attention and  !

87 consideration to the consequences and the alternatives t that might be available to it if it were to take the action of 3

revoking Metropolitan Edison's certificate of public con-9 venience as stated in its order.

10 THE CHAIRMAN: Any other statements on the 11  ! issues?. Yes. .

pg l MR. RUSSELL: I would like to make --

13 MR. MALATESTA: I would like to just go back 14 i

i to the assignmant that you sort of set forth for the prose-i cutorial staff. Could you read it agc.in? I am not sure I 15

caught all of it.

"(i

• s i t

i THE CHAIRMAN: How about if I just give you m -

17 l copy of it.

] 4 }l} 7.G N v MR. HALATESTA: That would be most helpful.

              ;n Thank you.           I nlso would like to make a comment in response to 3}g!t'. Bowers' comm- 'ts, in particular with respect to alterna-t
             ,_ ,L L

tives. if, in fact, the Commission decides to take the

                           .ste? of revoking Het Edis certificate of public convenience.

22 nr.. Even thou h we vould rather not Give c. positien

          - n ' V;
                        >or an asste oy 2dsue pcsition Ot thir time, at least *e (b.                      a

( "qd ct.n say this on behalf of the trial sts.ff, that we don't think e e )& R ;there is any way thr.t any party in this case can responsibly i

                                         - ',*, CL". ~?.C'd 2 MhC % SO *l~2Ilh 5 W*** N 'I     ~U    '   * * * * * *

• 27 t

l )

         ,1,         i     advocate the revocatica of a certf.ficate of public                                                    l

[ '

         .3 g)             convenience vinhout ti'nolute assurancec that chcre 1:ould bc l d                                                                                                                  i T.f               a substitute available.                   So I Dr Gura that issue *.:111 be f

l A. considered. .  ! i 5 THE CHAIRiiiLN: Any other? Mr. Russell. ' 6 did you have a conment on the issues? l i 1 7 MR. RUSSELL: I was just cinply goint; to make 0 an observation and it did relate to prospective tine 9 schedules, that in general, the first order to show cause I,

      '.0          ;      assumes, I would read into it, I guess, the proposition that 1

11 i I if the Coiraission, for example, were to determine that 13 ;i TTII-l were to be remcved from base ratec, that the Commissiel O o

                ,         vould thereupon make sono adjustment in the base rates of thc 14                  respective respondents                     Is that correct?

15 THE CHAIRNAN: There is inherent in that order 16 ; that assumption, yec. 17 MR. RUSSELL: All right. Therefcra, it is f d vu inherent in that prcceeding that there be, in effcot 3 i'  ;

       ' .; [             c bane rate crac. uhich rould perait the Commiscien to have I
     ,2                   the rato me. king framoucrk within i;hich to make such rate H

r making determination. Z i, [ So we are talking about not a cimple l U l

     ,;3 {                iscuo.          Ua cra talkin3; about a compleaity of a whole i

j

            !           +
     .3,$ ;

ccquance of iscuea 1-ith iMapect so the firrt order to show 1438 123 ..f 3.;. . e cauca, clone. l I L l 7,$ L i: The cocond order to nhou cause clearly invo3%3;! p i-

. =. =.- - m= =ue.. : :. .- rm z. w . ., . - u. .=.m= u., n. m u -

 . - _ . . _ . -                       -                --.--._ x                    _ - . _ - .   . - - - -       -         . . - . .

26

P P

t 1 has been said, and I think there E.re nan:r cddit'onn' f f l 3 issues that would be involved, because it involves che [ 3 extremely serious question as to whether or not a public i 5 utility serving some 350,000 custeners in this Corr.onweeth 5 of Pennsylvania shall cease to do business as an electric 0 utility. I 7 That, obviously, is not a sequence of issues 8 that can be handled in any abbreviE.ted time frame. The 9i third item, the energy clause issue, is one which is of 10 relatively narrow scope, namely shall the current customers 11 pay a greater or lesser percentage of the current costs 17, being incurred to provide them energy. U U This Commission has determined those issues, E that kind of issue expeditiously in the past. But certainly 15 as to the first two issues, the orders to show cause, we have 16 l in each case, a complex series of issues that is certainly I i 17 : , going to involve time to prepare for hearings, to :.*espond 10j to prehearing requests and to have a hearing schedule which 19 .could fairly and adequately permit the development of the i 20 I facts associated with each of the issues. t I

                   .7.1                            TIIE CEIFjiltii:              May I ;}ust say tuo things?

{ 19 I! umber one is that as with the 1tst proceeding that we had i cafore us; we would ircrite all parties to submit to us a 75l { M: memorandum on the issues, and so that this, of course, 23  ; 1s a continuins process and I would like to have each party 1 Mc::.= ..::: e. mt:c :" . t :c. - c 1:. ,.:c x:;.te f , 6 n- tre: . tar =c, 143,r/~ :n'::f 124

29 q  ;

                                                                                                                                             }

1 feel free to do thc.t c;; thece procc0 dings. E l In terms of tha time cchedule, Tir. Ruccell,

r. t o ,

Het Ed, Penalec and GPU cystem controla that time cehedule. l t

            <!-           The Commission set forth the purpose of this prehsc. ring 3             conference and tentative dates and we indicated that they 0             were, in fact, tentative.                          And I guerc thtt the best way to 7            proceed at thic point would be to put the question to you S

and that is that when vould you be ready, nuhlber one, to 9 proceed with those hearings and that kind of time frame 10 do you see for your being able to present to this Commission 11 the necessary factual information which will be shown to us 12 so that we can dispose of the three matters before us. O I I think that's the best way to move from where I d i ne are and I think that's whero re are at the present time. 3 MR. RUSSELL: If you want our suggestion as to 10  ; how we think the matter can proceed in an orderly. fashion, , 1 7.7 ( ue uould suggest to the Commission that a further prehearing i

          ..d p           conference be held two or three wecha hence, at which time i
          .I9
           - l- [l the parties will have Itad an opportunity to isolate the                                                               '

d

          6fl issues trith como degree of particularity, to identify witneselec 31p4            to respond to the various areac that are nffected by these
                    }
          ?J,P            issues.

23 Hopefully to prc3 cat tha respondent's c anceptr,

   ?                      of a rate makins inco:to statement and measures of value, 253,
                !.                                                                                                                          l 2M!             ehich uouie te errectee to posalese race mahing consequence 3 u

e m m: s :,i,tr- : ac - c. . arewr r:. - a.n.,:em:r.2 re. m t: -a 6 e  !

143)125 _ . _ _ ___m _ _ _ _ _ _ . -

30 Il

         'l         of t2.e climinatien of TMI.-1 fecr rate base or bc.ce rates.                                                             l b

2- 0] l if that were the Con:1cuion s tietcraination, e.nd t: provide i 3 the other parties with rome opportunity, if they so desire, 9 l to indulge in what ic I think the inevitable prehearing 3 discovery ubich we are confronted with in any such natter 0 as a bace rate cace. 7 We would suggest that hearings start tuo to

         'l         three weeks following any such prehearing conference which 9          would, in the intervening period of time, permit responses 10           to any discovery requests on the part of the other parties, 11           and I think prepare the setting that hearing time can proceef.
       '13 Ie       and be utilized effectively in the cross examination of the
 . U            data which the parties will have been supplied with at any 14           such more timely prehearing conference.

i 15 i THE CHAIRMAN: May I ask for the other parties, 16 - orosecutory staff, respond to what Mr. Russell has outlined? I 17 i i(R. TiALATESTA: We agree and endorso Mr. Russel '. ' s 13 ! c oments. h 19 THE CHAUDIAN: Consumer Advocate? a 1 200 MR. BURGRAFF: Uell, I don't know about blanket 31 ' . . cadorce: cents,. but I do think this case requires more of a

       "  .         tino Crare thsn ::as initially set fcrth in the prehearing n

57,5 namorandun. I thich the t'.-o to thrse ucch time fr.ne that l f 3@ 71r. iiucsell is discuccing is appropriate. 230 l' MR. FRATER: 110 connent. 143[126 b rew.:r. i c. rwer . .. m: .- n--: : se:riu.cw xt:. - n.wr.n.rene, w m :: .--

                              - _ . . ,         _r,,,                              _ . - _ . - - . - . , , _ _ . _ _ - _ . . _ . . _ - - _ .

a.. _ mee e = mew ._. -

                  )

l i

        !                                         THE C:IAIFJII?:         Mr. Widoff; Mr. Linder, Mr.                                          j V'       c.        -                                                                                                                            1 t

Bowers? Como right alont the lins. t i U1 IIR. UIDOFP: To the entent that the Coxniscion I 41 is intercated in obtaining 1: ell considered and well prepared 1 3 6 j positions from the various parties to the proceeding given bhb i  : I O couplexity of the iccues and the unprecedented importance j

        .                                                                                                                                      I and difficulty of the issues that are going to be bsf:rc r;..,8 P'

it would be the position, our position that the time frane c"1 that is being suggested by the respondent would heln i 20 substantially in raaking sure that all the parties to the 11 proceeding would be able to prepare adequately te obtain 12 at least a modicum of E.dequate discovery and be able to U prepare meaningful positions and testiraony no that the i 14 ! Commission can make a thoughtful and well reasoned decision. 13 MR. LINDER: Mr. Chairman, wa would not object 76 . to the suggested time f'ame Mr. Russell set forth on the i ue condition that the parties be supplied with direct destimony 10d and the data from the companies as far in advance of the I N: hearing de.tes as possible, because in the last set of 20 hearings, because of time frame, often didn't ret the

      .,I unterials until the 6cy of the hearing or the day prior and 31               vibh that proviso                   we vould not object to the suggested 33               schedule.                                                                        14 e                                                                                                                 127 M                                         MR . BOWERE. :        Ue would agrse in principle with the
  'r'
      >n.              desirability of an ontcasion of the tiras Orcme as set forth i

ec:ur.r: n.ns:: a.. :::. - a n ncm:m.t.w ..n:. - m mmura, m. im ----

_ - . . ... s- ..... _ .-. - - - - . - . - - - - - - . . - . - . - 32 [i

l in Secretary Thierfelder's letter.

( t

         ? :t                                  ME. EYAN:       Ue agreo viuh I~          Ruscell's i

Ts f suggestion. ' i

         /. i f.iR. GEORCE:     I have no position.

t t 5 HR. 00RNISH: No position. 6 THE CHAIRMAN: We will take a ten minute l 7 recess and we will be right back. 8 (A brief recess was taken.)

9) THE CHAIRMAN: We are ready to proceed again.

10 This Commission regarda the whole matter of due process 11 and the matter of adequate presentation of a case by the 12 respondent as being most serious. We believe that if the O 13 pub 11e sneerest is to be served in this case, thee everyone 14 must have adequate time for preparation of the case. 15 Therefore, consistent with the views expresaed 16 by counsel for respondent and concurred in by all other 17 councol, Commission will continue this prehearing conference I la  ; until 27 November. 1979 That'c tuo weeke from today. I Uc note that Mr. Rucsell said two to three b 2.0 8l noeks. We took the lesser number of days. l! 7.), 4 MR. RUSSELL: If I dicn't say, I intended to j g, cay uno to three weekt frcn the time we have filed an answer

       "              to the second order to chou cause.

143 128 7,} l THE CHAIEMAN: We will continue this - ehes. ring; e i 23 j conference on 27 I!ovember, 1979 and we will expect that coun:e1

.:c:mx. u e ::r. .. :c. - c.r n. wc: .u:..cvu.ve. - m.nm=cr.c, n. : ::2

                      h i           c n             %   rew.- v.w..,.w-,-..=7re.,,-mu,..%-,m.,..,._ym.,,_                              ..                 s.,.,.  ..-m,

33 q

                      !                                                                                                     I g            7j                   be prepared to proceed ::ith htaring on 10 D2cember,1979.                               I 5 (!     '

That't appror.irantely or.e F.ontb S.'em today. And ;re wi31 tr:r E i to rork out from the 10tn on, a n.cc of days of ~1eE. ring _  !

                   ,l 4                    during the month of December and we till take into account                               i I

u perhaps and we would like to htva the respondent submit to f 6 us his vier of what that schedule ought to be, by the end 7 of this treek. n O MR. RUSSELL: If you care, I can give you seme 9 i comments right now. 10 THE CHAIRMAli: Yes. 11 MR. RUSSELL: Subject to any confirmation 11 l or lack thereof on the part of the Commission Staff'and other s O 13 rho liave participated in base rate proceedings before this 14 j Cor.nission heretofore, our czperience has been that in vier 15 of the nature of bane rate cases, the massive material they 16 , represent in teras of the initial filing and the data that's t 17 i generated during the cource of the proceeding, the experience i! in[, we certainly have had de that nore than two days hearings I. T', in any gf.ven week cannot be utilised profitably. i-W;: I thir2: cur experion00 has been that two is E L, ! about the optimum ar ount of hearing days in any given ?ieek 1 2T- that can bc effectively used. TIIE CEI.IT:f:N: Let tre also point ou; that the b2."I

               -dn ' .

2 i- Connisnion till reouirc that all counsel submit to us by 9 25 23 November, 1979, a sbttenont of 1:htt you think the issues ore

                  .-                      tm w.m e, r.n.w:.. . :2. . .w n. :.=uv u.cu wu - u.a.-::=ur.a. n. 2: r .

1436129

        . _ - _                              u           _._

34

                             ,3                                                                                             ,

i I

                    ~         !                                                                                                 i 1

in thic case. iiumber two, the order in which they shoulct ce i f-

                   ,.         l
                   ^

t addressed. . I I E f I will also recuire that they, counsel provide i 3  !

                   'I :          for us, any special witnesse                    which will appear, for eraanple.

i

f Consumer advocate mentioned they have a special uitness 6

during this period of tine. Is this any unusual witness, 7 ' Mr. Malatesta? S ' COLIMISSIOIiER JOHHSON: By that we don't mean 9 I one of your co-counsel. 10 MR. RUSSELL: Is this to be provided by the li~ prehearing conference date? I 12 THE CHAIRMAN: We would like to, if possible, O u have it by 23 November. 1/~* MR. RUSSELL: By 23 instead of 277 15 THE CHAIRMAN: By.23 November. But we are firn i

                .,0 2          I about the first two items.                    That is about the staterr.ent of 1"!
                                  ; at issues you think ought to be addressed and the order in
                -          a 1"o shich the) should be addressed and the idea of the special
                ,          l
                #n
                                  ?itnessoa ::ould be cotional and we would like to have them 20         I      no later than 27 Ncvember by the time of the nest prehearing i
                           ,      conference, m         l M                                 .t   take it thr.t counsci, all counsel cro in d'               agreo:aent -chst nare ch2n two heariry per weel: rould not be
  .                       i i           10 !              beneficial?

4 143 130 15  ;.7p , ;.;g n q 7 g s g n : ne agr3e, yec, l' r :: =1 a ::.r.= .u i r = a. s. c:mx.o e .we.-::r -tr=rs:n,:v. m u: i.

35

      .                    1                                      IIR. LINDZR:                I .::.ve c. quustion.                       Ly cRNrience n

2P icn't as -- doesni t ra as ffr cc M . Ruscell's coei. bu; - 3 , I am trondering if there is a necescity J.o hsve a full rate f i

• i g.{

cace to consider the issue, whether TMI-l should be con- I 1^ 5 i. sidered used and useful, t:hether a full rate case is appro-t

                           ,,1 priate for consideration of that ' ssue.

• a Mll. RUS3 ELL: I don t think it would be for tha$

7 l 1ssue, Mr. Linder, but you may recall the cuestion I O I

                                    ! specifically addressed to the Co:maissioner this morning, that .

o I if that first narrow issue is decided in favor of renoval of 10 TMI-l from rate base, then does the Commission decide, would 11 . it intend at that time to mahe adjustments in base rates and g the answer was yes. I Q g So with that second issue, houever. a very , significant portion of a base rate case would be involved. To make a determination as to what adjustments should be made

                       ,e                                                                                               .

1. in base rates. N MR. BURGRAFF: Mr. Chairman; if I might make a I 17 j statement, I think that the nunber of days of hearing per weel. Is ' perhaps is core s. function of how long the partier. anticipate 1

                       . r.,           the case to tahe.                   If you set a linit of tuo hsari.ng days a
                      , ,o tv week, and the case is going to take a certain arount of time:                                                                3 then by definition, us vould be stretching iU perhaps beyond ~ltbha
                      .u.                                                                                                                                           .

point of necessity. That perhaps could be left a little more' y

                      .a fluid.                                                                                                                       -

i ctI l I .-hink ( - i \ t 4,. THE CHl.IRMAN:

                                                      . .                                          In establishing this tentative !
                              ! [J t
                              ;                 '<                                                                                                                    t M ' schadule, the Comnission have taken into account the concept

=m.::: :x. - ..t.1 :c. -c n. r.: c=r.w. x:c. -. w.nr.n=ac. tz u : n. -.

                                             --           .. .~.-..._...-_~....---_.-...-._._...s, 143B 131 w       .             -    . _ . .

_ _ _ _ . m _ . _ - _ . _ _ ._ _ 36

                  ?!                                                                                          I
,e           EI of TMI-1 remaining in rate base beyond 1 January 3 1980, and                       ,

i 3  ; the request by Metropolitan Edicon for an adjustment; nodifice-

                      'l                                                                                      I 3 i tion of our 15 June ordsr, ubich dealt uith an increase in
                       +

i z, the net energy cost. Sc those have some fired t me on them l and it is in accordance with that that the Commission have

                        ' proceeded to try and set a tentntive schedule in order to D,

try and meet those dates. 7 MR. BARASCE: Chairman Goode, if I could 8 possibly ask a question -- excuse my voice. I dont have much 9 of one today. I think Mr. Burg aff and I are interested in 10 establishing first of all, as I understand the last decision  ! i ll i of June 15, the Commission spoke of issuing a show-cause t i 13 j order sometime in the proximity of January 1 in the event that () 73 t TMI-1 was not returned to service as opposed to an ultimate 14 i determination ofthe used and usefulness of TMI-l by January 1. i j Secondly, just to give a little perspective fro a 15 how we see it proceeding, the January 1 date, as far as I can 16 see, the only event that occurs on January 1 must occur on 17

                   ' January 1 under the tiras.of your order of June 15 is that I

18 i the capacity charge offset _in fuel coat would expire the 19 end of this year and that may hcve been of some relevance to

                   ' the company, but nothing dramatic as far as I can nee, occurs f

y ..

         . <.I.

to the company on January 1 or January 2, if, as they claim, there is unrecover." of fuel cost, nothing dramatic occurs on 22h

           ' [ January 1. It is just the Ocamission's order anticipated in coming up with a millsge charge return to service of
      '  "Y <TM.T-1 by January 1.

It is a question-of underrecovery;

y. 1 4

not so much of sone catastrophic events occurring January 1, normes c: r:. n:nn:.. -::. - c. n. wc:rv t.cw rvm - :wimcur.c. w m :n f

3'T r, ~9 h E and as Mr. Eurgraff said earlier, it is fear of hrcing us ,

 '             i:                                                                                                                <

2j approaching this issue on a pieceneci fashion due to the impos!!. tion h l g.i} n of an early deadline such ac Jar.ue.ry 1 that might result in l t

          ,.,      having to take positions on a fuel clause out of context                                                     l
            ^ l'I I:ith all the other me.tters that we believe this Commissio                                               '-l S'

probably addressing. , o l We do believe that the general order in l 7 }:l v:hich you wish to proceed.would be excellent. What we are 4 8

concerned with is we are pressed to get some January 1 date 9 I that would make it difficu't to develop an accurate record on i

10 some very complicated matters. 11 ; THE CHAIRMAll: In our view, by starting our 12 j hearings by December 10 clearly rules out any action by Q g this Commission on the first of January. My only point is t we had originally tried to set some time frame. Our view here 14 f, is that there is no way we can meet that date at this poi"+- , as l The Commission will look at some hearing dates

        -d i for at least the month of December and will addrens a memorand.um
                .                                                                                                               I 17         to all the parties by the.end of this week. Any other ques ~ I

( 1st tions? I

        ;g"                                                  (1.'o response. )    

THE CHAIRMi,ll: Ue will continue the prehearing '

        ,0 4

t L Yes. 31[ conference on 2'i November at 10 a.n. l MR. EURG3AFP: Mr.y I raise one point in the { i

        /*

• interin? I don't know d this is -

J. gc.ess At is necessary. i en i

        "~ ( Ka would likc to, I believe, do E.es discovery prior te the i,                                                                                                                !

c, i

            .o                                                                                                                  j m       4 dc.te of the next pr& tearing conference.                                              I don't Imon if we 3

r 23 chould work out a schedule. Perhaps we can do much of it I- v 2-- r: n mr.r .v.. ta - n : . m-rmer - a G  :. -  :. . 143 una:ce"D.a. 133 ro. t :: . -

30 q , I p li or2.11y, but there may bs some necessity for some writtsn 2 interrogatories.  : t I 3 THE CHAIRMI.N: Mr. Russell? il M MR. RUSSELL: I'am sorr:. I didn ' t --- i

                           .,                                     THE CHAIRMI.N:          He uas te.lhing about discovery                     -

0 1 betteen now and the 27th of November and he thought perhaps i that he might want to either orally ask for certain things cli 7 number two, address to respondent certain written interroga- l 8 1 4 tories in that time frame. j o HB. RUSSELL: I have no objection to any such ! 10 ,teps being taken. We would certainly respond in any way that' 11 we possibly can, and as expeditiously as we can. I might 12 raise with the Commission.and the parties the concepts we Q g have as to the base rate data.we~would propose to submit, in response to the first order to show cause. Our proposal is that we would use for purposes 15i l of a test year, calendar 1980 projected data,1980 being the 4 period in which any rate-making adjustments, if any, would, I? in fact, be taking place. We think that's the most appro-13 priate time frame uithin which the dats can be assembled and : i 19 4 I think used for the Co:r.ission's review. Does the Advocate ; i

                       ..             have any oroblem with that time frame?                                                                i
                       /.0;                             -

MR. BUI;GRAFF: Excues me. I didn't hear the i

                       .:. .t. ..' end of your statenent, Mr. Russell.                                   I'm sorry.                         ;

22,*l

                                 !                                MR. BUSSELL:          Does the !dvocste staff or any "q"       +

obher party have any presently foreseatble problems for the useofthattimefranefor.testyearpurposeshk  ! i l 23' MR. BURGRAFF: Uell, we are not going to sign

                                 - .o2- -. ,cc r.yc c., o;:n y e a. .-r s oc.uc r -4cc     m

yR . u.av: . :;=. -. w:n:.=::ce, w., w :;:

I think that's up to you. CC

             . _ . . - ~ . - -    . - . - . _                ,                             - - . .    . . -   s.

39 t-  ; e i "i

,           ..llHouever,wewouldnEkthat if that is your intenbion, that

( d

            ?,J perhE.ps a '79 actual alto be subsitned.

1 i 3 l MR. RUSSELL: That data would be available i certainlynotbytheprshearingconferenceorthehearingtime{. t 3 If the actual is needed'. it would be sonctine past the middle t 5I i. of January that it vrill be available. 6 4 THE CHAIEMidi: I would just ask the attorneys I 71 to address in their menorandum to be received by us by 23 November the issue of what you feel is the appropriate test I t 9[ year so we can have that b.efore us. l 1 10' Isthereanyotheritemsthatanyoneisdesiroujs 11 f bringing up before we recess this prehearing conference  ! i d,y,untilNovember277 I (No response.) g THE CHAIRiiAN: We hope that this will give the 14 attorneys sufficient tune to be ready to go, move ahead with 15! l all deliberate speed and preparation, and that all of our i Ib hearings will be substantive and all counsel will be prepared , 17' with direct testimony and also cross examination. It is our

                ,                                                                                                 3
         ;g F expectation: havins given in on our original time schedule.

n'

         .w ;

CCinIISSIGH3R .TOHi! SON: Er. Chairman? .i

                !                              THE CHAIRMAN:        Yes.                                         f 20-                                                                                                      i
               ,.                              COMIISSIONER JOHXSON:          I think the parties 21] snould 'ae aleare that we he,ve not couited ourselves to I                                                                                                  .

i

77. ! .

         " . adhere to a buo
               .                                .r. rings a reek schedula.           We '. lava obserted 3       l
          . !\                                                                                                   t 4 taken judicicuc notice of your expressians.                            We uill endeavor '

9 r- . \? Q; kag to operate these proceedings in a nanner that will be fair I C E.nd adeoutte for all counsel, bearing la mind the heavy 1

                               - u =w.= a n: =. .t. . =. - =r : . .ec= r.u w w -n:. = = u: u :. m n i43 6 135

                                                                                                                                       #0 fl
                   ., il

.('

                  ~11impocition that such a proceeding brings to the parties.

k [ E fll Three days a week is rough on the commissioners , f I 3 themselves, and all of our. staff, but it may be necessary, 4 from time to time, so I think, Mr. Chairman, that judicious nel e ught t be taken of the e.ffect that there has been no 5 mmitment made by the Cotrmission that we would follow 6 that kind of schedule. 7 THE CHAIRMAN: Is there any other comment? 8 (No response.) 9 THE CHAIRMAN: We will stand recessed, then, 10 to continue this prehearing conference on 27 November at 11 10 a.m. in this room.

               . V,                                     (Whereupon,.at 10: 37 a.m., the prehearing h                13         conference recessed.)

14 I hereby certify that the proceedings are. 15

contained fully and accurately in the notes taken by me during 16 the prehearing conference on the within cause, and this .is a 17 l

                        ; true ar.d correct transcript of the                                                     .
                ,o                                                                         By E-
                                                                                                       'Mb W. Holbert','RFR','CP k
                 'O
                                                                                                                         //-/V-Pf 21 !

P z.; w 1431136 C >:- !j .. e 1

                                      - r: ten.ics: L >: Arts:At. n;c. -::r ::. Locxve;LLove Avr. - u.umtmur.c, :% :71 tc y                    - - -            .,--. - .. _ .-._ m . _                  -, _.        __       -                 , _ _ _ .

Person Responsible for Preparation: F. D. IIafer, Vice President - Rate Case Management, GPU Service Corp. Tele phone : (201) 263-6013 Date: November 26, 1979 Page 1 of 2 GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Company, Pennsylvania Electric Company and Jersey Central Power & Light Company NRC Docke t No. 50-289 Three Mile Island Unit No. 1 Restart Proceeding Response to NRC Staff's Supplemental Financial Information Request No. 10, telecopied 11/9/79 (item numbers refer to initial requests dated 9/21/79):

       "(10.b and 10.c) Subsequent to our September 21, 1979 request, it was reported (Newark Star-Ledger, November 3,1979, p. 6) that the New Jersey Board of Public Utilities (NJBPU) is studying alternatives to JCP&L's franchise, including a poss-ible transfer of the franchise to another authority. Provide any information available to JCP&L regarding the scope of the study alternatives to be considered and target date for the report.      Provide copies of any related NJBPU orders and direc-tives and any JCP&L responses thereto."

Response

The NJBPU has not instituted a formal proceeding to review al-ternative means of supplying electricity to Jersey Central's service territory, but it has held several informal conferences with Jersey Central and others to develop an appropriate frame-work for considering such alternatives. As a result of these conferences, the NJBPU now plans to retain independent consultants to study several options for continuing service to the Jersey Central territory, as outlined in the following attachments :

1. Le tter dated 11/21/79 from F. S. Grygiel, Chief Economist, NJBPU Sta f f , to F. D. llafer , Vice President, GPU, enclosing the NJBPU's letter to prospective consultants soliciting their attendance at a conference to be held at the NJBPU's offices in Newark on 12/13/79. Attached to the letter is an outline indicating the proposed scope of the study

("GPU/JCP&L policy options") and a tentative timetable for its completion.

2. Le t te r and attachments dated 11/19/79 1 rom W. F. ilyiand, Counsel for Jersey Central, to NJBPU Commissioners Barbour, b., i, FkClynn and Ilynes responding to comments on Jersey Central's study proposals initially made at a public meeting of the NJBPU on 11/2/79 and later filed with the NJBPU on 11/9/79.

143{[l37

Page 2 of 2

3. Letter and attachments dated 11/9/79 from J. B. Kirsten, Counsel for Jersey Central, to G. A. Calabrese , Sec retary, NJBPU, outlining Jersey Central's study proposals, in-cluding material describing the background and services provided by Jersey Central's recommended consultants (material re ferred to above) ,

Note that the tentative timetable included with the NJBPU's 11/21/79 letter to prospective consultants allows about a year (i.e., until December,1980) for completion of the study.

                                                           \h
      \

I o

                                                          &sh.P q    e 15

• 9 tate of Nem 3rrneg DEPARTMENT OF ENERGY BOARD OF PUBLIC UTILITIES 1100 RAYMOND BLVD.

FRED S. GRYGIEL NEWARK. N. J. 07102 CHIEF PUBLIC UTILITY ECONOMis? November 21, 1979 Mr. Fred D. Hafer Vice President GPU Service Corporation 100 Interpace Parkway Parsippany, New Jersey 07054

Dear Mr. Hafer:

Picase find attached a copy of the materials sent to prospective consultants on the GPU/JCP&L policy options study. (A list of consultants is appended for your information.) You arc invited to attend this conference and fully partici-pate in the structuring of the final scope of work that will form the basis of the Board's request for proposals. Thank you for your continuing cooperation in this matter. Sincerely yours, FM-Fred S. Grygiel Chief Economist Attachments

                                                                                        ,1437                134

• o-* LL .,

                                                                                                           ._;......m
    .e.4  m. -. . . _ .       __
                                                                                      .       . :.c x;
                                                                                                                         ._3

                       %". '. D
                      $ 7.Db STATE O F N EW J ER S EY DEPARTMENT OF ENERGY 80ARo OF PUsuc UTiuTIEs GEoRoc H. S AR8oV A s ts.:sv 3:..o : % s .4 n N EwA A k , N.J. o 7lc a Novmber 21, 1979

Dear:

The New Jersey Ecard of Public Utilities will conver.e an infor-maticral conference en Decster 13,1979, at 10:00 a.m. , at the Board's offices in Newark. The focus of tFn ecnference will be the financial im-pact of the Three Mile Islard incident on tre future financial viability of Jersey Central Pcser & Light Cctrpany. 2a Ecard is ccruitted to direct an extensive evaluaticn of the prospective prebicms that will face this utility. Given tM significant scope of such an evaluaticn, the Board has determined that it will utilize a consultant (s) to assist it in evaluating tre numercus eocranic, regulatory, engineering, ard financial issues inherent in such a study. The evaluaticn will be perfomed in tso phases. Tre first phase will consist of fact firding, data collection and preliminary evaluaticn of a nu:&er of alterratives. A variety of different *2chnical, firancial, ard structural sceraries shculd be reviewd ard ccrpared with continuaticn of present cperaticns ard structure of JCP&L. The Prase I evaluaticn of alterratives will be perfoured in enough detail to select the loading centerder strategies. These leading centerders will be evaluated in detail in Phase II. Phase I will censist of an in-depth review of the alter ative strategies including custsTr cost, ccrrpany cost, cost to other affected parties, poten W difficulties with alternatives, risks ard benefits. Phase II will censist of a study of acticns required for inplcsnentaticn. At the ccupletien of Phase II, a preferred strategy will he rm.erded. Therefore, the major purpose of the infonnaticral conference will be to offer prospective censultants an cpportunity to be briefed by GPU/JCP&L and the parties in the Board's investigaticn on *Ju factual background loading up to the present situaticn and a brief overview of prospective problems. Further, GPU/JCP&L will briefly identify the relevant studies /aralyses that may have a tearing en tre future ability of tre ccupany to meet its statutory respcnsibility of providing safe, adequate and prcper service to its custcmers. 14 140

                   .                                                                    .     ._..c, - _.      .u e d

e

                                                  .             Finally, GFU/JCP&L ard tM parties will identify scrre prelimirarf alterrative strategies for ::ceting centingencies associated with the engoing repercussicns cf 'IMI.

Paview the attacred prelimirary secpe of verk ard tentar.ive ti:re schedule. ' rake note that final prepcsals to te suhnitted 'a the Ecard will te in respcnse to a reviscd scope of scrk that is dcvelcped subsequent to the infocatioral ccnference. Shculd ycu decide to attend this ccrierence, please he prepared to discuss the extent of ycur fim's interest ard the type of irdividuals that ycu kruld involve in the project. Indicate in your letter what tra ars of ycur crganizaticn will te atte.hg the ccnference. Shculd ycu have any questions en this project, please centact Dr. Frcd S. Gry:iel, J Chief Econcmist, at (201) 648-3860. I 1cck forward to ycur pra:pt respcnse to this notificatien. Sincerely yours, George H. Bartcur President Attachtents 143h141 n:- . . . _ 'l

. . t New Jersey Board of Public Utilities Mailing List for CPU /JCP&L Poliev Options Paper Dr. Robert M. Spann, Principal               Victor L. Andrews ICF Incorporated                             Mills Bee Lane Professor of 1850 K Street, Northwest                         Banking and Finance Suite 950                                    School of Business Administration Washington, D. C. 20006                       Georgia State University 33 Gilmer Street, S.E.

Dr. Robert Wayland Atlanta, Georgia 30303 Temple, Barker & Sloan 33 Hayden Avenue Professor William G. Shepherd Lexington, Massachusetts 02173 Department of Economics

                                                 , University of Michigan Alan Schoc-                                   Ann Arbor, Michigan 48106 Director c' Regulated Industries Gordian Associates, Inc.                      Professor Roger Ibbotson 711 Third Avenue                             Graduate School of Business New York, N. Y. 10017                         University of Chicago 1101 E. 58th Street John S. Clarkeson                             Chicago, Illinois 60637 The Boston Consulting Group, Inc.

One Boston Place Professor Paul Joskow Boston, Massachusetts 02106 Kennedy School of Governnent Harvard University Dr. Charles Phelps 79 Boylston Director of Regulatory Policies and Cambridge, Massachusetts 02138 Institution Programs Rand Corporation Dr. John Wenders 1700 Main Street College of Business & Public Admitistration Santa Monica, California 90406 Building (123 - Department of Economics The University of Arizona Dr. Frank Alessio Tucson, Arizona 85721 Criterion Analysis Inc. 6060 N. Central Expressway Harry M. Trebing, Director Suite 154 Institute of Public Utilities Dallas, Texas 75206 Professor of Economics Michigan State University Mr. Ralph E. Renken Graduate School of Business Administration A. T. Kearney, Inc. Institute of Public Utilities - Berkey Hall 437 Madison Avenue East Lansing, Michigan 48824 New York, N. Y. 10022 Dr. Douglas Jones Dr. Roy J. Shanker, Principal The National Regulatory Research Institute Resource Planning Associates, Inc. 206 West 18th Avenue 1901 L Street, N.W. Columbus, Ohio 43210 Washington, D. C. 20036 Dr. Myron J. Gordon Hugh D. Guthrie Faculty of Management Studies Director, Energy Center University of Toronto SRI International 246 Bloor St. West 333 Ravenswood Avenue Toronto, Ontario, Canada MSSlV4 Menlo Park, California 94025 1d$ 0 I47

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i k Louis J. Carter 7300 City Line Avenue - Suite 120 Philadelphia, Pennsylvania 19131 and to Louis J. Carter c/o Mr. Thal 1061 N. Venetian Drive Miami, Florida 33140 Dr. Larry Eisenberg Director, The Er.ergy Center University of Pennsylvania 3221 Walnut Street Philadelphia, Pennsylvania 19104 Perry L. Wheaton, Principal Theodore Barry & Associates 245 Park Avenue New York, New York 10017 J. Daniel Khazzoom Institute for Research in Energy and Economic Modeling 380 Kensington Way San Francisco, Califctnia 94127 Dr. Michael Crew Graduate School of Business Administration Rutgers - The State University of New Jersey 92 New Street Newark, New Jersey 07102 Dr. Irvin Glassman, Director Center for Environmental Studies Princeton University Engineering Quadrangle Princeton, New Jersey 08540 Dr. John W. Wilson J. W. Wilson & Associates, Inc. The Dodge Center, Suite 540 1010 Wisconsin Avenue, N.W. Washington, D. C. 20007

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New Jersey Board of Public Utilities GPU/JCP&L Policy Options Paper Tentative Scope of Work I. GPU/JCP&L Load Forecasts. A. Base Case. B. Maximum Conservation and Load Management Strategy. C. Innovative Rate Design. II. GPU/JCP&L Capacity Expansion Plans. A. Forked River. B. New coal capacity. III. GPU/JCP&L Plans to Finance Capacity Additions. IV. GPU/JCP&L: External Sources of Generating Capacity. A. PJM Purchases. B. Negotiated Purchase Power Agreements. V. Future Sources of Generating Capacity. A. Investor-owned State-wide Generating Company. B. State Project Financing. C. State Power Authority. D. Unit Power Purchases. E. PJM Purchases. F. Negotiated Purchase Pcwer Agtsements. VI. Hypothetical Structural Remedies: Economic and Regulatory Feasibility. A. Transfer of portion of JCP&L service territory to other New Jersey utilities. B. Sale of all or portion of JCP&L's assets. C. Merger with PSESG. D. State takeover. E. Reorganization under Federal Bankruptcy Act. F. Status quo with appropriate regulatory treatments. 143{3 144

New Jersey Board of Public Utilities GPU/JCP&L Policy Options Faper Tentative Time Schedule Date Action December 13, 1979 Informational Conference. January 2, 1980 NJBPU issue final scope of work and request for proposals. January 21, 1980 Due date for consultanc responses to request fo* proposals. February 11, 1980 NJBPU selects consultant (s) to conduct GPU/JCP&L policy options paper. February 25, 1980 GPU/JCP&L policy options study Cotr:lences . June 2, 1980 Completion of Phase I report (Fact findings and preliminary policy options identified). December 19, 1980 Ccepletion of Phase II report (Evaluation of selected policy options). (To be determined) Presentation by consultant (s) of final results of report to all relevant parties. 143l,I45

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    '.~"C c , , fI'.".*.* R*;.'" '                                                   2.'c". 'a". e',"'." r mongst J.usagn%A Jame E S 6. E QiOIC J. rERO CONvCRT W8 The Honorable George H. Barbour The Honorable Richard B. McGlynn The Honorable Edward H. Hynes Board of Public Utilities 1100 Raymond Boulevard Newark, New Jersey 07102 Re:  Jersey Central Power & Light Company (Docket No. 795-427)

Dear Commissioners:

This is in response to the comments filed by the Division of Rate Counsel, the Division of Energy Planning and Conservation, and the New Jersey Public Interest Group (PIRG) on the subject of JCP&L's Preliminary Program Plan, Analysis of Strategic Options presented to the Board of Public Utilities at the meeting of November 2, 1979. The comments of each of these parties will be addressed separately. Division of Rate Counsel

1. We agrev that the Phase II engagement may require re-definition upon the completion of Phase I, or indeed, as the con-sultants commence their assignment. However, a preliminary defini-tion of Phase II is essential to an understanding by the consultants of what will be expected of them.

2. The "suggest.-d action plan" in Rate Counsel's Attach-ment A is basically satisfactory as a format, subject to the setting by the Board of an appropriate timetable, which probably can best be established following discussion with the proposed consultants. How-ever, a proposed revision in the Work Scope section ir. attached here-to as Attachment I. The purpose of the revision is to incorporate suggestions made by Mr. Nardelli in this section of his " suggested action plan", and further refinements, particularly by way of ampli-fication of the work scope detail.

6 143 146

                                                                      'a b

The Honorable George H. Barbour November 19, 1979 The Honorable Richard B. McGlynn The Honorable Edward H. Hynes Page Two

3. The " statement of understanding" in Rate Counsel's Attachment B is satisfactory, subject again to the setting of an appropriate timetable for each phase of the assignment. In addi-tion, JCP&L reiterates its proposed " Attributes of Consulting Or-ganization" found at page 4 of its written submission of November 2, 1979. There is further attention to this point in paragraph 7 herein.

4. The proposed " Letter to Consulting Groups" (Attach-ment C) is redundant and may create confusion concerning the pre-cise scope of the work, since the work scope and other essentials are set forth in the " suggested action plan" (Attachment A). The action plan merely should be sent to those consultants under con-sideration with instructions as to the response expected.

5. Rate Counsel's comments on the " fault" issue are premature in view of President Barbour's statement at the meeting ing of November 2, 1979 that the Board would give consideration to this subject following its determination during the week of November 19, 1979 on the strategic options issue. However, since Messrs. Nardelli and Waters have commented on this subject in their letters to the Board, we believe we should indicate we disagree with their approach. Obviously, more detailed attention to this issue is required and, as already suggested by JCP&L, a date of November 30, 1979 would appear to allow sufficient time for the submission of briefs to the Board on how, and when, formal consideration of the issue should proceed.

In our judgment, the appropriate allocation of the eco-nomic consequences of the TMI-2 accident should be determined in a setting which gives full recognition to the regulatory frame-work, the past governmental encouragement for the development of nuclear power, the past and current allocations of the economic benefits nuclear power has provided, the role of governmental licensing activities, and a host of other relevant factors, in-cluding, most importantly, the long-term implications to custo-mers of alternative courses of action open to the Board. We shall attempt in our brief on the subject to suggest a framework for consideration of these factors and concepts. It is our view that it is unlikely that it will be neces-sary for the Board to hold lengthy hearings on factual matters re-lating to TMI-2. The investigations by the President's Commission with its more than 300 shelf-feet of depositions, documents and the like should provide a more than adequate basis for identifying and agreeing upon what actually occurred. There is likely to be, how-ever, sharp disagreement concerning the implications of, and con-gy; \

The Honorable George H. Barbour November 19, 1979 The Honorable Richard B. McGlynn The Honorable Edward H. Hynes Page Th ee clusions to be drawn from, these facts. We are hopeful that, with a continuation of the cooperation on the part of the Board and its staff and the parties that has been manifest in the last several proceedings, it will be feasible to narrow these areas of potential disagreement. Division of Energy Planning and Conservation

6. JCP&L's comments in paragraph #5 herein concerning the " fault" issue are equally applicable to DEPC's arguments on this subject in its letter of November 13, 1979, and are hereby incorporated.

7. The suggestion by Mr. Waters (page 8) that considera-tion be given to the selection of a " panel" of consultants, "each with separate expertise", is likely to produce delay, confusion and divided responsibility in the performance of the work. JCP&L re-spectfully suggests that projects of such magnitude as the one about to be undertaken need the strength and depth of an integrated organ-ization of coordinated disciplines, supplemented, if necessary, by specialists in those areas of a project that exceed the skills of an otherwise broad base of personnel. Mr. Waters' suggestion would place an unreasonable burden upon the Board and staff to coordinate and evaluate the work being done. A panel also would lack the cred-ibility and stature present when a recognized, established consulting firm is employed.

Since the Board's staff has evinced interest in drawing upon the academic community for assistance, we respectfully suggest this can best be folded into the project through an " advisory com-mittee" arrangement under which the selected academicians would be available to the Board and/or the consulting organization on an "as needed" basis. This will tend to avoid the fragmentation and divided responsibility that inevitably would be caused, as in the panel-approach suggested by Mr. Waters.

8. Mr. Waters' suggestions concerning a timetable are difficult to evaluate in the abstract. JCP&L recommends that the time for completion of various components of the work can best be established by the Board following a conference with the consulting firms that will be asked to submit proposals or bids. However, JCP&L joins in the observation that it is "in the public interest for the Board to be in a position to take positive action as soon as reasonably possible" and pledges cooperation to that end.

o Public Interest Group

9. PIRG's suggestion that JCP&L was to produce by October 1 more than a framework for the extensive study about to be under-kbk !b?

The Honorable George H. Barbour November 19, 1979 The Honorable Richard B. McGlynn The Honorable Edward H. Hynes Page Four taken reflects the misunderstanding expressed by Commissioner McGlynn at the hearing of November 2, 1979. JCP&L regrets any such misunderstanding, and apologized at the November 2, 1979 hearing, if it contributed in any way to an erroneous expectation concerning what was to be produced. It can only repeat its pre-viously expressed conviction that moving ahead with all sensible dispatch in the airing and determination of the critical issues arising out of this unprecedented accident is in the interest of everyone concerned, and mostly assuredly in the public interest. The pace at which matters in this jurisdiction sensibly can pro-ceed is affected in considerable measure by the significant in-volvement of GPU and its operating company personnel in the safe containment and decontamination of TMI-2, the restoration to ser-vice of TMI-1, other critical operating responsibilities, and in the variety of Congressional, Federal and state regulatory pro-ceedings underway in the aftermath of the March 28 accident. JCP&L and GPU will continue to devote their best efforts to discharge their New Jersey responsibilities effectively and expeditiously and to provide essential information to the BPU and the other public and private parties in this proceeding. Very truly yours, RIKER, DANZIG, SCHERER & HYLAND 9 ekom By William F. Hyla nd WFH:lh e

Work Scope: The evaluation will .be performed in two phases. The first phase will consist of fact finding, data collec-tion and preliminary evaluation of a number of alternatives. A variety of different technical, financial, and structural scenarios will be reviewed and compared with continuation of present operations and structure of JCP&L. A possible list of these other alternatives is shown below: A. Technical or Operational Considerations: Assuming that some amount of additional capacity is needed, it is critical that the timing and magnitude of that generation be examined.

1. Immediate ~ Until TMI-l is restored to active service.

2. Short-term -

Until TMI-2 is restored to active service.

3. Long-term - Construction of facilities required for the future.

4. Maximum Conservation & Load Management.

5. PJM purchases.

6. New Coal Capacity in New Jersey or elsewhere.

7. Completion of Forked River Nuclear Generating Station.

143(150 ATTACHMENT I

8. Purchase of portion of Hope Creek Nuclear Generating Station.

9. Continued purchases from regional sources.

10. Other potential generation purchases.

B. Financial Considerations: Assuming JCP&L remains

             . structured as at present, it is important to study means of f inancing the incremental generation required over the next few years.      At issue also is how long an alternative structure to finance this generation should be maintained.      Among the options to be considered are:

1. Generation Company.

2. Project Financing.

3. Power Authority for Future Capacity.

4. Unit Power Purchases..

C. Structural / Legal Considerations: Assuming JCP&L is to be restructured it is important that the implicetions of alternative structures be fully explored. ' l. Transfer a portion of JCP&L uervice territory to other New Jersey utilities.

2. Sale of all, or a portion, of JCP&L assets.

3. Merger wi.th PSESG.

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4. Takeover by Power Authority.

5. Reorganization under Federal Bankruptcy Act.

D. Objectives to measure the alternatives under consideration.

1. In terms of cost to customers and comparisons with major neighboring utilities.

2. In terms of reliability of supply.

3. In terms of diversity of technology, and adaptability to changing environments.

4. In terms of diversity of fuel supply and adaptability to changing economic conditions.

5. In terms of management structure and organ-ization.

E. Development of Study Plan and Procedures.

1. Completion by JCP&L of Revised Load and Capacity Plan. -

2. Preparation of Phase I of Preliminary Study Report.

C.

3. Arrangements for review and critique of various sections of such Preliminary Study Report and submission of comme.7*s on, ampli-fications of, such Preliminary Report by 143l152

NJBPU staff, Rate Counsel, NJDOE and other interested parties.

4. Preparation of final (Phase II) Study Report in the light of such comments and amplifi-cations.

5. Public review of such Study Report.

The Phase I evaluation of these alternatives will be performed in enough detail to select the leading conten-der strategies. These leading contenders will be evaluated in detail in Phase II. Phase I will consist of an in-depth review of the alternative strategies including customer cost, company cost, cost to other affected parties, poten-tial difficile'.es with alternatives, risks and benefits. Phase II will consist of a study of actions required for implementation. At the completion of Phase II, a preferred strategy will be recomme.nded.

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HIH STEN , FRIE D31 A N & CHERIN A p.'OF E SSION A L CORpOA ATION CC U NS CL LORS AT LAW 17 AC ADE MY sTRE ET a.CanaD E Cat a N' N EWARK, N.J. o78o2 wanOLD F aiEDwaN

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    *mt w6t m se J & es v mans November 9, 1979 Gerald A. Calabrese, Secretary Board of Public Utilities Department of Energy 1100 Raymond Boulevard Newark, New Jersey 07102 Re:     Jersey Central Power and Light Co.

Docket No. 795-427 Retention of Independent Consultants to Evaluate Alternative Means of Con-tinuing the Reliable and Economic Supply of Electricity to the Jersey Central Service Territory

Dear Mr. Calabrese:

Enclosed for filing are four copies of Jersey Central Power and Light Company's position in the abop referenced matter. Very truly#yours, P~ l'Q . */! Wy .L'-L

                                                                , (-fck Ja             Bv #

Kirsten

                                                            '         l JBK:ad                                           I          l                              143             154 Enclosures cc:         Comm. George 11. Barbour                        Edward Lloyd, Esq.

Comm. Richard B. McGlynn Asst. Comm. Charles A. Richman Comm. Edward H. Ilyncs John J. Degnan, Esq. Dr. Fred S. Grygiel Walton M. Jeffress, Jr., Esq. Mr. Anthony Zarillo David A. Waters, Esq. Mr. Gerald N. Tobia M . B . II . Technical Associates Alfred L. Nardelli, Esq. Mr. Thomas Knudsen Mr. A. Grey Staples Bartholemew T. Zanelli, Esq.

l ., JERSEY CENTRAL FOWER & LIGliT COMPANY Docket No. 795-427 Retention of Independent Consultants to Evaluate Alternative Means of Continuing the Reliable and Economic Supply of Electricity to the Jersey Central Service Territory At the public meeting of the Board on November 2, 1979 Jersey Central submitted an outline of the scope of the study referred to above, and Jersey Central's recommendations as to the consultants that should be retained to perform the study. (A copy of the outline is attached for reference.) At that meeting, the Board indicated that the parties in Docket No. 795-427 should comment on the out.l ine.in writing by November 9, 1979. Accordingly, Jersey Central is indicating to the Board that it has no changes to make to its proposed outline, and that it will respond, if appropriate, to the comments of others. At the November 2nd meeting, the subject of whether the parties should submit memoranda to the Board stating their views as to what the Board should do if the Board were to conclude that Jersey Central were, to some degree, "at fault" in the TMI-2 accident was also discussed. It is our under-standing that there was agreement that such memoranda should be submitted, but, to the best of our recollection, no specific date for the submission of such memoranda was established. Our suggestion is that the memoranda be submitted by November 30, 2"'- 1436I55

                                                                 .. N In conclusion, attached are copies of material describing the background and services provided by SRI International and Boston Consulting Group, Jersey Central's recommended con-sultants, tha t wem no t circulated at the flovember 2nd meeting.

11/9/79

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                                                \419

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.5 . Preliminary Program Plan Analysis of Strategic Options for Jersey Central Power & Light Co. Objective: To evaluate the range of options available to provide the continued reliable and economic supply of electricity to the JCP&L service area within the framework of the statuatory obligations and rights of the NJ BPU and JCP&L. Rationale and Approach: Assurance of future, reliable and economic supply of electricity to the JCP&L i service. area is of utmost,s impog-tance to the NJ BPU as well as to JCP&L and GPU. As a result of the accident at TMI and its impact on energy cost, a comprehensive review of all possible options available to the NJ BPU and JCP&L is warranted. The review will provide guidance as to the impact and effects of each of a number of alternative courses of action on affected customers, and upon the company. Recognizing the importance of the ef fort to both the BPU and to the company, JCP&L agrees to provide the required supporting funds to allow a complete and comprehensive evaluation. Structure: The study will be carried out under the guifance of the BPU by a nationally recognized management consulting organization. 143$157

JPC&L will participate in the selection of the consulting organization. In addition, JCP&L will work with the BPU, DOE, office of the Public Advocate and others in providing input to the consultant. The final evaluation'of study results should be performed in an independent manner by the consultant. The product of this effort will be a report provided to the BPU for their guidance. Neither the BPU nor any of the other participants in the study will be bound to accept the conc'.usions of the consulting group. Budget: S500,000 - -

                                                                        .' ,2  :

Work Scope: The evaluation will be per:9.rmad in two phases. The first phase will consist rt fact finding, data collection and preliminary evaluation of a number of alternatives. A variety of different technical, financial, and structural scenarios will be reviewed and compared with continuation of present operations and structure of JCP&L. A possible list of these other alternatives is shown below: A. Technical or Operational

1. Maximum Conservation & Load Management

2. PJM purchases i43{l58

3. New Coal Capacity in New Jersey or elsewhere

4. Completion of Forked River

5. Other Potential generation purchases B. financial J. Generation Company

                   '! . Project Financing

3. Power Authority for Future Capacity

4. Unit Power Purchases C. Structural

1. Transfer a portion of JCP&L service territory to other NJ Utilities

2. Sale of all, or a portion, of JCP&L assets

3. Merger with PSE&G

                                                                        <Y,

4. Takeover by Power Authority -

5. Reorganization under Federal Bankruptcy Act The Phase I evaluation of these alternatives will be performed in enough detail to select the leading contender strategies. These leading contenders will be evaluated in detail in Phase II.

Phase II evaluations will consist of an in-depth review of the contender strategies including actions recuired for implementation, customer cost, company cost, cost to other affected parties, potential difficulties with alternatives, risks and benefits. At the completion of Phase II, a preferred strategy will be reccmmended. Schedule: Phase I - 4 months from initiation Phase II - 8 =cnths frer initiation

Attributes of Consulting Organization: It is most important that the organization utilized in this effort be of recognized national structure and have prior experience in the assessment of strategic alterna-tives for energy supply. The need for credibility of the results requires that the organization not be perceived as closely allied to either the utility industry, anti-utility or environmental organizations, or the rate regulatory community. Additionally, it is most important that the organization have existing technical and organizational depth and structure required for this complex task. These constraints significantly limit the possible consultants,

                              ;                                 .- n  -

JCP&L has identified two possible candidates, neither of which has heretofore been utilized by JCP&L/GPU or, to the best of our knowledge, by any of the other participants in the study: SRI International Boston Consulting Group Descriptive material on each of the organizations is attached. l 4 .5 s160

, STRATEG!C ! MANAGEMENT ASSISTANCE WORLDWIDE PLANNING AND STRATEGY CONSULTING

• Strategic Management Development
• Corporate Strategy Development
• Process and Strategy Assessment
• Market Research
• Analysis of Technological Trends
• Strategic Organi:ation
• Issue Development
• Alternative Generation
• Diversification and Acquisition
• Decision Analysis Methods
• Financial Analysis
• Business / Environmental Modeling
• Planning
• General Management Consulting 1.'

(S RI) e-m

        -                                     143h!61

THE STRATEGIC MANAGEMENT CHALLENGE Strategic management sets the strategic direction of an enterprise and is critical to long-run success. Although a strategic direction can be set by following the path of least resistance or by developing a single acceptable plan, effective strategic man-agement permits the chief executive officer to identify and choose among sio-nificantly different strategies. Having a choice of strategic direction offers management an enormous opportunity to achieve the inherent potential of the organization consistent with its values. The need for effective strategic management has never been greater. Rapid and sometimes radical changes are occurring in regulation, markets, product life cycles, relative productivity of nations, materials availability, distribution methods, and technology. Given the inherent complexity of today's enterprises, industries, and their environments, it is not surprising that the chief executive officer experiences severe difficulties effectively managing the strategic direction of his enterprise. Examples of common problems include:

• Insufficient consideration ofstrategic alternatives
• Strategic management based on extrapolation rather than innovation e inadequate identification of key strategic issues including internalstrengths and weaknesses and external threats and opportunities e inability to realise thefullpotential of the organisation andto avoidunman-ageable growth e inadequate treatment of the uncenainties in today's business environment e inability to implement a strategic direction and make it happen e Too manyforms andprocedures and too little insight and creativity

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THE SRI APPROACH COMBINES STRATEGIC MANAGEMENT PROCESS, TECHNIQUES, AND INDUSTRY KNOWLEDGE S RI has a strategic management process, the techniques, and ind ustry knowledge to meet client needs and provide a balanced approach to setting strategic direction. The SRI process overcomes the primary planning problems that most firms encounter, permits periodic renewal of corporate strategy, requires the develop-ment of significantly different alternatives, and ensures operational implementa-tion. To facilitate its strategic management process, SRI brings to bear the full range of advanced techniques. SRI also supplements client resources with the knowledge and creativity of its industry experts to provide a solid foundation for strategy development. EFFECTIVE STRATEGIC MANAGEMENT REQUIRES SOUND INGREDIENTS . Management Skills and Commitment r 3 ( 3 f 3 MO I' Sound Effective Cro t vity ess Techn%ues e > w > e > V Good choice of direction Process is a key ingredient but knowledge is primary h .* 143f[,-I63 1 e

THE SRI STRATEGIC MANAGEMENT PROCESS The SRI strategic management process permits the mobilization and manage-ment of the organization to set a profitable strategic direction, and it allows the chief executive officer to identify and choose among significantly different strategies. The SRI process:

• Can be tailored to the unique needs and characteristics of individual componies
• Provides for idennfication of important issues for the future including strengths. weaknesses. threats, and opportunities
• Forces the development and evaluation of alternatives e is decision-focused to get at the hears ofstrategic management e is participative to harness thefull capabilities of the company andpermit implementation of the strategic direction e Permits management of the complexities of setting strategic direction to achieve full potential and the use of appropriate techniques to deal with complexity Tse process conssts ofissue development, alternative generation, analysis, deci-sion, programming and documentation, and strategic studies. Each element of the process is explicitly guided by management values and uses *.he full range ofinfor-mation available internally and externally to the enterprise. The focal point of the process is the decision that selects the strategic direction. A rational decision requires analyzed alternatives that respond to the strategic issues faced by the com-pany. Programming and documentation provide the planning required to imple -

ment the decision and to couple the process to operations. Strategic studies investigate areas of strategic concern and provide a basis for the development of new issues for the next cycle of the process. When time permits and information is insufficient, management may postpone the decision pending the outcome of stra-tegic studies to clarify issues or alternatives. t 6 2

THE STRATEGIC MANAGEMENT PROCESS IS A FORMAL PROCEDURE TO SET STRATEGIC DIRECTION Intelligence o ll Analysis 44 a n. c jg To Mee I& Management 33 values }g Il N P'" E {N

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i Acquielliong' Each step in the strategic management cycle uses a top-down and bottom-up approach. Management prevides top-down guidance expressing their values. Issues, alternatives, analyses programs, and studies are developed bottom up in the organization in response to the top-down guidance in this way possibilities are developed and presented upward in relation to wants coming down. The top-down/ bottom-up approach harnesses the capabilities of the organization to achieve its full potentialin setting and implementing a profitable strategic direction. im 143/oI65 3

SRI'S RECORD OF STRATEGIC MANAGEMENT PROJECTS IS EXTENSIVE S RI has used its strategic management process, techniques, and industry knowl-edge to assist numerous clients in the development of profitable corporate strategy. SRI has i . talled strategic management processes, developed corporate strategies, assisted in the use of advanced techniques, and provided industry and market research information for clients' strategy efforts. Some representative assignments reflect the range and capability of SRI's project work:

• Strategic management reviewfor a New York bank e Development of a strategic management systemfor a major energy company
• Development of strategic alternatives for profit improvement for a paper manufacturer
• Diversification plansfor variousfinancialinstitutions
• Financialservices strategyfor a large retail chain e Development of strategic issuesfor a leading airfreightforwarder e Design of an improved decision processfor new product developmentfor a major of] ice products manufacturer e Survey ofinternationalstrategiesfor a U.S. baa e Development and installation of a strategic managementprocessfor a widely diversified holding company
• Development offuture strategiesfor a major securities exchange e Developmentofmajoracquisisionsforadomesticchemicalfertilisermanufac.

turer and a mechanicalproducts company Forfurtherinformationabo tSRIstrategicmanagementassistance,please contact Vice Presiaent, International Management and Economic Group. SRIInternational. Menlo Park. Cahfornia 94023. 1436J 166 1 c

SA intemanonalis a prooiem-so wirg o*ganga. SRIIn nomic. marnot anc operst omai stuc.es new ma ,OnaI l'on tnat provides coesu'img ang researCn under contract for chents in eusmess and product. process. and ecuaoment Oevoicoment. and tne prover on Ce information services A sig-HEADQU ARTERS, OFFICES govemment mrougnaut tne wona n.e cant percentage of sai s pro'esmonai stan

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For pnvate commercoal and Industnal cJoents. SRI engages m managemer:t consultmg and We welcome encumes as to now we may worn corporate streiegy osterminaison. seennoeco- wim yciu on your maeor concems SRI Washington SRI-Italy SRI Saudi Arabia 1611 N. Kent St. Via Carlo Poma 4 P.O. Box 1871 Arhngton. VA 22209 20129 Milan. Italy Riyadh. Saudi Arabia Telephone: i703i 524-2053 Telephone: Office 102 7155 35 Telephones: 69009 (SRI Villai Cable: SRI INTL WDC Office (CD 74 90 536 23800.22816 Telecopeer i703i 524 3470 Home iO2) 72 32 46 (Propet Office. Telex: 33188 Ministry of Plannings SRI New York SRI - FRANCESCHINI Cable: SRI INTL RlYADH 360 Lexington Ave. 21st Floor Telex: 20326 POLYBAU SJ New York, NY 10017 SRI-France f SRI Villai Telephone: (212) 661 5313 10. Rue Belhni 20075 PLAN SJ 75782 - Paris Cedex 16. France t Project Officei Telephone: (01 553 92 31 SRI-Chicago 101i 553 2P 66 2625 Butterfield Rd (01) 727 53 19 SRI East Aala Telex: 611042 Regional Headquarters Oak Brook. IL 60521 Telephone: (3121 887-7730 a BWg. m Nr SRl-lberia 11*1, Nihonbashi 1-Chome Orense 62 Chuo-Ku Tokyo 103. Japan SRl Alaska Madrid 20. Spain Telephone: (03i 271 7108 Mendenhall Building Telephone: 101) 455-1057 Cable: SRIEA TOKYO 326 4th St. No.1104 Cable: SRI INTL. MADRID Telex: SRI INTL J28447 Juneau. AK 99801 Telex: 42604 SRI E SRI Indonesia Tel none: e907 586-2658 SRI International SRI-Scandinavia Humlegardsgatan 4 Pertamina Div.- SRI-Hawaii S-114 46 Stockholm. Sweden Advanced Technology City Bank Building. Suite 805 Te6ephone: '08 23 35 65 13th Floor. Pertamina Tower 810 Richards St. Cable: SRISCANDINAVIA 8. J1 M H Thamnn P.O. Box 1232 STOCKHOLM Jakarta. Indonesia Honolulu HI 96807 Telex: 19617 SRI S Telephone: 353729 Telephone: i808: 533-3376 354837 g SRI-United Kingdom 349286 2 5th Floor Telex: 44331 PERTAJKT g SRI Europe. Middle East & Africa 24 Buckingham Gate Regional Headquarters London SW1E 6LB England SRI-Australia /New Zealand R NLA Tower Telephone: iO1 828-7645 114 William St. 21st Floor @ 12/16 Addiscombe Rd. Melbourne. Victoria 3000 2 Croydon CR0 OXT. England SRI-Zurich Australia Telepnene: .01 681-1751 Pekkanstrasse 37 < P.O. Box 2621 01 686-5555 8001 Zurich. Swit erland G.P.O. Melbourne 3001 E Cable SRIINTL EUR Telephone: 01 21106 36 Austraba a Telen. SRI EUR. CROYDON Cable: SRINTLC H Telephone: '036 674 915 I 946125 Telex: 55132 SRI CH Telex: AA 35193 f i'.' 108147

STRATEGIC MANAGEMENT TECHNIQUES Strategic mana.gement must deal with the inherent complexity of large enter-prises because:

• The range ofoptions is potentiallj infinite, andmany ofthe options are notyet recognised
• Numerousfactors, both internal and external, must be explicitly considered even though they interact in complex ways
• Analysis is complicated by uncertainty and distant time horizons
• Many partictpants in the enterprise with different relationships, viewpoints, motivations and locations must be part of the process SRI offers many proven techniques that can be applied selectively to meet these challenges.

Strategic management techniques in which SRI has in-depth expertise encom-pass the following areas:

• Business and environmental modeling
• Decision analysis methods e issue development
• Financialanalysis
• Decision identification and structure e Planning andp?ogramming e Strategic organization e industry and market research
• Alternative generation e Technology assessment e innovation search e Research and development e Litigation analysis management INDUSTRY KNOWLEDGE SRI maintains active programs for the development of future market, competi-tive, and technological trend information worldwide in all major industrial and commercial areas including:
• Business tutomation
• Forest Products
• Chem!A e Health and Pharmaceutical e Consumer and Industrial Bectronics e Insurance. Banking, and Investment
• Consumer Products
• Mechanical and Electrical

       > Distribution

• Minerals and Metals
• Energy and Utility e Real Estate and Leisure
• Food and Agrict.itural e Transportation SRI has an extensive information base in many of these industry areas.

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SRI INTERNATIONAL QUALIFICATIONS IN THE UTILITY INDUSTRIES

• Nuclear Power Business Strategy ,

This industry has experienced a broad range of external impacts due to federal and state regulation and licensing, utility financing difficulties, strong competition, and extreme price escalation in labor and materials. These conditions have necessitated a reexami-nation of the nuclear supplier's research, development, and marketing strategies. Decision analysis methodology was used to provide an evaluation of the critical relationships in the business in a language clear to all the stakeholders, and to assess the impact of the many uncertainties on the risks of pursuing specific business strategies in both the short and long term.

• Nuclear Power Generation Program Policy for Mexico The immediate decision facing the Federal Electricity Commission of the Mexican government was a choice between a call for bids on a nuclear plant or a commitment that the next major increment of capacity added to the Mexican electric system would use petroleum fuel. This decision was seen as representative of a larger policy decision context: how

             .the capacity expansion planning of the Mexican electric power system should be carried out to best achieve a mixture of economic, social, political, and environmental goals. This project demonstrated how a decision analysis framework could be used to assess economic and social consequences in analyzing policy alternatives.

A working group from SRI combined the methodology of decision analysis with the expertise and value judgments of those most knowledgeable about the decision--in this case, representatives of the Mexican Federal Electricity Commission and other involved agencies of the Mexican govern-ment. Factors such as the effect on Mexico's international balance of payments, dependence on foreign fuel supply, pollution costs, and employ-ment benefits were explicitly assessed and included in the planning model. The project led to Mexico's procurement of its first nuclear electrical

      ,       installation, and the commission is still using the planning model.

• Electrical Power System Expansion A project conducted for the Kingdom of Saudi Arabia developed a compre-hensive, quantitative basis for electricity system expansion. The project developed alternative strategies in terms of the social and economic benefits to the Kingdom of S'audi Arabia. Included in these issues were: population and industry served, national economic structure, system technical variables, and national manpower issues. The study 1

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143(b I 73

                                                                                   . 9  .

served as the five-year plan for electrical systems of the Kingdom. e Continuction Versus Divestiture of Company Operations This project assisted a medium-sized company in deciding whether to continue or liquidate its operations. The Swedish study revealed that the basic problem lay with future markets and with the overall system of facilities and production philosophy, not with simple questions of operating efficiency, as originally expected. The result was the creation of new and more attractive alternatives involving divestiture of some facilities and certain product lines, as well as the reorgani-zation of other product lines, and the improvement of operating effi-ciency. e Divestiture Study Alternative methods of divesting of an unprofitable franchise operation were generated for a Fortune 500 company. This included sale to a third party, sale to a group of franchisees, bankrupting the subsidiary, and closing it down. Because a number of these options were likely to result in legal action against the parent company, the analysis integrated the ' potential legal consequences with the expected financial consequences of each alternative to determine the best overall course of action. e Strategic Planning Validation System - SRI developed a system for a large energy company to improve the company's ability to compara results of its diverse subsidiaries. Prospects for the future were explored for each subsidiary in its own field or industry by a-hing the impacts of competition, the forces within its own industry, and the world political or economic environment. The system is an ongoing one, using internal operational viewpoints as a basis for validating the elements of the strategic plan for a business unit; it permits the valuation of the output of the plan relative to the concerns of the total corporation. The resulting system not only was useful for reviewing an existing subsi-diary but is also adaptable to the analysis of a proposed acquisition or as a means for judging the future of an industry, e Evaluation and Communication Methodology for

 .      Dual-Purpose Power Plant Siting Decisions The Stockholm Energy Board (SEB) intends to add to its existing system further dual-purpose electric and heating plants for which the source of energy could be either fossil fuel or nuclear fuel. This project developed a decision analysis approach for selection of the best energy production alternatives that balance economic, social, and environmental impacts, including quantitative comparison of such disparate outcomes as hydrocarbon l'

2 M 174

pollution, accidental and operating radioactive emissions, capital and operating expense, system reliability, balance of payments, oil spills, and fossil fuel availability. In addition to the requirement of an overall comparative methodology, this problem is complicated by the number of parties involved in the decision-making process. Although energy supply is the responsibility of the SEB, both the Swedish Parliament (through national policy) and , the local com= unity at the plant site (through veto power) play major roles in the approval process. Thus, the methodology addresses the energy production decision from several points of view and is providing a basis for clear communication among long term fuel supply strategy for certain existing and future power plants. These studies focused on examining the whole fuel cycle for these plants, from resource base and mine operations through the power plants and the impact of their relia-bility on the total cost of power.

• A Natural Gas Utility's Introduction of a New Technology Working with American Natural Gas, SRI developed an investment strategy '

for introduction of a new natural gas supply technology--coal gasification. The project required the analysis of several supply alternatives in conjunction with coal gasification, since no single source could satisfy all the company's expected requirements. The results of the analysis proved to be very sensitive to government actions and to techno. logical ' uncertainties concerning efficiencies, operations costs, and construction time.

• Assistance to California Energy Resources Conservation and Development Commission in Planning Capacity Expansion of the California Electrical System The Decision Analysis Group has worked with the California Energy Resources Conservation and Development Commission in develop'ing concepts and metho-dology for planning capacity expansion of the electric power system within the State of California. An overview of the capacity expansion decision has been developed, and a series of analytical models of electric energy supply, demand, and outage have been constructed to demonstrate the decision analytic planning methodology. In the course of this project, the SRI staff held extensive discussions with the CERCDC commissioners and staff, and contributed extensively to the electri,c energy section of CERCDC's Biennial L2 port to the Governor.
• A Long Range Fuel Supply Strategy for a Utility From late 1976 through mid-1977, several decision analyses were conducted to assist Pennsylvania Power and Light develop a corporate long term fuel 3

143di75

                                                                                 ~ .

supply strategy for certain existing and future power plants. These studies focused on examining the whole fuel cycle for these plants, from resource base and mine cperations through the power plants and the impact of their reliability on the total cost of power. e Markets for Electric Power Special circumstances enable Alaska Electric Light and Power Company now to purchase power at an attractive rate. To maintain this rate and its advantages to its customers, the utility must quickly increase its current sales without limiting potential for future growth in its Juneau, Alaska, service territory. SRI analyzed the potential markets for electric power in this unique community and recommended a strategy for increasing electric power use. e Conceptual Designs of Fuel Cells SRI is assisting a major U.S. corporation and DOE in developing conceptual designs of fuel cells that will convert coal directly into electricity. The estimated construction and. operating costs of a powar plant using these cells will be compared with alternative means of ucing coal for electricity generation. Research support that should be ghan to coal-air fuel cells will depend upon these economic comparisons and our identifications of technological problems associated with this type of fuel cell. e Fuel and Energy Price Forecasts This recent study for the Electric Power Research Institmte projected long-term prices of fuels used for electric power generation in the United States by region for three energy demand assumptions. Prices of fuels competing with electric power were also forecast by end use. The SRI National Energy Model was used, and sensitivities of the price fere-casts were measured. e Electric Power from High-Sulfur Fuels by Low-Btu Gas / Combined-Cycle Systems This program, supported by 30 international companies, examined the technical and economic feasibility of advanced power generation systems based on the use of low-Btu gas from coal and high-sulfur oils. The study included a detailed comparison of the various gasification processes as well as an evaluation of the potential of using this new fuel gas as a supplemental source for industrial fuel. ci .

• zd \16

e Flcrida Sulfur Oxides Study In this single-client study, economics" and cost / benefit analyses were developed for use in setting ambient air sulfur oxides regulations for P.he state of Florida. The economics and commercial availability of ilue gas desulfurization as applied to both coal and oil-burning power plants are emphasized. The study also includes an assessment of the potential for intermittent controls and projections of fuel supplies, demands, and costs in Florida. e Costs of Fuels, Labor, and Interest for Alternative Methods of Electricity Generation This study was done on behalf of federal and provincial governments of Canada to assess the social and economic feasibility of the production of electricity using Bay of Fundy tidal energy. The economics of tidal power were compared with alternative methods of electric power generation. e U.S. Markets for Electrical Equipment and the Role of Imports . The nature and size of the market for selected items of electrical equipment in the United States were determined in this study for a Swedish corporation. The marketing and distribution channels to major industries were described. Opportunities in selected areas were identified and assessed. e Electric Power Plant Engineer / Constructors and Acquisition Candidates In this study for a large diversified manufacturing company, SRI worked with the client to identify key criteria for evaluating electric power plant engineer / constructors as acquisition candidates. SRI's evaluation included general industry characteristics as well as each company's organization, ownership, capabilities, experience, and domestic and inter-national prospects. An important factor in developing the final recommen-dations was a series of interviews with the utility clients of these firms. 5 I43fh '

consulting aca from the mc ,m s ," ' "" "" "*"" client's perspective The Boston ConsuHing Group e The Boston Consulting Gsoup. Inc. One Cusson Place isonton, klassach.asetts 02 806 (687) 722 7800 1he ponton Consutaang Gsoup, lac. 2880 Sand Abit fload ,. . ks.sila Peek. Cahtoania e4025 (415) 854 6586 '

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inesoduction to 1100 concepts for their manage-t snent gsoups. These cost about the same amount in total,last gicsmit the client to espose a broader ge oup in his contpany than we can afford to at our . l nos mal multicompany conference series. ,

                                                                                                                   '            {'

f Q s PREFACE Consultingfrom the Client's Perspersfre is in- . tended to answer as many questions as we can about the use of management consultants. We

• T hope this booklet contsibutes to your ability to

                         @                                       choose the best consultant for the pu pose and to

g obtain the optimum results from Ihe assignment.

l The Boston Consulting Groupfroon the Cl: ens's Persprrtire has been prepared to tell a potential client the essential background facts about ilCG. i N.--=== I @ N . N llruce D. llenderson l . President The lloston Consulting Group, Inc.

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   -                                                                                                                       e   1 N                                                                                                                           !

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AROtJT OtJR CONFEltENCES CD

                       .      Since 19M, The 11oston Consulting Group has            @
                  .       conducted several humised conferences on cos-                -

potate strategy for officers and directoss of major

                       ,  companies in the United States, the tinited King-dom, I'rance, Italy, Swilicoland. Japan and O        .

A  ! Germany. <T These conferences are primarily for the pur- - pose of acquainting potential clients wilh our phi-losophy and approach. We try to invite only those who are in a position to make the kind of policy decisions which we discuss or to hire a consultant to help Ihem. '

                                                      ~

q - The conference invitations are all personal q and toindividuals. D

                             - Invitations for each conference are sent to                     I corporate officess with similar resp m-
            %                    sibilities as far as possible. I or esampic. For f

Q" ten years we have conducted an anmeal con- , Q ference for chief executives to which only presidents and chairmen of major com-g panics are invited. Q *

                            - Conferences are kept small to facilitate dis.       i Q                     cussion. Almut twenty.five pasticipants is Q         _

the preferred size.

                   .        It is with rent regret that we find ourselves no-        .

able to invite all who would tilre to attemt our 4, conferences. We would enjoy having all who wish to attemi if it were pinctical for its. Ilowever, we f arejust not equipped to make these confetences open to the public. We do welcome suggestions - with respect to senior executives of majoi com- I panies who wouhl fike to be invited.  ! We have arranged similar conferences for  ; clients and nctive potenti:0 clients as past et nn 29

f i- , g TABl.E OF CONTENTS f O O ' CONSULTING

           ~

N jrom lhe Cllont's Perspective Wily USE A MANAOEMENTCONSUl. TANT I lll:C3 g IlOW CONSUL.TANTS WORK 3 Z llOW DEST TO USE A CONSULTANT 'e M y j

                                ,                Selecting a Consultant           . .         7
                               .5                Identifyingihe ProNem .               .      It The lioposal . . .                      . 9 s

The End Result . . Il 9 Implementation , il

                                      ,.        T he Continuing Client-Consultant

• Relationsidp . .

II Economics of Consulting . . 12 Executive Time Cost vs. i A Consulting Charges . . . . I1 q U ' Costs and the Const.iting Relationship 13 ~ THE BOSTON CONSULTING GROUP

                                    ~                from the Client's Perspective CO BCG . . . . . .     ..   .      .     .

17 Tile BCG APPROACII. 19 llistory of a Representative Assignment . 19 Condensed Form of a DCO INoposal . 2i 28 ill

TO USE BCG Call or write, preferably directly to the Presi- ..N DUSINtiSS t'OI.tCIES AND PRACFICES .... 23 dent of The Boston Consulting Group (Bruce D. ,_._ Stalling llenderson). Describe the general area ofinterest

                             ...             ..       ...... 23 so that appropriate staff can be IdentiSed.                   g Staff h nie .  .               .      .... ..... ..        23 Stalit.ocation       . .. ..                   .. ..... 23
                                                                                - Arrange an interview with the BCG siaff
    'I.. .sunng .

member who is designated to woik w,th i

                  .      ..         ... . ... .... .            24   .                                                                         "

you. Aboint two hours to half a day should be psofessionalChasses . . .. .. .... ... 24 ~ set aside for. exploring and discussing the Entwnses . . .. ......... . 24 problem in some depth. This visit will cost Sales Cost . . .. .. . .. ... ... 25 you nothing unless you commission the pro- . Financial Ariangemens s . . . . . . . . . . . . . . . . . . 25 jected study.

                                                                               - Ifpossible, allow sufficient time for the DCG TO USE DCG.          ... .. ..... ... .........                  27 staff member to outline a proposal for your revicw before he teaves 'this permits you eo                        .

Allutfr OUR CON FERENCES . . . . . . . .. . . . . . 29 . have the proposal modified as you wish if there is any doubt about the understanding ofobjectives or approach.

                                                                               - Even if the proposalis exactly as you want                               -

it, ask for a confirmation in writing. Percep. tions of problems always change as they move toward solution. The proposal is y primarily a record of mutual e xpectations. g_

                                                                               - After the work starts, plan on regular infor-    gl - 2                      I
                                                                   '               mal discussions, hiost policy questions in-    n===a" volve a shirt in perception and values. This   D                .

is a Icarning process, not a sudden insight. Think your way through the problem with g

• yourconsultant.

                                                                              - Do not hesitate to change the objectives of the study whenever the developing perspec-g                         l tive makes this worthwhile. This should be Q         ,

recorded by an amendment to the proposal, of course. if it substantially changes the i scope ofIhe wos k. ' Use a consultant like high level corporate staff. .  ! @ 'the Boston Consultins Group, tec.,1968. t972.1973. t976 * " iv 27

Alonshly Cost and Duration Approximations , are common for mWor new activities with estab-lished clients. Such arrangements are particularly t suitable where the m4or portion of the task is , conceptual in nature and requires extensive prob-  ! lera formulation and analysis. I As Incurred charges are essentially open ac- - count arrangements with established clients who call upon us as and when needed in the same

• manner that they woukt their attorney oraccount-i

 !           ant. "Ihese are quit e common for the portion ofour practice which is with clients for whom we have worked extensively.

CONSULTING from the Client's Perspective T 3

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2:3 CD

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range from 10 to 20 percent of professional charges. Even when substantial overseas travelis required, these charges rarely exceed 25 percent by any sigificant margin. 4::r Sales Cost

                  'Ihe Iloston Consulting Group employs no sales            @
       ,       representatives and pays no fees or sales charges              A to ainyone, even internally. It is our conviction               <::r that only the lead professional can assume re-                   -

sponsibility for problem definition nnd discuss it in depth with the potential client. For that reason, we consider sales representation to be misleading and unprofessional as well as unnecessary and costly. Ilowever,if a client project is authorized.

           ,   the time spent in denning the project and writing                    .

the proposal will be included in the professional , t, ctarges since it becomes an integral part of the problem resolution. Finanelas Arrangements Projects will be undertaken under any of sev-cral kinds of arrangements.

                                                                    /

Firedfres may be charged where the project is , small and the required woik can be accurately , determined by us in advance. l Not to Exceed charges are based upon profes-sional time actually spent up to the "not-to- c exceed" limit. Such arrangements are most suit- 'i

                                                                      ~

able where the assignment itself can be clearly , l' described but the amount of work required cannot be fully determined. Phase Contracts are used when the task is long and complex and each phase can be defined only when the preceding phase is completed. Im-plementation assistance is almost always treated as a separate phase. 25

Timing Duration of predects may be several times as long as the time required to perform the work. Wily USE W This is necessary to efficiently mesh IICO staff W A MANAGEMENTCONSULTANT schedules with each other as well as with man-agpment personnel of clients. 'the starting time and approximale duration of projects are usually - Use a consultant if you want assistance in identified in the original proposal, j producing a change. Or use a consultant if you want to reduce imcertainly about the efTects of proteselonet Charges change. All consulting assignments perform some combination of these two famclions. If there is no professional charges are based upon the agree- need for any change, then there is no need for a ment when the project is begun or on costs as consultant. incurred. Anything done by an outside consultant could The amount is a function of the stafImembers be done by internal staff provided these condi-used and their compensation levels. Under no cir- tions are met: i cumstances are charges based upon contingencies - The internal siaRis in a position to be otsec-or brokerage fees. ,  ! tive and unbiased in their analyses and professional charges are stated es a singic sum recommendations. for professional services rendered. As a matterof policy, staff per diems anti times are not revealed - The appropriate staff skills of the required to clients. Since choice of staff assigned and time order are av:ilable as and when needed. spent are llCO responsibilities, no exceptions are - The internal staffis as effective and accept-made to this police. In the event of questions, we able in communicatmg and influencing the invite the client to have his accountant certify that evalua; ion of new or unconventional we ha ve used our cussomary rates and practices in concepts. establishing client charges. As a practical matter, we feel it is our profes- * - The internal staff has the vaalety of expo-

       ~        sional oMigation to provide services which are                       sure to similar problems required.

O worth as much as or more than the client expected For the very important, complex problems of a U when he authorized the project. . i nonrecurring nature, these conditions can rarely

     %                                                                       be met in most companies. If they are, then it is l               Expenses                                                      highly probable that the company is incurring ex-

' cessively his h overhead cost for maintaining ex-CD  ! Expenses incurred on behalf of the client are pensive sitif on a standby basis, or using it on O billed to the client in addition to professional unworthy assignments. On the other hand, any-charges. These expenses include out-of-pocket thing except the very best assistance on these expenditures for travel, long distance phone and nudor nearecurring problems is clearly false ' report production. economy. Under ordinary conditions these expenses Do not use consultants on the repetitive proh-lems or those of a noncontroversial. noncritical or 24 i

nondifficula nature. For these kinds of problems, internal stafT is quite likely to be fully effective and Io be mose economical. He advantages of the outside consultant are: BUSINESS POLICIES AND pHACI' ICES i W I

       - lie has the opportunity to see the same class                                                                CO            :        f of problem in a wide         iety of circum.             Each consulting Arm has somewhat different       ,

stances and conditions. Herefore, his business practices. He Doston Consulting breadth of experience can never be matched

• Group's customary forms of doing business are g inside a firm except on repetitive problems. speci6cally tailored to be suitable for consultmg p and research on policy questions at the top man- d-

      - lie is not subject to the assumptions and asement ievel.ney are sufficiently different from      <-

convictions every company develops about those of Arms doing other kinds ofconsulting that i itself and its business based on past history we set them forth in detail below. and personalities. He outside copiuliant 4 has a major advantage in objectivity be-cause he is not an internal career employce. Statling l

      - lle can maintain a load factor la his use of                 Re professional who deAnes the task and time that the internal staff cannot maintdn            writes the proposalis expected to personally as-except on repetitive activities. Herefore,             sume the mSor role in performing the study, pre-Ac is more cronomical as well as 'ocater               senting the conclusions and writing the report, as equipped to handle t!'c nonrecurring mdor              well as supervising any associates.                                    ,

problem. Ordinarily at least Iwo professionals constitute

      - Ile can maintain objectivity as no I:iternal              a minimum project team. Three or more should ba career employee can when dealing with his              involved where practical. Experience indice%s superiors.                                             that individuals alone are not as effective in pro-                      .
,                                                                 viding in-depth and objective analysis of noticy                         !

Use management consultants for these kinds of

                                                             ~

9" * *'I "

• assignments:

StaffTime Alnfor policy questions where the organizat.non . must rethink its assumptions and convictions about both obj,ectives and means. Strategy de-Sta hve smi dimipd omle pi mi s d tim to diem p@s.nis - i velopment, diversification and long range plan-is for & M d & did so h die tal- l ning are aypical areas. ents of many individuals can be used when needed i Politically sensisive problems where the inter- but only as much as needed. .  : nal organization has personal vested interests y a and substantial differences in perspective or 3,,, philosophy. Organization rearrangements and overheaJ reduction policies are characteristic-IICO staff are on the client premises only when ally of this type. necessary. Staff consultation, writing, analysis j and neld work will be donc ciscwhere if practical. l 2 23

Factfnding analyticalevaluations where con-siderable research and analysis are required into complex situations she specialized tech-j

'                               niques and concepts." Marke evaluations, ac-C3                          quisition evaluations, capital budgeting                !

analyses and international trade arrangements tend to fallinto Ihis category. Here is anosn' er kind of consuhing which is often called management consultina, but it is quite '

)                  .

different in character. It can be equally profes-sional, but it is based on a substantially different role. His kind ofconsulting is a function ofexper-tise and technique rather than analytical and con-cept ual ability. Typical fields of this kind are: , I

                                -Work Methods
                               -Factory Scheduling
                              -Quantitative Market Research
                              - Accounting Systems
                              -I!xecutive Compensation Programs
                              -Computer Programming This kind of service is provided very compe-tently by specialized firms, such as accosmiing firms, for certain areas and by some European          '

professional groups. Hey perform a different . I kind of service for their clients, and characteris-i 4 tically are able to use a different kind of personnel

u. ,

than management consulting organizallons do. It is important not to confuse the two types of con- , j sulting, since they have quite different functions. )' Hese services provide technical expertise. { m There is a way to separate these two kinds of N consultants. If you are quite sure you know how to define the problem accurately, then you need i an expert in the appropriate technique. If definition of the problem and the objectives are ' part of the problem, then you need a management

consultant.

i He consultant, like any source of professional i i 4 assistance, is a specialized form of staff. There 22 3

can be an infinite variety of forms of staff support. that the presentation should be made eo the corpo-

 'lhere are correspondingly a very wide range of            rate executive committee.

kinds and types of consulting services. At the formal presentation, the basic line of reasoning, possible financial strategies and the pros and cons of potential acquisitions were dis- g cussed. The presentation stressed the crucial na- g ture of the marketing relationship and pointed out - certain organizational changes that would be re-quired. j in follow up sessions with the client, BCG m agreed to undertake a marketing strategy study to < determine the reason for Acnic's slow crosion of - . market position. Meanwhile, the senior staff member worked out an implementation planning schedule with the chief executive, and arranged a series of meetings between BCG stafT and the corporate planning committee for the implementation phases of the diversification planning. At the conclusion of the diversification study, a formal written report was prepared by the BCG

             .                                             team and submitted IoIhe client.

Condensed Form of a BCG Proposal Purpose of the Study i Problem -- Badground - A summary history of the com- - pany and its competitive position and perfor- , . mance. Also a description of prosent strategy and . ! ~ company attitudes. v Planned Approadi - Interviews and planned analysis. Expected Result Stalling and Responsibility for Poscy Guidance Cost and Durallon 4 21

in the industry in which Acme competed and had demonstrated

• professional abilities as a project manager.

The initial visit consisted of a two-hour inter-

                                                     ,                                 IIOW CONSULTANTS WORK c3 view with Acme's chief executive and shorter                                                                         .
             .- interviews with severalother Acme officers.

He basic tool of the consultant is the interview. It became clear through these interviews that Acme executives were concerned that their m, dus- - This is true no matter how much data research and analysis may also be involved. I try had matured to the pomt where further De Interviewing process must always start segmficant growth was unlikely without

                                                                      ,--   with the client. There is no such thing as imper-th, versification. In thca,r op, m ion, a consultant was sonal management consulting. The first interview
    .           needed to advise them on the properapproach and is always with the member of the client organiza-techniques, and it was agreed that a proposal would be submitted by BCO.

tion who enters into the contract. This initial in- f terview is a very important part of the assignment The senior staff member prepared the. proposal itself: this is when the first information about ex-outhnmg BCG's understanding of the problem, pectations, problem perceptions and background l backgroumi information, planned approach, is obtained staffing, cost and duration as well as the general

• Characteristically, other members of the client

             ;  terms of the agreement. The BCG officer was
      ,                                                                     management are interviewed in considerable identified as respamsible for general policy direc-depth. This is desirable in almost all kinds of as-i              tion of the project, with the senior staff member signments. Rese interviews not only provide identified as the project manager who would de-
                                            ,                               background in depth, they also bring into focus        !

vote a majo$ part of his time to the study. those attitudes which are widely held throughout  ! After review with the DCO officer, the senior the client organization, and those which are indi-staff member sent the proposal to Acme. Two weeks later, the proposal was accepted. WduaWinim Dese interviews form the frame of reference to The conruiting team, composed of the BCO which all research, analysis and conclusions must i officer, the semor staff member and a junior staff be geared. If the assignment is successful. it must member, conducted preliminary interviews of

                                                                         . eventually change those perceptions. He initial about two hours duration with each of a dozen
                                     ,                                      client interviews provide both the slanting point Acme top executives.                                                                                               I and the initial data on which to stait construction A       Through these interviews, the team ihembers
                                                                         ,  of the desired change in concept.

u developed an insight into the company's charac-Hese interviews with client management con-

          %     ter, resources and attitudes. Diaring a team con-ference, et was concimled that although certain tinue to some degree all~through the assignment.

Failure to do this indicates either a quite narrow financial opportunities existed, the real pos-CD assignment or inadequate communication. The sibilities were in certam kinds of mergers and in

          @                                                                 only end product of a successful consulting as-exploitmg Acme's unusual marketmg strengths.

signment is a change in the client's perception of After another stafTconference, the general con-his problem. It is rare that she conclusions nre so 4 clusions were outlined in a slide presentation.The BCG officer met with Acme's chief executsve to unco him W si iMo d 61 they can be presented, understood and accepted review the general conclusions, and it was agreed at a single final report session. The evolution and 4 20 5

development of the solution is a joint learning process between client and consultant. His re-quires a series ofdiscussions. , Although interviews inside and outside the client organization provide the basic material for Tile BCG APpROACII O the study, this is only a small part of the process. & ne private discussion of the problem concept by . mcmbers of ahe project team is a major portion of We often Arst meet a client when he attends a the process. His is a reiterative process of con- BCG conference on corporate strategy. Our in- c;5>- ceptualizing, testing, reformulating and retesting traduction to his problem comes from his request to if the wus k is true management consulting rather

                                                               '     to discuss "long range plans" or " diver-               <T                '

than technique application. silication" or " corporate objectives." M There is a characteristic pattern that most con- Most of our formal client relationships start sulting assignments seem to follow, laitially the with a series of depth inte: views with the corpo-consnitant has a tentative hypothesis about the rate top management staff. %ese interviews and

• discussions bring the problems into focus. This in solution to the assignment. As the assignment proceeds, and more and more data become avail- turn leads into a series of woik assignments to investigatein more depth, ,

able, this initial hypothesis usually becomes in-creasingly unsatisfactory. Ilowever, formulation his discussion may lead to a request from the and reformulation of at:crnative concepts gradu- potential client for a proposal. If the proposal by ally produce a tentative solution which does stand DCO is accepted by the client, it becomes the up under analysis and detailed checking and test-agreement on a formalrelationship. t ing. %c end result is a defendable and well sup-ported set of conclusions based on an integrated Metoryof aRepresentative Assignrnent concept: It should be apparent that clients who try to use The Acme Corporation's chief execu;ive, a consultants as experts and solicit their opinions casual acquaintance of a BCG officer, wrote to without supporting research are apt to be seri-him suggesting an appointment be set up ously disappointed. True management consulting requires a research and analytical effort on the

• wheneverit would be convenient for the officer to visit the company headquarters in New York. The part of the consultant and a parallel rethinking process by Ihe citent. This takes time and effort on Acme chiefexecutive had foimd some of the HCG both sides. publications interesting. One of his vice presi-dents had attended a UCG conference, and a member of the llarvard llusiness School faculty
• had mentioned BCO favorahly.

An appointment was established, and it was

• I determined that Acme's general area ofinterest

was " diversification." " Re BCO officer was accompanied to New York by a senior staff member who had been i selected because he had often worked on ' '

                                                                 'diversiacation projects, had considerable interest 6

19

cl.arges at a reasonable level by carefully balanc- i ing our stalicomposition in terms of experience ' and cost.

                  -q      It is BCO policy to have all BCG resources available io any client anywhere. Stafic*ipability,
 !-                    approximate costs, and performance standards                       IIOW RESTTO USE A CONSULTANI'
               ;       are the same regardless oflocation.

Selecting a Consultant

                                                                           ..         He way to select a consultant is to talk to the person who will be the active project leader. Ilis insight, his task force management and his Juds-ment will be the most important elements in de-termining the success of the assignment. He sure that the person you talk to willis fact occupy that j role. Ask him to be specific about it.

Before this, of course, you must decide to which consultant you wish to talk. This is not easy because some of the smallest and least known consulting Arms can sometimes do excellent work on the right assignment. Conversely, some of the biggest and best known can do mediocre woik if

          .                                                                         misapplied.
                     .                                                                He choice is inevitably narrowed down to n l

i few alternatives by the genenal reputation of the firm. If this reputation is high in the specife arca involved, then the tentalive choice is usually quite safe. If the firm's reputation is high but generalin

                                                                               ,   nature, then it may still be a good choice, but you should make the consultant prove his goasp of the subject by the proposalhe writes.
                                                                           ..         It is rarely wise to invite more than one consul-tant at a time to discuss a project, and certainly     ;

i A not more than two. Most reputable consultants l I U . cannot afford the investment required to make a l M thorough and proper proposalif the odds on ac-  ; ceptance are much less than fifty-fifty. Heir Ices I

            ,                                                                      are based on using their staff nearly full time W                                                              . which means their client development activities
              ~

must remain a small percentage of the total time. Most consultar ts are willing to send a tenfor ,

                                                                                                                                          ~

member of their staff anywhere in the wosld at 18 7

their own expense to discuss a potential assign-ment. They are willing io do this beccuse charac- . tenistically fifty percent of such visits result in client assignments. The time and expense in- d volved in making the visit is included in the C BCG # l charges for the assignment. If no assignment malesializes, the cuss is absorbed as overhead. Maaketing costs for successful consulting firms The Boston Consuhing Group is a corporation, p are a far smaller percentage of: heir revenues than g All of the shares of the company are currently held y the sales cost of suost manufacturing Arms. in the DCG Employee Stock Ownership Plan. The initial contact beiween a potential client

• Ownership in the company fi>r all employees is in ,

and a potential consultant is very critical for the proportion ta length of scrvice and compensation. client. It is must impostant that this contact bc . IICO operates from six locations: , directed to the consulting firm itself and not to some individualin the firm. It is even more impor- Boston Munich tant that the client's perception of ahe problem be Menlo Park I'aris outlined in as much detall as practical by phone or 1ondon Tokyo

• letter at the time of the initial request. nis contact ,

They operate as a single organization for all will dete mine who is chosen by the consulting professiomd purposes. Projects are statfed and lism as the most appropriate person to visit the client and probably to head the assignment. Noth- managed asif the emire Baston Consulting Group l ing is more esilical. were a single entity.

As a consulting Arm,11C0 has specialized in ! It is possible for a consultant to send a senior ollicer to see the potential client and then send the strategy. As far as we know, we are the only  : international firm which has done this. Strategy I appropriate project manager to follow up based on problems tend to fiscus on the future plans of the

• the initial discussion. In practice this is awkward, expensive and rarely happens. The client himself organization and its competitive environment, rather than on current operating tecimiques.

sesents going thiough the same story in detail all The Hoston Consulting Group was formed in over again. It is much better to provide enough info:mation to obtain the right person the first 190. The firm as a whole now has approximately 200 professionals. tine. i The typical DCG staff member graduated from

        .. .he consultant seems fully qualified and a                                                                                          i one of the leading American gradwte schools of sesnous candidate, then he should be asked to                                                                                        .
                                                                . business administration with a superior record of picpas e a pioposal.                                                                                                         __

academic performance. Most of them had several years of experience before going to business

                                                                ,    school.

Identifying the Problem A substantial proportion of the staff received technical degrees from their undergraduate Peshaps the most telling test of a true profes- schools. Another significant proportion has doc- - sional management consultant is his ability to loral degrees. IlCG has made a major effort to - deline a client's problem and construct an appro-identify and hire indivhluals with unusual talent piiate wosk program for dealing with it. It is rare who justify unusually high compensation. Ilow-cver, we are able to keep and maintain our client l i 8 17

i that a truly successfulconsulting assignment does not result in a substantial change in the client's perception of the problem itself. , 11 is not often that the patential client will be I ~ able to describe the problem with wecision. He client's expectations are tesually stated in terms of l general objectives and abstracts. The first task of the consultant is to translate these into an appro-priate approach and work prog am. It must also

                                  ,     seem appropriate to the client.

His problem identification is very difficult. ne client's chility Io define his own problem is usually limited. He client's perception of the problem is

          -                            typically based on assumptions, experience and concepts which are ordinarily widely shared in the organization. The difficulty in finding a satisfac-tory solution within the organliation is often caused by this common perception. The task of the consultant is to examine the assumptions.

bring to bear different experiences and develop new concepts which will be both more usend and fully acceptable to the client organization. The tentative problem identification by the con-sultant may not seem fully appropriate to the po-i tential client. Ilowever, the woik program which is proposed must be satisfying to the client, if the

• proper work program is put into effect, then the end result of the assignment will be an eventual agreement between the client and the consultant A-
• with respect to the problem itself and the alleina-Q tive means of dealing with the problem. It should

                     @.             be obvious that the entire client-consultant in-             '

teraction is part of a process of redefinition Ic-W thinking and revision of perspectives. I i { . W' . The Proposat He most satisfactory proposalis one that h is i been outlined in rough foam and agreed to at the I

                             '      time of the initial discussion. If this is discussed
    .                               with the client at that time, mmlification to meet the client's expectations is easy. The foemal 1

16 9

i ps oposal later becomes in effect a confirmation of this understanding. Regardless of anything else, the client should always ask for the proposal to be nmdified and sewsisten until it is fully satisfactory. 'there is no d reason why a pioposal must be accepted as origi- @ pally wiitten. '

         'I he ps oposal serves some very important fune-

• lions which use not necessasily apparent. *

         - It is a contract to the extent that it states the   *
                                                                 .                                        4 intentions of hoth parties.                                                                 '
         - 11is a record of the perspective and attitude at the beginning of the assignment. This will ces tainly change during the assignment.

THE BOSTON CONSULTING GROUP

         - It is a reminder of both the expectations of                      Chnfs Perspective and the limitations on the scope of the as-signment.
;       - It is a plan of action.

I

        - It is a budget.
^
        - It is an index of professional ability.

A good proposal characteristically has the fol-lowing elements: * ' l - A statement of the present understandingof ~~~ lhe problem. -

                                                                                                  , ')

l - llackground. '

        - lhe planned approach to the problem.

• i

        - Staffing and responsibility for pohey                                                     -

guidance. *

       - Cost and dusation.

l The content of the proposalis perhaps the best indication available of the professional ability of the consuhant.

                                                             ~

10 15

I The cost of a professional assigment is inevi- The End Result tably a function of the time devoted to the project  ; and the basic salary of the particular staff em-If all espectations are met, the consulting as-played. On the complex assignment involving pol- *

             %                                                                 signment results in the removal of uncertainty.

l ' icy questions there is a wide range of choice in Usually it also results in a conviction that some both caliber of personnel and the time devoted to char.ge is needed. This conviction is based par-problem solution. Therefore, the budget itself lially on new facts but primarily on a modified represents a judgment of the appropriate amount , concept of the problem and the opportunity. of effort to devote. The determination of the ap- l

    *!                                                                           The change itself produces a new problem. uis       '

propriate budget is itself a matter of professional - judgment.

• is the problem ofimplementation.

Characteristically, the cost of the policy man-ntauon  ! age, ment considling assignment should not be es-tablished rigidly even though the cost must be estimated. The client should feel confident thr. the consultant will prc ede services which are o' a g , , ,,,; , ,g, ,,g  ;,; i value consistent with the cost. If he does not, he wie ti attitu l ud Ma-shoidd not authorize the assignment regardless of cles. The consultant should be used to assist witL estimated cost.  ; g, , There are limits on the consultant's role in im- ,! plementation which shoidd be observed. As im- I piementation proceeds, it becomes more and I

     '.                                                                       more deln!!ed and corv erned with elements that properly .ast be assinned by those in the organi-ration concerned with day to day operations.

Consultants are probably best used in planning implementation, then subsc suently audit i ng im- 2

-                                                                            picmentaion effectiveness, rather than F.a the im-l                                                                             plementation itself.

l

• The consultant's role in implementation is fun-I de nentally that of teacher, not administrator.

e I

                                                                       !    The Continuing Citent Consultant Relationship A                         -

After completing a substantial assignment, a U

• consultant is in a unique position. lic knows the i

                                           @                                orgtnization, its people and its problems. Yet, he l                                           -                                is sil'l en outsider with the objectivity that this    -

permits. This is a valuable resource for the client j < and should be preserved. t I W Future major assignments should be outlined by a proposal and a clear understanding of objec-i

                                                                                                                                   ^

I4 - } ll '

lives. Ilceween such assignments the relationship cass than they can provide them for themselves. ' shmdd be maintained on a " time-as-required" First of all, this means superior talent. Ilowever, i m is. this requires that high cost talent be used in just ' l the correct proportions. A well balanced consult- e < j Economics of Consualing ' which as qu.te i expensive. Yes, et tM same time, - the cost to the clien: can be moderate fo: the wed. Cosis and compensation for consultants seem to be a mystery to most people, mcludsng many

                                                                 . done. In fact, for many consulting assignments, it    (@

clients. 'Ihe fundamentals are not complex. . would be impractical or impossible for the client O to provide internal stalT of equivalent capability at -d'

      , llelow the pa:Inet or officer level, compensa-

• equal cost.

                                                                                                                                  ~~

l ison is roughly comparable with that of people in  ! imiustry of equivalent ability, emperience and

    !!"'""g. Avenge cem;'ensa!km is higher than it is               Enseutive Time Costs vs. Consulting Charges in indusery because there is litlie place in consult-ing except for Ihe very able. Industry can use                      CC"*"--** tre erpensive on a per diem basis.

f many Linds of people. They must be able to provide the very highest At the partnerMlicer level, the compensation level of business talent as and when needed. , may or may not be substantially higher than indus. Ilowever, these costs can only be evaluated by I trial commercial salaries because the compensa. comparison with the time equivalent of the execu. tion also inchades the risk and rewards of the tive whose scope is entarged. owner-entrepreneur as well as the pay as an 1he actual days available to a chief executive employce. for policy and strategy development are quite lim- ,

       'Ihe ove head costs of a consulting operation                iled. Yet, this is the critical posiion of his respon-                    ?

are quite comparabic to the overhead costs of sibility. It is almost impossibic so put a price on I comparable people in an industrial environment the value of these basic policy decisions. '

or even lower. Overall, .he costs to clients are not greatly dif. Costs and the Consulting Relationship ferent frosa what the costs wculd be for the same l Person on the client's own payroll. The great ad- . A sharp distinction should be made between ' l vantage to the client is in' obtaining just the consultation on policy questions und consultation ! ammmt and Lind of talent needed forjust the time on facts or techniques., it is requis ed. . Policy consulting is by defmilion an assignment A well developed consulting firm can provide which is of uncertain dimensions. The results the client with far greater value per unit of cost themselves are necessarily uncertain. The basic l than the individual members could provide sepa. , expectation from the consultant is fimdamentally  ! saiety. 'Ihis is a function of staff proportions and that he will provide his best effort and profes-their mix on a specific assignment. The most sionaljudgment. economical combination uses experience and Under these circumstances the critical element analytical capability in carefully weighed is the professional ability of the lead consultant. proportions. Ile should be expected to define the assignment Consulting mganizations must provide clients and demonstrate his grasp of the problem and the wi'h superior staff capabilities at more reasonable approach toits solution. ,

                                                          ~

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                                            ~             ~

f P 1. l The President's Letter l June 30,1979 To Our Clients and Shareholders: The year 1978 was unique. Our rate of revenue growth increased for the fourth con- , secutive year. Revenues in1978 were 50 percent above those of 1977 which were in turn 37 percent above those of the previous year. Return on shareholder investmeat increased for the sixth consecutive year to 25 percent. Approximately 80 percent of our employment offers were accepted. Virtually every professional who left our firm for any reason was able to accelerate his career development and upgrade his compensation substantially. . All of our six offices shared in this prosperity. The European business grew nearly 90 percent, the Japanese busi-ness 70 percent and the USA busmess over 40 percent. The non-USA business was apprennately half of cr r revenue for the year. This Wnd of growth will not continue. Every management consulting firm seemed to have had a year of extraordmary prosperity in 1978. Either we are near the top of a boom,or we have entered into a new era of demand for consulting ser-vices. Perhaps itis some of both. In May 1979 we opened a new office in Chicago. Otherwise in 1979 we intend to reduce our recruiting offers, tighten up our professional staff and consolidate our growth. , The year 1978 marked our fifteenth anniversary. We have come a long way fmm one man and a desk, with no clients, no staff and no secretary. We are grateful for the support and , continued confidence of our clients. We will try to continue to justify this by continuing to upgrade the value to cost ratio of . the r?rvices we provide.

                                                     ;                 The
                                                  ,           ,        Boston Bruce D. Henderson Consniting President                      EOnf Si          i

. . !43b!90

s P00R ORGINA The vn DV FF I Ye e Jan. 78 .005211 .551 .2435 2.0435 g g g Jan.77 .004174 4170 2128 1.9200 change vs. dollar +24 8% + 321% + 13% +64% BCG benefited in 1978 from a relatively prosper-ous year in each country in which we have offices. This favorable economic climate cannot be expected inflation, exchange rate shifts and three con-to continue indefinitely. The world's major econ- secutive years of prosperity all contributed to ex-omies are so interlocked that they tend to move tremely favorable reported financial performance. together. More than three years of unbroken But even when all of these are discounted, we economic growth is not common. believe 1978 was a year of significant progress for BCG. r.uc. cc cr.orir- e e e USA JAPAN GERMANY FRANCE UK 1973 5.0 96 p 4.9 5.3 73

1974 -14 -1.3 .4 2.8 -1.5 1975 - 1.13 2e' -2.5 -0.3 -2.6 1976 17 er 17 57 34 i

1:< o l1  !! ll 'i -l' Economy The following charts show the rise of gross na-I j In the USA there is some evidence of a repetitive tional product per capita in other industrial nations w th respect to the United States (the horizontalline eralation cycle of stimulation /growthlaccelerating mfla tion / recession / pause .n inflation. This is a sober- in each chart). The curves are based on average ing prospectif theinflation continues to escalate currency exchange rates for each year. The asterisk and the resulting recession becomes progressively (.) shows the effect of the recent slump of the dollar,

   *    8'V'"-

applied to the data for 1977. Germany and Japan have surpassed us, at the present rates of exchange. c ".K T hII[ ('I 09. *C 3 , n .. 7 w. 1" 'i 0 ""------- 10 1 li' -

                                                                                                                 -    = = = - -
         .9 1970 o

33 1973 1974 54 1.39 im 1978 o5 4.0

                                                                                   ..     /                      ..
                                                                                                                        /

m9 , . - p.r, rm,. ma = 1967 2.8 1971 5.2 1975 96 1968 4.5 1972 4.1 1976 E2 1969 5.1 1973 59 1977 59 1970 5.3 1974 96 1978 8.5 (est) ,, ,

                                                                                                                 .      I".U.I--~~~~
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BCG also beneSted in 1978 from the shift in the - - - value of the dollar. 143 199

                                                                                                                                                             /-

Our standard of living depends on our produc- The bad effect of'this declinmg trend in tivity or, on output per worker. The increase in pro- investment on growth of the GNP and on unem-ductivity of the United States has been but a fraction ployment is shown in the third and fourth columns. of that of other developed countries in the last 15 Investment comes fmm savings, either of individu-years, as shown in the chart below. als or of companies. gg Savings themselves should be directly exempt [ GEh,plg nU g g/l

• from income tax. It is ansumption that should be taxed, not savings. When anyone saves, be he rich or poor, it benefits everyone. It seems clear that i,"jii' "ent "'

                                                                        #di an government policies of' financing deficit spending as a            % increase ,
                                                 % of GNP enProductivity with printed money cause inflation. As investment falls, Browth, productivity and employment suffer, j',D'",,,                             yp                  lp             deficits rise and inflation worsens.

Netherlands 23.7 6.9 France 22 8 5.7 Inflation makes it unprofitable to save in the first united states 17.5 2.7 place since the interest on savings is hardly enough

                *15 year average 19s2 n.

to compensate for the loss in buying power. It is

               .     ,,%           i., u,,  c.,,,,,,                ,,,,,,, u s o,,,    better to buy now rather than to save now and buy
                 * ** *

• 5aa'a later. Without savings, a major source of investment dries up and productivity suffers.

i Japan's rate is triple the USA and France and  ! If these trends were to continue, the following Germany double. Productivity generally means bet- Illustrates how America's relative standard of living ter tools, more modern plant and automation. It would look15 years from now, means transferring people from routine tasks to j higher level jobs relating to the design and produc-tion of sophisticated machinery that will do routine l jobs automatically. l This takes capital, which comes from saving. - l In the United States as a whole, capital invest- ..

                                                                                                  ~ ~ ~ ~

ment over the last 15 years has also been the lowest =

                                                                                                                          .     .="=*

of the five leading industrial countries. Further-more, it has steadily declined since 1963, as shown ' l I [ ,,, below. '

                                                                                                                                - . . . . .                 =
                                                                                                 ==                             nas
             ~

1 2 3 4 5 6 ..

                                                                                                      . ..                            _m        +.m==="""

Average * - of Five Raal Un-years Busmess Real employ. Federal m- . . Endmg Investment GNP ment inflation Deficit * * * * * ** Irt (annual % change) (annual %) (twilsons) * .."..,,,,,. 1968 8.0% 48% 42% 2.8% $(4.7)

                                                                                                 ""                       YE,~ ~ ~                WE 1973      3.9         3.3      5.0             5.0           (9.9)                                        " * - - -

1977 1.7 2.7 6.7 7.7 (38 2) . guggg jgy us o,, ,c l4 )00 Germans and Japanese will be roughly twice as well off as Americans. This conclusion dramatizes The USA was growing its investment in plant the effect of long term differences in productivity and equipment by 8 percent per year in the five gains among leading industrial countries if they years ending in 1968. However, in the five years were allowed to continue for ar other 15 years. No ended in 1977 lhat r;te had fallen to only 1.7 percent further changes in the value of the dollar or in popu-per year. lation growth are assumed in these projections.

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l OPERATIONS REVIEW

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Ie*5 $cl} ~;...; Growth Pattern j- t

                                 . , , c' ,

l in the future we expect the growth of the USA and non-USA business to be approximately equal. All offices are now well above It e g/j.,,',i;'[w

                                                                 ,            minimum critical size and of approximately equal experience and l      resources. Even Chicago will start up in this situation. Approxi-
 ~3 4 %      '

7%7 7 g*?- ~ , mately half of our staff, half of our officers and half of our revenues 4

                    .'e. : - "%*h.

l! are outside the USA. e- . . To accomplish the development of our European offices, nearly 20 percent of BCG officers were involved in transatlantic transfers

                                                                      ,       in 1978. We do not believe this will be needed in the future.
                          , .                                                                                                             i 430 102
                                                                                                                                                        --.ee   -        ..og   w-

300R ORGINAL Ill]j, yfl i' E The Chicago office has been in the planning stage for sometime. P. ~I' It was overdue. A very substantial part of BCG clientele is in the { 'l mid-continent area. We have moved into temporary facilities at 200 kg.

                                                                                                                                                            ~

West Monroe Street until our permanent quarters on the 33rd floor  ; of 200 South Wacur Drive can be occupied upon building comple- ' tion in 1980. Four or rr. ore BCG vice presidents will take up resi-  ; dencein Chicago during1979.

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j. A number of years ago the company adopted a policy of rotat-f; l1 'O g.-'

ing the responsibility for administration of each office. The term of

                             'h. .              an admmistrator is typically about two years before rotation.

The following BCG officers have served or are now serving in that role: James C. Abegglen Charles W. Faris D. John Barnes Richard J. Hermon-Taylor (2) Roy M. Barbee Robert E. Lienhard Bob L. S. Ching Anthony W. Miles John S. Clarkeson Allen M. Phipps Jeremy G. Davis (2) Norihiko Shimizu Francois E. de Carbonnel Seymourlilles James van B. Dresser (2) Alan J. Zakon i,.u' 1438 ?06

100R ORIGINAL. b

                                                                                                                                                                               'L e Our growth has required about 50 percent addition in the floor space occupied by BCG staff during the past two years. Every office location without exception has added space in the last year. In addition, the Boston office has been remodeled.

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The identification of new staff remams one of our most expen- [ ,. ! . siv a and time consuming problems. We have been quite successful

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                                                                             in at ceptance of our employment offers. Tne problem is in identify-J %.        g        ,.                     p^            .

ing those we should spend time and effort to know really well in 2s-

             "l order for us both to make a wise decisien.

a: g Our recruiting practus as well as our trendline startmg salaries q s ' - have remained unchanged for more than ten years. We have been a

  ., f g MTT                                                                 consistent year in and year out employer of MBAs since the begm-
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ning of the firm. Even the number of recruits has changed re-

    * '4  -           'A                            '

markably little year to year since 1970. While we believe we have been the most successful of recruiters of MBAs, we believe our bN emphasis and preference will change.

                                 ,                                                   Efforts by the schools to compress the time period in which students are distracted from their studies by future employment M--

f*l % decisions has tended to make it even more difficult to separate those students with only social skills from those with the required mix of ability and motivation required for our unique kind of business. This remains a major concern. It seems clear that the

         ,y                                                                 attractiveness of graduate schools of business as sources of talentis j:      ,

f declining over time. 2

     ~

Our officers are predominantly MBAs. Two thirds of those who have no MBA do have doctorate degrees. Of the MBAs, sen are from Stanford, ten are fm m Harvard, seven are from Carnegie-Mellon and one each from M.I.T., Wharton, Virginia and Insead. In the future we expect this distribution to become much broader in every sense. N 14 A 210 S . - ~- -p . --

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                                             ~ '. . _1 D r.E BCG has moved as far as practical to take advantage of tax shelters provided under law as beneSt plans.

We are devoting the equivalent of approximately 25 percent of US payroll to such benefits as permitted under ERISA. Group life insurance is provided with benefits equal to five times an employ-ee's annual salary. A significant additional life insurance coverage is provided for travel. Group medical plans are fully paid for by the

                          .--     a          company.

Biancardi Every year since the company was incorporated,15 percent of pay has been invested in tax exempt investment plans such as y BCC's Profit Sharing Retirement Plan and Employee Stock

     . . ~ .

Ownership Plan. The equivalent has been paid out as a cash bonus in most countries which provide no tax deferral.

                   ,j The pension plan is essentially fully funded to provide approx-imately half the career average pay up to 575,000 as an annual annuity beginning at the normal eligible age for retirement. If f                                           employment is continued thereafter, the benefit is increased ac-

~ ~ '

                                  ,         tuarially to the limit permitted by law.

In 1978 the normal age of eligibility for retirement was reduced to 58. Retirement is not mandatory.

                                 }               We expect retirement eligibility age to decrease to 55 within three years. Thereafter we expect maximum retirement annuity to go up annually generally in parallel with inflation.

The Employee Stock Ownership Plan owns all the company's shares. When we close the books on the 1979 tax year, we will have fully covered all the obligations incurred to permit the purchase of the company's outstanding shares in 1975. When that has been accomplished, there will be no more shares to buy. Consequently we requested and have received approval from the IRS to merge the Profit Sharing Retirement Plan and the Em-ployee Stock Ownership Plan. This merg= will enable all dollar payroll employees in the future to part'cipate in the company's ownership in proportion to their accumulated pay. It will also iacilitate payment for those who terminate employment. i' 1436?l2

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• e P00RORGNLL

_ . . . : .J . ! ;_ i J. , _ .: In 1978 the BCG Board of Directors and Worldwide Officers Meetings were held in London, Boston and San Francisco. A resolution by the Board was passed which essentially pro-hibits future membership on other boards of directors for BCG

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[ [(?hfOg! . g professionals excepting for charitable organizations and small , family businesses. .:.. ~" l '* . 4a - *> :;% , __ During 1978 and early 1979 six were elected as Vice Presidents l? l % ' '; and Directors of The Boston Consulting Group, Inc. as well as l

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P00R DUR Tilles 4 1V '# ' '.

t A Roy M. Barbee London a-3.[ 3 received his B.S. from Rensselaer Polytechnic Institute and his I "'

MBA with high distinction from Harvard Business School. His ( previous business experience was with Mobil Oil Corporation. l ~ 33 Michael A. Carpenter i.3t-j.7g{.~ Boston

                                                   ~~~

received his B.S. from the University of Nottingham and his MBA Barbee with high distinction from Harvard Business School. His previous .g- , business experience was with Imperial ChemicalIndustries Limited. e , t. 2n M1

      !y                                                                                                           Leonard G. Friedel lF                       :                           J'y Chicago received his B.S. from Northwestern University and his MBA with p                       . . ,
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distinctiorr from Harvard Business School. He has served as a Lieutenant with the U.S. Navy Intelligence Command. g ** 2: '

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p%T _ Michael C. Goold g Munich g,-{M sp received his B.A. with first class honors and a B.Phil. from Merton College, Oxford University and an MBA with honors from Bj,urgert Stanford University. yy . w . - Per G. H. Lofberg Boston

   ;                                                                             received his degree from the Stockholm School of Economics and his M.S.I. A. with honors from Carnegie-Mellon University. His previous business experience was with Forshaga AB.

4i

                                                            " ~ ~                                                 Bolko A. von Oetinger
                                                                '1                                                                     Munich 2 --
                                                           ..s&     m received his diploma and doctorate magna cum laude from the Free University of Berlin and his MBA from Stanford University.
                        .                       .                                                                                                  143(G ?16
                    .t.

n. . - - - - - - . - - - - - - - --, _

                                                                                                    ~

3001BRIBl0L 1 , 6,'; 93 V

                                                                             .7
                                                                  *     ~                           ~

Boston J. Anthony Aldrich Barbara McLagan .} Richard A. Bird Michael Norkus g, David J. Hall Pearson M. Spaght Todd L. Hixon Eric E. Vogt , Glenn A. KnicKrehm Alan J. Weyl L. Peter G.R. Lloyd _

                                                                                                                  'l Chicago Michael D. Lockhart
                                                                          }/                                ' ///

5 Abram I. Bluestein , s Kenneth V. Hachikian , Menlo Park 4 g , Rovert B. Kaplan Michael D.Tebay , , Larry L. Lowry Robert B. Zider i , Allen G. Rosenberg t m' ' Tokyo Motokazu Orihata Isao Wada Tohru Yoshida 'Sr Masataka Tamura Munich . s Thomas G. Lewis - A  ! J. Bruce Harreld . Rudyard L. Istvan PalTrondvold .- . d

                                                                                                            'O!

Paris .,, , Rene Abate Xavier Fontanet E- ' Jean Estin Vincent Y. Rouxel 3 ,.

                                                                               . ]:

London -jt y

                                                                                              ~

P. William Bane, Jr. John T. Li:.dquist Jeffrey L. Hewitt. Carl W. '3 tern l I Philip W. Hulme 143! ?l7

g %  ! P00R OREL N- r.,

                                                         -                                          $UYT A number of BCG professionals who left the firm eventually founded consulting firms. A partiallist is shown below. To the ,

extent of our knowledge, all have prospered. da.

                                      '                                  American Management Systems, Inc.               Charles O. Rossotti Arlington, Virginia Advantage Group                                 Jarrod W. Wilcox Georgetown, Massachusetts
   ,.-                                                                   Bain and Company,Inc.                           William W. Bain, Jr.

• g Boston, Massachusetts Patrick E Graham I

                                              'f              ,          Braxton Associates,Inc.

Boston, Mar c.chusetts George B. Bennett {, l l; Pappas, Carter & Company Pty. Ltd. George Pappas g Melbourne

                                                .                        IBIInc.                                         C. Tait Ratcliffe Tokyo Institutional Strategy Associates, Inc.         Martin S. Klein
                          ~

Cambridge, Massachusetts Iawrence M. Butler John Kitching Associates John Kitching Paris g N L' - Lucrum Group, Inc. Alexander R. Oliver

 ,                                 ph-                   g               New York, New York I       ~A                          ;                            Mitchell and Company                            Donald W. Mitchell d,                        ,                                          Cambridge, Massachusetts
                              .                                          Nicholas Walt Associates                        Nicholas J. Walt N                                                            London Strategic Planning Associates                   Walker Lewis Washington, D.C.

Twain Associates,Inc. William L. Givens Wellesley Hills, Massachusetts K~ kk -

                        \   .

Financial in spite of BCG's growth, it experienced no financial problems, At year end, cash on hand exceeded 54,136,000. Short term borrowing during the year was not material. Essentially all capital expenditures were financed from inter-nally generated cash flow or made part of lease contract. FINANCIAL DATA (in dollars with 000 omitted) 1971 1972 1973 1974 1975 1976 1977 1978 Pretax income 227 225 610 84 796 1,092 749 1,760 f Current Assets 1,244 1,707 3,157 3,355 4,809 6,253 9,160 15,094 Total Assets 1,659 2,105 3,640 4,831 8,195 9.270 13.123 19,733 Current Uabilities (excludmo tax and incentive compensation) 139 260 91 78 2,160 1,905 2,802 4,820 i I incentive Compensation 79 301 923 1,906 2,942 3,599 5,813 8,368 Shareholder investment sad Alluabilities 1,659 2,105 3,640 4,831 8,195 9,270 13,123 19,733 l Note: Assets inckde note payable to BCG by ESCP of $1,294,229 in 1977 and $1,195,229 in 1976.

n. ,

Usbiktses do not inckde guarantee of ESOP notes to TBC.

                                   !!                    FINANCIAL STATISTICS

• 1971 1972 1973 1974 1975 1976 1977 1978

             ~
           .                                     Revenue 1971 -100                 100      137      181   206     259    309     424     658
         .li y . -i Net AfterTax 1971 - 100                100      115      136    155    195    232     321     501 Return on Shareholder investment                15% 15 % 15.4 % 15.2 % 16.5 % 16.9 % 20.0 % 26.2 %

IU$ !19

                    ~a (l                    7

Officers and Directors of BCG,Inc. President

• Bruce D. Henderson Boston McePresident " James C. Abegglen Tokyo

                            *Roy M. Barbee                            London
                            *D. John Barnes                           Chicago
                            *Paolo Biancardi                          Paris
                            *Torbjorn A. Bjurgert                     London
                            ' John C.F. Brock                         Menlo Park

• Michael A. Carpenter Boston
• Bob L. S. Ching Tokyo

                            " John S. Clarkeson                       Boston

• Patrick Conley Boston
• Arthur P. Contas Boston "Jeremy G. Davis Paris

                            *Francois E. de Carbonnel                 Chicago
                            " James van B. Dresser                    Menlo Park

• Charles W. Faris Boston
• Leonard G. Friedel Chicago
• Michael C. Goold Munich
• Anthony J. Habgood Munich
• Richard J. Hermon-Taylor Boston

                           %omas M. Hout                              Boston
                           ' Jonathan L. Isaacs                       Boston

• Robert A. Lauridsen Chicago

                           " Robert E. Lienhard                       Munich

• Richard K. Lochridge Boston

                           *Per G.H. Lofberg                          Boston

• Anthony W. Miles Menlo Park
• Sandra O. Moose Boston

                           ' Allen M. Phipps                          Munich
                           *Norihiko Shimizu                          Tokyo
                           *Seymour Tdles                             London
                           *Bolko A. von Oetinger                     Munich

• Alan J. Zakon Beston
• Daniel S. Zumino Paris Treasurerand Chief
• James H. Perkins, Jr. Boston Financial Officer Secretary and Bess L. Wuson Boston Assistant Treasurer Clerk Hugh R. Jones, Jr. Hale and Dorr, Boston
• Director of The Boston Consulting Group, Inc.

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?00ROR(El BCG CORPORATE STRATEGY The Boston Cmiting Group,Inc. The Boston Consulting Group Ltd. ton Massachusetts 02106 68 . x 01 134 Telex 28975 The Boston Consulting Group,Inc. The Boston Consulting Group GmbH ca Ithro 8000 2 (312)630 0600 (089)59 8521 Telex 206128 Telex 5215153 The Bo on Consulting Group,Inc. The ton Consulting Group S.A.R.L Pa hfomia 94025 Pans la Defense Codex 16 Telex 348381 Tekx 611798 The Boston Consurting Group K.K. C okyo 2 5 143[ ?21 e . _ _ . - _ . - -n. ~_. em *}}