ML19224C959

Testimony of Hm Dieckamp,Submitted in Recent Hearing Before PA Public Util Commission,Re Preliminary Analysis of Time Sequence of TMI Incident

ML19224C959
Person / Time
Site:	Crane
Issue date:	06/19/1979
From:	Dieckamp H GENERAL PUBLIC UTILITIES CORP.
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ML19224C957	List: ML19224C955 ML19224C959
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NUDOCS 7907100334
Download: ML19224C959 (39)

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{{#Wiki_filter:(.htEV/PCtAL(t. 3tf0 e m i.6 ( a w w A.m n du g TESTIMONY OF HERMAN M. DIECKAMP BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION @ I-79040308 et al I am President and chief operating officer of General Public Utilities Corporation and a director of each of the three public utility subsidiaries of GPU that are the owners of the Three Mile Island nuclear generating station. On April 23, 1979, I presented testi=ony relating to the Three Mile Island Unit No. 2 ace'ident to the Subco=- sittee on Nuclear Regulation of the U. S. Senate Coccittee on Environment and Public Wo rks. A copy of the prepared statement that I submitted to that U.S. Senate Subcoccittee is a t t a ch e d, as well as a =em'orandus and an attachment giving a preliminary analysis of the time sequence of the accident. I shall orally su==arize the caterial contained in those d o cu= en t s. I should also like to co==ent on the allegation 1 that has been =ade that TMI-2 wos prematurely declared to be in co==ercial service. I=plicit in this allegation is the incorrect assumption that a declaration that a nuclear generating unit is "in co==ercial service" governs its physical operation. That assu=ption is contrary to fact. The NRC has pointed out that the ticing of beginning of physical operation of a nuclear generating unit and the circumstances of such operation are governed by the NRC operating license and have nothing to do with whether the unit has been declared to be "in co==ercial s e rv i c e. " ~ ( 3 O l \\ Q o 3 W -{ 2ro

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f 2-In the case of TMI-2, the operating license was issued by the NRC on February 8, 1978. The physical opera-tions of TMI-2 we r e determined by that operating license and by the technical spe.ifications which it incorporated. The declaration of a generating unit as being "in commercial service" is an accounting and ratemaking, concept which was discussed at length with this Commission over a period of several months in 1978. Fo r examp le, on Fe b ru a ry 17, 1978, there was oral argument before the Administrative Law Judges in Met-Ed's then pending race case at R.I.J. 434 concerning the appropriate criteria for a declaration of "cocnercial s,e rv ic e". There was oral argument before the Consission itself on May 10, 1978 in that same i proceeding dealing with the same subject. Th e r e was further discussion of the subject at the June 23, 1978 Annual Review meeting with the Consission concerning Met-Ed following the conclusion of that proceeding. 1 As a result of that discussion at the Annual Review, I sent the Cocnission a letter, dated July 19, 1978, reporting on the TMI-2 start-up and test status. Sub-sequently Mr. Kuhns sent a letter, dated August 11, 1978, to the Coccission pointing out that the Uniform System of Accounts and decisions applying that System defined the time for declaration of co==ercial service as the time when a unit is " ready for service", even though clean up construc-tion has not been completed nor full capacity utilization achieved. Copies of both of these letters are annexed. ') G Q ')* LJ/ Lt

3-I doubt that th-declaration of the commercial unit has ever particular generating in-service date of a r e c e iv ed as much attention from so many sources as was th for TMI-2. Re have sought to make clear that our view was the successful case time for the declaration of the appropriate a long series of tests and we invited the comp letion o f Commission, its Staff and the Of f ice o :! the Consumer Advoca Those tests were to witness such tests, if they desired. R. outlined in the 25-page Exhibit No. E-21 presented by Mr. C. Arnold in R.I.D. 626. On November 30, 1978, Mr. Kuhns wrote to both your Board, with copies to the Commission and the New Jersey C o n s um e r Advocate in both jurisdictions, giving a status report :n the unit. A copy of that letter is annexed. The completed contemplated by that letter were cddi t f : nal tests on December 28, 1978,'and during the next two days the uni full poner and declared to approximately brought up to was be in commercial service. During the closing stagas of the Met-Ed rate case, -aggested that the declaration that T MI-2 w a s in no one or sought to exclude TMI-2 commercial service was premature had sought to Consumer Advocate Indeed, the from rate base. of Met-Ed's inv e s t= en t on the alleged exclude portions been completed at an earlier TMI-2 should have ground that date. 259 222

4 Th e r s have also been suggestions that income tax considerations dictated the physical operation of the unit. This is also not true. As I previously pointed out, the physical operation of the Unit is governed by the NRC operating license; it is not affected by the question as to whether or not depreciation deductions or investment tax credits may be taken for income tax purposes. I am not an expert on the income tax laws and regu-Iations, vaich,have their own special rules and conventions. However, I was inf o rmed, in 1978, by GPU's tax department ' hat inI-I would qualify for liberalized depreciation deduc-tions and investment tax credits in 1978 whether or not TMI-2 was declared to be in commercial service f o r Unif o rm System of Accounts purposes. In other words, there are three separate criteria to be c ons id e r ed : 1. Fo r physical operations purposes, a nuclear unit may be operated once an NRC operat-ing license has been issued. The particular power level at which the unit is operaced is determined by the terms of that operating license and compli-ance with the technical specifications which are nade a part of that operating license; 259 225

5 2. Fo r accounting purposes, a nuclear generating un i t is to be declared to be in com-mercial service and to be transferred f r o m C'JI P to plant in service (with the correlary that AFUDC accruals and capitalization of taxes and certain ocher costs stop) when the Unit is " ready f o r s ervice" after a r e a so n ab le test period for which the FERC standard is not more than 120 days, unless the facts justify a longer period; and 3. Fo r income tax purposes, depreciation deductions may begin and inv e s tm e n t tax credits may be taken evan though the unit has not been i declared to be in consercial service for Uniform System of Account purposes. Satisfaction of the firs .arion, namely, obtain-t ing the NRC operating license, will always precede,_and be in d is pe ns ab le to, satisfaction of the second and third criteria. Moreover, satisfaction of the third criterion may occu r pr io r to satisfaction of the secaad criterion. .a summary, well in advance of the. event, we set forth the detailed steps to be taken leading to a declara-tion of commercial service for TMI-2. Over a period of many months we sought to present to the Commission and to 259 224

6 the parties to the rate proceedings of Met-Ed and Penelec the various considerations and factors bearing upon the de te rmina tion of the appropriate time to transfer TMI-2 from CWIP to Plant in Service and the accountin; and financial consequences of that action. We periodically on the progress of testing and invited the wit-reported nessing of tests. The declaration on recamber 30, 1978 of TMI-2 as being in commercial service was consistent with the criteria that had previously been presented to the Co mm is s io n. \\ 259 225

c.nh.{,J.t y -\\ e ~ T TESTI:10;iT BEFOPS THE CUdC01Ci!TTEE Otl NUCLEAR FIGULATIO1 0F THE SE!! ATE CCSDil A A.E C:I E:;VIRC:::2;;T AllD PUSLIC UCRKS s 5 BY HEPJ' A'i DIECKA>!P, PRESIDE:iT CE!;EFAL PUBLIC UTILITIES CO'tPORATIO AI'RIL 23, 1979 ,c c - i,,. I LL' / /Cs 'T 259 226

Senator !! art, members of the Subconmittee on Nuclear Regulation of the Senate Cc=mittee on Environment and Public Works, my name is Herman Dieckamp. I am president of Ceneral Public Utilities and a director of each of the three operating subsidiaries, Metropolitan Edison Company, Jersey Central P,ower and Light Company, and Pennsylvania Electric ~ Company, that ~ are the owners of the Three Mile Island Nuclear Plant. We are here to present our preliminary understanding of a nu=ber of the aspects of the accident at Three Mile Island. Since the accident, several hundred CPU and Met-Ed employees as well as a great nu=ber frc= the nuclear industry and varicus government agencies have been and are currently working around the clock to ensure the continued health and safety of the public,. We are all extremely greatful that the radiation exposure levels to the public have been low. We are, however, in no way cc=placent about the result of the accident. The accident at Three Mile Island en March 23, 1979 has hau a profound and shocking i= pact on the residents of central Pennsylvania, Met-Ed and GPU, our custe=ers and e=ployees, and on the future of nuclear energy. While-s nuclear power plant syste=s and procedures have been designed to acect=odate extre=e calfunctions of both equipme.nt and personnel, the reality of this accident has had a far greater i= pact than we could have ever projected. We pledge our sincere support and cooperation in the ef forts of this co==ittee to =ake known and to assess the full meaning of this accident. At the outset we would like to e=phasize that we do not in any way wish to =inimize the significance of this accident and we reek no excuse from our responsibilities as plant owners and operators. We strongly believe that it is important to understand the factors chich centributed to this accident and Odb' d /

to the ability of our Cc=pany, govern =ent agencies and the affected population to cope with it. If this accident is viewed si= ply as a =atter of =anagement or operator failure, the full significance of this experience will be lost. The accident was a result of a co= plex co=bination of equip =ent =alfunctions and ' human fhetors. The $ccident departed from the accepted design basis for current nuclear plants. The response of all organizations was influenced by the fact that it was the first accident of this magnitude in the history of the U.S. co==ercial nuclear power program. It is our hope that this testi=ony and these hearings can contribute to an understanding of this accident and the cany co= plex factors that led to it. In our testi=ony today we will discuss the follo, wing specific topics:

1. Accident Causes

2. Plant Status - Present and Future

3. Develop =ent of Understanding

4. Radioactive Material Teleases

5. E=ergency Plan 1

6. Organizational Response

7. Company - NRC Interface

8. Long Ter= Outlook ACCILJ_"T CAUSES We do not propose today to present a detailed description or sequence of events for the accident.

'n'e ar e in general agree =ent with the NRC testimony on this subject as previously presented to the. cc==ittee. J/

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We would like to focus this port,on of the testimony on our initial i inpression of the primary causes of the accident. While Met-Ed and CPU have not completed a detailed reconstruction of the accident or attempted to verify the relative importance of the many ingredients by means of calculational models, the following appear to be the z major causes of the severity of this accident. about 4:00 a.m. on " rch a) Shortly after the turbine and reactor trip at 28, a reactor coolant system pressure relief valve opened to relieve the nor=al pressure excursion, but the valve failed to reclose af ar the pressure decreased. The, operator was ur. aware the valve hid c0: closed. An order for valve closure was signaled in the control The operator conitored temperature near the valve to indicate room. valve position. However, the temperature did not clearly confirm the continuing coolant flow thru the valve. The loss of reacter coolant and acco=panying reactor coolant system pressure decrease continued i ' ~ tuo hours until the operator closed the block valve which for about stopped the loss of reactor coolant. b) The operator anticipated reactor coolant system behavior and i=medi-tihen system pressure ately began to add =ake-up water to the system. decreased to 1600 psi about 2 minutes into the accident the High m. Pressure Injection (HP1) safety system was automatically initiated. five minutes into the accident the operator reduced injec: ion Four to from the HP1 system when pressuriner icvel indicated th:: of water the system was full. 259 229

-S-c) Operator training and er.perience had e.:phasized the retention of [ e a steam vapor space in the pressurizer. However, following the rapid depressurization of _the system, the pressuriser level indicator inferred a high level throughout the reactor coolant system. This level indication led the operators to prematurely reduce HPI flow. The operator apparently did not anticipate that continued depressurization corld lead to steas void for=ation in hot regions of the system other than the pressurizer and that under these conditions his level or fullness indication was ambiguous and misleading. d) Because of the presence of steam soids in the pri=ary system, indi-cated flow decreased. The operator turned off the main coolant pe=ps in order to prevent damage to the pu=ps. c) An emergency feed syste=, designed to provide cooling to the steam generators in case of loss of the nor=al feed water syste=, was blocked because of two closed valves. This syste= would have been available to provide secondary cooling. The operator discovered \\ this condition and initiated secondary system e=ergency cooling by opening the closed valves 8 minutes after the start of the plant transient. The plant safety system surveillance program had called for the placing of these valves into the closed position six ti=es during the first 3 conths of 1979 for testing of the operability of the pumps or valves. The surveillance program required a verification of valve position twelve ti=es during this period. The last test of the caergency feed system was conducted on the morning of March 26, about 42 hours before the March 28 accident. 20/ da0 initially vented through the pressuriser relief was f) Primary coolant the contain=ent design into the auxiliary building because pumped require isolation until building pressure reached 4 psi. did not five of the above factors led to severe undercooling of the The first The fuel beca=e extre=ely hot and the integrity of the fuel reactor core. indication of fuel cladding da= age and fission The first cladding was lost. An extensive reaction product release came with high radiation alar =s. steam liberated large quantities of between fuel cladding and pri=ary coolant syste=. The resulting configur-hydrogen gas into the pri=ary reactor coolant ~ ical atte= pts to ation of the rcactor core is still the subject of analyt At various tices during the day of March 28 as the reconstruct the accident. ffered operators worked to reestablish control of syste= cooling, the core su Forced cooling of the pri=ary syste= was additional overheating and da= age. about 8:00 p.=. on the 28th. reestablished at of =uch specu-Perfor=ance of the plant operators has been the subject of: lation. Their perfor=ance cust be viewed in the context A=biguous and contradictory infor=2 tion in the control roc = 1. i relating to pressurizer level and relief valve closure. emphasis on 'nua experience and training underlying the operators' 2. =aintaining pressurizer level. 3 The operators' awareness of equip =ent licitations. The ti=e and opportunity to assi=ilate large quantities of data. 4. the time of the accident are a qualified and s, The operators on duty at They perforced their functions professionally in a period of competent group. investigation and the many other govern = ental extre=e stress. Our own to determine the roic of operator investigations will ulti=ately atte=pt in this accident. perfor=ance 7.50, , ~ >., ~) 1 pLA!;T STATUS - CURPE::T A;;D FUTUP.E_ decay heat being liberated in is stable. The fission product i 3 Mw' thermal (0.1% of full pover). The plant the damaged reactor core / fuel is about The reactor fter a reactor trip. This power level is normal for,this time a The average l nt pump. is being circulated by one primary coo a As a result of local primary coolant is about 175 F. te=perature of the primary coolant to the core, the highest flow restrictions associated with the physical da=agefrom the re ~. = The helt in-core ther=occuple reading is 275 F. is being rejected through one ) heat input from the one operating pu=p (6 MW condenser. steam generator and the plant is to establish activities at the plant The L= mediate objective of the d steam generator and re= oval path through the plcnt's secon In the a redundant heat using the plant condenser. exchange loop withc.: an inter =ediate heat olant will circulate by ceans of cold shutdown code, the pri=ary reactor co This will re and. density dif ferences. t natural convection because of te=pera u fer ulticate to the plant's two steam generators transport the core heat The objective is to secondary paths. rejection through two independent function in these ts that must mini =iae the nu=ber of active co=ponen i ble heat removal. circuits in order to ensure rel a i e during the next should achieve the cold shutdown code sc=et = ling capabilities The plant The plant's several and original e=ergency coo One o f these syste=s, the 2-3 weeks. i ling plan. are available to backup the bas c coo of a high priority been the subject plant's decay heat re= oval syste= has syste= to ci=inine r h-to upgrade the ability of that rad ioactivit y. As part effort high primary coolant environment while operating with installation of redundant work is under way to enable the design. of this effort, of the plant are part backup modules in addition to the two that 259 232

-S-DEVELOPMEMT OF UNDERSTA'! DING I ion of ceccon accidents L The accident dif fered frc= the popular percept full definition of its because of the extended ti=e necessary to achieve a scope. flow. During the The accident's initiating event was a loss of feedwater staff attempted to recover ~. the plant few minutes following this event, the plant first Eeyond this ti=e, from what they thought was a normal transient. i the reactor behavior became inceasingly abnor=al. The loss of coolant v a ~ d the valve was isolated around coolant system relief valve was identified an several radiation alar =s alerted the 6:20.a.s. At approximately 6:50 a.m. L=e period of 5.30-7:30 a.m. staf f to possible reactor core da= age. In the t includ ing ffered extensive da= age, the reactor core beca=e uncovered and su 12 hours, the operators he next significant circenium-water teaction. During t This i h dependable core cooling. atte=pted a number of strategies to establ s which time the plant h 28, at objective was achieved about 8 :00 p.=. on Ibrc symptoms included-saturation te=peratures were above coolant Sc=e local reactor coolant a) temperature. and the High radiation levels existed in the reactor contain=ent b) auxiliary buildings. frc= the various A preliminary sequence of events was being extracted The data for the 16-hour accident plant records by the af ternoon of F.rch 28. the corning of March form on period became available in su==ary graphicalreaction and the presence

29. The probable occurrence of a : ire _ -lum ater i

the in the reactor containment bul,lding was deduced dur ng of hydrogen gas indicated pressure records that the evening c f '! arch 29 f rc= containmentThe size of -he hydrogen gas bubble in a pressure spike during the accident. n LJs

9-first ceasured fro syste= data just af ter the reactor coolant system was in the containment midnight March 30. The concentration of hydrogen gas gas sa=ple huilding was determined from analysis of the first containment to taken about 4:00 a.m. on March 31. The first quantitative data with respect fission product release and degree of reactor fuel damage be_cc=e availabic via 5:00 p.m. on March 29 The point . analysis of a primary coolar.t sa=ple taken at i insigh t of this enuceration is simply to indicate the time necessary to ga n to provide the basi; for a into the scope of the accident and, ir

urn, In any evaluation of the ticeliness of the accident meaningful assess =ent.

and staf faced it must be re=e=bered that the plant =anage=ent assess =ent, priority. de= ands to maintain the da= aged plant i==ediate, continuing and first in a controlled and safe state. RADI0 ACTIVE MATERIAL Pl. LEASES A release of fission products to the contain=ent building occurred when water was released during the first forty-five minutes of the accident system through the pressurizer relief valve. ' from the pri=ary reactor coolant drain tank in the contained within the reactor coolant This water was first Shortly af ter the initiation of the accident, reactor containment building. to the pressure buildup in this tank resulted in the release of coolant collected in the containment containment building floor. This coolant building sump and was pu= ped into the auxili,ary building su=p. The au::il fic:. building su=p overflowed and resulted in several inches of water en the of the auxiliary building. J/ LJk

.s _ 10 - Containment isolation auto =atically occurs in the TMI 2 planc upon a4 psi pressure increase in the reactor building. In the accide; '2t occurred this pressure buildup did not exist until 5 hours into the accident and thus containment was not isolated until 9:00 a.c. Operator action turned off into the event. the containment sump pumps approximately 40 minutes High fuel cladding temperatures produced by inadequate core cooling during the accident resulted in the breach of cost of the fuel cladding in the core beginning about 90 minutes into the accident. This fail 2.e of the first level of fission product containment resulted in the rele're into the primary fission products frem the fuel-c1: ding gap and a system of the gaseous fraction of the fission products normally contained within the fuel pellets. i ant Af ter extensive fuel da= age occurred, highly centa=inated prinary coc and gases may have entered the auxiliary building through a nu=ber ~ of rout us including reactor coolant pu=p seal leakage, instrucent ta ple lines, and :ae 17e are not currently able o pri=ary ecolant make up and let-down syste=s. ascertain in detail the L=portance and contribution of there possible rel ase 1 paths. Our analysis is now i=peded by the inability to physically exa=ir e specific systa=s due to high radiation levels. letdown and =aktup Continued operation of the pri=ary reactor coolant circui resulted in a buildug of systems to re=nve gas from pri=ary coolant hydrogen, iodine, and noble gases in the reactor make-up and let-down systems in the waste gas decay tank in the auxiliary building. Steps necessary to and restrict tank pressure levels, the taking of gas samples, and ef forts to building resulted discharge these gases back into primary reactor contain=ent in a series of radioactive gas releases. The largest of these cccurred on Friday, March 30 at 5:40 a.=..

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') 7 ') r G GJ/ The iodine releases fro = contaminated water in the auxiliary building and fro = other gaseous sources possed through iod'ine filters in the auxiliary building with the resutt that net iodine relcases of f site have thus f;c been li=ited. In recognition of the inventory of iodine ir one auxiliary building and the deterioration of. existing filter., charcoal filters have been replaced and an additional charcoal rilter syste= is being installed in series with the existing plant filter syste=. This exist:ng iodine inventory is being reduced by a factor of 2 every 8 days by radioactive decay. URC has calculated the h'ghest integrated whole body dose possible to an unprotected individual continuously positioned outdoors at the plant boundary and thus totally exposed throughout the accident. This was 85 =illire= and is consistent with the highest offsite dose censured by Met-Ed. In addition to the =azicus integrated whole body dose ceasured fro = the accident, the total dose to the papalation within 50 =iles has also been evaluated. The results of this analysis indicate that the aggregate whole body dose to the population within 50 =iles (about 2 =illion people) was about 3550 person-re=s frc= noble gases released through April 7, 1979. NRC indicates that the total pc tential life ti=e health effects associat -d with this whole body dose are about 2, in addition to the 300,000 cancer fatalities which would be normally expected to develop in the population of about 2,000,000 persons. Low levels of iodine-131 have been detected in air and = ilk samp12d near the site. To date, =easure=ents indicate the mazi=um level of iodine-131 in -l'). This level is ~ = ilk to be about 40 picacuries per liter. (pico = lx10 below the 100FR 20 maxi =un p rmissible concentration of 300 picoeuries per liter, and is well below the levels of iodine in milk detected following the 1976 Chinese weapons test. 290 d' s 6 7 i Low levels of liquid releases occurred to the Susquehanna River through the Industrial waste water treatnent system. The available data indicate '.01 curies to the river, well below the level of 0 cumulative releases of about 10 curies per quarter allowed under our license. In general the releases have for one brief period when the data indicate the hourly been below MFC except release exceeded release rate limits by about 30%. EMERCENCY ?LAN Both Three Mile Island and the Co==onwealth of Pennsylvania had for=al in place before TMI 2 received its operating license. written e=ergency plans there is a clear division of responsibility 1 Under the emergency 7 ans, In ter=s of the division of func-between Met-Ed and the state authorities. initial assessment of the tions, it is Metropolitan Edison's duty to =ake an to read accident, to do whatever it can to ter=inate or investigate the-event, instru=ents and conitoring devices uhich give an indication cf -ae the plant level of releases frc= the plant, to read the instru=ents telling wind direc-tion and speed, to dispatch teams of technical personnel to areas outside the i to record =easurements in the plant with handcarried =cnitoring devices these'back to the plant e=ergency control center path of the plume and report informed on all by radio and to keep the Eureau of Radiological Protection functions and these matters. Plant personnel have been trained in these perform periodic drills. for various simulated accidents. So far as state agencies are concerned, it is the responsibility of the Bureau of Radiological Protection to nake the decision as to what =casures o f protection, including evacuation, should be undertaken. If evacuation is called tor, it is the responsibility of the state and local c=ergency centers to carry out the evacuation. 259 237

o. E=ergencies which could have consequences off site are classified as aite c=ergencies are those either a Site Emergency of a Ceneral E=ergency. i which have a potential for of f-site cons :quences and General E=crgenc es The e=crgency plans specify are those with definite off-site consequences. precisely t'te conditions in the plant which trigger the declaration of a Site ~ of a General E=ergency and which initiate i=ple=entation of notification and Both levels of emergencies intensified radiological conitoring procedrees. require notification of off-site authorir ies, at TMI 2, the plant operators In the initial stages of the accident involving loss of they were experiencing a normal plant transient thought feeduater, which resulted in an aute=atic trip of the electric turbine a half hour af t'er the initial About generator and an succ=atic reactor trip. intercediate cooling system was received. reactor trip, a radiation alar = on the In light of the operator's knowledge of the position of this detector in an this was not area of generally high background radiation and its low setpoint, is not a criterion for declaring viewed as an indicator of an e=ergency and it a Site or General E=ergency. Throughout the next several hours there were no indications of the potential for additional radiological alar =s or other a radiation =enitor located near off-site releases. At about 6:40 a.m. sa=pling lines alar =ed and chemistry / health physics tech-pri=ary coolant plaht detected nicians surveying with-portable conitors in areas of the radiation levels. three hours af ter the accident was It was not until 6:50 a.m. almost radiation menitoring devices in the initiated and the reactor tripped, that At this clerted operators to the real potential f r of f-site releases. unit when a criterion for declaring a Site E=ergency was cet, ti=e, the first alcre alar = van received. reactor building high range gamma conitor ') L} Q n - c. . -/ fi g L

Site Emergency was In accordance with the energency plan procedures, a lvania's declared and notifications to authorities were initiated. Pennsy 7:02 a.=.; Dauphin County's E=ergency Management Agency was notified at the same ti=e. These organizations in E=crgency Center was notified at about d local authorities. The State's turn con =enced their notifications to stace an ified at 7:04 a.=. Eureau of Radiological Protection (SRP) duty officer was not The 3RP duty of ficer, by the State E=ergency Manage =ent Agency duty of ficer. Three Mile Island to gain technical thereaf,ter, contacted the control roca at to NRC's regional 7:04 a.m. A call was placed at knowledge about the event. The answering service which received Pennsylvania. of fice in King of Prussia, he possib'ility of primary to this call was alerted to the reactor trip, t he declaration of a Site secondary leakage through a stea= generator, to t that no releases were known to have TMI 2, and to the fact Emergency at Notification followsd within cinutes to o _ners on occurred at that time. About 7:24 a.m., the of organizations to be notified. the prescribed list as received, which by l reactor building high range ga==a conitor high a ar= w lassification to the level of the plan triggered escalation of the emergency c . thts new change tn status were initt-Nott.,tcations at a General E=crgency. fully the energency plans were During the period fro = 7:30 to 8:30 a.a. ated. ihd. Cc==unications both on site and of f site were estaol s initiated. and verify . dispatched of f site to detect Radiation eenitoring er releases. 1979, on-site and of f-site radiological the day of March 28, Throughout full flow of, data to the E=ergency Centrol teams were providing a mon it o r ip-lines cc==unication exinted thrcugh open Canstant Three Mile Island. tion and Center at 2's Control Roo= to the State's Bureau o f Radiation P from Unit 259 2M

15 - As data was received at Region I in King of Prussia. was i:=ed iately to ;;nC's offices at itocing tea =s off site, it the site fro = radiological con through the open-line channe s l es t ab - relayed to both MRC and to the State ed on this occasion. From shortly lished in the emergency plan and i=plementl in the control roo en af ter 10:00 a.m., NEC had personne ion emergency plans i the Three Mile Island rad at Fro = our vantage point, The decisions to declare the implemented. and procedures were ef fectively by the incividuals in charge when tne Site and General E=ergencies ucre made F=ergency stations to be made. i criteria requirec. these decis ons accordance with the specific ifications were cade and in were canned and of f-site not utta the critical cr:-site Open lines and a flow of cc:=un' cations status Radiation conitoring results and plant plan. agencies were established. d to both RC and to the Pennsylvania i information was available a>d cc =en cate further review of this that We cust expect Bureau of Radiation Protection.for i= prove =ent. will identify opportunities experience ORCA;;I'ATIO"AL PIS?OliSE t had experienced a severe l The initial perception was that the p an ditions were stabic s was sc=e fuel cladding da= age, but con f the ev ent. transient, identify and understand the cause o there and the i==ediate need was to March 23, available senior plant d By approxicately 7:30 a.=., Wednes ay, afternoon By that personnel were on site. t operations and technical supporice Corporation personnel arri the TM1 two Met-Ed and four C?U Serv staff. On Thttrsday corn-to the plant site to provide technical assistance i to initiate an was dispatched to the s te ing, March 29, a seven-ean team L'aen the tc$= gained a first han d cuareness investigation into the accident. they ir.nediately turnec late 'mur sday af ternoca, of the condition o f the pl.,n e u* G' n. t th: ir full attention to assessing plant status, providing analytical support to the continuing operating decisions that had to be made, anJ identifying continency plans in order to keep the plant in a safe condition. This activ-ity was a de=anding one and absorbed the approximately 80-100 personnel, about half from CPU member cecpanies and half fres other utility industry conpanies, brought to the site over the next few days. ~ The CPU vice president who is responsible for generation plant design and constructian, and who previously had been the Met-Ed vice president responsible for TMI, arrived at the site early Friday morning, March 30, with plans for organizing and canning the ongoing ef fort. Later Friday morning when a bursc of radioactive gas was released fro = the auxiliary building, awareness of the magnitude of the problem was sharply increased. During the next 30 hours we were in phone contact with the nuclear industry. the site in the for= of senior experienced nuclear We asked for support at scientists, engineers, and te:hnicians and found everyone eager to help. By late Saturday afternoon, March 31, about 30 people from 10 organizations arrived at the site to fors the nucleus of what has been variously known as, the Industry Advisory Group or the "thinktank". I met with the group early in itself to the evening of Saturday, March 31, and asked the group to organize evaluatt fcur prime areas: to mini =tse o f fsite 1) What probic=s do we face in waste nanage=ent exposure? 2) ht a t is the state of the danaged care? 3) What problems exist in the then ryrrent primary cooling mode (with a bubble)? the options available for prog: 2s s ion toward cold :hutdct.m? 4) tra at are /' 3 /IO ') 1 1 L4i

17 - the Advisory. Croup utiliacd the skills ano Over the next three weeks, experience of about 100 nuclear specialists. Their p articipation has been indebted to them for their unselfish extre=ely valuable and we are forever dedication. Concurrently, the Met-Ed and CPU staff began their own assessment of these topics and began to work with the B&W staf f in Lynchberg, Va. and to b'e were access the capabilities of the other nuclear steam supply vendors. that bore little atte=pting to deal with current and pros pective proble=s relationship to the design basis of the plant. our thirteen pcuer Despite GPU's seventeen years of nuclear involvement, of over 1000 employees devoted to reactor years of experience and a comple=ent experience with this nuclear activities, our resources and our lack of pr.ior kind of sit sation limited our own ab#1ity to completely determine the plant to determine prierities and to supply status, to establish a plan of action, canagement leadership. During the first few days after the accident the priorities were iden-tified to be: in a safe operating code with e=phasis en conbingen: a) Maintain the plant failures due to the high radistica plans in anticipation of cc=ponent levels and radiation inhibition to =aintenance. activity releases and the of f-site b) Mininize the fissica product The initial problem areas included waste exposures to the public. frca liquid spills, suppression of iodine release water management, replacenent of iodine filters, and filter additions. 9 25o 'A' / L1L

a safe transicion fro = the post accident cooling c) Devise and implement i i to ensure j code to cold shutdown with provision for backup strateg es l continued safe rc= oval of the core's residual heat. Reinforce the pler~'s emergency syste=s to assure safety in the d) ii has co,1d shutdown = ode with its unique de= ands. A critical act v ty been to improve the integrity of the decay heat removal syste= and to if required. enable the installation of redundant backup syste=s By' Tuesday, April 3, the co=bined ef forts of the Met-Ed/GPU staf itioning B&W, and the Industry Advisory Group resulted in a 3ase Plan for trans Since that ti=e, status to cold shutdown. the reactor free its post accident l f further independent the plan has undergone minor adjust =ents as a resu t o he added infor=ation review by the Advisory Croup and URC,and as a result of t f ti=e. and experience gained by our staff as a function o On Wednesday, April 4, an organizational structure for the TMI-2 recover The organization gave recognition to the continuing effort was put in place. ~ the need for significant engineering and analysis control of plant conditions, and leadership to the various special e=phasis on vaste management, i

support, This overall organization was placed under the plant =odification tasks.

i f direction of Mr. R. C. Arnold, Vice President-Engir -ering & Construct on, o the same ti=e the organization was bolstered At the CPU Service Corporation. ~ frc= Ouhe Power Co. and by the inf asioc of a number of senior executives .ed by health The organization was further strength Cc==onuealth 2dison Co. frc= a nu=ber of utilities as well as physics and plant' operations people 2 We wish r.o publicly expec: numerous engineers f c= the nuclear industry. wa were given. our gratirade for the, utpouring of support 259 24u

' CCiti'ANY - NRC INTERFACE I"ne role of the NRC and the relationship between the Company and the NRC has been the source of much speculation in the press. The Co=pany's view of the relationship is one of mutual respect and cooperation. The popular perception of the relationship =ay have been significantly colored by the Cc=pany's election to reserve co==ent on plant status and plans. The NRC o f co==un ica t ion. It has been our spokescen adequately covered this aspect judg=ent after the first few days and up to tl.is time, that che public inter-served by =ini=izing the opportunity for media e=phasis of =inor est was best nuances of expression. A serious side effect of this policy has been to create the public impression that the Cc=pany was not contribt. ting to the canage=ent of the post accident efforts. We believe,that Met-Ed and GPU have ef fectively responded to this accident. and resources cade available by the Cc=pany for accident The manage =ent control cust be evaluated in light of the unexpected and first of a kind nature of this accident. As a result of this accident all parties should bc = ore aware of the de= ands of this kind of situation and better prepared to In retrospect, cope in ter=s of leadership, canpouer and =aterial resources. it is our i=pression that the Cc=pany and the "RC both experienced si=ilar and somewhat concurrent phases in co=ing to grips with the situation. Tne question of who is in charge has not been a critical factor. from the outset recognized the role of the NRC in this acci-The Cc=pany has dent situation..The NRC's access to f.hc-control roc = provided direct and ~be need ir ediate access to plant status frc= =id orning of :tarch 23 on. for NRC approval o f "of f normal" actions and procedures has occurred with li=ited bureaucracy. The Cc=pany encouraged reduction in the nor=al NRC to participate directly regulator /regulatee relationship and invited the '{jO 2[44 / at the site. Th e re in the twice daily technical and progress revieu meetings were tense moments, but uc cust emphasize that it is the Cc=pany's view that We have been the relationship with the "RC is constructive and e f fect ive. able to close ranks so as to ef fectively employ our joint resources. LONG TERM OUTLC0K i to the longer term outlook for repair and return to serv ce With respect is too early to be able to provide even a rough schedule or cost of TMI 2, it reactor inc~i- ~ Experience with the clean up and recovery of othe esti= ate. It will, however, the problem is technically manageable.. dents suggests that be significantly influenced by the availability of financial resources, The replacement power cost regulatory re, quire =ents, and public acceptance. houra output of TMI 2 provides alone of the nor=al 4-5 billica ane.ual kilocact f $100 million/ year. to our customers an incentive for restoratica in excess o seek to disassociate itself fec= and does not While the Ccapany cannot ua do believe that the accident involved the the causes of the accident, l The entire technological, and regulatory infrastructure of nuc ear pouer. The Co=pany has the benefit of pro-public is protected by Price Anderson. costs associated with Eeyond these, there are significant perty insurance. be used and useful for that cay not replace =ent power and a large investment If this unanticipated cost could be distributed over the 400 scue ti=e. would not sign ificantly reactor years of cor=ercia'. nuclear power to date, it Ecuever, the frca the econo =ics and value of this energy resource. detract of this accident when concentrated en the 1.5 million cus cost investors in TMI 2's parent and subs idiarie stockholders ard the other 170,000 imp The traditional constraints of the utility regulatory process is extreme. impedicents to the casy discussion of -he ramificaticas of an r,ign if ican t

21 - sharing of costs be-of this type and a ready resolution of the proper accident i d the investors. To date the industry has underest mate tween the customers and the of importance of diversifying this financial risk and thus spreading the cost technology over the total beneficiaries of nuclear the development of th a The institutions charged with the responsibility to supply a secure, power. ithstand ahd economic source of electrical energy must be able to w

abundant, like the accident at T!tI 2.

The,yste= =ust retain the impact of an event f energy supply and the ability to balance the social and econc=ic costs o energy availability. e s 259 y.e< fU

C. A k n o \\ \\

• s T-Herrnan Ciecksmo Pre: cent 2so cherry ua! =:ac

, A-f GENERAL Pars:ppany New.'ersey C ~ ~ l7 --- 7.C.I ; PUBLIC 201 203-4900 (8 g F UTILITIES CORPORATION k u-July 19, 1978 ~ Pennsylvania Public Utility Ccmmission Commonwealth of Pennsylvania 104 North Office Building Harrisburg, Pennsylvania 17120 Attention _: Honorable Louis J. Carter, Chairman TMI-2 Start-up and Test Status . Subject _:

Dear Chairman Carter:

I reviewed the status of the During the Met-Ed review on June 23rd,TMI-2 start-up program Ihe assessment of the purpose of this letter is to confirm our currentmajor proble date_of about November 1, 1978. Start-un Procram for A formal start-up testing program was planned and organized 2 similar c the Three Mile Island Nuclear Generating Statica Unit l d Nuclear one that was conducted very successfully on Three Mile Is anThe reehr Generating Station Unit 1. The first event in the test progran, as outlined on Attachment 1. functional testing, was cc=pleted in Octob in time to that time. The 1978 in-service date scheduled at ecuirment hot support the May 31, program is planned to fully exercise all of the plant under carefully controlled and =cnitored conditions s any test enf the plant performs objective of the test progran is to verify thatin full co fications. While it is anticipated thatfor administrative reasons the program schedu test program, no explicit provision for delays. the "15-40 per the test program had progressed toIn so doing the plant has By April 23rd, of shou cower escalation" phase. a maximum electrical output cent 4000 Mwhrs. is a list of full 'temcerature and cressure at 200 Mw and has preduc'ed aboutproblems which have arisen durinc2 are the some of the more significant"hree itens on Attachment The last testing program. worthy of discussion, o'n' !.ca LtI k 3i

July 19, 1978 i Control Assembly d with either -In the TMI-2 reactor core each fuel assembly is fitte d assembly a moveable contrcl rod, or a fixed burnable poison roThe mechanism which (OR;). (BPRA), or a fixed orifice rod assenbly her locks the BPRA's and the ORA's into place showed wear at some ot the B&W installdrions. Consequently it was necessary to remove internals to reactor head and disassemble a portion of the reactorThat effort was c ft valve correct this probicm. current with corrective action on the main steam sa e y problems. Emercency Cooline ft nalysis In March 1973 B&W notified us of an oversight in the sa e y aprotection in they had performed to verify adequate plant in the reac:ct of a loss of coolant accident caused by a small breakThe permane d ater volves the addition of piping and check valves to provi e gre coolant system piping. These redundancy to the systems which provide emergbncy cooling. refueling on "4 st changes may not be accomplished until tha limited to about 93 per There is a possibility that TMI-2 will be ary ccdifi-cent of full power pending the completion of the necessMet ively controlled solution to remove the power restrict cation. hat it will be accepted for TMI-1, and feel generally optimistic t A accepted for TMI-2. Main Steam Relief Valves the reactor tripped uhile operating at 2S per This type' On April 23, 1978, cent power during the conduct of the start-up program. leads to an increase in pressure in both the reacto of transient l open as a plant and the steam plant. main steam safety valves. The main steam safety va ves lieve this result of the increase in main steam pressure and re safety valves pressure to the atmosphere; hcwever, the main stean reclose when the pressure returned to its normal l did not cooling dcwn m, excessive heat was removed frcm the main steam As a result coolant system

pressure, to cool down excessively.

and the associated decrease in reactor coolant imilar initiated injection of emergency ccoling water in a manner s

system, accident.

expected during a loss of coolant to that liners from, it was noted that in the discharge piping from the main steam sare:7 During the course of this event, ejected into the air through the rnin expansion joints failed and were valves had steam safety valve discharge stacks. ( / 4' [' <J/

July 19, 1978 to Met-Ed and GPU Service Corporation established a d d h an occur-to recc==end specific action to be taken to preclu e sucIt was well rec sively and rence in the future.others that the main steam safety valves blew down excesit wa tice while corrective action was necessary,that normal adjustments to hat problem. to correct the defi- ~ The major t'irust of the initial action wasciencies in the dischar Concurrent with and such correc-tive action was ccepleted about the middle of May. the plant was the repairs to the safety valve discharge piping, h ctor ecolant ccoled dcwn for cleanup of the chemicals added to t e rea and system in conjunction with injection of emergency cooling water ogram. correction of other minor problens identified by the test pr t e and pressure Ucon return of the plant to normal operating temper i s initiated he reclosure with the expectation of cdjusting t bicwdown. It became on May 18, 1978, cressure of the valves to correct the excessiveabout May 20th t 'apparentcorreccing the reclosure problem with the main steam sa e f a meeting uas held with engineering executives o (designers and manufacturers of the safetythe course of On May 23, 1978, the Lonergan Ccapany to decernine and GPU Service Corporation, the deficient valve operation. valves), would be taken to correct ld result The Lonergan Ccapany stated that two specific changes wouOne change w action that i in acceptable valve perfarnance. back pressure caused by the design of the valve discharge pip ng he valve. and the second involved internal modifications to t ed on These chances were made on two valves and testing was resum and on May 21,1973 May 26, 1958, with the =cdified discharge piping, with the modified valves. d P.oe Concurrent with the joint effort with Lonergan, Burns anstart engineering was directed to (the Architect-Engineer for TMI-2) ld be necessary work to design modifications to the plant which uouGPUSC personnel began if the Lonergan valves hau.to be replaced.i==ediately to bility of replacement valves. AlabaO: a testing facility in Huntsville, In the first cart of June, off-site testing of the became availa'ble for ecdification to permitboth modified and un-and arrangements were nade to testIn the meantime, testing at the

valves, that facility.

Fifty-one (51) valve tests modified valves at continued through the 4th of June. through June 4, sixteen were accc=clished in the pericd frcm May 1 Sone hundred eleven (111) plant of which were with redifica valves. 1978. Mcne of throuch June 22, (16) Huntsville site resulted in acceptabl_ tests were conducted at the tests at Huntsville or at the plant valve performance. b ( c> O ') -J

• q,a i

r . July 19, 1973 from mid-May through During the peridd of evaluation and testing d for resolution of the The sq,lternatives were considere June 23r many a arch made throughout the United States for available problem. replace =ent valpes resulted in no valves being found that were available immed.iately that would fit the TMI-2 steam line con-The Fcrked River Nuclear Generating Station is being figuration. which supplied, valves of the same size as the Lonergan valves but those valves will not are made by another valve manufacturer but He were able to locate - be available until the end of November 197 8. smaller valves that were available immediately and similar to the valves used for TMI-1. ~Cn June 22, 1973, it was apparent that the valve testing at Hunts-ville was non-productive and that further testing of the Lonergan It was decided, valves would not achieve satisfactory results. therefore, to purchase twenty (20) s= aller valves of the TMI-l design to replace the twelve (12) Lonergan valves which did -ot per-the necessary.ncdificaticns to the form adecuately.. - time,. _.. anc :ne necessary material to 3v that main steam lines nad.ceen icent riec and procurement accomplish these modifications had been located, had commenced. (4) main The steam line =odifications involve welding in_o the four steam leads, a total of twenty (20) new nor:les. Melding the nor:les 4-es,e ecisdo. -o "-4-as c" -4.~:

b.. v ' a c -....a ain s o'n.

e-r in o p.,,ca-m -s -a c o..e ' a "_ " o. o "u"..a- ,a p o u.s.e .3 0, *.-, o _ a_ s w e .u. - u. m_ u..o,_ o_ s

c..#

m r c4welding process which must include in-process and post-weld inspec-tions and post-weld heat treatment. In addition, the safety valve a - ee cce 1, a -- yc,s un ua ,n ,c: ;a s u.a_ -n t, c :.. :

u., -

37' o# t". 4 s g1s,.u, ga e - e.. m- ...o-- wi'm" d 4 # # a -o_ n "e 4 ^ '.. w 4 ".. a c' 4 # # e - a_.". - c^..#4~" ,"4-0.. e.-- work =uct be acc =plished in an elevated and congested area of the e-s plant. The question of why the plant was into start-up testing before the -centirlec ceserves some ce==ent. safety valve c.er ciency was development was the excellent Probably the major contributor to that The situa-industry experience with steam safety valve performance.One of the tion is further cc= plicated by the site of the valves. valves will pass an a= cunt of steam equivalent to that needed to generate 100 Mw of electricity and testing facilities for valves c 14*" 4, c., a un sv4,1e -,c4 --=-- ---...w. a_ n

• yee u,-,-

,0-e e,..a -,1, y 1976 and it is only marginally %

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oc r did not become available until lateThe Lonergan valves were procured capable of testing these valves. first of this sine built by the company competitively and were the 'nd uere based upon an extrapolaticr for the TMI-2 service conditions of the design of a smaller valve with croven performance capabilitv. L unusual as thrcugh the years the utility which could This situation is not frequently been forced to utall:e ecuipment be tested uncer cperating conditicns until cc=pletion of the industry has not plant construction. /C Q r-uJ & sr -v i

July 19, 1978 23,1973, Schedule initiated June The main steam safety valve modification was Completion of the id-August. st will permit and is expected to be complete about m a main steam safety valve.medification in mid-Augu for the in-service date (4) months. return to power early in September and anan overall delay of four Unit at the'end of October 1978, valve recovery f Attachments 3 and 4 show the main steam sa etyfrom start of testing dl schedule and the resulting overall sche u eh r problems. to cc=mercial operation assuming no furt e and test prograri We will keec vou informed of the TMI-2 start-upfurther information, please status. If ycu or your staff require any Very tiuly you-s, ~ call on us. j).AW' H. Dieckamp Ida attachments Bloom Ecacrable Robert K. ( Wilson Gccde cc: Ecnorable F Honorable tirhael Jchnson en 3. O' Bannon Honorable He Messrs. A. W. v'ohnson ?. L. packard M. Seidel M. p. Widoff k 1Co r:. dJ/ .a

Attache.cnt 1 a 4 e 6 e 9 U-r s

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Attacu= cat 2 N PROBLEMS EHCOUNTERED DURING TEST PROGRAM ~ ~ CP,ITICAL PATH ~ ~ DELAY TIME 3 DAYS FUEL TRA!4SFER MECHANISMS 8 DAYS STEAM GEi!EPATOR INSTRUMBITATION PEHETRATICHS REACTORCOOLANTPUMPMOTORREVERSEROTATIOS PROJECTION 3 DAYS ~ 10 DAYS . VITAL P0i!ER INVERTER TRIP / SAFETY IHJECTION 5 DAYS ROD tiORTH MEASUREME!iTS NOME BURi1ABLE POIS0H ROD ASSEMBLIES - NONE SMALL BREAK LOCA ANALYSIS EST.4 MONTHS MAlia STEAM SAFETY. VALVE PERFORMANCE a. e 4

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nLM : r-3 l w.m.w c. Kuins t C urman 260 Cherry HZ Pc::d p ,1 GENERAL N'5C3N *"E'WCM# ( !' PUBLIC 9 h- [_' b b [ 201 263-4900 { '...,a. UTillTIES 3 V - -E CORPORATION i i August 11, 1978 t .I l Pennsylvania Public Utility Commission Commonwealth of Pennsylvania 104 North Office Building Harrisburg, Pe nnsylv ania 17120 Attention: Hon. Louis J.

Carter, Chairman

Dear Chairman Carter:

1978 in the During the course of the oral argument on May 10, in RID 434, and again during Met ropolitan Edison Ccmpany rate case the course of the annual review with the Ccmmission of Metropolitan. Edison on June 23rd, there were discussions about when a gen-erating station should be declared to be "in commercial service". We believe that it is imperative that the multifaceted technical and financial aspects of this question be reviewed. It is the purpose of this letter to summarise the considerations involved in a declaration of "in ccamercial service" and the impac t of and the ccmpany. such declaration on the rate paying customers In accordance with Section 501 of the Pennsylvania Public Utility Law, your Commission has, by its Regulation S57.42, directed each Class A and Class B electric public utility to keep its accounts in conformity with the " Un ifo rm System of Accounts Prescribed for Public Utilities and Licensees (Class A and Cl ass B)" of the Federal Power Commission (now FERC). (The GPU subsiiiaries are Class A public utilities as Presumably, defined in your Commission's Regulation 55 7. 41. ) then the interpretations of the FPC with respect to its Uniform System of Accounts are equally applicable to your Commission's System of Accounts. Criteria The criteria available for reaching a judgment about timing of a declaration of "in ccamercial service" the appropriate for utility plant can not be precisely articulated. As the FPC has pointed out, it is not contcolled by artificial rules, is not a matter of formula but is a matter of reasonable judgment based on a consideration of all the pertinent facts; neither

!.Eb bb? Pennsylvania Public Utility Commission Page 2 August 11, 1978 full capacity generation nor the ccmpletion of all construction activities, nor the making of permanent installations, as against those of a temporary nature, are necessary for this determina-tion. Re Pennsylvania Water and Power Company, (1949) 82 PUR NS 193,237. However, somc gene ral prerequisites can be stated: '(a) The plant should have been submitted to a series of operational tests sufficient to assure that construction has been substantially completed in accordance with plans and specifiga-tions and that he plant as constructed is capable of providing the se rv ice intended. (b) In some cases (a) above has also been influenced by the need to assess the operational acceptability of major items of plant equipment a"d such tests have been the basis for acceptance and supplier payments. (c) The plant start-u;) test and ev aluation program should be sufficien;1y complete to permit all or part of the plant's capacity (kw) to be made available to the system or pool operators for economic dispatch. (d) The plant should be capable of producing significant energy (kwhrs.) at dependable capacity (kw) levels for use by the rate payers. (e) General Instruction 9D for the Plant Accounts of the Uniform System of Accounts requires tnat a nuclear plant be declared "in commercial service" within 120 days of ini tial. test power operation, unless the company is able to prov ide detailed j ustification for extension of the test period; this term establishes a normal time-frame for the declaratior. of "in commer-cial serv ice". (f) In the case of TMI-2, items (a) and (b) above are specifically elaborated to include a number of performance tests to be successfully completed before the Cperating Permit, issued by the Nuclear Regulatory Ccrmission, can beccme effective for full power operation. In Herman Diechamp's letter, dated July 19, 1978, in which he reported en the TMI-2 start-up and test status, he pointed cut that the test program is a formal and detailed program planned to fully exercise all of~the plant equipment

Pennsylvania Public Utility Commission Page 3 August 11, 1978 so that any under carefull] controlled and monitored conditions deficiencies in design or construction can be identified and he annexed an outline of that program as initially developed arisen and as modified in the light of the problems that have during he ' testing program. ~ Even though the items enumerated above are designed to assure that plant construction culminates in an opereble plant, the start up test program can assess initial operability and control but cannot assess long term ecuipment lif e time or reli-ability problems that can significantly influence plant produc-tivity or capacity f actors, i.e., the attained fraction of theoretical energy output. What this boils down.to is that, under your Commission's Uniform System of Aucounts, a generating unit must be trans-ferred from CWIP to plant in service when, after a reasonable testing period, it is ready for service even if*there are some clean-up construction activities remaining. Enercy The benefits of all energy production ficw directly to the customers under the energy adj ustment clauses in effect in GPU's Pennsylvania and New Jersey operating ccmpanies. All energy frcm test operations as well as from ccmmercial operation inter-acts immediately to displace higher cost generation or in change purchases and all financial impact of such changes energy sources are included in the workings of each subsidiary's energy adjustment clause so as to retain all benefits for the The earnings of the operating companies are not customers. influenced by the availability of lower cosc energy frcm new plants whether or not they are still in test or have been declared "ccamercial". Accounting During construction, i.e., prior to "ccmmercial in se rv ice", all costs are capitalized for recovery via depreciation charges over the life of the project (except these financing costs associated with CWIP in rate base). However, as soon as the plant is declared " in commercial s 3rv ice" a number of spe-cific changen in accounting take place: (a) The costs of financing the investment are no longer capitalized (AFC, is stopped). 259 258

Pennsylvania Public Utility Commission Page 4 August 11, 1978 (b) Depreciation is initiated and charged to operating dxpense. (c) All C&M expenses are no longer capitalized and, instead, are charged to operating expense. (d) To the extent that the GPU operating ccmpanies ~ are short of their capacity obligation to PJM, the com-panies' annual capacity payments to PJM are reduced (currently at the rate of about $23/Kw). (e) Job development and/or inves tment tax credie.s and liberalized depreciation deductions for tax purposes reduce the ccmpany's current cash obligation for Federal Income Tax, but do not appreciably impact current net income. These credits and. deductions are recognized in rate making as they are normalized, by tax law, over the life of the plant. Any resulting cash, to the extent avnilable, displaces external financings for construction and other needs. The magnitude and impact of these accoun ting changes can be seen in the following summary of the revenue require-ments of the 753 of TMI-2 owned by Met-Ed and Penelec: (a) Financing Costs S 82.4 million/yr. (b) Depreciation 18.9 (c) O&M 12.6 (d) Capacity Payments (11.6) S102.3 million/yr. If these costs are not recognized in rate making which provides revenues to offset these costs, the impact of 100% of TMI-2 on GPU's earnings is about S55 million/ year or about 9g share per month of delay in rate recognitien of these costs. It should be noted that the bulk of these costs, i.e.,

return, taxes, and depreciation, are precisely definable and require no experience base for rate making.

Timing The timing of declaring a plant "in ccmmercial service" is a matter of significant concern because of the cost impact on both the rate pcyers and the ccmpany. 259 257

' Pennsylvania Public Utility Ccomission 'Page S August 11, 1978 From the customer's point of view, the rate increase necessary to recognize the costs of the new plant can never be welcome because today's ' incremental costs of ownership of new capacity are ge'nerally higher than the energy cost reductions flowing from the displacement of low ef ficiency or high fuel cost generation and interchange. As noted, in the case of TMI-2, for,the first year, the revenue requirement for the ownership of 75% of the unit is about 510 2 million; the energy savings for this 751 portion of the unit at a capacity factor of 70% would be about.S67 million. The net cost of ownership is about equal to the energy savings in the third to fourth year when the unit is somewhat depreciated, the load has grown, and the projected cost of fuel and interchange have risen by virtue of inflation. If for cny reason the unit output varies frcm expectation, the energy savings are proportionately changed. Thus far, the record of the two GPU System operating nuclear units (TMI-l and Cyr*.er Creek) has been well above the national average. All of the benefits of this above-average performance have automatically ficwed to the custcmers and this is appropriate. It must be emphasized, however, that the complexity of modern plants and the chang ing requirements of NRC, EPA, DEP and other governmental agencies precludes any ability to guarantee a continued level of plant output. To the extent that the customers are paying the financing, depreciation and ownership costs of a new plant in current revenues, such costs are not being capitalized for recovery in the future. Ultimately these costs must be paid and the only question is when. In a true' economic sense the ultimate cost to customers, includ ing the cost of money, is independent of the timing of the conversion from AFC to cash revenue requirements. In te rm s o f equi ty to th e respective groups of customers, it is hard to argue that current customers should, by avoiding the unpleasant-ness of a rate increase, be in a position to derive energy cost benefits while not contributing to the cost of owner-ship by continuing to capitalize such costs for future customers to have to pay. Indeed the concept of changing the accounting when the plant beccmes "ccmmercial" is only an attempt to fairly distribute the cost among the customers that will benefit frca the inv e s tmen t over its lifetime. The desired matching of costs and benefits must be viewed over the plant lifetime and not controlled by short term considerations. If the customers do not pay the costs of ownership which are no longer capitalized after the "ccmmercial" data, the stockholders cf the ccmpany must accorb those costs while the customers gain the erargy savings. This disparate result ') /s O r O, tau /J

Pennsylvania Public Utility Commission Page 6 August 11, 1978 immediately apparent why the company is concerned about it makestiming of rate proceedings so as to reasonably coordinate " commercial" declaration and the granting of revenues which the the investment. the base revenue requirements of a new plant reflect Attachment \\A was discussed during the Met-Ed annua::, rev iew on illustrate the impact on garning s and attempts to June 23rd, from a 12-ponth delay in recognizing.J1e_t-Ed's that could result 50% share of TMI-2. In that example, the equity return attribut-able to plant-in-service falls from 13.2% to 4.9%. A company has no incentive to prematurely declare a even with concurrent rate relief, such plant ccmmercial because,the Ccmpany to risks of extraordinary C&M a declaration subjects Cn the other hand, costs which the company would have to absorb. inconsistent with your Ccamission's System of if it were not to delay the "ccamercial" even Accounts, the ccmpany would be reluctant for revenues would in-declaration because the basic requirement increase crease with time ar-the acceptability of the required Even though eyes of,the rate payers. can only diminish in theavoid disastrous earnings losses due to the ccmpany seeks to before associated rate declaring plant "in commercial service" the company is not without risk. Any his-relief is granted, torical review cf actual vs allcwed returns on equity reveals risk. the continuing presence of significant this We would appreciate the opportunity to review ia nore detail and we are prepared matter with you or your staf f to work with you to further define the criteria for "ccrmercial serv ice". ~ Sincerely, Ida attachment Honorable Robert K. Bloom cc: Honorable Helen B. O' Bannon Honorable Michael Johnson Honorable H. Wilson Goode Messrs. A. W. Johnson R. L. Packard M. Seidel W. P. Thierfelder M. P. Wido f f 259 26i

ATTACHMENT A IMPACT OF TMI-2 W/O PAmE RELI Z (SM1111ons) W/TMI-2_ 4/30/78_ i 1026 686 Plant in Service ( AP) 96.1 - 96.1 Avg. Operating Income (BIT) 8.4 TMI-2 Expenses 12.6 C&M Depreciation (8.5) 83.6 Capacity 96.1 37.4 Adjusted Cperating Income 25.2 (.0474)x(.491)x(AP) 46.0 Interest 70.9 17.0 Taxable Income 30.3 29.0 Inccme Tax 40.6 for Pref, and ccm. 10.4 Av ailable 7.0 (.0736)x(.138)x(AP) 18.6 Pref erred Div. 33.6 i 4.9 Inccme for Common 13.2 Income Return on Equity (.371 (AP) ~

• Plant only 6/22/78 p

/ L u t.

t3 ubi i * !. ~ 9 t w.mm c. Kuhns c urman GENERAL 260 Cherry w =cac (-~__J P3' " 00 " Y * " ~* ' PUBLIC a f)a. f-4 2012Sb:9C3 L(, 1 UTILITIES T VI CCRPORATICM November 30, 1978 The Hon. Joel R. Jacobson, Commissioner Department of Energy State of New Jersey 101 Cornerce S treet Newark, New Jersey 07102 The Hon. George H. Barbour, President Board of Public Utility Cornissioners State of,New Jersey 101 Cornerce S treet Newark, New Jersey 07102 The Hon. W. Wilson Goode, Chairman Pennsylvania Public Utility Commission Cor=cnwealth of Pennsylvania Post Office Box 3265 Harrisburg, Pennsylvania 17120 Gentlemen: Due to the extensive interest shown by the Cornissions in the status of ihree Mile Island Nuclear Station Unit 2, p2.rticularly as to when the unit will be ready to be placed in cor=ercial service, we are providing an updated status on the unit. The unit is currently starting up, f~.a a maintenance period and we expect to achieve full rated generator output by next week. Testing at the 100 per cent power level, which culminates in a full load generator trip, is scheduled to be completed by December 12. The unit should be ready to be declared commercial following return from the full load generator trip. We do not know of any remaining items which are likely to require a scheduled outage prior to t.5 e first refueling. As recently as November 21, we still expected to be within a couple of days of our scheduled November 30, 1978 in-service date but further delay was encountered when equip-ment problems led to contamination of the feedwater system with turbine lubricating oil. Although the amount of oil was very slignt, extensive efforts were necessary to ensure it was removed frcm all systems which may have been contam-inated by the oil. 259 265 Jer ey Cen"al Pcwcr & Light Ccrr;.nyn.te!renc'.'an Fucn Cem, nan, /i'ernsy's.ini.1 CW:ric Company

n .. e 2-The full load generator trip will mark completion of a start-up and test program which has applied to all unit structures, systems and componer.ts necessary to conduct commercial operations. It was planned so as to fully exercise all of the plant equipment under carefully con-trolled and monitored conditions and thereby identify any deficiencies in design or construction. The end objective of the test program has been to verify that the plant performs in full conformance with all operating and licensing specifications. The program consists of 170 individual tests, all of which required a specific, detailed procedure. Approximately half of these tests relate to systems with nuclear safety implications and, consequently, were subject to NPC regulato ry requirements. Within that group, NRC staf f pers e.nnel reviewed both the procedures and the test results in many instances. The NRC required the conduct of very extensive testing of the plant as a whole, and of its individual systems, subject to rigid administrative and technical contrtls, and independent surveillance, review and audits. These same controls also were utilized in conducting the portion of the test program not subject to NRC regulations. To date, the unit has operated at 75 per cent pcwer or greater for over 200 hours and has produced almost 300,000 MWH's. It will have produced about 500,000 MWH's upon completion or-the test program. We believe that ecmpletion of this program will provide assurance that the unit is capable of producing significant energy and is then ready to be placed in ec=mercial service. Sincerely, William G. Kuhns Chairman WGK:mn cc: The Hon. Robert K. Bloom The Hon. Louis J. Carter The Hon. Michael Johnson The Hon. Helen B. O'3annon The Hon. Edward Hynes The Hon. Richard McGlynn W. Gural M. P. Widoff 250 n' / LU

_.m l 7 i ,I J. E. Suciflow Allowance for Funds Used'E.mg Construction 83 lr* 6. >rcliminary permit issued that is, sometime subsequent to the start of active construction. Only [, 6' he Federal Water Powcr three companies mentioned a specine time period prior to active con " De commission, how. struction when they began capitalization: In two cases this was thre:

onstruction period in all ycars prior to construction, and in one case, one year. It appears that ti.e

/ Power Company stated: carly FPC decisions have had little influcnce on the current policies of Jing a period reasonably utnities in the sense that finns wait until active construction commences N work absolutcly essential o. the project before any AFC is capitalized. t *- i the subsequent develop. Exo or Coxmcenos Paroo. The end of the construction period, j[ onstruction period should and concomitant cessation of AFC capitalization, also has been given f each particular case; as a much consideration by the commissions and the courts. Since the earliest iaximum for the prelimi. cases it cicarly has been established that capitalization should cease on h cncrally secs fit to include the date or dates when the project becomes available for its intended ll use." This standard has the cifect of precluding capitalization of AFC activities up to a maxi. i,it is also clear that cach when a project is rendering service. but clean-up construction work still f,l is to be based not on how is in progress. As succinctly stated by the FPC: "Not merely its tech-6 ld be, assuming that the nical physical functioning, but the nature of the use for which it is de. II sonably continuous basis. q signed and its adequacy to meet the burdens such use entails are factors b s essential in bringing the to be considered in determining the date the project can be regarded [ e construction itself, this as available for operation."" Dus, the availability of the property for N ded in the construction operations, regardless of the fact that certain constmetion activities con-E tinue or that the property is not yet caming an adequate retum, is the N ilities can be assessed by 1,ey factor in some of the earlier decisions. With the passage of time, the [ he suney: 50 respondents commission appears to have taken a somewhat less rigid position. ~similar y survey and investigation j to its stand regarding the start of the construction period. For example: h large nuum7 of nc1;ative j " Determination of the date upon which the capitalization of interest 1 companies nay not incur g and taxes during construction should cease is not controlled by artificial t )r this reason alone, do not rules,is not a matter of formula but is a matter of reasonable judgment )f those that do capitalize based on a consideration of all the pcrtinent facts; and neither full ca-istem any clear pattern of pacity generation nor the cc piction of all construction activities, nor [ 5 percent indicated they the making of permanent installations, as against those of a temporary 2 ary survey begins or sa a nature, are absolutely necessary with respect to this determination."" ommences. However, the Through this decision, the FPC recognizd the need for a more flexible i they began doing so some-approach in handling timing problems. e construction job order, 3 a n Chclan E!cetric Co. (191,) 1 FPC 102,105; and Re Claion Riser Power Co. (1935) 1 FPC 270,2S6. " Louisville 11ydro-Electric Co. (l933) 1 FPC 150. n Re Pennsylvania Water and Power Ca. (1949) 82 PUR NS 193. __ _ g3 p g

== w%g ,-y.'~ vn } -- e_ , g~%m. .r ,v-~=, ~ ~ -'L s 259 265

/ ~ ^ P-m i 4 ^ " " " " * ' 84 brwrence S. Pomerant: and James E. Suelflow ing u-ith multiple. unit proib A closely related questim involves when AFC should cease to be e capitalized if the project is a multiple unit one with different comple. 'cp rting pr jects with parti tion dates, and a portion is determined to be in senice prior to comple. I stated that they, in cffect, < tion of the entire project. The FPC addressed this issue in the Safe placed in service but contmt flarbor Water Power Co poration case." The licensee had installed six Only three ceased capitahur a units under one proicct: The first went into service in December 1931, i p rtion went into senice. I [ three more were operating by the end of January 1932, the fifth was in l adhere,losely to the rule sc' c ~ FPC Accourmc Rrtrx i operation twenty months later, and four months af ter that the final unit j FPC issued the first of sever: was in senice. Safe Ilarbor wanted to lump together the allowance for l u,s to express and dissemin I the construction period for all the units, without consideration of the individual completion dates. The firm proposed the'aserage date of 1 5} stems of accounts by Ge July 1932 as the beginning of commercial operation and the point a. l leases ohr accountmg gmc which capitalized AFC should cease. The commission rejected this i instructions were either va; ? date as hypothetical; stating that commercial operation began when counting Release Number A l the first four units were in condition to deliver dependable power, it set ant as to the proper period ft ( 29 February 1932 as the cut-orI point for capitalization. In effect, the Fede decision maintained that, on a multiple-unit project, AFC shou'd cease Account on the basis of actual unit completion and availability for service, and not on s ac arbitrcrv measure. Question he proper perit This reasoning esentually was incorporated as a note in the uniform ,\\\\at E I, systems of accounts for electric utilities prescribed by both the FPC and NARUC. In explaining allowance for funds used during construc-Armrer-tion in Utility Plant Instruction 3 (17), the systems of accounts contain Interest during construe the following: date that construction et progressise basis. Intere l prior to: (1) the date c; g Note-When a part only of a plant or project.is placed in operation Commission of a licent or is completed and ready for senice but the construction work as of the applicatwa to th: a wholc is incomplete, that part of the cost of the property placed facilitics bv a natural _ in operation, or ready for senice shall be treated as " Utility Plant t lowed bv tIie Commissi in Senice" and allowance for funds used during construction I if so ju'stified by the thereon as a charge to construction shall cease. Allowance for funds during periods of interr used during construction on that part of the cost of the plant which j ustify the interruption. t is incomplete may be continued as a charge to construction until Such time as it is placed in operation or is ready for senice, except l Capitalization of intere-as limited in item 17, above.n I I An examination of the responses to questionnaire item thirteen, dcal-I " FPC, "FPC's Chicf Account } Retstabbshing Pohey Dropr-1964. 2 pas;cs. ' FPC. Accounting Rclease "Sa/c ifarbor Wster l'cuer Corp. (1935) 1 FPC 249. b " FFC, Umform Sr m, p.101.<, as rensed; and NARUC, Uniform System, p.15. i i i 259.260 4

..,f ~ I ( ( Allowance for Funds Used during Cons +ruction 85 ( .. Suciflow TC should cease to b: ing with multipic unit proiccts, revcals the following: Of the 97 utilitics with diff: rent compic. rcporting proiccts with partial service availabic prior to completion,91 stated that they, in effect, discontinued capitalization on the portion h service pr or to compic. this issue in the Safe placed in service out continued taking it on that portion not in senice. } censec had installed six Only three ceased capitalizing AFC on the entire proicct when the first } vice in December 1931, jmrtion went into service. It is quite evident that the dcctric utilitics l f adhere closely to the rule set forth in the unifann systems of accounts. 1932, the fifth was in FPC Accoususc RU. EASE Nuunta AR 5. In December 1964 the r after that the final unit 8' FPC issued the first of several accounting releases, the purposc of which cther the allowance for was to express and disseminate informal interptctations of the uniform ut consideration of the ~ the avercge date of I sptems of accounts by the commission's chief accountant." These re-leases offer accounting guidelincs for certain items for uhich previous ation and the point at instructions were cither vague or noncxistent. The fifth of these, Ac-mmission rejected this operation began uhen counting Rclease Number AR-5, presents the views of the chief account- ~ epcodable pouct, it sct ant as to the proper period for capitalizing AFC." alization. In effect, the Federal Power Commission afect, AFC should cease . Accounting Release Number AR.5 ilability for service, and Question. What is the proper period for ecpitr.lization of interest during con-s a note in the uniform { struction? ' bed by both the FPC i is used during construe. l g.er: cms of accounts contain Interest during conitruction may be capitalized starting from the date that construction costs are continuously incurred on a planned , f progressive basis. Interest should not be accrued for the period Prior to: (1) the date of issuance of the preliminary permit by the s placed in operation l Commission of a licensed hydroclectric project; and (2) the date construction work as l of 'he application to the Commission for a certi6cate to construct j the property placed f cilities by a natural gas company. Inter st accruals may be al- ~ i ted as "Utilitt Plant l ! *Cd by the Commission for the period prior to the above dates ~ during construction 30 }ustified by the company. No interest should be accrued . Allowance for funds dun.ng penods of interrupted construction unless the company can 1,; tj st of the plant which justify the interruption as being reasonable under the circumstances. 10 construction until dy for service, except Capitalization of interest stops when the facilitics have been' teited i: laire item thirteen, dcal- " FPC,"FPC's Chief Accountant issues First in New Series of Accounting Releases ii Reestablishing Policy Dropped in 1942," News Reicase *.o. 13598, 30 December b ~ 1964,2 pages. n FPC, Accounting Rdcase Numbci AR 5 (Washington, D.C.: the Commission, 1 JC, Uniform Srstem. p.15. 10 November 1965). t 's, '1 bM[ -N r- ,3 / 7 25 m

g M e 1 I t 86 La%rence S. Pomerant: and James E. Suelflow l Allowance for Funds i and are placed in service. This would include those portions of Octermination ol Capitalization Rates _ construction projects completed and put into senice although the i project is not fully compicted. Should the test period exceed thirty llistorically, a great deal of unti days, the company must submit full particulars and justification I the electric utilities and the FPC for an extension of such period to the Commission in Accordance i in capitalizing AFC. Consequen 3 with Plant Instruction 9.D. basis for Jetermiring that rate. I i and philosophy of capitalizing A f A major source of controversS Artnur L. Litke strnctions of the uniforra systc l graph 3 (17) of the Utility Pla Effective: 3hCC f I I"d5 "S*d d"iI"E ' " I Nosember 10,1965 period of construction of borrow and a reasonable rate on other On 20 February 1963 the FPC announced a revision of AR-5, effec-implies that it is possible to ide: tise 1 January 196S. The change invohed altering the wording in the and other funds applied to spec first sentence of the second paragraph from " capitalization of interest stops when the facilities have been tested and are placed in service" to l is that the AFC capitalizatmn 9eci6c funds. Most utilities, h- " capitalization c,f interest steps when the facilities have been tested to differentiate these sources s and are placed in or ready for service." The purpose was to bring the speci6c funds for construction wording of AR-5 in line with that of Electric Plant Instructior. 3 (17) financing expansion will utihn of the uniform system which uses the phrase " ready for service." An. which constantly change. The parently, a number of interested parties viewed "placed in service" as horrowing, (2) new equity cap a substitute for "rcady for service," when the original intent in AR.5 (4) depreciation charges, and was to consider them symmmous. The etTect of the revision was to as deferred taxes? Thus, wher change the termination date for capitalizing AFC to the date it either construction of specmc project was ready for service or placed in service, whichever was earlier. exact amount of AFC associat. Accounting Release Number AR-5 is essentially a recon 6rmation of "'; the matter is the fact tha the FPC's existing policies. Presenting no new guidelines, the Release those generated from deprecia U1crely synopsizes previous commission opinions and orders dealing with cult to trace because they a tae capitalization period. For example, the statement in the Release funds. As a result, both the " tl at no interest should be accrued during periods of interrupted con. me estm13tes and approximati st uction, unicss the it'tcrruption can bc justi6ed as reasonable, is the Icgical result of prior commission decisions on this matter? The Re-Izase is sufficiently general to avoid speci6cally limiting the capitalization u FPC. Uniform system, p.10:g. "llomer E. Salad "An Accounu: period to any arti6cial or arbitrary boundaries and to pctmit detenninJ-at the Nahonal Conference of l{ tion of the period to be based upon the facts in a particular case. l.oumana. 2m4 May 1966, p. C > 'I'ud P.3 cll, " Interest During C d 3' Flcrida Power Corporation (1937) 1 FTC 390, 403; and Paget Sound Poucr and Y) G3 May 1967): 23.

• Arthur Andersen and Co., Prn Lidt Co. v. Federal Power Comminion (1943) 50 PUR (NS) 375, 73 U.S.

During Ccnstruction (Chicago: App. D.C.143,137 F (2d) 701. 259 i!6B w ~ '=*p'=mm N e m-e e.-w m

N w ,__l.,_, Section 166 perience of a taxpaycr to determine a Accordingly, as a general rule, the one unit of which is rented for !m t%n reasonable addition to the bad debt re. Black.1/otor formula may be used to ['jl'g","'2Rul." 7bh taxpa r s nlatn e i y ,e 9

serve, determine a reasonable addition to a Section 166(c) of the Code provides reserve for bad debts under section 2-that in lieu of any deduction using the 166(c) of the Code. However, if the 26ffR I.167(aple Depruianon in gn.

specinc charge-off method, there shall taxpayer can demonstrate that an be allowed (in tne discretion of the amount greater than the amount de-,['[,n*'*d[*Py;[ir[mEoIt$ 3 Secretary or his delegate) a deduction termined under the Black.ifotor for-the ining jurisdiction of the United States. 1 for a reasonable addition to a sesene - rnula is seasonable, in light of the facts see Rev. R ui. 76-339, page 251. t' for bad debts. existing at the close of the taxable y ear, Section 1.166-4 (b) ( 1) of the In-the taxpayer may compute tb greater 26 CFR 1.167(aj-3: In to n sibles. come Tax Regulations provides, in amount to be added to the reserve for u.1: ether the taxpa>cr is entitled to a de. l-part, that the reasonableness of an had debts. Further, if the Commis-precianon deduction with r"pect to pre. addition to a reserve for bad debts is sioner finds that an amount lesser than paid, subscripuen contracts acquired in the h,N" 7f.Uo", d ' y," " "' S" to be detern.ined in tae light of facts the amount determined under the je existing at the close of the taxable year Black.ifotor formula is reasonab!e in of the proposed Mion, light of the facts existing at the close The Black.ilcror case sets forth the of the t.,able year, then the Commis-N,$g#l,#6, ).11j,,f,rll;l;,nbc ,c most widely applied formula for deter-sioner may require the lesser amount for property placed ii seroce after Decem. minmg additions to bad debt resenes. to be added to the resene for bad b" 31 1970-It apph.es the taxpayer': owr > experi-debts. ( Alw Sectnon 16; 1.46 3.) in ence with losses in prior years and In any case where the Service chal. Depreciation; "first placed in I' est2blishes a percer.tage level for the lenges the reasonableness of the tax, service"; electric generating unit. A reserve in determining the need anc pay er's adc' tion to a bad debt reserve, public utility's coal-fired electric amount of a current addition. As a whateser fonaula may have been ap. generating unit was first placed in general rule, the Commissioner of In-plied, the taxpayer bears the burden of service for investment credit and ter-Res enue will apply the Black showing that its addition is reasonable depreciation purpcscs on the dste .ifour formula m determining what is and that the proposed adjustment con. it was placed in the utility's control a reasonab!e addition to the reserve for stitutes an abuse of discretion. Ircst. by the contractcr, synchronized 3 bad debts. chester Development Company. into the power grid, and daily opar. 's ? In IFcitchcrter Derelopment Com. ation begun, even though further pany,63 T.C.193 (1974), acq.,1975-26 CFR 1.166-1: Bad debts. 2 C.It 2, the United States Tax Court a waste disposal darn was neces. Whether section 1.150314 (d ) cf the dat held, in a situation where the addb regulanons (dealing with 5 ocks, bonds, and sam tions to the resen e were recommended other obligatiens of rnemoers) c'perates : Rev. Rul. 76-256 ,o t by an accounting firm, that the in-dein and not currently aHow a deducuan I",.- for an addman to a reserse for bad debts crease claimed by the taxpayer to its under section '66(c) of the Code corn-Advice has been requested as to .re-reserve for bad debts was reasonable, puted under settion 585(b)(2). See Rev. when a coal-fired electric generating as such amount was determined in the Rut M30, page 183. unit was first placed in service for de-light of the facts existing at the close preciation and investment credit pur-of tl. taxable year of the proposed Section 167.-Depreciation poses, under the circumstances de-addition' scribed below. 2 26 CFR 1.167(a)-1: hprecialian in w If 1 taxpayer considers that it is en-gen e ral. The taxpayer, a regulated electr:c titled to a larger addition to its reserve Whether the Service will issue advance I E# for bad debts than its past experience ruling that certain transactions purpernng income tax return on a calendar year s would indicate is necessarv, it must t be Icases of property are, in fact, leases basis and uses the accrual method of substantiate the lar;cr add'ition. For h[cpe,d"is Ni e[use p5p'er'tf " $ cc unting, wns a coal-fired electric re ry example, a mere acing of accounts is Rev. Proc. 76-30, page 647. generating unit, construction of which lj,, not by itself considered enough to commenced in September 1971. ( os ercome the Commissioner's determi-The major components that are 26 CFR I.167/a)-1: Depreciction in gen. nation as was pointed out in lics(cl not necessary to the operation of the gen-Opcenne & Suf f y Co., 3f>0 F.2d Treatment of the deduction for dent cia. erating unit inc!ude: main steam / hot l 7"5 toth Cir.1967). tion Wth respect to a three-family dU c: ling and cold reheat steam system; main G 259 2c .~.....- - - - -...- e

. - ~ -.- - - -. ~ ~ - _.-_ N Section 107 ented ict !cn o si r's relaif. a r w atcr/ steam sy stem ; conden-to qualify as section 38 property, the taxpayer by the contractor, the gencr- , ac - fred u a t er system; condemate pioperty must be depreciable and have ating unit was synchronized into the Je.up sptem; main boiler fuel sys-a useful life of 3 yeais or more. taxpayer's power crid for its function preciation in miliary boiler and steam system; Section 167(a) of the Code pro-in the business of generating clectric ,, quality control sptem; waste dis-vides, in part, that there shall be al-energy for the production of income, el Property r 31 v. stem; main turbine system; and lowed as a depreciation deduction a and daily operation of the generating the Ur[i ed S$,- d h ndling system. reasonable allawance for the exhaus-unit began, notwithsta, ding the fact Me 251. tin December 11,197',, necessary tion, wear and tear, and obsolescence that the generating unit would under- ,erniits and licenses to operate the of property used in a trade or business. go further testing to eliminate any de. n gib t,,, ,oal.6 red electric generating facility Section 1.167(al-11(c)(1)(i) of the fccts and the height of the dam would i al been approved. regulations provides, in part, that have to be increased for future require. -

• ".'3hcI ',; *[

Occcmber 11, 1975, was also the property is first placed in senice when ments. r acquired in ir

ite of synchronbation of the generat-it is in a condition or state of readiness Accordingly, in the instant case, the -

j, rmatior S .. unit into the power grid of the and is available for a specificaPc coal-fired electric genciating facility as- ,ompany md the date when the criti-signed functian. In general, the provi-was "first placed in service" on Decem- ..d testing had been completed on the sions of section 1.46-3(d)(1)(ii) and ber 11,1975, for depreciation and in- ,'llf3'fo' 5 e:n ..m po ne n t systems of the coal-fired (d)(2) apply for the purpose of deter-vestment credit purposes. , af,7,'o'flll .h rnic generating facility to assure mining the date on which property is that the generating unit could operate placed in ser ice. H its intended manner. Section 1.46-3(d)(1) of t'he regula-26 cFR f.167(a)-II: Depreciarien based on class !wes and asset deprevatun ranges placed is in add.. mon, the generating unit was tions provides,.m part, that for pur-fo, p,op,,n. pa,,g in,,,ri,, aft,, o,,,,.,. allng unit A 'iat ed in the control of the taxpaver poses of the insestment credit allowed ber 31.1970. ed ?fectri: '4 the contractor on Decernber 'l1, by section 38 of the Internal Revenue Mo suti n 46; 136 3a t placed h PG. and daily operation of the unit Code of 1954, property shall be con. Depreciation; "first placed in credit and ' can. How es er, subsequent testing sidered placed in service in the earlier service"; nuclear electric generat-n the da9 n.a peiformed to determine and elimi-of the following taxab!c years: (i) the ing unit. A nuc! ear electric generat-y's contre' ute latent defects. if any. taxable year in which, under the tax-ing unit is first placed in service chronize: A substantial portion of the pro-pa3 er's depreciation practice, the pe-for investment credit and deprecia-daily cper. " trd cost of the waste disposal system riod for depreciation wi:h respect to tion purposes when the unit is gh furthcr attributable to a 400-foot high such property begins; or (ii) the :ax. physically and legally placed in the me 3 height cf d on that was not completed on De-able year in which the property is centrol of the owners by the con-as neces. . rmher I1,1975. However, on this placed in a condition or state of readi. tractor and is fully cperational, date the dan, was of sufficient height ness and availability for a speci6cally even though it is still undergoing to take care of the current waste dis. assigned function. testing to eliminate any defects and !=al though it would have to be in-Section 1 A6-3(d)(2) of the regula-to demonstrate reliability. ed as ta rieved as waste disposal requirements tions provides, in part, that equipment R ev. Rul. 76-428 enerating nn reurd. The height of the dam did acetuired by a taxpayer for a specifi- .e for de- '."t in'crfere uith the ger erating unit's cally assigned funct:an in his trade or Advice has been requcsted as to edit pur. n; tended purpose on Decembcr 11, business that is operational but is un. when a nuclear electric generating nces de-PG deigoing testing tc, eliminate any de-unit (" unit") was first placed in serv-The coal-fired electric generating fccts is considered in a condition or ice for depreciation and investment c!ectric " nit is depreciable property and has a state of readiness and availability for a credit purposes, under the circum-Federal " riol life of more than 3 years. specifically assigned function. stances described below. ar 3 ear Scrtion 38 of the Internal Revenue Under the circumstances described The taxpayer, a rc<;ulated electric thod of ' ade of 1954 allows a credit against above, the generating unit in the in-utility company that files its Federal electric Neial income tax for qualified in. stant case was in a condition or state income tax returns on a calendar year f which mtment in section 30 property. The of readiness and evailability for a spe-basis, owns a unit, construction of s detern" nation of what property quali-cifically assigned function on Decem-which commenced in September 1972.

• ' as section 33 property is made in ber 11,1975, in that the necessary per-The unit was constructed for the at are

e gen-

"'""Id"'c with the t ules provided in mits and licenses had been approved, taxpayer pursuant to a contract. The m/het m uon m. the critical tests for the various compo-major components that are necessary main Scitinn m(a)(!) of the Code pro-nents were complete, the generating to the operatioa of the unit include. U.n, in pertinent part, that in order unit was placed in the control of the a nuclear steam supply system; a re-l a 259 2yJ i ~. = W M W T- , - _. so w w,---.

~ . ' I C ' ,Soction 107 attor auxiliary system; a control and safety imtrumentation : fstem ; a radio-ing the class life asset depreciation eligible property the depreciation allowance for a vin actbe waste disposal system; a fuel range system for handling.md storage system; a tur-placed in service in 1975 and adopted tage account for which the taxpay-. bine sy stem; and a containment sys. the half year convention set forth in adopts the " half year conventior section 1.167(a)-(ll)(C)(2)(iii) forshall be determined by treating an tem. depreciation On December 23, 1975, the unit pu rposes. The unit is pmperty in the account as placed in was structurally complete in a!! es-depreciable property and has a use-service on the first day of the second sential respects. All syuems had been ful life of more than 3 years. half of the taxable year. Scction operational during t Section 36 of the Internal Resenue 1.167(a)-il(c)(1)(i) cf pros en operational testing program.he pre-Code of 1954 al!ows a credit against the regulations provides, in part, that A full tenn, full power operatine m nse was Federal income tax for qualified in. property is first placed in service when a, issued for the unit on N, cember 19, sestment in section 38 property. The it is in a condition or state of readi. ? 1975. All nuclear fuel as+ enb!ies were determination of what property quali-ness and is available for a specificalh .e Ivaded in the reactor oa November section 38 nroperty is made in assNned function. In general the pro-fies as visions of section 1.46-3(d ) (1) 24,1975. Criticality of the reactor was accordance with 'the rules prosided e in section 48. and (d)(2) apply for the purpose (ii) achieved on December 16,1975. Su-y ef Section 48ta)(1) of the Code pro, determining the date on which prop-clear steam supply turbines were erty is placed in senice. operational on December 18, 1975. vides, in pertinent part, that in order Licci,se restriction on the main steamto qualify as section 38 property, the L'nder the facts and circumstances described above, the nuc! ear generr - isolation valve was lifted on Decem-property must be depreciable and have ,t ter 22,1975. On December 23, 1975' 3 u,eful life of 3 seats or more. ing unit in the instant case was in a Se ction 167(a5 of the Code ro-c ndition or state of readiness and imtial synchronization and power vides, in part, that there shall be al-uail bility for a specificai!y assigned operation were achiesed at greater than I, percent of the e! ectr: cal lowed as a depreciation deducticn a that the necessary permits and licenses

uncti n n December 23,197a, m capacity of the t mt. As of December reasonable allowance for the exhaus-e had been approved the cr:r: cal tests 23, 1075, all construction work was tion, wear and tear, and obsolescence e

f r the vanous com,penents had been essentially complete and the only

• rmaining contractor personnel on the of property used in a trade or business. c mpleted, the nuc! ear g Section I A6-3(d)(1) of the regu-had been placed in the control of the site were in support of startup and

!ations provides, in part, that for pur-taspa:,er by the centractor, and the maintenance activities, and the com- -u p ses of the investment credit allowed generating unit had been synchronized pletion of imu.'ation. The unit was physically in the con-by section 38 of the Code into the taxcaver's power grid for its ,,i property trol of the owners, with all the legal sball be considered placed m service function i. the business of c neratine ,h attributes of ownership such as title, in the earher of the following taxable nuclear clactric enerer for the pr hu risk of loss, and liability. The unit was (i) the taxable year in which, years: duction of income, e$en though the 0.. under the taxpayer,s depreciation generating unit would undervo further fully operational on December 23, P!actice, the period for depreciatien testing to eliminate any defects. The a ~ 1975, at which time all equipment was ou u th respect to such property begins;unit was phy<ically in the centrol of perfonning its speci$cally assigned r (ii) the taxable year in which the the owners who possessed all the legal , In function, that is, operating as a unit iig Froperty is placed in a condmon er attributes of ownership. even though equipment was stil! un-state of readiness and ava:!abihty for Accordingly, in the instant case, the me dergoing testing to eliminate any de, do a specifically assigned funcuan. nuclear electric generating unit was fcets and to demonstrate reliability, t i, c Section All critical tests necessary for power l A6-3(d)(2)(iii) of the "5rst placed in service" cn December mr regulations provides, in part, that 23,1975, for depreciation and invest-operation were performed prior to De. thu 23, 1975. The:e was a partial equipment acquired by a taxpayer for ment credit purposes. Therefore, the <pr cember shutdown of the unit on December 24, a specifically assigned function in the taxpayer is entitled to deduct 6 months m 1975, uhich wa: duc to an abundance taxnayer's trade or business that depreciation and to claim the invest-ch. is ef hydro-generated electricity rather operational but is undergoing testin? ment credit on its 1975 Federal in- '.R than to any prob! cms concerning the to climinate any defects is considered come tax return with respect to this ph. nm to be in a condition or state of readi-unit. unit. The taxpayer e!ected to apply the ness and ava!! ability for a speciscally Compare Rev. Rul. 76-256 page 46, on. I assigned function. this Bu!!ctin, which concern,s when a provisions of section 1.167(al 11 of cm ceal. fired electric cenerating unit was Section the Income Tax Regulations concern-1.167(a)-11(c)(2)(iii) of the regulations provides, in part, that Erst placed in ser" ice for depreciation n n. and investment credit purposes. 43 a ~* r ') .1) G) e f_i 1 .._.,-.---.-_,c, --}}