ML19247B264
| ML19247B264 | |
| Person / Time | |
|---|---|
| Site: | Skagit |
| Issue date: | 06/29/1979 |
| From: | Gittleman L Office of Nuclear Reactor Regulation |
| To: | |
| Shared Package | |
| ML19247B252 | List: |
| References | |
| NUDOCS 7908080255 | |
| Download: ML19247B264 (7) | |
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of
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Docket Nos. STN 50-522 PUGET SOUND POWER & LIGHT
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(Skagit Nuclear Power Project,
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Units 1 and 2)
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SUPPLEMENTAL TESTIMONY OF LOUIS GITTLEMAN REGARDING FINANCIAL QUALIFICATIONS June 29, 1979 d ))
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'7908080
FINANCIAL QUALIFICATIONS PUGET SOUND POWER & LIGHT COMPANY, ET AL In Supplement 1 of the Safety Evaluation Report dated October 1978, the NRC staff concluded that there was reasonable asserance that the applicants could obtain the necessary funds to cover the estimated construction cost of the proposed nuclear plant and its related fuel cycle costs.
The conclusion reached in Supplement I was based on financial information for the calendar year 1977.
Additionally, the ectimated conpletion dates were originally schedulet for March 1985 and March 1987 for Units 1 & 2, respectively.
These conpletion dates have now been rescheduled to March 1986 and March 1988.
In order to update the staff's review of the applicants' financial qualifica-tions, additional infonnation, based on 1978 operating results, was requested.
The following summarizes the staff's review of the updated information,l/
and gives the qualifications of each applicant to finance its respective share of the costs for the design and construction of the proposed Skagit facili ty.
Construction Cost Estimates Shown below is a comparison of the most recent cost estinates for the proposed Skagit facility and the earlier cost estimates contained in Supplement 1 of the Safety Evaluation Report.
The updated cost estimates reflect a sub-stantial increase in the cost of constructing the proposed facility.
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The additional information was contained in enclosures to letters from J. Mecca (Puget Sound Power & Light Co.) to J. Stoiz (NRC Staff) dated May 17 and 25,1979.
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Supplement 1 SER Current Estimates Total nuclear production plant
$2,443
$2,912 costs Transmission, distribution, and 22 19 general plant costs Nuclear fuel inventory cost for the first core 108 155 TOTAL 52,573
$3,086 The staff compared the current cost estimates of constructing the proposed facility with the cost projected by the costing model (CONCEPT) developed by the Department of Energy.
This analytical model projected the cost of the proposed Skagit facility to be $3,025 million compared with the applicants' estimate of $2,912 million.
An earlier CONCEPT estimat.
o Supplement 1 of the SER projected costs to be $.!,338 million compared to the applicants' estimate of $2,443 million.
Since the CONCEPT estimate is used as only a rough check of an applicant's estimate, the applicant's estimate is a detailed engineering cost analysis, we have determined tnat it is reasonable to use the applicant's estimate for this analysis.
Source of Construction Funds The ownership, costs, and electrical output of the proposed Skagit facility continue to be shared on the following basis:
Puget bound Power & Light Company 40%
Portia;:d General Electric Company 30%
Pacific Power & Light Company 20%
Washington Water Power Company 10%
The applicants proposed financing their respective ownership costs from internal funds, external sales of debt and equity, and short-term borrowing.
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. Available funds from these sources in 1978, af ter debt payments x! retire-ments, totaled $148.5 nillion for Puget Sound Power & Light Company, $245.8 million far Portland General Electric Caapany, $286.7 million for Pacific Power & Light Company, and $55.8 million for Washington Water Power Company.
Financial Analysis The updated financial informdtion for the twelve month period ending December 31, 1978 is presented below for each of the four applicants.
Financial Data for the Four Investor-0wnnd Applicants for the Proposed Skagit Facility During the Twelve Mont;1 Period Ending December 31, 1978 Puget Sound Power Portland General P.cific Power Washington
& Light Company Electric Company
& Light Co.
Water Power Co.
Operating 3)
Revenues 254.6 303.7 506.5 206.7 Net Income (a) 26.1 42.5 86.6 26.5 Total 967.4 1,365.4 2,131.9 534.0 Capitalization (a)
Long-te rm debt 48.7%
53.8%
52.8%
55.2%
Preferred stock 15.1%
11.1%
10.7%
4.6%
Common equi ty 36.2%
35.1%
36.5%
40.2%
Return on Common Equi ty 11.66%
9.24%
12.00%
13.1%
Pre-tax Coverage of long-term interest charges 2.62 2.33 2.63 3.20 Bond Rating Baa/BBB Baa/BBB-Baa/BBB+
A/A (Moody's/S&P 's)
(a) Millions of dollars Sou rce:
1978 annual reports to stockholders for the respective companies; reports for Puget Sound Power & Light Co., Portland General Electric Co., and Pacific Power & Light Co. were attached to the referenced May 17, 1979 letter from J. Mecca to J. Stolz, and the report for Washington Wa.er Power Co. was attached to the referenced May 26, 1979 letter from J. Mecca to J. Stolz.
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4-This financial data indicates improved trends for each applicait.
The basic measure of a company's profitability is the rate of return on common equity.
Each applicant's return on common equity has improved over a similar period in 1977.
The improved levels of profitability have resulted in each applicant maintaining a rec enably balanced capital structure wi.ich ranges from 48.7 to 55.2 percent long-term debt, 14.6 to 15.2 percent preferred stock, and 35.1 to 48.2 percent common equity.
This has produced debt coverages ranging from 2.33 to 3.20.
Both Moody's Investor Service and Standard and Poor's Corporation have maintained the same bond ratings previously assigned to the applicants.
Consequently, t e interest rates demanded by investors should not be adversely affected.
Also, each applicant's improved return on common equity should have a favorable effect on the expected dividend growth, which should improve the price attractiveness of the companies' common stock.
Finally, the improved return on common equity should favorably impact the level of each applicant's internally generated funds.
The staff also requested the applicants to submit revised projections of the system-wide " sources and uses of funds" statements covering the period of construction.
The staff analysis of the submitted projections indicates that the astimates and the underlying assumptions are reasonable.
The applicants project a rate of return on year end common equity in the range of 12.5% - 14.3% during the 11 year construction period.
Based on informa-tion submitted by the applicants, a rate of return of this order of magnitude has been determined to be just and reasonable by State Utility Commissions in their rescective service areas.
Also, the assumed capital structures for 4)/
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. the applicants are 48.1 to 54.0 percent debt, 4.3 to 12.8 percent preferred stock, and 35.3 to 47.6 percent common equity.
These assumed capital struc-tures are consistent with the applicants' actual experience.
Furthermore, the projected rates of return, when applied to these capital structures, will result in adequate coverages of fixed charees (i.e., total interest charges and amorti7ation of debt discount expense) for each applicant.
Conclusions Based on its anclysis, the staff concludes that Puget Sound Power & Li ht 9
Company, Portland Genera! Electric Company, Pacific ' enr & Light Company, and the Washington Water Power Company continue to have a reasenable cssur-ance of obtaining the necessary funas to cover the estimated construction cost of the Skagit facility and its related fuel cycle costs, fhis is based on the finding that the projections submitted by the applicants constitute a reascnable financing plan.
Additionally, the projections submitted by the applicantr are in accordance with general industry practice, and the under-lying assumptions, while not subject to precise measurement, are consistent with estimated conditions.
Accordingly, the staff finds the applicants financially qualified to design arid construct the proposed Skagit facility.
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LOUIS GITTLEMAN PROFESSIONAL QUALIFICATIONS I am currently a financial analyst at the U.S. Nuclear Regulatory Commission.
I am responsible for reviewing the estimated construction costs or operating expenses, projected financing methods and under-lying assumptions, regulatory trends, and money and capital market devel opinents.
It is also my responsibility to serve as an expert witt.e'.s in certain safety hearings before the Atomic Safety and Licensing Board when financial qualifications are a contested issue.
I was graduated from Lebanon Valley College in 1954 with a B.S.B.A.
in finance and subsequently attended the University of South Carolina, George Washington University, and the University of Maryland majoring in finance and accounting.
I was fornerly a member of the American Management Association.
Prior to joining the Nuclear Regulatory Commission in December 1977, I was employed as a financial analyst with the Department of Health, Education and Welfare. My responsibilities in that position related to the administration of the hospital financing program of HEW. My earlier experience was in the Rural Electrification Program.
I served for eight years as Executive Vice President and Chief Financial Officer of Mid-Carolina Electric Cooperative, a large member-owned rural electric system serving central South Carolina.
I was responsibia for the overall operation of this utility, including all financial matters.
Earlier I served for ten years as both loan officer and in the rate division of the Rural Electrification Administration.
My duties entailed evaluating the financial qualifications of applicants for Rural Electrification Administration Loans.
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