ML19256B831
| ML19256B831 | |
| Person / Time | |
|---|---|
| Site: | Skagit |
| Issue date: | 08/14/1979 |
| From: | Gittleman L Office of Nuclear Reactor Regulation |
| To: | |
| Shared Package | |
| ML19256B830 | List: |
| References | |
| NUDOCS 7909200119 | |
| Download: ML19256B831 (8) | |
Text
. _ _ _ _. _
D UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION BEFORE THE ATOMIC SAFETY AND LICENSING BOARD In the Matter of
)
)
Docket Nos. STN 50-522 PUGET SOUND POWER & LIGHT
)
)
(Skagit Nuclear Power Project.
Units 1 and 2)
)
~
SUPPLEMENTAL TESTIMONY OF LOUIS GITTLEMAN
_ REGARDING FINANCIAL QUALIFICATIONS
,3-
., q q lis.
August 14, 1979 122:
285 90 7909m otiq
~
o
. FINANCIAL QUALIFICATIONS PUGET SOUND POWER & LIGHT CJMPANY, ET AL In Supplement 1 of the Safety Evaluation Report dated October 1978, the NRC staff concluded that there was reasonable assurance that the applicants c 'uld 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 infomation for the calendar year 1977. Additionally, the estimated completion dates were originally
~
scheduled for March 1985 and March 1987 for Units 1 & 2, respectively.
These completion dates have now been rescheduled to September 1986 and September 1988.
In order to update the staff's review of the applicants' financial qualifications, additional infomation, based on 1978 operating results, was requested. The following summarizes the staff's review of the updated information,M and gives the qualifications of each applicant to finance its respective share of the costs for the design and construction of the proposed Skagit facility.
Construction Cost Estimates Shown below is a coroparison of the applicants' most recent cost estimates for the proposed Skagit facility ard the earlf er cost estimates contained in Supple-ment 1 of the Safety Evaluation Report. The applicants' updated cost estimates reflect a substantial increase in the cost of constructing the proposed facility.
If The additional 'information was contained.n enciosures to letters from J. Mecca (Puget Sound Power & Light Co.) to J. Stolz (NRC Staff) dated May 17 and 25, 1979.
122; 286
!!M m
$A
. (Millions of dollars)
Supolement 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
$2,573
$3,086 The staff compared the applicants' current cast estimates of constructing the proposed facility with the cost projected by the costing model (CONCEPT) developed by the Department of En.>egy.
This analytical model projected the cost of the proposed Skagit facility, exclusive of interest cost during construction, to be $2,368 million compared with the applicants' estimate of
$2,912million.2] An earlier CONCEPT estimate in Supplement 1 of the SER projected costs to be $1,845 million compared to the applicants' estimate of
$2,443 million. Since the CONCEPT estimate is used as only a rough check of an applicants' estimate, and the applicants' estimate is a detailed engineer-ing cost analysis, we have determined that it is reasonable to use the appli-cants' 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:
2]
The staff estimate is based on an August,1979 run of the CONCEPT model.
122:
287 i:..
y 1,.i
_.n-
>- Puget Sound Power & Light Company 40%
Portland General Electric Company 30%
Pacific Power & Light Company 20%
Washington Water Power Company 10%
The applicants proposed financing their respective ownership ccsts from internal funds, external sales of debt and equity, and short-term borrowing.
Available funds from,these sources in 1978, after debt payments and retire-ments, totaled $148.5 million for Puget Sound Power & Light Company, $245.8 million for Portland General Electric Company, $286.7 million for Pacific Power & Light Company, and $55.8 million for Washington Water Power Company.
These data reflect the applicants' ability to finance construction programs within the framework-of viable capital markets.
The estimates of future flows of funds are set forth in the " source and use of funds" statements which are discussed below and we assume that viable capital markets will continue to fraction.
Financial Analysis The updated financial information for the twelve month period ending December ^1,1978 is presented below for each of the four applicants.
_n, 4
i 122 -288
. Financial Data for the Four Investor-Owned Applicants for the Proposed Skagit Facility During the Twelve Month Period Ending December 31, 1978 Puget Sound Power Portland General Pacific Power Washington
& Light Company Electric Company
& Light Co.
Water Power Co.
~
Operatinga)
Revenues 254.6 303.7 506.5 206.7 NetIncome(a) 26.1 42.5 86.6 26.5 Total 967.4 1,365.4 2,131.9 534.0 Capitalization (3)
Long-term debt 48.7%
53.8%
52.8%
55.2%
Preferred stock
-15.1%
11.1%
10.7%
4.6%
Common equity 36.2%
35.1%
36.5%
40.2%
Return on Commen Equity 11.66%
9.241 12.00%
13.1%
Pre-tax Coverage of long-tenn interest charges 2.62 2.33 2.63 3.20 Bond Rating B,/BBB Baa/BBB-8,,/88B+
A/A 3
(Moody's/S&P's)
(a) Millions of dollars Source:
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 Water Power Co. was attached to the referenced May 26, 1979 letter from J. Mecca to J. Stolz.
1 o,
v 's i22 289
. This financial data indicates improved trends for each applicant.
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 197.7. The improved levels of profitability have resulted in each applicant maintaining a reasonably balanced capital structure, which 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, the 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 comon equity should favorably impact the level of each applicant's internally generated funds.
The staff also reqQe'sted the 'applitants to submit revised projections of the system-wide " sources and uses of funds" statements covering the period of construction.
Provisicq is made in the " sources and uses of funds" state-ments to include the allowance for funds used during construction (interest during construction). The staff analysis of the submitted projections indicates that the estimates 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 i
- n,-
l t
w i
1221 290
u infomation submitted by the applicants, a rate of return of this order of magnitude has been detemined to be just and reasonable by State Utility Comissions in their respective service areas.
Also, the assumed capital stmetures for 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 commen equity. These assumed capital structures are consistent with the applicants' actual experi-ence. Furthermore, the projected rates of return, when applied to these capital structures, will result in adequate coverages of fixed charges (i.e., total interest charges and amortization of debt discount expense) for each applicant.
Conclusions Based on its analysis, the staff concludes that Puget Sound Power & Light Company, Portland General Electric Company, Pacific Power & Light Company, and the Washington Water Power Company continue to have a reasonable assur-ance of obtaining the necessary funds to design and construct the Skagit facility. This ls b'ased on the finding that the projections submitted by the applicants constitute a reasonable financing plan. Additionally, the projections submitted by the applicants are in accordance with general industry practice, and the underlying assumptions, while not subject to precise measurement, are consistent with estimated conditions. Accordingly, the staff finds the applicants financially qualified to design and construct the proposed Skagit facility.
^ n,:
(774 4
i s r 122',
291
LOUIS GITTLEMAN PROFESSIONAL QUALIFICATIONS
~
I am currently a financial analyst at the U.S. Nuclear Regulatory Cannission.
I am responsible for revie. Ing the estimated construction costs or operating c penses, projected financing methods and under-lying assumptions, regulatory trends, and money and capital m3rket developments, It is also my responsibility to serve as an expert witness-in certain safety hearings 6'efore 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 subs?quently attended the University of South Carolina, George Washington University, and the University of Maryland majoring in finance and accounting.
I was formerly a member of the American Managenent Association.
Pri~or 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 responsibi'ities in that position related to the adninistration of thr: hospital financing program of HEW. My earlier experience was in che 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 responsible 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.
11:J
'o7 122',
292