ML19308B661
| ML19308B661 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 06/11/1979 |
| From: | Andrea Johnson, Malatesta J PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001160615 | |
| Download: ML19308B661 (44) | |
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!). 7 if BEFORE THE i
PENNSYLVANIA PUBLIC UTILITY COf01ISSION l
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I-79040308
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i PENNSYLVANIA PUBLIC UTILITY COMMISSION, et b
METROPOLITAN EDISON COMPANY i
PENNSYLVANIA PUBLIC UTILITY COMMISSION, et al.
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PENNSYLVANIA ELECTRIC COMPANY 1
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BRIEF FOR COMMISSION TRIAL STAFF i
Joseph J. IIalatesta, Jr.
I Deputy Chief Counsel Albert W.
Johnson, III i
Assistant Counsel i
For the Commission a"
Trial Staff 5-
-G-28 North' Office Building Harrisburg, PA 17120 (717) 787-5000 4
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TABLE OF CONTENTS PAGE STATEMENT OF THE QUESTIONS INVOLVED 1
STATEMENT OF THE CASE 2
SUMMARY
OF ARGUMENT 5
m ARGUMENT 7
7NTRODUCTION 7
I.
THE TEMPORARY RATES PRESCRIBED BY THE COMMISSION'S ORDERS OF APRIL 19 AND APRIL 25, 1979 SHOULD CONTINUE AS THE BASE RATES OF MET-ED AND PENELEC, RESPECTIVELY 9
A.
The base rates that Met-Ed and Penelec should be permitted the opportunity to earn must be calculated without reference to the Companies' ownership of TMI-2 10 B.
The temporary rates produce fair returns on the fair values of both Met-Ed and Penelec 12 C.
The temporary rate levels permit the Companies to collect their transitional deferred energy charges 15 D.
The Companies' PURTA refunds should be refunded to their ratepayers in the same manner in which they were collected and over an 18-month period 18 II.
THE OPERATIONS OF MET-ED'S AND PENELEC'S NET ENERGY CLAUSES SHOULD BE MODIFIED BECAUSE OF THE UNAVAILABILITY OF GENERATION FROM TMI-l AND TMI-2 21
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PAGE A.
Most replacement power costs should be passed through the net energy clauses to insure continuity of service 22 B.
Met-Ed's and Penelec's net energy clauses should be levelized over an 18-month period beginning. July 1, 1979 23 C.
Met-Ed's and Penelec's net energy clauses should permit collection of reserve capacity charges resulting from purchased power agreements. that have net financial benefits 27 PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW 29 A.
Proposed Findings of Fact 29 B.
Proposed Conclusions of Law.
34 CONCLUSION 36 APPENDICES b
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TABLE OF CITATIONS Page CASES City of Pittsburgh v. Pa.
P.U.C.,
171 Pa. Superior Ct. 187, 90 A.2d 607 (1952) 11 Schuylkill Valley Lines, Inc. v.
Pa.
P.U.C.,
165 Pa. Superior Ct. 393, 68 A.2d 448 (1949) 11 Scranton v. Scranton Steam Heat Company, 405 Pa. 397, 176 A.2d 86 (1961).
11 Smyth v. Ames, 169 U.S.
466 (1898).
7 STATUTES Public Utility Code, 66 Pa.C.S. 5101 et seq.
66 Pa.C.S. S1301 22 66 Pa.C.S. 51310 (d) 9,12,13 66 Pa.C.S. S1501.
21,22 D
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-STATEMENT OF THE QUESTIONS INVOLVED I.
Whether the temporary rates prescribed by the
-Commission's orders of April 19 and April 25, 1979 should continue as the base rates of Met-Ed and Penelec, respectively?-
Whether the operations of Met-Ed's and Penelec's II.
net energy clauses should be modified because of.the unavailability of generated power from TMI-1 and TMI-2?
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i STATEMENT OF THE CASE Beginning on March'28, 1979, an incident occurred at the Three Mile Irland Nuclear Generating Station which ultimately resulted in the'inoperability of Unit #2 of that Station (TMI-2).
That unit and its sister unit TMI-l are owned by three w.?lly-owned subsidiaries of General Public Utilities (GPU), a public utility holding company headquartered in New Jersey.
Two of the three subsidiaries, Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec), are Pennsylvania jurisdictional operating utilities, and they own 50% and 25%, respectively, of the Thi, Mile Island facilities.
In response to the TMI-2 incident, and by a series of orders adopted on April 19, 1979, the Commission did the following:
1.
C-79040828:
issued a complaint against Met-Ed, alleging that both Met-Ed's base revenues and net energy clause revenues " appear to be unreasonable, unlawful and excessive".
2.
C-79040830:
issued a complaint against Penelec, with the same allegations as C-79040828.
3.
C-79040829:
adopted an order establishing
" temporary rates" for Met-Ed at a level of revenues $49.2 million less than the base rates allowed Met-Ed by the Commission's March 22, 1979 order at R.I.D.
626..
T'
4.
I-7904030s:
opened an investigation into Met-Ed's management practices during the construction of TMI-2.
E 5.
I-79040306:
opened a parallel investigation into Penelec's management practices during the construction of TMI-2.
All five of the Commission proceedings started on April 19 were consolidated with three complaints that had been filed by the Office of Consumer Advocate (OCA) againat the same two Companies on April 6, 1979.
Those complaints were as follows:
6.
C-79040814:
complaint against Met-Ed requesting that Met-Ed's net energy clause be frozen at its February level and that the operation of the net energy clause be investigated.
7.
C-79040815:
parallel complaint against Penelec and its net energy clause.
8.
C-79040816:
complaint against Penelec, alleging excessive base rate revenues and requesting hearings into same.
Finally, on April 25, 1979, the Commission adopted an order, at C-79040864, that prescribed temporary rates for Penelec at a level of revenues $25 million less than the base rates allowed Penelec by the Commission's order of January 11, 1979 at R.I.D.
599.
On April 24, 1979, the Commission, presiding en banc, held a pre-hearing conference that was attended by the -
Companies, the Commission Trial Staff (Staff), OCA and several party-intervenors, including industrial and residential customers of the two Companies.
Thereafter, evidentiary hearings were held before the Commission en banc in Harrisburg on May 2, 8,
9, 22, 23, 29, 30, 31 and June 1, in Reading on May 14, and in Jonnstown on May 29.
At those hearings, the Companies, Staff, OCA, the Senior Power Action Group of York, and Ms. Holly Keck and Mr. Charles Brosenne, complainants, presented direct testimony, and all parties were afforded opportunities to cross-examine the witnesses.
During the pendency of the hearings, on May 8, 1979, the Companies filed three petitions seeking permission for Met-Ed and Penelec to speed recovery of net energy clause revenues and seeking permission for Met-Ed to establish a surcharge for the collection of deferred energy costs previously adjudicated in R.I.D.
626.
After reviewing those petitions and answers filed by the Staff and OCA, the Commission l
adopted an order on May 10, 1979 deferring action on the petitions to the end of these proceedings.
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SUMMARY
OF ARGUMENT i
This is a public utility rate proceeding and the resolution of such a proceeding must promote a balancing of investor and ratepayer rights.
A combined operation of base rate and net energy clause revenues that permits Met-Ed and Penelec to earn the same revenues for the 18 months beginning July 1, 1979 as the Companies would have earned had the TMI-2 incident not occurred is a proper balancing of investor and ratepayer rights.
TMI-2 is not currently used and useful in the public service, and costs associated with its ownership and operation should not be collected through Met-Ed's a:.C Penelec's base rates.
The temporary rates of both Companies insure such noncollection, and they should be allowed to mature into permanent rates.
The Companies' recently acquired refunds of PURTA taxes should be returned to their ratepayers through the State Tax Adjustment Surcharge over the 18-month period beginning July 1, 1979.
The operations of the Companies' net energy clauses should be modified to provided levelized billing factors of 8.8 mills /Kwh for Met-Ed and 6.6 mills /Kwh for Penelec, to be applied over the 18-month period beginning July 1, 1979.
Any decision on additional recovery of TMI-related replacement 4 e
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power costs should be deferred until the end of that 18-month period or to an earlier date, if practical.
This Commission should provide reasonable incentives to encourage the Companies t
acquire the cheapest possible replacement energy.
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ARGUMENT INTRODUCTION 4
Public utility ratemaking has been described as a balancing process, a process that attempts to provide the investor with a reasonable return on investment while insuring that the ratepayer need only pay for the reasonable worth of the utility's services.
Smyth v. Ames, 169 U.S.
466 (1898).
Many mechanisms have been developed to promote this balancing process, including the " fair.value" rate base of Smyth v. Ames, but none were designed to assist & regulatory agency to promote a balancing of interests in the immediate aftermath of a disabling and frightening nuclear incident.
Although based on a voluminous record, the position advocated by the Staff in the pages that follow reflects the lack of an established or adaptable mechanism to guide the Commission's response to the TMI-2 incident.
In the' absence of a particular blueprint for response, we are advocating that this Commission resort to the general and trustworthy guidance of the balancing process concept.
If there are two certainties in these proceedings, they are that the service to the customers of Met-Ed and Penelec has continued f
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as before the TMI-2 incident, and that the Commicsion recently has established the reasonable and prospective value of those i
services to the Companies' customers.
The Staff, therefore, l
has advocated that the Commission return the Company / ratepayer l
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relationship to its pre-TMI-2 incident status, albeit with some modifications.
The position that we advocate will not satisfy.those investors who expect to be immunized from all adversity, and it will not satisfy those ratepayers (and others) who see the financial deaths of the Companies as appropriate revenge
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for the TMI-2 incident.
But no balancing process should respond to extreme points of view; it should neutralize and absorb the extremen by the development of a temperate resolution.
The
' Staff believes and submits that we have advocated such a resolution in the pages that follow.
I.
THE TEMPORARY RATES PRESCRIBED BY THE COMMISSION'S ORDERS OF APRIL 19 AND APRIL.25, 1979 SHOULD CONTINUE AS THE BASE RATES OF MET-ED AND PENELEC, RESPECTIVELY.
By order adopted January 11 and entered January 26, 1979, at Rate Investigation Docket (R.I.D.) 599, the Commission allowed Penelec the opportunity to increase its jurisdictional annual operating revenues by $56.2 million.
Similarly, by order adopted March 22 and entered March 29, 1979, at R.I.D.
- 626, the Commission allowed F t-Ed the opportunity to increase its jurisdictional annual operating revenues by $49.2 million.
Subsequently, and as part of its over-all response to the TMI-2 " incident", the Commission, by orders adopted April 19 and April 25, 1979, prescribed " temporary rates" for Met-Ed and Penelec, respectively, pursuant to Section 1310 (d) of the Public Utility Code, 66 Pa.C.S. S1310 (d).
Specifically, the temporary rate level prescribed for Met-Ed required a
$49.2 million reduction in annual revenues and represented a dollar for dollar " retraction" of the authorized revenue increase at R.I.D.
626.
The temporary rate level prescribed for Penelec required a $25 million reduction in annual revenues, and permitted Penelec to continue to collect $31.2 million of the revenue increase allowed by R.I.D.
599.
Thereafter, both Companies filed complaints with the Commission against the temporary rates.
In addition, both o i
Met-Ed and Penelec filed with the Commonwealth Court Petitions for Review (1058 and 1059 C.D.
1979, respectively) of the Commission's temporary rate orders of April 19 and April 25, 1979.
Although the Companies have suggested that the complaints and appeals might be withdrawn depending on the Commission's resolution of these proceedings (N.T. 1685), the appropriateness of the temporary rate levels remains an issue in these proceedings.
A.
THE BASE RATES THAT MET-ED AND PENELEC SHOULD BE PERMITTED THE OPPORTUNITY TO EARN MUST BE CALCULATED WITHOUT REFERENCE TO THE COMPANIES' OWNERSHIP OF TMI-2.
i The Commission's temporary rate orders of April 19 4
and April 26, 1979 were an expressed recognition of the sudden and indefinite unavailability of TMI-2 for the generation of electricity for the ultimate benefit of the Companies' consumers:
As a result of the incident at the Three Mile Island Power Station on March 28, 1979 and.thereafter, Unit No. 2 has been rendered inoperable for an indefinite period.
The basic assumption at the root of [ Met-Ed's]
rate increase (at R.I.D.
626], that Unit No. 2 was useful property in service to the public, is no longer valid.
Commission order of April 19, 1979 at C-79040829.
Those orders also were a recognition of Pennsylvania ratemaking law.
In Pennsylvania, the determination of a utility's revenue entitlement is based upon the fair value of the property being used by the utility for the convenience of the !
public.
Scranton v._Scranton Steam Heat Company, 405 Pa.
397, 176 A.2d 86 (1961).
Property which is not currently used and useful in the public service may not be included in a utility's fair value rate base and, therefore, may not earn a return from a utility's ratepayers.
Schuylkill Valley Lines, Inc. v. Pa.
P.U.C.,
165 Pa. Superior Ct. 393, 68 A.2d 448 (1949).
And the determination of whether property is currently used and useful must be based on the most current information available.
City of Pittsburgh v.
Pa.
P.U.C.,
171 Pa. Superior Ct. 187, 90 A.2d 607 (1952).
The revenue allowances developed for Met-Ed and Penelec in R.I.D.'s 626 and 599, respectively, properly reflected the " current" use and usefulness of TMI-2 on March 22, 1979 for Met-Ed and on January 11, 1979 for Penelec.
The legal conclusion of " current use and usefulness" in those decisions was based upon a solitary finding of fact, namely, that, as of December 30, 1978 and through March 27, 1979, TMI-2 was an operating generating station producing 3
electricity for public consumption.
The so-called "TMI-2 l
incident" that began on March 28, 1979 rendered that finding of fact and its concommitant conclusion of law inoperative, and invalidated one of the primary economic assumptions of the Commission's decisions in R.I.D.'s 626 and 599.
In the Commission's "prehearing order" of April 27, 1979, the Commission accepted the Companies' proferred stipulation i
that TMI-2 "will be out of service for a two to four year 1.
period".
While the Staff never has accepted that same stipulation (preferring that any such stipulation refer to a minimum two to four year period), the stipulation does provide substantial and uncontradicted evidence to support a finding of fact that TMI-2 is not now producing and, for at least two years, will not produce electricity for public consunption.
In turn, that finding of fact supports the legal conclusion that TMI-2 is not currently used and useful in the public service.
That conclusion of law demands the exclusion of Met-Ed's and Penelec's ownership of TMI-2 from the calculations of the annual base rate operating revenues that each Company should be permitted the opportunity to earn.
B.
THE TEMPORARY RATES PRODUCE FAIR RETURNS ON THE FAIR VALUES OF BOTH MET ED AND PENELEC.
The Commission's temporary rate orders of April 19 (Met-Ed) and April 25, 1979 (Penelec) were adopted by the Commission pursuant to authority contained in Section 1310(d) of the Public Utility Code, 66 Pa.C.S.
S1310(d):
Whenever the commission, upon exami-nation of any annual or other report, or of any papers, records, books, or documents, or of the property of any public utility, shall be of opinion that any rates of such public utility are producing a return in excess of a _
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fair return upon the fair value of the property of such public utility, used and useful in its public service, the commission may, by order, prescribe for a trial period of at least six months, which trial period may be extended for one additional period of six months, such temporary rates to be observed by such public utility as, in the opinion of the commission, will produce a fair return upon such fair value.
Section 1310(d) requires only that the Commission "be of opinion" that a utility's rates are excessive before the Commission may prescribe temporary rates; the Section does not precondition the precription of temporary rates on the Commission's development of supporting financial analyses on a formal record.
Nevertheless, the record of these proceedings provides substantial evidence in support of the temporary rate levels prescribed by the Commission for Met-Ed and Penelac.
The Staff introduced into the record of these proceedings, through Staff Witness Charles Smetak, Staff Statement No. 1 and accompanying Staff Exhibits S-1 and S-1 Revised which describe the financial effects of removing Met-Ed's ownership of TMI-2 from consideration in the Commission's March 22, 1979 order in R.I.D. 626.1/
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The removal of Met-Ed's ownership of TMI-2 from consideration changes not only the rate base finding in R.I.D.
626, but also all findings associated with the operation of TMI-2.
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l Specifically, that evidence, which was uncontradicted, demonstrates that the Commission's decision in R.I.D.
626 i
would have permitted Met-Ed the opportunity to earn
$52,159,715 less in jurisdictional annual operating revenues had Met-Ed's ownership of TMI-2 not been considered in the Commission's decision.
Clearly, then, the Commission's April 19, 1979 temporary rate reduction of $49,178,000 / was 2
and is a justifiable regulatory response to the legal con-clusion that TMI-2 is not currently used and useful in the public service and must not be considered in determining an appropriate revenue level for Met-Ed.
So also, the Staff introduced into the record, through Witness Smetak, Staff Statement No. 2 and accompany-ing Staff Exhibit S-2 which describe the financial effects of removing Penelec's ownership of TMI-2 from consideration in the Commission's January 11, 1979 order in R.I.D.
599.
Again, that evidence was uncontradicted and it demonstrates that the Commission's decision in R.I.D.
599 would have permitted Penelec the opportunity to earn $26,635,000 less 2/
While the difference between the temporary rate reduction and the result of the Staff's analysis, or $2,981,715, arguably could be applied to reduce further Met-Ed's base rate revenues, such an adjust-ment would ascribe much greater financial precision to the ratemaking process than it merits.
Staff Statement No. 1, p. 4-5.
In the immediately suc-ceding section of this argument, however, the Staff advocates a specific treatment of that $2,981,715 difference.,
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in jurisdictional annual operating revenues had Penelec's ownership of TMI-2 not been considered in the Commission's decision.
Finally, as with Met Ed, the Commission's April 25, 1979 temporary rate reduction of $25,000,000 / was and is a 3
justifiable regulatory response to the legal conclusion that TMI-2 is not currently used and useful in the public service and must not be considered in determining an appropriate revenue level for Penelec.3/
Because TMI-2 and all of its revenue implications are proper'y excludeable from the calculation of appropriate revenue levels for both Met-Ed and Penelec, any reversal of the Commission's temporary rate orders clearly would permit the beneficiary - company (ies) the opportunity to earn a return in excess of a fair return on a fair value.
Accordingly, the Staff submits that the Commission should dismiss Met-Ed's and Penelec's complaints against their respective temporary rates, and permit the temporary rates to remain in effect for their entire " trial periods".
C.
THE TEMPORARY RATE LEVELS PERMIT THE COMPANIES TO COLLECT THEIR TRANSITIONAL DEFERRED ENERGY CHARGES.
In the Commission's final order of January 11, 1979, at R.I.D.
599, the. Commission allowed Penelec to 3/
As with Met-Ed, the Staff is not advocating that the difference between Penelec's temporary rate reduction and the result of the Staff's analysis, or $1,635,000 should be applied to reduce further Penelec's base
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rate revenues.
Staff Statement No.
2, p.
5.
Here again, the proposed treatment of that difference is found in the immediately succeding argument. -
amortize unrecovered energy costs of $19,380,000 that had been deferred as a result of Penelec's transition from its former automatic adjustment clause to its current not energy clause.
The Commission fixed a 5 year amortization period for the deferred energy charges, and thus allowed Penelec an annual recoverable expense of $3,876,000.
So also, in the Commission's final order of March 22, 1979, at R.I.D.
- 626, the Commission allowed Met-Ed a parallel five-year amortized expense of $14,021,000 for Met-Ed's transitional deferred energy charges, and an annual recoverable expense of $2,804,000.
The treatment of these expenses first was intro-duced into these proceedings on May 8, 1979 when Met-Ed filed a petition seeking Commission permission to collect its own deferred energy expense through a 4.5 mill per Kwh surcharge.
That petition, of course, assumed that the Commission's temporary rate order of April 19, 1979 had deprived Met-Ed of the opportunity to recover its deferred energy expense even though the temporary rate order purported to reduce Met-Ed's total revenue allowance only by those revenues directly attri-butable to Met-Ed's ownership and operation of TMI-2.
While this difference in perspective serves to illustrate even further the lack of precision in the ratemaking process, a fairly simple solution is available.
As described in the immediately preceding section of this argument, the difference between the Commission's temporary rate reduction and the analysis contained in Staff Exhibits S-1 and S-1 Revised is $2,981,715.
Consistent with the suggestion proposed by OCA Witness Jamshed Madan, the Staff submits that the $2,981,715 be treated as Met-Ed's annual deferred e rgy expense.
OCA Statement No. 1, p.
21 / and N.T.
1588-90.
By " increasing" that expense from 4
$2,804,000 to $2,981,715, the Commission effectively would reduce the amortization or customer payment period from 5 years to 4.7 years without having any financial impact upon ratepayers.
And because Met-Ed, through the testimony of Company Witness John Graham, has expressed agreement in principle with this proposed treatment (N.T. 1687), the Commission may consider Met-Ed's surcharge petition as effectively withdrawn.
OCA Witness Madan proposed similar treatment of Penelec's deferred energy expense, although, because the Commission's April 25, 1979 temporary rate order permitted Penelec to retain $31.2 million of its January rate increase, the manner of computation is somewhat different.
Penelec
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S31.2 million effective rate increase (unlike Met-Ed's net 4/
Witness Madan actually used S3,214,000 instead of $2,981,715, relying on Staff Witness Smetak's 4
original figure instead of his revised figure.
N.T.-1222..
. increase of "zero" arguably recovers the $3,876,000 of deferred energy expense that the Commission allowed in R.I.D. 599.
Unlike the treatment'for Met-Ed, where the difference between the Commission's temporary rate reduction and the base rate' reduction supported by Staff Exhibits S-1 and S-1 Revised was substituted for the allowed deferred energy expense,. the Penelec situation requires that the difference / of $1,635,000 be added to the amortized annual 5
deferred enrgy expense of S3,876,000 from R.I.D.
599.
OCA Statement No. 1, p.
21-22.
The total, or $5,511,000, reduces the amortization period from 5-years to 3.5 years without any financial effect upon Penelec's ratepayers.
D.
THE COMPANIES' PURTA REFUNDS SHOULD BE REFUNDED TO THEIR RATEPAYERS IN THE SAME MANNER IN WHICH THEY WERE COLLECTED AND OVER AN 18-MONTH PERIOD.
During the course of these proceedings, the Companies acknowledged their receipt of Public Utility Realty Tax (PURTA) refunds from the Commonwealth.
Specifically, Met-Ed received a $9.3 million PURTA refund for 1970-75 i
(N.T. 597-98) and $2.574 million for 1977 (N.T. 1479) for a i
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In-Penelec's case, this would be the difference between the Commission's April 25, 1979 temporary rate reduction of $25,000,000 and the base rate reduction of $26,635,000 arguably supported by Staff Exhibit S-2, or S1,635,000..
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w total of-$11.874 million, while Penelec received a $4.6 million for 1970-75 (N.T. 598).
While the parties' initial
. interest in these refunds was to insure the most current picture of the-Companies' cash flow situation, OCA Witness Madan included the tax refunds in his comprehensive proposal for the resolution of these proceedings.
OCA Statement No.
1, p. 31-32.
Because it is the' Commission's apparent preference that the PURTA refunds be included in its own resolution of these proceedings, the Staff deems it politic to advocate, at this time, our position for treatment of the refunds.
OCA Witness Madan initially proposed that the PURTA refunds be accomplished as set-offs against his pro-posed levelized not energy clauses.
OCA Statement No. 1, p.
31-32.
On cross-examination by Staff counsel, Witness Madan recognized and admitted that his proposed method would result in distributing the refunds among the Companies' ratepayers upon a basis (Kwh usage) different than the basis upon which the tax was collected (actual dollar billings).
Witness Madan then proposed that the " appropriate N.T.
1654-56.
way that the money would get refunded would be through the j-surcharge portion of the bill".
N.T.
1655.
l.
The " surcharge portion of the bill" identified by Witness Madan is, of course, a reference to the State Tax
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Adjustment Surcharge established by Commission order of March 10, 1970.
That Surcharge was created as a broad response to state tax legislation of 1969-70, including the adoption and levy of PURTA.
As an established mechanism for the collection and refund of PURTA, the Surcharge is the appropriate mechanism for Met-Ed's and Penelec's refunds to their ratepayers of their recent recoveries from the Commonwealth.
It is Staff's understanding that unwritten Commission policy ordinarily would require that the refunds be accomplished by March 31, 1980, the end of the current Surcharge " fiscal year".
If the refunds were to begin.on July 1, 1979, the Companies would have 9 months to accomplish the refunds.
Because the outflow of over $1 million per month from Met-Ed only may necessitate that Company's resort to other, more expensive sources of cash, the Staff submits that an 18-month refund period is more appropriate.
While such a period may create certain accounting problems, it produces a 4
more consistent and comprehensive resolution of these proceedings since the Staf;s advocated levelization period for the net energy clause also is 18 months.
N.T.
1658-59.
For further consistency, the Staff submits that Penelec's refunds should be accomplished over 18 months also.
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II.
THE OPERATIONS OF MET ED'S AND PENELEC'S NET ENERGY CLAUSES SHOULD BE MODIFIED BECAUSE OF THE UNAVAILABILITY OF GENERATION FROM TMI-l AND TMI-2.
The unavailability of generation from TMI-1 and TMI-2 has caused and-will continue to cause Met-Ed and Penelec to utilize higher fuel cost company owned generation, to increase power pool purchases and to decrease power pool sales.
Met-Ed/Penelec Exhibits D-1, D-1.1.
The combination of these changes will result in substantial incremental energy expenses which, without energy clause change, will flow-through the energy adjustment clause recoveries of these companies.
The Staff submits that ratepayers of Met-Ed and Penelee should not be required to carry a revenue burden of base rates and energy charges which exceeds the total revenue demands that would have existed had the TMI-2 incident never occured. /
A modification of the Companies' energy clauses 6
is required to achieve this fair and-equitable objective.
Met-Ed and Penelec chose to build TMI-1 and TMI-2
. nuclear facilities in response to the statutory mandate that they " furnish and maintain adequate, efficient, safe, and reasonable service and facilities."
66 Pa.C.S. 51501.
Met-Ed and Penelec chose the contractors and designers of these facilities.
Met-Ed and Penelec furnished the personnel who
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While OCA witness Madan considered this~ ceiling a "significant consideration" in his own proposal, N.T.
- 1644, he recognized that his own proposal likely would result in exceeding such a ceiling, N.T.
1645-46.
operated these facilities.
Under normal circumstances the customers of Met-Ed and Penelec may be expected to provide revenue in amounts sufficient to compensate these utilities' in meeting their statutory obligations.
However, rates must be just and reasonable.
66 Pa.C.S. S1301.
Rates cannot be established arbitrarily.
It is not the total cost to the utility, but rather the reasonable cost which is the benchmark for setting rates.
This Commission has followed a careful and reasoned path to regulatory treatment of costs which can.
be characterized as abnormal, extraordinary or non-recurring.
The Commission's judgment is evidenced in its responses to Tropical Storm Agnes expenses and the 1978 coal strike, both of which were beyond the control of the affected utilities.
Where, as here, the causes of TMI-2 malfunction, including possible human error, must await thorough and studied investigation, it is appropriate to respond by placing some restraint on the recovery of energy costs occasioned by the loss of nuclear capacity.
A.
MOST REPLACEMENT POWER COSTS SHOULD BE PASSED THROUGH THE NET ENERGY CLAUSES TO INSURE CONTINUITY OF SERVICE.
The Public Utility Code requires that Met-Ed and Penelec furnish reasonable, continuous service to their customers.
66 Pa.C.S. S1501.
The prospect of complete -
denial of the' ability to receive funds to satisfy replace-ment power costs will-only aggravate an already serious cash flow problem, will impair'the quality of service and will increase the likelihood of insolvency.
Met-Ed/Penelec Statement A, Supplements and accompanying Exhibits.
.Should Met-Ed or Penelec be forced into receivership there is no reason to expect energy costs or other costs of providing service to diminish.
Customer requirements would continue unabated and the need to satilfy these requirements would entail the same energy costs.
In fact, there is the
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very real prospect that the relationship between vendors and a receiver could engender additional costs if contracts were renegotiated and extended payment terms were lost.
Admittedly, our position does not allow immediate pass-through of all replacement power costs.
We submit that complete pass-through is not necessary to enable these i
companies to continue operations nor is it warranted.
The revenues recoverable under the Staff position when coupled with bank loans should assure the continued vitality of both Met-Ed and Penelec.
B.
MET-ED'S AND PENELEC'S NET ENERGY CLAUSES SHOULD BE LEVELIZED OVER AN 18-MONTH PERIOD BEGINNING JULY 1, 1979.
i The Staff submits that a levelized energy cost recovery over an 18-month period from July 1, 1979 through 4
~.
December'31, 1980 should replace the operation of Met-Ed's
-and Penelec's present energy cost adjustment clauses which,
-if not so modified, would pass-on to customers the entire replacement cost of power and would fluctuate over a wide millage range per Kwh.
To determine the levelized amount which should be charged'so as not to exceed the revenue levels established by R.I.D.'s 626 and 599, it is necessary to consider the following factors:
(1) revenue requirements under temporary rates extended over an 18-month period, (2) revenue require-ments of TMI-2 over the 18-month period, (3) the anticipated or-budgeted energy cost during this 18-month period if TMI-l' and TMI-2 were in operation, (4) the portion of anticipated or forecasted energy cost (TMI-l and TMI-2 in operation) which would be recovered through the energy clause, and (5) forecasted sales, both total and jurisdictional.
Appendix A (attached) shows that for Met-Ed the temporary rate level plus TMI-2 revenue requirement totals
$471.6 million.
If TMI-l and TMI-2 were in operation during this period the forecasted energy cost would total $128.6 million.
This total must be factored'down to jurisdictional
^5 sales ($123.1) and reduced further by the amount recoverable through base rates ($123.1 million. - $93.9 million = $29.2 million).
The $29.2 million is then added to S471.6 million to-produce total base and energy clause revenue requirements '
consistent _with-TMI-l and TMI-2~in operation and the Commission's
- Order at R.I.D.
626.-
This total is $500.'8 million and it represents the total jurisdiccional revenues that Met-Ed would have received through base rates and net energy clause for the 18 months beginning July 1, 1979 had the TMI-2 incident.
not occurred..Since temporary rates produce $397.8 million a balance of $103 million may be recovered through a levelized energy charge.
Based upon forecasted sales over the 18-month period the levelized millage rate is 8.8 mills per Kwh.
Appendix B shows that for Penelec the temporary rate level plus TMI-2 revenue requirement equals $622.5 million over an 18-month period.
If TMI-l and TMI-2 were operating during_this period the forecasted energy cost would total $246.1 million.
By factoring energy cost down to jurisdictional cost ($226.2 million) less recovery in
~
base rates ($158.6 million) the total energy cost recoverable through the energy clause which would have been experienced is $67.6 million.
The $67.6 million must then be added to
$622.5 million to represent total base and energy clause revenue requirements consistent with TMI-l and TMI-2 in
- operation and consistent with the Commission's Order at R.I.D.
599.
This total is 690.1 million, and it represents the jurisdictional revenues that Penelec would have received J
25 -
through base rates and net energy clause for the 18 months beginning July 1, 1979 had'the TMI-2 incident not occurred.
Temporary rates produce 1$585 million leaving a balance of
$105.1 million to be recovered through a levelized energy charge. ' Based upon forecasted sales over the 18-month period the levelized millage rate is 6.6 mills per Kwh.
C It cannot be emphasized too strongly_that our levelized energy cost rate is predicateu upon the assertion
+
that'ratepayers of Met-Ed and Penelec cannot be burdened over the next 18 months with revenue requirements in excess of the total base rate and energy cost requirements consistent with normal operation of TMI-l and TMI-2.
We are urging a ceiling for total revenue recovery.
Both Company Witness Graham and CA Witness Madan developed levelized energy cost rates.
Met-Ed/Penelec Statement A, Supplement 2; p.
14 and'OCA Statement No.
1, p.
32.
In so doing their calculations recognize estimated replacement power costs.
We do not embrace this approach, albeit the effect of our proposal will permit replacement power cost-recoveries as limited by the cap or ceiling we have previously-urged.
We do not advocate here that Met-Ed and Penelec should be precluded from eventual recovery of replacement power costs in excess of the levelized amount.
At an
~ l 1
appropriate tirca in the future when all the facts currounding the TMI-2 incident are known, the Commission should be in a-position to determine reasonable and equitable treatment for any under-recovery occasioned by the levelized energy cost rate.
The revenues made available through our recommended levelized energy cost rate and assurances by the Commission that consideration of additional recovery must await the time that the TMI-2 picture is in complete focus should represent a sufficiently positive response to lending institutions.
The Commission will have acted reasonably and responsibly upon the_ facts as they are known today.
The Commission will not have made promises which could prove embarrassing at some subsequent date.
No one should ask for or expect more.
C.
MET-ED'S AND PENELEC's NET ENERGY CLAUSES SHOULD PERMIT COLLECTION OF RESERVE CAPACITY CHARGES RESULTING FROM PURCHASED POWER AGREEMENTS THAT HAVE NET FINANCIAL BENEFITS.
The energy clauses of Met-Ed and Penelec do not provide a mechanism for recovery of separately billed capacity charges associated with purchased power agreements.
When the energy clause was designed at I.D.
214 the Commission may have assumed that electric utilities required to utilize the energy clause should recover capacity costs through base rate changes.
Base rate change for the -
A-.
capacity cost' component of purchased power agreements is most-appropriate when the agreement is of_long_ duration and would likely continue to be incurred during the period that new rates are in force.
.But, when an agreement is=for a short period of time it is readily apparent that'the procedure for base' rate change _ lacks'the required synchroneity to provide for the additional revenue requirement during the operative period of the agreement.
Met-Ed_and Penelec should be encouraged to enter into power agreements that result in savings to their customers.
They should not be_ discouraged from doing so by the inability to' recover capacity charges.
The capacity charge expense should be provided for in the energy clauses of these companies.
Although there is the same compelling argument for change to all electric energy clauses the Commission may determine that the unique circumstances require ad hoc treatment of the Met-Ed and Penelec clauses and that the inclusion of capacity expense recovery continue only until such time as Met-Ed and Penelec regain some measure of capacity self sufficiency.
O 28 -
PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW A.
PROPOSED FINDINGS OF FACT 1.
Met-Ed and Penelec-are two wholly-owned
~ subsidiaries of General Public Utilities.
2.
Met-Ed and Penelec are Pennsylvania juris-dictional operating utilities.
3.
Met-Ed and Penelec own 50% and 25%,
respectively, of TMI-1 and TMI-2.
4.
By order adopted January 11, 1979, at R.I.D.
599, the Commission allowed Penelec to increase its juris-dictional annual operating revenues by S56,238,000.
5.
By order adopted March 22, 1979, at R.I.D.
626, the Commission allowed Met-Ed to increase its juris-dictional annual operating revenues by S49,178,000.
6.
By order adopted April 19, 1979, at C-79040829, i
the Commission prescribed temporary rates for Met-Ed at a level of revenues $49,178,000 less than the base rates allowed Met-Ed by the Commission's March 22, 1979 order at R.I.D.
626.
7.
By order adopted April 25, 1979, at C-79040864, the Commission. prescribed temporary rates for Penelec at a level of revenues $25,000,000 less than the base rates allowed Penelec by the Commission's order of January 11, 1979 at R.I.D.
599.
29 -
8.
The revenue level allowed-Met-Ed by the Commission's March 22, 1979 order, at R.I.D.
626, racovered all costs associated with Met-Ed's-ownership and operation of TMI-l and'TMI-2.
9.
The revenue level allowed Penelec_by the Commission's January 11, 1979 order at R.I.D.
599, recovered all costs associated with Penelec's ownership and operation of TMI-l and TMI-2.
10.
From December 30, 1978 through March 27, 1979, TMI-2 was an operating generating station producing electricity for public consumption.
11.
Since March 28, 1979 and for the next two to four years, TMI-2 has not operated and will not operate to produce electricity for public consumption.
12.
The revenue level allowed Met-Ed by the Com-mission's order of March 22, 1979, at R.I.D.
626, would have been S49,178,000 less had Met-Ed's ownership and operation of TMI-2 not been considered in the Commission's decision.
13.
The revenue level allowed Penelec by the
~
Commission's order of January 11, 1979, at R.I.D.
- 599,
- would have been 525,000,000 less had Penelec's ownership and operation of TMI-2 not been considered in the Com-mission's decision. L
14.
The revenues established by the Commission's temporary rate order of April'19, 1979, at C-79040829,
~
permits Met-Ed to recover deferred energy charges of
$14,021,000 at an annual rate of_S2,981,715 for 4.7 years.
15.
The revenues established by the Commission's temporary rate order of April 25, 1979, at C-79040864, permits Penelec to recover deferred energy charges of
$19,380,000 at an annual rate of $5,511,000 for 3.5 years.
16.
During the-past two months, Met-Ed has received notice of at least $11.874 million of PURTA tax refunds due it from the Commonwealth of Pennsylvania.
17.
During the past two months, Penelec has received notice of at least $4.6 million of PURTA tax refunds due it from the Commonwealth of Pennsylvania.
18.
The PURTA tax was and is collected from Met-Ed's and Penelec's ratepayers as a part of the State Tax Adjustment Surcharge on the basis of actual dollar billings.
19.
The unavailability of generation from TMI-l and TMI-2 has caused and will continue to cause Met-Ed and Penelec to utilize higher fuel cost company owned generation, to increase power pool purchases and to decrease power pool sales.
- al -
i i
L:
20.
Unless Met-Ed's-and Penelec's net energy clauses are modified, the substantial incremental energy expenses caused by the unavailability of generation from TMI-l and TMI-2 will flow-through to the Companies' ratepayers and will fluctuate greatly over the next 18 months.
21.
The complete denial of Met-Ed's and Penelec's opportunity to recover incremental costs of replacement power will aggravate an already serious cash flow problem, will impair the quality of their services and will increase the likelihood of their insolvency.
22.
If Met-Ed or Penelec are required to proceed with formal bankruptcy proceedings, there is no reason to expect a reduction in costs to provide service or in charges for those costs.
23.
Some modifications of Met-Ed's and Penelec's net energy clauses will not affect adversely the Companies' abilities to continue operations.
24.
5500.8 million are the total jurisdictional revenues that Met-Ed would have had the opportunity to earn L
through its base rates and net energy clause for the 18 months beginning July 1, 1979 had the TMI-2 incident not occurred.. - -
25.
The combined operation of a levelized net energy clause of 8.8 mills /Kwh and the temporary rates prescribed by the Commission's order of April 19,_1979 will allow Met-Ed the opportunity to earn jurisdictional revenues of.S500.8 million for the 18 months beginning July 1, 1979.
26.
S690.1 million-are the total jurisdictional revenues that Penelec would have had the opportunity to earn through its base rates and net energy clause for the 18 months beuinninc July 1 1979 had the TMI-2 incident not occurred.
27.
The combined operation of a levelized net energy clause of 6.6 mills /Kwh and the temporary rates prescribed by the Commission's order of April 25, 1979 will allow Penelec the opportunity to earn jurisdictional revenues of $690.1 million for the 18 months beginning July 1, 1979.
28.
Met-Ed's and Penelec's net energy clauses do not provide a mechanism for recovery of separately billed capacity charges associated with purchased power agreements.
29.
Changes in base rates are not a practical means to collect separately billed capacity charges associated with short-term purchased power agreements. l
3 0. ' Modifications in Met-Ed's and Penelec's net energy clauses that permit automatic collection of separately billed capacity charges associated with purchased power agreements will encourage both Companies c
to enter into power agreements that will result in net savings to their customers.
B.
PROPOSED CONCLUSIONS OF LAW 1.
TMI-2 is not currently used and useful in the public service and, therefore, costs associated with the ownership and operation of TMI-2 may not be recovered by Met-Ed and Penelec.
2.
The " temporary rates" prescribed by the Com-mission's order of April 19, 1979, at C-79040829, allow Met-Ed the opportunity to earn a fair return on its fair value rate base.
3.
The " temporary rates" prescribed by the Commission's order of April 25, 1979, at C-79040864, allow Penelec the opportunity to earn a fair return on its fair value rate base.
4.
If the Commission takes no action to modify Met-Ed's or Penelec's temporary rates, those rates will become the Companies' permanent rates at the end of the
" trial periods" set by the Commission's orders of April 19 and April 25, 1979, respectively. 1 m
~
5.
Met-Ed and Penelec have a statutory duty to furnish and maintain adequate, efficient, safe, and
. reasonable service and facilities.
6.
The rates charged and received by a public utility must be just and reasonable.
7.
A public utility is not entitled to the opportunity to recover all of its costs, but only its
-reasonable costs.
8.
If Met-Ed is allowed the opportunity to earn jurisdictional revenues of $500.8 million from the combined operation of its base rates and net energy clause for the 18 months beginning July 1, 1979, Met-Ed will be earning "just and reasonable" rates.
9.
If Penelec is allowed the opportunity to earn jurisdictional revenues of $690.1 million from the combined operation of its base rates and net energy clause for the 18 months beginning July 1, 1979, Penelec will be earning "just and reasonable" rates.
10.-
After hearing, the Commission has the authority to modify the method by which a public utility automatically adjusts its rates to' account for changes in fossil fuel Costs. 1
L CONCLUSION For the reasons set forth within, the Commission Staff requests that this Commission do the following:
1.
Allow the temporary rates prescribed for Met-Ed and Penelec by the Commission's orders of April 19, 1979, at C-79040829 (Met-Ed),-and April 25, 1979, at C-79040864 (Penelec) to remain effective for the duration of the " trial periods" described in those orders.
2.
Modify Met-Ed's and Penelec's State Tax-Adjustment Surcharge to provide for the return to the Companies' ratepayers over the 18-month period beginning July 1, 1979 of PURTA refunds of about $11.874 million (Met-Ed) and $4.6 million (Penelec).
3.
Modify the net energy clauses of Met-Ed and Penelec to provide for the application of levelized billing factors for the 18 months beginning July 1, 1979, at a level of 8.8 mills /Kwh for Met-Ed and 6.6 mills /Kwh for Penelec.
4.
Modify the net energy clauses of Met-Ed and Penelec to permit the Companies' collection of reserve capacity charges resulting from purchased powar agreements that have net financial benefits.
Respectfully submitted, h
lY dk LLU1 Jos$h J. Malatesta, r.'
Depdty Chief Counsel
~
q
(
\\
\\+
+-
x Albert W.
Johnson, III Assistant Counsel
-O For the Commission Trial Staff 4
g APPENDIX A~
METROPOLITAN EDISON COMPANY t
(Millions) 1
~2 3
4 5
6 7
Forecasted Forecasted Forecasted Temporary TMI-2 energy Cost total sales retail sales Rates only Total TMI-l and 2 GW GWH operating July, 1979 5.4 631 592 August 6.7 659 618 September 6.1 666 629 i
October 6.0 646 610 November 6.0 677 635 December 7.2 717 669 January, 1980 8.4 778 726 February 7.2 791 738 r
March 11.2 715 694
. April 7.1 687 669
' May 5.2 634 620 June 5.3 634 620 July 5.7 632 617 August 6.4 660 643 September 8.8 671 656 October 10.3 652 637 November 8.1 682 663 j.
December 7.5 725 699 Total 397.8 73.8 471.6 128.6 12,257 11,735 4
Energy Cost with TMI-l and 2 in operatien
$128.6 Retail percentage (11,735 + 12,257)
.9574 Retail energy cost
$123.1 Energy Cost it base rates (8 mille x 11,735)
- 93.9 To be recovercd through energy clause
$ 29.2 Total revenue requirement with normal operation of TMI-1 and 2:
base rate 471.6 energy clause 29.2
$500.8 less temporary rate level (397.8)
To be recovered in LEC
$103.0
$103 + 11,735 jurisdictienal sales. = 8.8 mills LEC per KWH Source:
Column 4 Commission Order at R.I.D. 626, p. 60 Columns 2 and 3 Derived frcm Column 4 and temporary rate order Columns 5, 6, 7 Met-Ed/Penelec Exhibit A-28
~
c
~
-,r,-
-,u
. APPENDIX B PENNSYLVANIA ELECTRIC COMPANY (Millions)-
1 2
3 4
5 6
7 Forecasted Forecasted Forecasted Temporary TMI-2 energy Cost total sales retail sales Rates only Total TMI-l and 2 GW GW operating July,'1979 S 9.5 850 800 August 10.6 824 775 September 11.3 875 816 October 12.9 890 822 November 12.3 950 877 December 14.8 1,057 946 January, 1980 20.1 1,111 987 February 15.5 1,113 1,000 March 19.0 1,094 994 April 14.7 1,010 927 May 11.5 939 870 June 10.7 905 846 July.
10.9 882 828 August 11.5 854 800 September 13.9 905 842 October 15.5 921 848 November 14.7 982 905 December 16.7 1,094 978 Total.
$585 S37.5 S622.5 S246.1 17,256 15,861 Energy' cost with TMI-1 and 2 in operation
$246.1 Retail percentage (15,861 + 17,256)
.9192 Retail energy cost
$226.2 Energy cost in base rates (10 mills x 15,861)
$158.6 To be recovered through energy clause S 67.6 Total revenue requirement with normal operation of_TMI-1'and 2:
base rate S622.5 5
energy clause 67.6 S690.1 j
less temporary rate level (585.0) to be recovered in LEC
$105.1 S105.1 +15,861 jurisdictional sales = 6.6 mills LEC per KW i
l
[
Source:
Column 4 Penelec compliance filing at R.I.D. 599, pg. 7 Columns 2 and 3 Derived from Column 4 and temporary rate order Columns 5, 6, 7 Met-Ed/Penelec-Exhibit A-28 l-L.
r:
CERTIFICATE OF SERVICE I hereby certify that I have this lith day of June, 1979, served the foregoing Brief by certified mail upon the persons listed below:
Samuel B. Russell, Esquire
~
Ryan, Russell and McConaghy P.O. Box 699 Reading, PA 19603 For - Metropolitan Edison Company Pennsylvania Electric Company James B. Liberman, Esquire Berlock, Isreals & Liberman 26 Broadway New York, New York 10004 For - Metropolitan Edison Company Pennsylvania Electric Company Richard Spiegelman, Esquire Barbara L. Smith, Esquire David M. Barasch, Esquire 14th Floor, Strawberry Square Harrisburg, PA 17127 For - Office of Consumer Advocate Charles B. Zwally, Esquire Shearer, Mette & Woodside P.O. Box 729 Harrisburg, PA 1710S For - Industrial Consumers of Pennsylvania Electric Company John E. Fullerton, Esquire 407 N. Front Street Harrisburg, PA 17101 For - Industrial Consumers of Pennsylvania Electric Company Bernard A. Ryan, Jr., Esquire
~
John H. Enos, III, Esquire
?
Dechert, Price & Rhoads 800 North 3rd Street Harrisburg, PA 17127 For - Bethlehem Steel Corporation i
J
r-Maurice A. Frater, Esquire McNees, Wallace & Nurick P.O. Box 1166 Harrisburg, PA. 17103 For - St. Regis Paper Company Autex Corporation 4.
Alan Linder,. Esquire Central Pennsylvania Legal Services of York 368 Queen Street York, PA 17403 For - Senior Power Action Group of York Boyertown Agers Group Holly S. Keck R.D. #9 York, PA 17402 For - Own Behalf Stephen'A. George, Esquire Buchanan, Ingersoll, Rodewald, Kyle & Buerger 57th Floor - 600 Grant Building Pittsburgh, PA 15219 Martin G. & Rose Ann Hamberger-R.D. #3 Glen Rock, PA 17327 QMhb Josepl{ J. Malatesta, Jr.
I Assistant Counsel l
-