ML19308B665
| ML19308B665 | |
| Person / Time | |
|---|---|
| Site: | Crane, Davis Besse  |
| Issue date: | 03/28/1979 |
| From: | Schultz A AFFILIATION NOT ASSIGNED |
| To: | |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001160619 | |
| Download: ML19308B665 (16) | |
Text
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1.,
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BEFORE TiiE fI i
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2.
PUBLIC UTILITIES COMMISSION OF 011I0 3.
TOLEDO EDISON COMPANY (76-ll74-EL-AIR) 4.
PREPARED TESTIMONY OF 5.
ALLAN J.
SCliULTZ 6.
ON BEHALF OF TIIE 7.
OFFICE OF TliE CONSUMERS' COUNSEL 8.
9.
10.
Q.
Please state your name and address?
11.
A.
Allan J.
Schultz, 440 Park Avenue South, New York, 12.
N.Y.
10016.
13.
Q.
What is your profession?
14.
A.
I am an independent consulting engineer.
15.
Q.
Please describe briefly your education and 16.
experience?
17.
A.
I was graduated from Oregon State University in 18.
1948 with the degree of Bachelor of Science in 19.
Electrical Engineering.
For the next dozen years, 20.
I was an Analytical Engineer in the Electric 21.
Utility Operation of the General Electric Company.
22.
Part of my activities involved participation in 23.
utility planning and operating studies made co-24.
operatively with utility customers of General 25.
Electric.
I participated in more than 50 such studies 26.
for electric utilities from the United Staten, Canada 27.
and Latin America.
28.
Since late 1959, I have been a consulting engineer, 8 001160 b I
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3.
first with the firm of II. -Zinder & Associates,
.4.
utility engineering and economic consultants ~,
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5.
and beginning in.1968, as an independent con--
6.
- sulting engineer.
My practice is concernedIwith 7.
the engineering economics of utilities,~such as 8.-
system planning, feasibility studies,. rates,
'9.
depreciation studies, valuations and negotiations.
10.
I have-made many cost of service studies, revenue
- 11.
frequiremont studies and rate design analyses.
12.
My-clientsEhave_ included electric, gas and water 13.
utilities, public agencies and industrial firms.
14.-
I-have been consultant to the Vermont Public a
- 15.
- Service Board on a range of utility problems over
' 16.
the last 19 years.
I have also been retained as a 17. -
consultant-by the Public Service Commisssion of 18.
the District.of Columbia and by the Nuclear i
~19.
' Regulatory Commission.
F 20.
I-have presented testimony before a number of state-4
' 21.
-regulatory agencies, the Federal Power Commission, H2 2.
the1 National Energy Board of Canada, several state 12 3.
legislative committees, tax appeals boards, and
- 24.
courts.
i
-25.
- Q.. Arc you-a-registered professional engineer?
'26.
A.
I am_a registered professional-engineer in 27.
the' State of New York,-Vermont, Massachusetts and s
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i 13.
Q.
What experience'have'you had with nuclear
-4.
. power pJants?-
5.
.A..As consulting engineer to-the Vermont Public Service 16.
Board, I~have,.from' time to time, made studies,
.7. -
testified-or made recommendations relating to the 8.-
Vermont' Yankee-Nuclear Generating Plant.
I was 9.
advisor to Delmarva-Power & Light Company with
.10.
respect to1the Summit Nuclear plant, among other 4
11.
. things.
My work for the Nuclear. Regulatory 12.
Commission related-to several nuclear plants:
13.
Oconee #1, 2 and 3 and McGuire #1 and 2 owned:
'14.
by Duke Power Company ; Waterford #3 Nuclear unit.of i
l 15.
Louisiana Power & Light-Company; and Farley 16.
Nuclear Generating unit of Alabama Power Company.
f:
17.
I also participated in studies relating to the l'
18.
Hanford Nuclear Plant of the Washington 19.
Public Power Supply System;.this unit, however, i
l 20.
is unique and not similar to any of the other 21.
units I have identified above nor to the Davis-r
- 22.
Besse.#1 plant.
R23.
Q.
Mr. Schultz, what is the subject of your testimcny?
24.
A.
My testimony will be concerned with two matters
.25.
relating to the Davis-Besse Nuclear Unit No. 1:
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~
26.~
Firstly, its situation on September 1, 1977, and-27.
secondly,-the rate-making: treatment that should 28.
be accorded th'e1 nuclear fuel supply lease.
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2.
3e Q.
Generally, chow did you go about your-investigation?
~
4.
A.
Asia starting _ point,cI had the' formal-documents filed
-5.-
by Toledo Edison in this proceeding.
After review-6.
ing-the. filed material, I met with Consumers' Counsel ~
7.
and representatives or the other members of the.OCC 8.
team--Van Scoyoc & Wiskup and W.
M.
Lewis &
'9.
- Associates--at which meeting data. requests were prepared 10.
and-the scope of the work assignments were discussed.
11.
I.made two separate visits to the_ Company's 12.
headquarters in Toledo to discuss'with the appropriate
- 13.
Company personnel various matters related to my assign-
.14.
ment.
I further had the responses to the data requests 15.
of both the Commission's Staff and. the Office of the 16.
Consumers' Counsel.
Although I had reached my conclusions 17.
in advance of the receipt.of the Staff report, I read it 18.
before the-preparation of this testimony.
-19.
Q.
What is the significance of the date, September 1, 20.
1977 in these proceedings?
H21.
A.
'The statutory directions to the Public Utilities
' 2:2.
Commission of' Par. 4909.15 requires a determination 23.
of:
_ 24; "The valuation-as of the date certain of the 25.
property of the public utility used and useful in
- 26..
rendering the public utilit,y service for which 27._
rates are fixed and determined."
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.28.
September 1, 1977 is'the'date certain chosen by Toledo 1.
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1., '2..
3.
Edison.
~4.
O'.
Will you describe the-operating history of Davis-5.
~Besse' Nuclear Unit No. 17 6..
A.
The' Nuclear Regulatory Commission issued an operating-7.
' license for Davis-Besse on April 22, 1977.
This permitted 8.-
Toledo Edison to load the unit with nuclear fuel.
9.
Following the loading of nuclear fuel and 2
- 10.
certain preliminary modes of operation, the NRC 11.
authorized. Mode 2 operation on August 9,.1977.
4 12.
Mode 1 operation was authorized by NRC on 13.
August 30, 1977 and a hieved on the same date.
14.
The various operating modes are established 15.
by the NRC mainly in relation to their concern 16.
for the public safety.
There are six such modes starting 17.
with Mode 6, a fueling or refueling mode in which the 18.
reactor vessel may be open, through the intermediate modes 19.
of increasing reactor heat levels, and ending with I
20.
Model--Power Operation.
In the first four modes 21.
(Mode 6 through Mode 3), the reactor is sub-22.
critical; that is, a self-sustaining nuclear reaction 23.
is not permitted.
No power can oc generated in these
'24.
modes.
Mode 2, the start up mode, involves reactor 25.
criticality-and power production but at a level not j
to exceed 5% offthe unit's rated powt..
26.
27.:
LMode 1 authorization indicates tha: the NRC
- 28.
'is satisfied--that there is no discernable reason to 4
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believe that operation of the unit is hazardous to the 4.
external environment and operation up to rated power is 5.
permitted.
There are simultaneously a complex series 6.
of criteria relating to all of the individual systems 7.
and elements making up the unit; any failure to meet these 8-criteria requires the unit to be shut down, and to 9.
demonstrate again that the various modes of opera-10.
tion can be satisfactorily achieved sequentially before 11.
the full operating condition, Mode 1, is again per-12.
mitted.
13.
Even though Mode 1 operation is authorized, 14.
a new unit receiving this authorization for the 15.
first time is not operated at full pov,r output 16.
immediately but is brought to higher power levels 17.
only gradually--over period measurzble in months.
18.
The multitude of control systems mus". be carefully adjusted 19.
to optimum performance--the " fine tuning" of controls 20.
takes time.
Neither management, nor the NRC desires to 21.
take any risk that would expose the unit to avoidable 22.
delays.
23.
I would point out that this process does not imply 24.
any risk to the public.
To the contrary, it is designed 25.
to be as cautious as possible.
Any indication of a departure 26.
from what is expected as normal operation requires the 27.
unit to be shut down while the phenomenon is investigated.
28.
Prudent management requires, therefore, that a new
m 1,
- 7.-
2.
3.
Plant be brought to the full power level slowly to allow 4.
all elements of the unit to be seasoned and adjusted.
5.
Davis-Besse was brought to increasingly 6.
higher power levels from the date of Mode 1 authorization--
7.
August 30, 1977--till February, 1973 when it 8.
reached 90% of rated power level.
There was a 9.
three week period at the end of September and the 10.
beginning of October when a problem in the steam 11.
system required a reversion to Mode 3 operation.
This 12.
was, as I stated, a steam system problem.
There 13.
was no problem--this one, nor any other--that could 14.
be considered abnormal for a nuclear plant under-15.
going initial start-up.
16.
Q.
When was initial criticality permitted?
17.
A.
The Nuclear Regulatory Coramission authorized 18, initial criticality in Mode 2 on August 9, 1977.
19.
Criticality was actually achieved initially en 20.
August 12, 1977.
21.
Q.
When was the generating unit first synchronized 22.
with the system?
23.
A.
The unit was first synchronized on August 28, 1977.
24.
Q.
On that date was the unit supplying any energy 25.
to the system?
26.
A.
No.
There was no net power generation by the unit 17.
on the date nor on any other day in August 1977.
There
'2 8.
was energy generated, but the energy generated was not
1.
-8.
2.
3.
enough to supply the station use, such as pumps and 4.
other auxiliaries.
Even though synchronized--the generator 5.
was connected to the system, there was no not output of 6.
energy delivered to the system.
7.
.Q.
Was any energy delivered to the system on September 1, 8.
1977?
9.
A.
No, the unit was not connected to the system due to 10.
turbine bypass valve testing.
In the August 1977 11.
report to the NRC with reference to Davis-Besse there 12.
is the remark that:
13.
"The reactor was critical at 1610 hours0.0186 days <br />0.447 hours <br />0.00266 weeks <br />6.12605e-4 months <br /> on 14.
August 31, 1977, and synchronization was to be 15.
made after testing of the Turbine Bypass Valves 16.
is completed."
17.
The Operations Summary for September 1977 states:
18.
"On September 2, 1977, the Turbine 19.
Bypass Valve testing is complete."
20.
The unit was being tested on September 1, 1977 and 21.
not synchronized with the system.
It was eventually 22.
synchronized again at about l'300 hours0.00347 days <br />0.0833 hours <br />4.960317e-4 weeks <br />1.1415e-4 months <br /> on September 2, 1977.
23.
Q.
What was the first date on which Davis-Besse actually 24.
supplied net generation to the system?
25.
A.
The Company's reports to the NRC indicate that the 26.
first day on which there was net energy supplied to the 27.
system was September 20, 1977.
There was also net 28.
energy generated on the next four days.
There was no
erw.
1.
2..
3.
additional not generation until the middle of October.
4..
Q.
When was Davis-Desse declared in commercial 5.
. operation?.
6.
A.
The Plant was declared commercial on November 20, 1977.
7.
Q.
. What is the meaning of a facility being "in 8.
commercial-operation"?
9.
A.
" Commercial operation" hasn't a precise definition 10.
that I know of, but its general meaning in the 11.
industry is that'the facility is available 12.
for operation in accordance with its planned function.
13.
Q.
If, then, Davis-Besse Nuclear Unit No. I was 14.
synchronized with the system and authorized initially to 15.
be in Mode 1 on August 30, 1977 and was not in 16.
commercial operation until November 20, 1977, 17.
what was the situation between these dates, that 18.
is, the months of September, October and the 19.
beginhing threa weeks of November?
20.
A.
'The unit was on test.
21.
Q.. Will you explain what that means?
22.
A.
A generating unit of any kind, but.especially a
-23.
nuclear unit,.is among the most complex items 24.
of machinery ever created.
It is made up, literally, 25.
of hundreds.of individual components.
Involved 26.
in the. prime mover-and energy. source components 27..
are high temperatures, high pressures and high
'2 8. -
' speeds.
'In the generator, there are high voltages
9
- 1. -
2.
3.
(relative to the type of insulation) in conductors 4.
under high mechanical forces.
The control and safety 5.
elements are very complex.
All components must be 6.
tested completely under operating conditions.
Some 7.
components must be brought gradually to full operating 8.
conditions over a period of time to limit any damage 9.
from flaws in construction.
10.
With a complex machine like a generating unit, 11.
this process takes time.
12.
Q.
Ilow much time is normally involved for testing 13.
a nuclear plant before it becomes initially 14.
operational?
15.
A.
There has been considerable variation among dif-16.
forent nuclear plants depending on their individual 17.
circumstances.
In the Uniform System of Accounts 18.
cf the Federal Energy Regulatory Commission, 19.
Electric Plant Instruction 9D provides that, 20.
"The utility shall furnish the Commission 21.
with full particulars of and justification 22.
for any test or experimental run extending 23.
beyond a period of 120 days for nuclear 24.
plants and a period of 90 days for all 25.
other plants."
26.
This can be interpreted as suggesting that FERC 27.
considers 120 days as a reasonable period for 2S.
testing a nuclear plant.
1.
11 _
2.
3.
The actual period between the date of 4.
initial criticality and the date of commercial 5.
operations is approximately 6 months for the 6-average of 62 nuclear power plants now operating 7.
in the United States.
8*
Q.
Was Davis-Besse properly includable in the Company's 9-Electric Plant In Service prior to November 20, 1977?
10.
A.
No.
Any facility on test, in my opinion, cannot 11.
be considered as plant in service.
Whether or 12.
not the unit produced any not energy is of no significance.
13.
Q.
Will you explain your last answer?
14.
A.
An important reason is the financial impact on the 15.
utility.
It is possible that the testing process 16.
will demonstrate some deficiency in design or construction 17.
that will take a long period to correct--perhaps many nonths.
18.
If the unit is declared to be " plant in seryice", it 19.
must be depreciated which is a charge against income.
20.
If the unit is considered to be under construction 21.
while on test, it is not depreciated but AFUDC is credited 22.
to income.
If, therefore, unanticipated corrections 23.
are required, the utility's carnings suffer if the 24.
unit is consider (
to be in service, whereas the 25.
earnings are maintained if the unit is considered 26.
as still being under construction.
Declaring a 27.
generating unit to be " plant in service" before it has 28.
been demonstrated to be operational by test, is to
- 1. 2.
3.
gamble with the Company's earnings.
4.
System reliability is also exposed.
To ask 5.
interconnected neighboring utilities to accept 6.
an untested unit as operational is to ask them to 7.
support the reliability of service of the owning 8.
utility.
The untested unit, that is, would probably be 9.
less reliable than more mature units; the neighboring 10.
utilities would be providing the reserves to back-11.
up the unit in question.
This is not only unfair, 12.
but I am sure it would not be acceptable to the 13.
neighboring utilities.
14.
Q.
Did Toledo Edison treat Davis-Besse as plant in 15.
service prior to November 20, 1977?
16.
A.
No.
17.
Q.
Does the accounting treatment accorded Davis-Besse 18.
during the August 30 to November 20 period in 19.
1977 provide any understanding of its circumstances?
20.
A.
Yes.
There are three important aspects to the 21.
accounting treatment.
22.
First, the Company started to book depreciation 23.
for the plant in November 1977.
Tax depreciation 24.
also was not charged before November 1977 although 25.
tax depreciation is not necessarily identified only 26.
with plant in service.
27.
Secondly, the company charged an allowance 28.
for funds used during construction to the plant
l.
_ 13 _
2.
during the period under consideration.
There was 3.
a reduction in tiovember associated with the 4,
declaration of the plant to be in commercial 5.
peration, at which time a portion of the plant G.
was booked as plant in service.
Prior to November, 7,
the plant was ;1early in construction, other-8.
wis AFUDC could not have been recorded.
9.
Thirdly, the Cc:apany credited the con-10.
Ltruction cost of the plant with the value of 11.
the energy generated during the period being 12.
discussed.
The Uniform System of Accounts, 13.
Electric Plant Instruction, 3(18) (a) requires 14, that "... earnings and expenses during con-15.
struction shall constitute a component of con-16.
struction costs." and that 17,
" (a)
The earnings shall include revenues 18.
19.
received or earned for power produced by generating plants during the construction 20.
21.
p r1 d and sold or used by the utility."
Toledo Edison booked credits for such energy to the 22.
construction cost of Davis-Besse, starting in September 23.
1977 and continuing through the end of the year.
24.
O.
In vi w f all this, Mr. Schultz, what is your 25.
conclusion as to the status of Davis-Besse 26.
Nuclear Unit No. 1 on September 1, 1977, the 27.
"date certain" in this case as chosen by Toledo 28.
m. _.
-1.
14'.-
2.
~3.
Edison Company?
'4.
A.
The plant had the status of' Construction Work In Progress.
5.
Q.
On the date certain~in this case, September 1, 1977, 6.
was-Davis-Besse "used and useful"?
7.-
A.
It was neither.
As of the-date certain the unit was 8.
on test.
The Company claimed no capacity credit for 9.
this plant; that is, the unit's ability to produce 10.
dependable power had not been demonstrate', which d
11.
is one of the purposes of the testing it was 12.
undergoing.
Further, it had-not delivered any net 13.
energy to the system, and would not do so for 14.
several weeks.
15.
Under the applicable statutes for rate-making, 16.
a generating unit cannot have the status of both 17.
"used and useful" and " construction work in progr. -ss",
18.
since construction work is identified for consideration 19.
separately from plant that is "used and useful".
I 20.
have been so advised by Counsel.
21.
The distinction for rate-making between property 22.
"used and useful" and that under construction was 23.
recognized by the Public Utilities Commission of-24.
- OhioLin the matter of Columbus and Southern Ohio
-25.
Electric Company--Case No. 77-545-EL-AIR--when ther
-26.
wrote at page 9 of their Opinion and Order:
~ 27.
"The statute of authorizing an allowance
--28.
for. construction work in progress creates:a t--r r
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specific exception to the long-standing principle 4.
that property must be used and useful at the 5.
date certain to be incorporated in the rate 6..
base of an applicant utility."
7.
The Commission here clearly distinguishes construction 8.
work in progress as being different from property used 9.
and useful.
A single property item cannot be both.
10.
As I have demonstrated, Davis-Besse had the status of 11.
construction work in progress on the.date certain 12.
and for a substantial period thereafter.
It cannot, 13.
therefore, be considered as property used and useful as 14.
of the date certain.
15.
O.
Mr. Schultz, do you understand that the Company 16.
proposes to capitalize its nuclear fuel leases,
- 17.
at least for the purposes of this case?
18.
A.
Yes.
19.
O.
In your opinion, is this proper for rate-making?
20.
A.
No, it is not.
21.
O.
Will you explain your answer?
22.
A.
First of'all, the Company has invested no capital 23.
in nuclear fuel for Davis-Besse.
To capitalize the' 24.
nuclear fuel lease and include it in the rate base
- 25. -
in this proceeding, would be to allow a related
.26.
element of.-return and the associated income tax allowance 27.
in-the cost of service.
The~ return, which is. predicated 28.
on the Company's cost of capital bears no relationship 4
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to the costs of the fuel lease.
To include the 4.
capitalized amount of the fuel lease in the rate base 5.
is to impute an element of cost of service which is 6.
unrelated to the real circumstances.
7.
Further, the Company's nuclear fuel lease 8.
includes, in the monthly payment, a capital charge based 9.
on the prime lending rate.
This is a varying 10.
quantity which could be greater than or less 11.
than the Company's cost of capital.
This varying 12.
rental charge could be higher or lower than the 13.
return allowed in this rate case which would be 14.
unfair either to the customers or the the utility.
15.
O.
How should the lease be treated?
16.
A.
It is properly a fuel expense.
The Uniform 17.
System of Accounts defines Account 518--Nuclear 18.
fuel expenses--among the other operating expenses 19.
of a utility.
Paragraph B of the description 20.
of Account 518 requires:
21.
"B.
This account shal) also include the 22.
costs involved when fuel is leased."
23.
The nuclear fuel expense should flow through 24.
the Company's fuel adjnetment charges, in my opinion.
25.
By so doing, the Company will always recover the cost of 26.
the nuclear fuel lease and there is no way for the 27.
customers to be overcharged.
The process is fair 28.
to both the consumers and the Company.
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