ML19308B833
| ML19308B833 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 06/19/1979 |
| From: | Liberman J BERLACK, ISRAELS & LIBERMAN |
| To: | Evans D NRC - NRC THREE MILE ISLAND TASK FORCE |
| Shared Package | |
| ML19308B834 | List: |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001170416 | |
| Download: ML19308B833 (6) | |
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BERLA CK,lS R AELS & LIBERM AN 26 BROADWAY JA SS SERMAN NEW YORK 10004 MARRi$ BERLACK eongg CARLOS L.lSRAELS NE M EN 248*6900 CABLE: BE AILtB s p esse IRA M.JOLLES LEON ARD EPSTEIN WASHINGTON OFFICE J H N E. B NETT DOUG LAS E.DAv80 SON 1200 SEVENTEENTH STREET, N.W.
RICHARD J. Lue ASCM WASHINGTON, D. C. 2OO 36 MARC B. LASMY (202) 857-9800 June 19, 1979 Mr David Evans NFC-TMI Special Inquiry United States Nuclear Regulatory Commission Washington, D. C. 20555
Dear Mr. Evans:
In accordance with your request in our telephone conversation today, I enclose the following:
1.
A copy of certain prepared testimony and attachments of Mr. Herman M. Dieckamp, GPU President, submitted in the recent hearings of the Pennsylvania Public Utility Commission relating to Metropolitan Edison Company and Pennsylvania Electric Company; and 2.
Internal Revenue Service Revenue Rulings76-256 and 76-428, appearing at pages 46-48 of the Internal Revenue Cumulative Bulletin 1976-2; although I had only mentioned Revenue Ruling 76-428, I thought you might also wish Revenue Ruling 76-256 in light of the cross-reference to it.
In our discussion, I mentioned that the FENC System of Accounts establishes a general guideline, for accounting purposes, for the period during which a generating unit is to be included in Account 107 - construction work in progress
("CWIP") - and to accrue allowance for funds used during construction ("AFUDC") and when it is to be transferred to Account 101 - Electric Plant in Service and to cease the accrual of AFUDC - but I did not have the System of Accounts at my desk at that time.
Such guideline appears in (1) the 800ll70 M k
c Mr. David Evans Page 2 June 19, 1979 reference in the Note to Electric Plant Instruction 3(17) of the System of Accounts which refers to the treatment as
" Electric Plant in Service" of a part of a project which "is placed in operation or is completed and ready for service",
and (2) in Electric Plant Instruction 9D which provides:
"D.
The equipment accounts shall include the necessary costs of testing or running a plant or parts thereof during an experimental or test period prior to such plant becoming ready for or placed in service.
The utility shall furnish the Commission with full particulars of and justification for any test or experimental run extending beyond a period of 120 days for nuclear plant and a period of 90 days for all other plant.
Such particulars shall include a detailed operational and downtime log showing days of production, gross kilowatts generated by hourly increments, types, and periods of out-ages by hours with explanation thereof, begin-ning with the first date the equipment was either tested or synchronized on the line to the end of the test period."
Since these references in the System of Accounts are somewhat eliptical, you may be interested in the en-closed discussion of this subject appearing in pages 83-86 of Pomerantz and Suelflow, Allowance for Funds Used During Construction, Michigan State University Public Utilities Studies (1975).
y truly yours, kpU b rL ~
ames B. Liberman JBL/ac Encosures
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es E. Suciflow Allowance for Funds Used....mg Construction 83 preliminary permit issued that is, sometime subsequent to the start of active construction. Only Ii r the Federal Water Power three companics mentioned a specific time period prior to active con.
', J l5." The c ommission, how.
struction when they began capitalization: In two cases this was threc h construction period in all years prior to construction, and in one case, one year. It appears that the lcy Power Company stated:
carly FPC decisions have had little influence on the current policies of jf uding a period reasonably utilitics in the sense that firms wait until active construction commences y work ab*.ohitely essential on the project before any AFC is capitalized.
hi in the subsequent develop Eso or Coxsuwcuos Prnmo. The end of the construction period, ff construction period should and concomitant cessation of AFC capitalization, also has been given t
k each particular case; as a much consideration by the commissions and the courts. Since the carliest hj maximum for the prelimi.
cases it clearly has been established that capitalization should cease on p
generally secs fit to include the date or dates when the proicct becomes available for its intended p
,ry activitics up to a maxi.
j use." This standard has the effect of precluding capitalization of AFC y
- m, it is also clear that cach when a project is rendering service, but clean up construction work still n}
ans to be based not on how is in progress. As succinctly stated by the FPC: "Not merely its tech-ild be, assuming that the nical physical functioning, but the nature of the use for which it is de-asonably continuous basis.
i signed and its adequacy to meet the burdens such use entails are factors d
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as essential in bringing the l
to be considered in determining the date the project can be regarded ive construction itself, this as available for operation."" Thus, the availability of the property for r
luded in the construction operations, regardless of the fact that certain construction activitics con-
>+4 tinue or that the property is not yet carning an adequate return, is the utilitics can be assessed by key factor in some of the earlier decisions. With the passage of time, the the survey: 50 respondents commission appears to have taken a somcwhat less rigid position, similar survey and investigation to its stand regarding the start of the construction period. For example:
r c large number of negative l
" Determination of the date upon which the capitalization of interest f
iy companics may not incur and taxes during construction should cease is not controlled by artificial for this reason alone, do not rules, is not a matter of formula but is a matter of reasonable judgment Hf those that do capitalize based on a consiclcration of all the pertinent facts; and neither full ca-fiscern any clear pattern of pacity generation nor the comp!ction of all construction activitics, nor 25 percent indicated they the making of pennanent installations, as against those of a temporary tinary survey begins or on a nature, are absolutely necessary with respect to this determination.""
commences. Ilowever, the Through this decision, the FPC recognized the need for a more ficxible t they began doing so some-approach in handling timing problems.
- he construction job order, "Chclan Electric Co. (1933) 1 FPC 102,105
- and Rc Clarion River Powcr Co.
(1935) 1 FPC 270. 2S6.
" Louisville Hydro-Electric Co. (l933) 1 FPC 150.
n Re Pennsy'vania Warcr and Powcr Co. (1949) 82 PUR NS 193.
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b Allowance for Fu 84 Lawrence S. Pomerant: and James E. Suelflow f
A closely related question involves when AFC should cease to bc ing with multiple unit project p
capitalized if the project is a multiple-unit one with different compic, i
reporting projects with partia 1
tion dates, and a portion is determined to be in service prior to comple-stated that they, in cfIcct, d
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tion of the entire project. The FPC addressed this issue in the Safe placed in service but contnm t
liarbor Water Powcr Corporation case.' The licensee had installed six Only three ceased capitahzm, i f
units under one project: The first went into scruce in December 1931, portion went into service. I k
three more were operating by the end of January 1932, the fifth was in adhere closely to the rule seq f
operation twenty months later, and four months after that the final unit FPC Accourrmc RinAs
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J was in senice. Safe liarbor wanted to lump together the allowance for FPC issued the first of severa K
the construction period for all the units, without consideration of the was to express and dissemina 3
individual completion dates. The firm proposed the average date of I systems of accounts by the c k
July 1932 as the beginning of commercial operation and the point at leases offer accountmg gmdc
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which capitalized AFC should cease. The commission rejected this instructions were cither vagi
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date as hypothetical; stating that commercial operation began when counting Release Number Al the first four uniN were in condition to deliver dependable power, it set ant as to the proper period foi d
29 February 1932 as the cut-off point for capitalization. In effect, the Feder
,g decision maintained that, on a multiple. unit project AFC should cease
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g on the basis of actual unit completion and availability for senice, and not on some arbitrary measure.
Question:
}y This reasoning eventually was incorporated as a note in the unifonn Wh3t iS thC Pr PC' PC'i
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systems of accounts for electric utilities prescribed by both the FPC 1
and NARUC. In explaining allowance for funds used during construc-Answer:
d tion in Utility Plant lastruction 3 (17), the systems of accounts contain Interest during construct
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the following:
date that construction cos p
progressive basis. Intercs P
T.O) d Note-When a part onlv of a plant or project.is placed in operation Conmussion of a license i
or is completed and rea'dv for service but the construction work as rt a uhole is incomplete, th'at part of the cost of the property placed
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p in operation, or readv for service shall be treated as " Utility Plant g
facilities by a natura gq
[D in Service" and allowance for funds used during const'ruction i
pued bv the Cmmmssiol thercon as a charge to construction shall cease. Allowance for funds i
if so j,ustifi d by the eq used during construction on that part of the cost of the plant ubich t
d"'i"U EC'i ds f interrn) is incomplcte may be continued as a charge to construction until lustify the m. terruption ai 4
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such time as it is placed in operation or is ready for service, except Capitalization of interes3 as limited in item 17, above.8'
" FPC, "lEC's Chicf Accountas An examination of the responses to questionnaire item thirtcen, dcal-6 l
Reestablishing Policy Dropped 1964,2 pages.
" FPC, Accounting Refcase Nu 4
'2 Sa/c flarbor Watcr Power Corp. (193 5) 1 FPC 249.
" FPC, Uniform System, p.1017, as revised; and NARUC, Uniform System, p.15.
10 Noven bcr 1965).
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r E. Suelflow Allowance for Funds Used during Construction 85
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l f,r AFC should cease to be ing with multiple unit proiccts, reveals the following: Of the 97 utilitics he with differcut cmnple-reporting projects with partial service available prior to completion,91 h
stated that they, in effect, discontinued capitalization on the portion h
h service prior to compic.
bd this issue in the Safe placed in service but continued taking it on that portion not in service.
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licensee had installed six Only three ceased capitalizing AFC on the entire pmicct when the first
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crvice in December 1931, portion went into service. It is quite evident that the clectric utilitics l '
3ry 1932, the fifth was in adhere closely to the rule set forth in the unifonn systems of accounts.
I hs after that the final unit FPC Accoususc RELF.AsF. Nusmra AR 5. In December 1964 the t
ogether the allowance for FPC issued the first of several accounting releases, the purpose of which i
1ont consideration of the was to express and disseminate informal interpretations of the unifonn
,cd the average date of I systems of accounts by the commission's chief accotmtant.2' These re-icration and the point at leases offer accotmting guidelines for certain items for which previous l
commission rejected this instructions were cither vague or noncxistent. The fifth of these, Ac-d operation began nhen counting Release Number AR-5, presents the views of the chief account-i dependable power, it sct ant as to the pmper period for capitalizing AFC.22
>italization. In effect, the i
iroject, AFC should cease Federal Power Commission
,ailability for service, and Accounting Release Number AR 5
- l Question:
4 as a note in the uniform l
What is the pmper period for capitalization of interest during con.
l struction?
J cribed hv both the FPC i
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nds used during construe.
Ansu cr-Interest during construction may be capitalized r. tarting from the
.j stems of accounts contam a
date that construction costs are continuously incurred on a planned progressive basis. Interest should not be accrued for the lictiod
[f prior to: (1) the date of issuance of the preliminary permit by the
- I I is placed in operation Commission of a licensed hydroelectric project; and (2) the date
!l e comtruction werk as of the application to the Commission for a certificate to construct
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af the propcity placed facilitics by a natural gas company. Interest accruals may be al-cated as "Utilitv Plant wed by the Commission for the period prior to the above dates
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]I 50 justified by the company. No interest should be accrued 3 dming const'ruction 3
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Lc. Allowance for funds cost of the plant ubich l
dunng penods of interrupted construction unless the company can t4 I
justify the interruption as being reasonable under the circumstances.
to construction until
- ady for service, except Capitalization of interest stops when the facilitics have been tested 3,,
I nnaire item thirteen, deal-
Reestablishing Policy Dropped in 1942," News Release No. 13598, 30 December 1964,2 pages.
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" FPC, Accounting Release Number AR 5 (Washington, D.C.: the Commission, f
(UC, Uniform System, p.15.
10 November 1965).
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86 Lawrence S. Pomerant: and James E. Suctflow Allowance for Funds \\
and are placed in service. %is would include those portions of Determination of Capitalisation Rates I
construction projects completed and put into senice although the project is not fully completed. Should th test period exceed thirty 1listorically, a great deal of untc I
days, the cornpanv must submit full particulars and justification j
the electric utilitics and the FPC i for an extensmn of such period to the Conumssion in Accordance i
in capitah..zmg AFC. Consequen' hasis for determining that r i
with Plant Instruction 9.D.
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and philosophy of capitalizing Al i
A major source of controversy Arthur L Litke i
structions of the uniform systci graph 3 (17) f the Utility Plat Effectivc:
ance for funds used dunng cons November 10,1965 period of construction of borrowc and a casonable rate on oGcr f On 20 February 1968 the FPC announced a revision of AR-5, effec.
tive 1 January 196S. The change involved altering the wording in the implies that it is possible to ides first sentence of the second paragraph from " capitalization of interest and other funds applied to specl stops when the facilitics have been tested and are placed in service" to l
is that the AFC capitalization r.
" capitalization of interest stops when the facilities have been tested j
specific funds. Most utilitics, hp and are placed in or ready for service." The purpose was to bring the i
to differentiate these sources sr i
specific funds for constructwn e wording of AR.5 in line with that of Electric Plant lustruction 3 (17) financing expansion will utilize of the uniform system which uses the phrase " ready for service." An.
which constantly change. The.
parently, a number of interested parties viewed "placed in service" m horrowing, (2) new equity capi; a substitute for "rcady for senice," when the original intent in AR 5 (4) depreciation charges, and (
was to consider them synonymous. The effect of the revision was to
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as deferred taxes.38 Thus, when change the tennination date for capitalizing AFC to the date it cither construction of specific project?
was ready for service or placed in service, whichever was carlicr.
exact amount of AFC associat Accounting Release Number AR.i is essentially a reconfirmation of ing the matter is the fact that the FPC's existing policies. Presenting no new guidelines, the Release merely synopsizes previous commission opinions and orders dealing with those generated from depreciat cult to trace because they alg the capitalization period. For example, the statement in the Release that no interest should be accrued during periods of interrupted con.
funds." As a result, both the uj use estimates and approximatin struction, tmicss the interruption can be justified as reasonable, is the logical result of prior commission decisions on this matter.3* The Re.
lease is sufiiciently general to asoid specifically limiting the capitalization
" FPC, Unifonn System, p.1017, a, period to any artificial or arbitrary boundaries and to permit detennina-
" llomer E. Sayad, "An Accounta at the National Conference of El tion of the period to be based upon the facts in a particular casc.
I.ouisiana, 2-4 May 1966, p. Ci.
- Ford Rydell, " Interest During 3a Florida Power Corporation (1937) 1 FPC 390,403; and Puget Sound Powcr and 59 (25 May 1967): 23.
Light Co. v. Fcderal Powcr Commission (1943) 50 PUR (NS) 375, 78 U.S.
- Arthur Andersen and Co., Pring App. D.C.143,137 F (2d) 701.
During Construction (Chicago: tq t
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