ML19308B999
| ML19308B999 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 06/15/1979 |
| From: | Thierfelder W PENNSYLVANIA, COMMONWEALTH OF |
| To: | METROPOLITAN EDISON CO., PENNSYLVANIA ELECTRIC CO. |
| References | |
| TASK-TF, TASK-TMR I-79040308, NUDOCS 8001170740 | |
| Download: ML19308B999 (19) | |
Text
-
l@ % cuI M
f M cud
-bM W CMMf(
r h QM pcWW W PENUSYLVANIA h
PUBLIC UTILITY COMMISSION
({ g g-D Harrisburg, PA 17120 d(1VCo raf>. de % Vo ctAcI C
Public Meeting held June 15, 1979 kd-Commissioners Present:
W. Wilson Goode, Chairman Louis J. Carter, concurring in part and dissenting in part M *.
Michael Johnson kN(MD AO Co i sion et al NW MO PiI' Metropolitan Edison Company Docket No. I-79040308 and
[d MM Pennsylvania Electric Company, Respondents 4 IUL g
b#l 0RDER
-7[k BY THE COMMISSION:
In the early hours of the morning of March 28, 1979 an incident began at the Three Mile Island Power Station operated by Metropolitan Edison Company. A major consequence of that incident has been the loss of more than 1600 megawatts of generating capacity and the required purchase of tens of millions of dollars of power. This proceeding requires an answer to the question:
Who shall pay for the costs of that incident?
The issues before the Commission are far more complex than the question implies; and even now the costs and the causes ui the incident are not fully known. Nevertheless, most reasonable and knowledgeable persons would support the central determination of the Commission that the ratenavers of Metropolitan Edison Company (" Met Ed") and Pennsylvania Electric Company ("Penelec") should be no worse of f - and no better off - because of tha 4 ~ 4 daO The ratepayers should not pay for the
~ costs of the incident; nor should they benefit from it.
They should not pay the costs of a plant rendered useless through no fault of their own; nor should they receive needed electric power without payment.
Th[levelofservice7providedbyMet Ed and Penelec is unchanged.
The net result of the Commission's findings in this order is that the
^
8001170770
total rates of Met Ed and Penelec will be no higher than if the incident at Three Mile Island had never occurred. 1/
On April 19, 1979, the Commission responded to the incident at the Three Mile Island Power Station ("TMI") by taking the following actions:
The increased rates of Met Ed which were recently determined at R-78060626 were made final and effective on April 19, 1979.
Temporary rates were then set for Met Ed, effective immediately pursuant to Section 1310(d) of the Public Utility Code, based upon the determinations at R-78060626 and the_ removal from base rates of costs associated with Unit No. 2 at Three Mile Isinnd ( "TMI-2" ) _. Also, Commission complaints were issued--
against the base rates and energy cost ratna nf Mat Ed and Penelec
.allening excessive: unjust and unreasonable rates as a result of the incident at TMI.
s On April 25, 1979, the Commission set temporary rates for Penelec, effective immediately pursuant to Section 1310(d) of the Public Utility Code, based upon the recent determinations at R-78040599 (Penelec's last rate case) and the removal from base rates of costs associated with TMI-2.
An omnibus investigation docket was opened at I-79040308 at which were consolidated the Commission complaints and the temporary rate orders, as well as the complaints of the Consumer Advocate against the base rates and energy cor. rates of Penelec and the energy cost rates of Met Ed. 2/ Subsequentif, the Respondents, Met Ed and Penelec, filed complaints against the temporary rates as set by the Commission.
A prehearing conf erence on the consolidated proceedings was held on April 24, 1979, at which the parties stipulated to the use of the test periods in the last rate cases of Met Ed and Penelec.
The Commission proceeded expeditiously and held hearings sitting ert banc.
A total of ten days of hearings were held between May 2 and June 1,1979 in Harrisburg, Johnstown and Reading. Evidence was presented by Met Ed and Penelec, the Staff, the Consumer Advocate, Senior Power Action Group, Charles M. Brosenne, and Holly S. Keck. More than 1800 pages of testimony were transcribed.
1/
This statement is based upon a comparison of the average revenues to be derived from the rates set in this order with the average revenues which would have been derived from base rates including the costs of TMI-2 and the energy rates charged. prior to the incident at TMI-2.
2/
Several other complaints and petitions to intervene were consolidated at 1-79040308. The parties to the proceeding at the close of the record include Staff; Consumer Advocate; Respondents, Met Ed and Penelec; St. Regis Paper Company, et al.; Bethlehem Steel Corporation; Senior Power Action Group of York, et al.; Holly S. Keck; Titanium Metals Corp.; Birdsboro Corp.; Martin G. & Rose Ann Hamberger; Charles M. Brosenne; Deep Run Farms, Inc.; Philip L. Nester, Jr.;
and variou.a other industrial customers of Respondents.
Petitions were filed on May 8,1979 by Met Ed and Penelec requesting that the energy cost rates of the two utilities be modified to immediately reflect the current costs of purchased power and that Met Ed be allowed to accelerate the recovery of certain deferred energy costs. The Commission acted at its Public Meeting on May 10, 1979 to defer action on the petitions until the close of these proceedings.
The petitions will be addressed in this order.
The parties filed briefs on June 11, 1979; oral argument was heard on June 13, 1979.
From the outset the Commission has believed it to be in the public interest to proceed expeditiously consistent with the development of an adequate record and a reasonable opportunity for all interested parties to be heard. The Commission has met that public obligation, and by this order renders a decision on all matters properly before it.
The complaints of the Commission, the Consumer Advocate and other parties 'against Respondents' rates and of the Respondents against the temporary rates set by the Commission compel a redetermination of the rates of Met Ed and Penelec in light of the changes wrought by the
' ncident at TMI.
The Commission will, in this order, reassess cne used i
_and useful status of the TMI facilities and will determine any associated changes in operating expenses, depreciation and taxes which should be reflected in base rates.
As required by law, the Commission will set rates for Met Ed and Penelec which will provide a reasonable opportunity for those utilities to earn a fair return on the fair value of their used and useful property.
However, the separate determinations of " fair rate of return" and " fair value" will be greatly simplified. The parties have stipulated to the use of the test years in the Respondents' last rate cases (R-78060626, Met Ed; R-78040599, Penelec).
In addition, the records in those cases have been incorporated by reference into the preseac record.
In the absence of any attempt by any of the parties to introduce specific evidence of changes in fair value or fair rate of return, the Commission is warranted in setting rates by adjusting the rate determinations so recently reda. Consistent with the presentations of the parties and for ease of couputation, the adjustments are calculated using original cost data. However, this should in no way be interpreted as an attempt to circumvent the required statutory findings.
Finally, and conclusively, the Respondents'have waived a re-determination of their capital structure anu rate or return for purposes of this proceecing. Witness John Graham, the Treasurer of the parent corporation, General Public Utilities Corporation ("GPU") stated:
_3_
"For purposes of this proceeding, the company is willing to accept as the way of looking at our earnings the allowed capital structure and rate of return in the last rate order." TR 1690.
The Staff and the Consumer Advocate agreed to this concession.
The counterpart to the base rate costs associated with the TMI facilities are the increased taergy costs of meeting the service demands of Respondents' ratepayers. The energy costs will be segregated for purposes of analysis. However, only the net effect of such changes will be reflected in the actual rates of Met Ed and Penelee so as to minimize disruptive rate and tariff changes.
The Commission's vieu af th=
prapar rate treatment of the_
clean up costs of the incident will be addressed in spite of the fact that no claim has been made for these costs. The substantial public concern and uncertainty with respect to these costs warrants a Commission declaration.
This order will not address the issues involving the causes of the incident or whether the design or operation of the plant was faulty.
The Commission does not have the primary responsibility to determine those matters and has not developed a record adequate to make those eterminations. However, the Commission will co,ntinue its investigation of the financing, construction and operation of TMI, and will apprise itself of the findings of the agencies and commissions which are presently investigating the causes of the incident.
Ultimately, the causes and assignments of fault may impact upon whether Met Ed and Penelec have~'
~actad ranconably and prudentiv as regulated publiu uulliilm.
Another area of concern in this proceeding which will not be addressed in this order are the questions concerning the imminency of Respondents' insolvency or bankruptcy, the probable consequences of in-solvency or bankruptcy, and the determination of whether the public interest inheres in the avoidance of bankruptcy.
In spite of the general pleas of Respondents for financial aid through rate increases, which were plaintively repeated throughout these proceedings, the Commission ic "nrare"aded that thera 4_ 9 eny 4==4nant threat of b'ankrupuuy-patcicularly in light of the alacrity with which the Commission has acted and the determinations made herein.
A major obstacle to the Commission throughout this proceeding has been the inability and/or unwillingness of Respondents to directly and effectively address the issues.
GPU and its companies have demonstrated obtuseness, inability to focus, and a lack of direction.
If the Commission errs in its assessment that insolvency or bankruptcy is not L=ninent,
the cause will be the f ailure of Respondents to clearly and concisely describe its financial position, alternative courses of action, and the 1
point at which rate relief is mandatory. JheperformanceoftheGPU companies before this Commission calls into auestion the capability of its management and lends urgency to the investigation and management gudit which we will require in this order.
The rate determinations announced in this order are the required actions in this proceeding, but they do not comprise a complete regulatory response to the incident at TMI.
Therefore, at the end of this order, the Commission will set forth additional matters in response to this troubling event.
Three Mile Island, Unit No. 2 (THI-2)
A public utility is entitled to earn a return on only that
_ property and' investment wnicn is required or used in order to provide
' utility service,.
In terms ot the Public Utility Code, a public utility must be allowed to charge rates which will permit it to earn a fair return on the fate. value of its property which is used and useful in the public service".
A public utility is entitled to neither a return
~on, nor the recovery of expenses associated with, property which is not used and useful in providing utility service.
_At issue before the Commission is whether, in light of the incident at_TMI-2. the unit.is presently used and useful in the public'#*.
service. Upon this quest;>n ninges the recovery of millions of collars annually in the base rates of Met Ed and Penelec. Temporary rates were set for Met Ed and Penelec based upon the initial conclusion of the Commission that TMI-2 is not presently used and useful in the public service.
The term "used and useful" has two principal connotations:
first, with respect to whether the investment is related to the provision of utility service; and second, with respect to whether a related investment is or will be useful during period in which the rates are to be in effect.
It is the latter sense of the phrase with which we are concerned here.
Courts and commissions have dealt with the problem of plant which is out of service for a substantial length of time.
Evansville v.
Southern Indiana Gas & Electric Co., Ind. App. Ct., 339 N.E. 2d 562 (1975);
i Pa. P.U.C. v. West Penn Power Co., 25 P.U.R. 4th 492 (1978); Rjt New Jersey I
Bell Telephone Co., Docket No. 709-494 (January 13, 1972). However, we find that none of the cases are totc11y apt to the facts in this case.
The decisions appear to reflect a rational principle which we find appropriate in this case. The length of time which utility plant, agay be out of service and not be removed trom rate base depends upon the nature of the plant. the degree to which the outane can be expected to ~
occur during normal onarneinn nf rho plant, and the certainty with _
iwhich resumption of service can be credicted.
An example of an outage which will not require a rate base adjustment would be the outage of a generating plant for several weeks for unscheduled maintenance.
Generating plant by its nature cannot be operated continuously without periodic maintenance. Outages of several days to several months duration, whether scheduled or forced, are typical of the normal operation of such plant; and the resumption of service is reasonably certain.
The incident in the nuclear reactor of TMI-2 is in sharp contrast to the example. Nuclear generating plants by their nature are not expected to experience outages of two to four years (as has been estimated by Met Ed, the plant's operator).
Nor, we hope, will anyone attempt to argue that near-disasters such as began on March 28, 1979 at TM1-2, are routine events in the life of a nuclear plant.
- Finally, there is great uncertainty with respect to when, and in fact if ever, TMI-2 will resume operation. Respondents estimate that TMI-2 will be out of service for two to four years. However, no one has been able to determine the extent of damage to the fuel core. Design and operation changes may be ordered by the Nuclear Regulatory Co= mission, but these are as yet unknown. Public sentiment has been expressed against the renewed operation of THI-2; and the cost of repair, clean up and waste removal may be so high as to make restoration of the plant uneconomic.
The Commission finds that Three Mile Island Power Station, Unit No. 2 is not used and useful proparty da cha nuhlic service. ~All of the costs associated with that unit must be removed from the base '
rates of Met Ed and Fenelec.
Three Mile Island, Unit No. 1 (TMI-1)
The parties have raised the issue of the used and useful status of TMI; however, the Commission need not reach that issue at this time.
Consistent with the principles discussed with respect to TMI-2, TMI-l is at present only experiencina an outaze.
TM1-1 was out of service for a scheduled retueling when the incident at TMI-2 occurred.
Its resumption has been delayed, and it is now experiencing an unscheduled outage. At this time it appears reasonably certain that TMI-l will return to' service. Witness Herman Diecknmp. President of GPU, testified that resumption of generation at TML-1 could occur as early as August,
_1979, and certainly no later than January 1, 1980. 3/
However, _the Commission will monitor the status of TMI-1.
We will require Met Ed to report to the Commissi d onthh on the pYogress in returning IM1-1 to service.
If that start-up is delayea oeyona J_anuary 1.
1980_ the Commission will issue an order to show cause why TMI-1 should be considered used and useful in the public service.
3/
TR. 1551-1553. L_
Base Rates of Metropolitan Edison Company On April 19, 1979, the Commission set temporary base rates for Het Ed based upon the determinations at R-78060626 and the removal of the costs associated with TMI-2.
The calculation of these temporary rates, representing a reduction in Met Ed's rates calculated to reduce annual revenues $49,178,000, was necessarily approximate.
In light of our determination af ter hearing that TMI-2 is not used and useful, and therefore must be removed from rate base, a more rigorous determination must be made of the required reduction in Met Ed's rates.
Detailed testimony on the calculation of the costs associated with TMI-2 was presented by GPU's treasurer, John Graham and by Staff witness, Charles Smetak. Only relatively minor differences separate the testimony of these two witnesses. We find the calculations of Staff witness Smetak to reflect the appropriate adjustment of Met Ed's base rates to remove costs associated with TMI-2.
Met Ed's base rates shall be further reduced by an amount calculated to produce 52,982,000 annually.
This determination of Met Ed's base rates incorporates the Commission's previous findings with respect to the fair value of Met Ed's property and Respondent's fair rate of return.
_ ith the adjustment W
,ta_ remove the costs assarint=4 "ith Tul ?.
find that the resulting ua rates will provide Met Ed a reasonable opportunity to earn a fair return on_the fair value or its used and useful propetty.
Although the Commission elsewhere in this order will offset the just-determined reduction in Met Ed's base rates through an accelerated recovery of deferred energy costs, the essential finding is that Met Ed may not recover any costs associat'ed with TMI-2.
~
Base Rates of Pennsylvania Electric Company On April 25, 1979, the Commission set temporary base rates for Penelec based upon the determinations at R-78040599 and the removal of the costs associated with TMI-2.
As with the temporary rates of Met Ed, the calculation of these temporary rates, representing a reduction in Penelec's rates calculated to reduce annual revenues $25,000,000, was necessarily approximate.
In light of our determination after hearing that TM1-2 is not used and useful, and therefore must be removed from rate base, a more rigorous determination must be made of the required reduction in Penelec's rates.
Again, as with Met Ed's rates, we find the calculation of Staff witness Smetak to reflect the appropriate adjustment of Penelec's base rates to remove the costs associated with TMI-2.
P3nelre'- t;;e rates shall be further reduced by an amount calculated to produce $1,635,QD0 aTmuntly This determination of Penelec's base rates incorporates the Commission's previous findings with respect to the fair value of Penelec's property and Respondent's fair rate of return. With the adjustment to remove the costs associated with THI-2, we find that the resulting rates will provide Penelec a reasonable opportunity to earn a fair return on the fair value of its used and useful property.
Although the Commission elsewhere in this order will offset the just-determined reduction in Penelec's base rates through an accelerated recovery of deferred energy costs, the essential finding is that Penelec may not recover any costs associated with TMI-2.
Energy Costs - General The Commission has determined that TMI-2 is not used and useful in the public service. As a consequence, none of the costs associated with TMI-2 may be recovered f rom the Respondents' ratepayers.
As the same time, the Commission recognizes that Met Ed and Penelee have sontinued to provide adsquate, reliable electric service in spite of the '
Joss of generation at TMI.
Continued service to the customers of Met ta' and Penelec requires large purchases of power.
The, Respondents could have reduced the level of service they _
are providing; or they could have made maximum use of their existinn 1
plants, many of which have higher operating costs than the costs of gh purchased power. These alternatives, in the opinion of the Commission, L
.gould not have been in the public ineprone-Tnarand. Mnt Ed and Penelec have taken advantage of the benefits of cha Panneylz:ni: "c" 'aveey-
~
Marylanu interconnection ("PJM") and other power pools and have purchased energy trom other utilities on an economy basis. We find this to be in
_the public interest.
In addition, Respondents have entered into contracts with the Allegheny Power System and Pennsylvania Power & Light Company for the purchase of energy on a cost basis, thereby avoiding the added cost of
" split-savings" pricing which is typical in sales between interconnected j
utilities. We find these efforts also to be in the public interest.
Cf. Order adopted June 7,1979 at Docket No. P-79060181 (Petition of Pennsylvania Power & Light Company for Declaratory Order).
Although elsewhere in this order we will require Met Ed and Penelee to take additional steps to further reduce its costs, the purchase
~of energy f rom interconnected utilities must be viewed as in the bdst, interests of Respondents' customers when compared to the alternatives of
. reducing the level or service or utilizing higher cost neneration. The purchase of energy is a reasonaole and necessary cost of providing service which must be recovered f rom ratepayers. Service cannot be provided without cost.
It is equitable for the ratepayers of Met Ed and j
Penelec to pay the costs 01 purchasing power since cacy are receiving i
servicd:and will be paying none or the costs of TML-2.
With the levelized 6~ergy charge over 15 months wnica we will orcer nere, the total rates n
_for electric service to the customers of Met Ed and Penelec will be no' Rreater than the rates which would have been allowed nad the incident-Chgveroccurred.5/ we celleve this accomplishes a fair and just rescit for all concerned.
Deferred Energy Costs Met Ed and Penelec have deferred the recovery of millions of dollars of energy costs for reasons unrelated to the operation or loss of THI-2.
In response to the nationwide coal strike of 1977-78, the Commission placed a ceiling on the energy clauses of all major electric utilities, including Het Ed and Penelec. This ceiling or restriction on Respondents' energy clauses, imposed from March 1978 tnrough June 1978 required the def erral of legitimate and necessary fuel costs.
In addition, on March 1,1978, the Commission mandated (at Investigation Docket No. 214) a uniform net energy cost rate for all major electric utilities.
The transition to the new energy cost rate caused another lag in the recovery of legitimate energy costs incurred by Met Ed and Penelec.
The recovery of these deferred costs by Met Ed was approved at R-78060626 (Met Ed's last general rate increase).
The Commission allowed Met Ed to amortize $14,021,000 of deferred energy costs over five years.
The annual recoverable expense of $2,804,000 was included in the calculation of Respondent's rates. Subsequently, in setting temporary rates for Met Ed, the Commission did not remove from base rates the annual recovery of
$2,804,000 of deferred energy costs, and therefore those costs are now being recovered.
The recovery of the deferred costs by Penclec was apptoved at R-78040599 (Penelec's last general rate increase). The Commission allowed Penelee to amortize $19,380,000 of deferred energy costs over five years. The annual recoverable expense of $3,876,000 was included in the calculation of respondent's rates.
Subsequently, in setting temporary rates for Penelec, the Commission did not remove from base rates the annual recovery of $3,876,000 of deferred energy costs, and therefore those costs are now being recovered.
The issue with reanace *e there def--*ad enerRy costs.ijL_,
whether the Commission should accalarsea rhnir recovery.
In normal times, the commission generally requires an amortization of expenses
~
such as these over a period of five years. However, these are not 4/
See footnote 1.
l 1
normal times. The,;acord before the Commission reflects that Respondents' short-term cash needs have incrnnsad drnmntically. Therefore, the hommission finds it appropriate to accelerate the recovery of the deferred e3ergy costs of Met Ed and Penelec by the amounts which their respective ~~
base rates have been reduced in this order to remove the costs associated wTth TMI-2.
~
T The Commission will order an increase in the annual recovery
~ ___ of deferred energy costs by Met Ed of $2,982,000, so that the total annual recovery of these costs through base rates will be $5,786,000.
Similarly, the Commission will order an increase in the annual recovery of deferred energy costs by Penelee of $1,635,000, so that the total annual recovery of these costs through base rates will be $5,511,000.
The set effect of these changes will be to leave the base rates of Met Ed and Penelec at the level of the existing temporary rates. The accrierated recovery of cnese deterred energy costs will "feduce the costs of financing these deferrals, and will increase Respondents' cash flow without an increase in the total costs to be paid by the ratepayers.
Purchased Energy Costs As stated elsewhere in this order, the Cbumission finds, in light of the denial of the recovery of all costs " associated with TMI-2, that the recovery from ratepayers of the costs of purchased power accomplishes a f air, just and equitable result. Met Ed and Penelee are presently providing reasonable, adequate, reliable electric service.
The cohts of purchasing power are unquestionably direct, necessary mmd reasonable
~
costs'of providing that utility service.
The Commission cannot punish Respondents by denying the recovery of these costs; nor can it create a windfall for the ratepayers of service without payment.
The Commission is of the opinioW that the recovery of these costs is required by law.
The remaining question is -- What is to be the level of recovery?
The Staff, Consumer Advocate and the Respondents all assert that the e_ncrgy cost rata of Met Ed should be levelized over a period of
's I 18 months. Without such a " leveling" of the cost rate, tne rate will -
tiuccuate Trom a low in May 1979 of 3.1 mills to more than 15 mills
~
during the winter of 1979-80.
In order to avoid the hardships such changes could innose on Met Ed' D epayers, we will orcer tne implementation
~~r of an energy cost rate levelized over a period of is moncas.
Although the Commission is certain that the recovery of purchased
'%s. energy costs must be allowed, there is less certainty as to the amount.
The only figures before us are those provided by Respondents. The calculations are based on projections of costs and estimates of sales.
No effort has been made to anticipate conservation by Met Ed's customers or additional contracts for the purchase of energy.
If the Commission is to err, it will be in the direction of setting a cost rate which encourages Het Ed to further reduce its costs.
Also, we will assume, as advocated by the witness for the Consumer Advocate, that Met Ed will be able to obtain additional savings through contracts for the purchase of energy. Finally, it appears that the use of data for the period over which the charge is to be collected (18 months, rather than 20 months) is most appropriate.
We find a levelized rate of 8.8 mills above base rates is the,
_appropriatd*cist rate for Met Ed, derived as follows:
Costs Usage Cost Rate (millions)
(GWH)
(mills /kwh)
$228.8 (a) 13,514 (a) 17.0 May (14.0) (b)
(627) (b)
June (13.7) (b)
(630) (b)
$201.1 12,257 16.4 16.4 total energy cost (8.0) less amount in base rates 8.4 amount to be recovered through energy cost rate x
1.047 Gross Receipts Tax Multiplier 8.8 levelized energy cost rate Source:
(a) Consumer Advocate exhibit, Madan Schedule 1 (b) Met Ed and Penelec exhibit A-28 While the energy cost rate of Penelee is not expected to fluctuate
\\
as greatly as Met Ed's, we find the implementation of an energy cost rate levelized over 18 months to be in the public interest.
Similarly, we find that a levelized rate of 6.5 mills above base rates is the appropriate cost rate for Penelec, derived as follows: ;
I l
Costs Usage Cost Rate (millions)
(GWH)
(mills /kwh)
$305.7 (a) 19,032 (a) 16.1 May (13.6) (b)
(904) (b)
June (12.8) (b)
(872) (b)
$279.3 17,256 16.2 16.2 total energy cost (10.0) less amount in base rates 6.2 amount to be recovered through energy cost rate x
1.047 Gross Receipts Tax Multiplier 6.5 levelized energy cost rate Source:
(a)
Consumer Advocate exhibit, Madan Schedule 1 (b) Met Ed and Penelee exhibit A-28 Reserve Capacity (Demand) Charges Normally, the energy cost rates of electric utilities include only the energy costs of purchased power., Demand or reserve capacity charges for purchased power are usually recovered tnrough base rates which r,e f l ec t only typical amounts of purchased power.
Because at the unusually' large amounts of power being purchased by Respondents, which include demand or reserve capacity charges, Respondents have requested approval to recover these demand costs through the net energy cost rate. The gansumer Advocate supports this request, wn11e the Staff opposes the inclusion of demand -
' costs in the energy charge.
~
As an incentive to Respondents to enter into bulk power purchase arrangements and thereby reduce the energy costs to its ratepayers, the Commission will allow Met Ed and Penelec to include in recoverable costs cutuugn cae nec energy cost rate, the demand or reserve capacity ch3?ges
' ncurred f rom July 1,
192y until January 1, 1980.
No increase in the i
levelized cost rate will be allowed at this time in order to recover those amounts. However, those accounts may be recovered subsequently.
Clean Up Costs Although no claim has been rade for these costs, the Respondents have made_much of the impact of thery_ costs on the utilition' short-t X financing needs. Also, the Commission recognizes the substantial public r
concern and uncertainty regarding the recovery of these costs. That public concern and uncertainty mandates a declaration on this issue.
The en==ission is of the view that none of the cosen nf raenandint to the incident, including repair, disposal of wastes and decontaminati_on
- are recoverable from ratepayers. Thesecostsareandshou14({einsurable})
PURTA Refunds During the course of these proceedings, the Respondents acknowledged their receipt of Public Utility Realty Tax ("PURTA")
refunds from the Commonwealth of Pennsylvania.
Specifically, Met Ed received a $9.2 million refund for the 1972-76 period and a $2.6 million refund for the 1977 period, for a total of $11.8 million, while Penelec received a $4.6 million refund for the 1972-76 period and a $1.3 million refund for the 1977 period, for a total of $5.9 million. These refunds arose because of a court decision favorable to Met Ed and Penelec.
The refunds represent monies collected from customers for a tax liability which after litigation has been eliminated. Without question, these refunds must be credited back to the customers of Met Ed and Penelec.
The only substantial matter before the Commission is the method of repayment.
The Commission Staff has advanced the proposition, through cross-examination, that the most appropriate vehicle for repayment is a credit applied to the state tax surcharge. Since the collection of the tax monies was made on a dollar surcharge basis, a repayment through base rates or on a usage basis through the energy cost rate would necessarily result in customers receiving refunds in amounts substantially different than the amounts previously paid. Although no system of repayment or refund to a changing mix of customers is perfect, we find merit in the Staff's proposal.
The credit should be applied in the same manner that the monies were collected.
The Respondents, Met Ed and Penelec, will be ordered to repay the PURTA tax refunds through a credit to the state tax surcharge.
Consistent with the determination to levelize the energy cost rates of Met Ed and Penelec for a period of 18 months, this credit of the tax refunds shall be accomplished over a similar 18 month period. Met Ed i
and Penelec shall separately account for the refunds so as to permit a l
subsequent Commission audit of the repayment of these amounts.
Low and Fixed Income, and Elderly Customers The brief submitted by the Central Pennsylvania Legal Services
{
on behalf of several groups and individual complainants was primarily concerned with the subject of the ability of low and fixed income and elderly customers to pay utility charges.
Legal Services requests that any increases charged to low and fixed income and elderly customers be either a small percentage of the amounts charged to other residential customers or in the alternative to exempt from any increase, the first 250 E3ni of their residential use per month.
The brief raises the very real problems confronting the low fixed income and elderly utility customers and their ability to pay increased utility costs. The Commission, moreover, is deeply aware of the impact of double digit inflation on not only the utilities themselves but those who have to pay utility bills.
The Commission has, through its visits to communities througbout the state where it has met with and discussed these very problems with ratepayers in all economic circumstances, developed its own independent awareness and appreciation of many of the problems so graphically describeo by the Pennsylvania Legal Services.
The licited scope of these proceedings, confined as they are to the immediate consequences of the TMI incident, coupled with the harsh time restraints imposed upon us all, are not amenable to the kind of discussion, study and response that these grave problems warrant.
The Commission therefore concludes that it cannot at this time provide a definitive response to the issues raised by Central Pennsylvania Legal Services. These issues will be examined in the near future pursuant to Federal law requiring hearings on "lif eline" rates.
(Sec.114 of Public Utility Regulatory Policies Act, 1978, Pub. L.95-617).
Other Considerations The rate determinations in this order do not end the matter.
The Commission believes that it has a responsibility to undertake a compiece regulatory resnnnne to tha nccident at TMI-2. _The pub 1It" interest inheres not just in the determination of rates, but also in (a)
Respondents' efforts to encourage conservation of energy, (b) the determination of whether Respondents' management has acted prudently and wisely, and is ef ficiently mananing i rn neility nrarn*4m"c, (c) Respondents'
-effurcs to reduce the cost of purchased power through the modification of pricing arrangements, and (d) the consideration of legislative changes which will lessen the impact on ratepayers from such accidents.
The balance of this order sets forth our concerns and actions in these
- areas, Conservation of Energy Met Ed and Penelec have projected that the quantity of electricity to be used by their customers will steadily increase throughout the remainder of 1979 and that there will b,e ; dramatic increase in the cost of that power. Total system sales fr~.hc CPU system are projected to increase from 627 GWH in May 1979 b, 7!7 GTE in December 1979.
Despite these projections of increased costs as a result of increased demands for electricity, Respondents' witness Euguene Carter testified that the management has neither undertaken, nor even considered, specific actions to encourage conservation by the ratepayers. The Commission is dismayed that Respondents have not attempted to implement conserv4 tion measures. This is particularly alarming since the costs of energy play such a significant' role in respondents' financial problems.
The Commission is of the opinion that the ratepayers of Met Ed and Penelec must be advised of the higher costs of meeting added demands for electricity and that they must be encouraged to take whatever measures they can to use electricity wisely.
We will order Met Ed and Penelec to submit within thirty (3 )
days after entry of this order for Commission approval conservation
s s,}plansincluding,butnotlimitedto, the following actions:
s (a) the use of newspaper advertisements and bill i
stuf fers to inform their ratepayers of the need to conserve electricity, (b) the negotiation with ratepayers who have stand-by, emergency or self-generation facilities to make substantial use of such generation, (c) theimplementa%ionofvoluntaryloadcurtailment pursuant to emergency fuel conservation tariff procedures filed in compliance with the Commission's order at Emergency Electric Regulation Docket No. 3, (d) the implementation of a credit billing system which rewards conservation through a credit per kilowatt hour and reduces the bills of ratepayers who achieve at least 5% conservation, determined from past consumption in like periods, and thereby lessens the need for purchases of high cost energy, (e) the proposed implementation of curtailment and conservation procedures for commercial and industrial ratepayers shall be accompanied by specific proposals to encourage such conservation through the elimination of "rachet" or historic demand charges and minimum bills for those rate-payers who do conserve and through the incremental pricing of usage in excess of the targeted conservation consumption for thosa-ra payers who do not conserve,
) ay and l
(f) thejc ated promotion o c
-o
~
o r-peak ates for residential customers.
I..
r l
\\
The Commission's intent is for Respondents to undertake an 1
aggressive, imaginative program of encouraging conservation in order to reduce its costs of purchasing power.
Pricing of Wholesale Purchases of Power In accordance with typical agreements between interconnected i
electric utilities, economy dispatched energy is sold at a price midway between the cost of generation of the selling utility and the alternative generation cost to the buying utility - thereby " splitting" the savings between the buyer and the seller.
Although the price at which electricity is sold at wholesale is subject to the jurisdiction of the Federal
, Energy Regulatory Commission ("FERC"), the cost of purchased power impacts directly on retail rates and therefore is of concern to this Commission.
Under conditions approaching an equilibrium where electric utilities each buy and sell roughly equivalent amounts of energy annually, the split-savings method of pricing economy sales seems to result in an equitable distribution of the benefits of shared generation.
One utility is not significantly better or worse off than another.
However, when one or two utilities are forced to buy massive amounts of power from other utilities with large amounts of available generation, such as i
during the coal strike of 1977-78, an inequitable imbalance occurs.
The cost of purchases of power during that emergency by utilities in Western Pennsylvania imposed a considerable burden on those utilities, while the utilities in Eastern Pennsylvania received unexpected revenues.
The loss of generation at Three Mile Island has created a similar imbalance.
Metropolitan Edison Company and Pennsylvania Electric Company will incur higher purchased power costs, while the selling companies will generate unexpected revenues.
The Commission is of the opinion that the split savings pricing of interchange sales during emergency conditions is not in the public i
interest. We will direct Met Ed and Penelee to petition FERC and to negotiate with the other members of the PJM power pool to eliminate split savings during emergency conditions and to price such power at Cf., Order adopted June 7,1979 at Docket No. P-79060181 (Petition cost.
of Pennsylvania Power & Light Company for Declaratory Order).
As an incentive to pursue this elimination of split savings during emergencies, the Commission will consider the efforts of Respondents in this respect in determining whether to allow the amortization of such energy costs deferred during the 18 month period in which their energy clauses are levelized, t --
j Taxation of Receipts f rom and Sales of Purchased Power
.l Consistent with our concern that the pricing of wholesale i
sales of electricity during emergencies increases the burdens of rate-payers, is a concern that the taxing of utility gross receipts from and
- 3 sales of purchased power during emergencies also works an unfair and unnecessary burden on utility ratepayers. The Commonwealth of Pennsyl-vania imposes a 4.5% tax on the gross receipts of Pennsylvania utilities and a 6% tax on the sales of such utilities to commercial and industrial Customers.
During emergency conditions when the dollar amount of utility sales receipts may rise unexpectedly, the state receives unexpected tax a
The elimination of such unexpected tax receipts should not revenues.
adversely affect the budgeting efforts of the state and would ease the burden of utility ratepayers. Therefore, the Commission will petition the Legislature to enact legislation removing sales and gross receipts I
taxes from increased utility revenues during emergencies.
i t
lbnagement Investigation a
i Finally, there are questions unanswered which deserve the attention of the Commission.
Did Respondents act reasonably and prudently in the construction and placiE~g into service of TMI-27 Did Met Ed, as
,(he operator of ini-4, act reasonably and prudently in the o eration of-'
the plant prior to and during the accident? When, if ever, wil 11--
1, bs' returned to servicer what will be the costs?
Is the present management of Met Ed, Penelec and GPU reasonably efficient? Can their efficienc',
be improved? These and other related matters directly or indirectly affect the cost and quality of service provided to respondent's ratepayers.
's g Met Ed and Penelec have incurred capital costs which they will undoubtedly s s, seek to recover in future rate cases. The Commission's knowledge and understanding of the causes of these costs cannot await those future rate cases.
Therefore, the fommission will by separate order institura nn
_ investigation of the past and present management practices 6 t Ed, Penelec and GPU.
This investigation will specitically focus on the'
~
construction ina operation of TMI-2, and will incorporate the public Ns ; reports of the President's Commission, the Nuclear Regulatory Commission, s
+
and others concerning the accident at TMI-2.
However, the investigation will include broader questions concerning the management of these companies, and will incorporata the findings of a management audit which the Commission will authorize; THEREFORE, I !
IT IS ORDERED:
1.
That the temporary rates presently in effect for Metro-politan Edison Company and Pennsylvania Electric Company are hereby made permanent, consistent with the findings of the Commission.
2.
That Metropolitan Edison Company and Pennsylvania Electric Company shall specifically account for the accelerated amortization of deferred energy costs through base rates, consistent with the findings of the Commission.
3.
That Metropolitan Edison Company and Pennsylvania Electric Company shall forthwith file tariffs, implementing net energy cost rates, effective July 1,1979 and levelized for a period of 18 months at 8.8 mills /KWH and 6.5 mills /KWH respectively, consistent with the findings of the Commission.
4.
That Metropolitan Edison Company and Pennsylvania Electric Company may amend their tariffs to include in costs recoverable through the net energy cost rate the cost of demand or reserve capacity charges associated with purchased power incurred from July 1, 1979 through January 1,1980, consistent with the findings of the Commission.
5.
The Metropolitan Edison Company and Pennsylvania Electric Company shall calculate the state tax adjustment surcharge so as to credit the Public Utility Realty Tax refunds over a period of 18 months beginning July 1,1979, consistent with findings of the Commission.
6.
That Metropolitan Edison Company and Pennsylvania Electric Company shall within thirty (30) days after entry of this order submit for Commission approval conservation plans, consistent with the findings of the Commission.
7.
That Metroplitan Edison Company and Pennsylvania Electric Company shall undertake in good faith to petition the Federal Energy Regulatory Commission, and to negotiate with other members of the Pennsylvania-New Jersey-Maryland Interconnection, for the. pricing of purchases of energy during emergency conditions at cost, consistent with the findings of the Commission, and shall report monthly on its efforts.
8.
That the complaints of the Commission and the parties against the rates of Metropolitan Edison Company are hereby sustained to the extent consistent with this order, and are hereb,y otherwise denied.
9.
That the complaints of Metropolitan Edison Company and Pennsylvania Electric Company against the temporary rates set by the Commission are hereby denied.
i 10.
That the petitions filed on May 8,1979, by Metropolitan Edison Company and Pennsylvania Electric Company are hereby granted to the extent consistent with this order, and are hereby otherwise denied.
11.
That Metropolitan Edison Company and Pennsylvania Electric Company shall submit monthly reports to the Commission on the progress of returning Three Hile Island Unit No.1 to service.
12.
That Metropolitan Edison Company and Pennsylvania Electric Company shall submit monthly reports to the Commission showing the operation of the levelized energy cost rate, including sales, revenues, expenses and deferrals.
13.
That Metropolitan Edison Company and Pennsylvania Electric Company shall submit a report to the Commission within twenty (20) days after entry of this order describing in detail the steps which will be taken to implement this order.
14.
That a copy of this order shall be served on all parties.
BY THE COMMISSION,
/)9
/0 /!)
f,
__..: Q.^ ! ) -
iw p'<Ou
^
Willish P. Thier'felder G2 Acting Secretary (SEAL)
ORDER ADOPTED: June 15, 1979 ORDER ENTERED:
June 19, 1979 h
I.