ML19308C007
| ML19308C007 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 12/04/1979 |
| From: | Diaz M T SHAW, PITTMAN, POTTS & TROWBRIDGE |
| To: | Frampton G NRC - NRC THREE MILE ISLAND TASK FORCE |
| Shared Package | |
| ML19308C008 | List: |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001170748 | |
| Download: ML19308C007 (14) | |
Text
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December 4, 1979 4
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1 1
f George Frampten, Esquire j
NRC/TMI Special Inquiry Group j
Suelear Regulatory Commission b' ashing ton, D.C 20555 j
Dear George:
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Ir. response to your request during the deposition of R. C. Arnold en Septe.rher 24, 1979, copics of the follo ing dccuments are enclosed:
1.
Revenue Ruling 76-428.
2.
Testimony of Herman M. Dieckamp before the Pennsylvania Public j
Utility Com=ission at I-79040308 et al.
i 3.
R. C. Arnold memorandum to M. F. Travieso-Diaz, dated December 3, j
1979, regarding Amendment No. I to DPR-73.
It is r.y understanding that Items 1 and 2 represent the only documents Mr,. Arnold recalled concerning the consequences of declaring Three Mile Island 'Jnit II in commercial operation.
Sincerely, N/A Matias F. Travieso-Diaz
, 2f JFW:rt
/
Enclosures
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I Section 167 1
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boiler water / steam sptem; conden-to qualify as section 38 property, the taxpayer by th sate /feedwater system; condensate property mustle, depreciable and have atin taxpayer's power grid for its function f.
a useful life of 3 years or more. -
in the business of generating electric j
rnah-up system; main boiler fuel sys-Section? !67('a)' of the Code pro-
!cm; auxiliary boiler and steam s) stem; vides, in part, that there shall be al-energy for the pmduction of income, E
air quality control sptem; waste dis-lowed as a depreciation deduction a and daily operation of the generating(-
pesal system; main turbine system; and reasonable allowance for the exhaus-unit began, notwithstanding the fact [f coal handling system.
tion, wear and tear, and obsolescence that the generating unit would unde d
pennits and licenses to operate the of property used in a trade or business. go further testing to eliminate a On December 11, 1975, necessary P-icets and the height of the dam would Section 1.167(a)-11(c)(1)(i) of the have to be increased for future require-
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cos.l. fired electne generating facility had been approsed.
regulations provides, in part, that
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December 11, 1975 was aho the property is fint placed in senice when Accordingly, in the instant case, the Y
ments.
it is in a condition or state of readiness date of synchronizatier, of the generat-and is available for a specifically as-coal-fired electric generating facility ing unit into the pcwcr grid of the signed function' fin general, the provi-was "first placed in service" cn Decem-P company and the date when the criti-sions of section ~1.46-3(d)(1)(ii) and ber 11,1975, for depreciation and in.
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cal testing had been ampleted on the (d)(2) apply for the purpose of deter-vestment creda purposes.
E component systems of the coal-find mining the date on which property is
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clectric generating facility to assurr that the generating unit could operate placed in service. '
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26 CFR 1.167(s) 11: Depreciction based Section 1.46-3(d)(1) of the regula.
on class hves and asset depecsatnan sanges in its intended manner.
In add..ition, the generating unit was tions provides,.,m pan, t at for pur-forp,,p,,70.gy pta,,4 in sarder c#rr De<stra-E h
bar Jf.19 g$
poses of the inve'stment credit allowed
- #"'i" 46r 1.46-34 placed in the control of the taxpa)er bv section 38 of the Internal Revenue Depreciation; "first placed in by the contractor on December 11, C' ode of 1954, property shall be con-service"; nuclear electric generat.
1975, and daily eperation of the unit bgan. Ilowever, subsequent testing sidered placed in service in the earlier ing un.it. A nuclear electric generat-of the fo!!owing taxable years: (i) the ing unit is first placed in service was perfomied to detennine and elimi-taxable year in which, under the tax.
for investment credit and deprecia-nate latent defects. if any.
payer's depreciation practice, the pe.
tion purposes when the unit is A substantial portion of the pro-riod for depreciation with respect to physically and legally placed in the i
jected cost of the waste disposal system such property begins: or (ii) the tax-control of the owners by the con-was attributable to a 400-foot high able year in which the property is tractor and is fully cperational, dau that was not completed on De-P aced in a condition or state of readi-even though it is still undergoing l
cember !!,1975. Ilowever, on this nes and availability for a specifically testing to eliminate any defects and b
date th-du was of sufficient height to demonstrate reliability.
g to take ca of the current waste dis-assigned function. -
Section 1.46-3(d)(2) of the regula-M posal though it would have to be in-tions provides,'in part, that equipment R ev. Rul.76-428 t
creased as waste disposal requirements acquired by a tacpayer for a specifi-Advice has been requested as to L
increased. *Ile height of the dam did cally assigned function "a his trade or nuclear electric generating not interfere with the generating unit's business that is operational but is un-unit (" unit") was first placed in serv-when a intended purpose on December 11, dergoinr testir;c to eliminate any de-ice for depreciation and investment 1975.
fects is'condde' red in a conditicm or credit purposes, under the circum -
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The coal fired electric generating state of readiness and availability for a stances desenb,ed below.
g unit is depreciable pmperty and has a specific.dly assigned function.
The taxpayer, a regulated electric
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usefullife of more than 3 years, Under the circumstances described utility company that files its Federaly Section 38 of the Internal Revenue Code of 1954 allom a credit against above, the generating unit in the in-income tax returns on a calendar year stant case was in a condition or state basis, owns a unit, construction of
'l Federal income tax for qualified in-of readiness and availability for a spe-which commenced in September 1972!
JJ vestment in section 38 propeny. The cifically assigned function on Decem-The unit was constructed for the determination of wi.at property quali-fies as section 38 property is made in b-r 11,1975,in that the necessary per-taxpayer pursuant to a contract. The accordance with the rules provided in mits and licenses had been appmved, the critical tests for the various'compo-major components that are necessary section 48.
nents were complete, the generating to the operation of the unit include:
Section 48(a)(!) of the Code pro.
a nuclear steam supply system; a re-videslin pertinent part, that in order unit was placed in the control of the i
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acfr auxiliary system; a control and ing the class life amt depreciation the depreciation alloxance for a vin-safety instrementation system; a radio-range system for cligible property tage account for which the taxpayer actise waste disposal system; a fuel placed in service in 1975 and adopted adopts the " half year conve ntior."
handling and storage system; a tur-the half year convention set forth in shall be determined by treating all bii.e system; and a containment sys-section 1.167(a)-(11)(C)(2)(iii) for property 1n the account as placed it.
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depreciation. purposes. The unit 1:
service on the. first day of the second On December 23, 1975, the unit depreciable, property and has a use-half of the taxable year.
Section ~1.167(a)-11(c)(1) (i) of structurally complete in all es-ful life of more than 3 years.'
was 4
sential respects. All systems had been Section 3B of the Internal Revenue the regulations provides, in part, tha:
proven operational du' ring the pre-Code of 1954 allows a credit against property is first placed in service when operational testing program. A full Tederal income tax for qualified in.
it is in a condition or state of readi-term, full power operating license was vestment in section 38 property. The ness and is available for a speci6cally issued for the unit on November 19, determination of what property quali-assigned function. In general the pro-1975. All nuclear fuel assemblies were 6es as section 38 property is made in visions of section 1.46-3(d) (1) (ii) loaded in the reactor on November accordance with the rules provided and (d)(2) apply for the purpose of 24,1975. Criticality of the reactor was in section 48.
determining the date on which prop-achlesed on December 16,1975. Nu-Section 48(a)(1) of the Code pro.
erty is placed in service.
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Under the facts and circumstances clear steam supply turbines were vides, in pertinent part, tnat in order operational on December 18, 1975.
to qualify as section 38 picperty, the described above, the nuclear generat-License restnction on the inam steam p,operty must be depreciable and have mg umt m the,mstant case. was in.
condition or state of readiness aru isolation valve was lifted on Decem-a useful life of 3 years or more.
ber 22,1975. On December 23, 1975, Section 167(a) of the Code pro-
"""U'.bility for a specifica]ly assigrC funco n n December 2,1975, u imtial synchromzation and power vides, in part, that there shall be al-9 that the necessaryperm,its and hcenw opera tion were. achieved at greater lowed as a depreciation deduction a than 17. percent of the electrical had been approved, the entical test.
reasonable allowance for the exhaus.
i r the vanous components had, bee:
capacity of the um,t. As of December tion, wear and tear, and obsolescence 3
c mpleted, the nuclear generatmg ur.:
7,1975, all construction work was of property used in a trade or business.
essentiallv comp.ete and the only had been placed m the control 6f 11.:
S*C" " I;46-3(d)(1) of the 'regu-taxpayer by the contractor, and tk rernaining rontractor personnel on the site wcre in support of startup and lations provides,,m part, that for pur-generating unit had been synchronire ruainte ance activities, and the com-p ses [ the investment credit allowed into the taxpayer's power grid for it pletion of insulation.
by section 38 of the. Code, property function in the business of Eenerati~
shall be cons,dered placed in service in ge earher of the follow,mg taxable - nuclear electric energy i
The unit was physically in the con-duction of income,Ieven though the
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attributes of ownership such as title, yeam (i) the taxable year in which, generating unit wo6!d '6ndergo Turther under the taxpayer s depreciatlon testing to eliminate any defects. Th.
risk of loss, and liability. The unit was fully operational on December 23, practice, the penod for depreciation unit was physically in the control c.
1975, at which time all equipment was with respect t such property beg, s; the owners who possessed all the legt m
performing its specifically assigned r (ii) the taxable year in which the attributes of ownership.
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function, that is, operating as a unit property a placed m a condition or
_- Accordingly, in the instant case; the
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even though equipment was still un-state of readmess.and ava2 abihty for_ nuclear electric generating Unit wu 1
dergoing testing to eliminate any de-a 5Peci6cany assigned function.
...first placed in service "on Decembe-fects and to demonstrate reliability.
Section 1.46-3(d)(2)(iii) of the - 23, 1975, for depreciation and invest All critical tests necessary for power regulations provides, in part, that ment credit purposes. Therefore, t' eperatien were performed prior to De.
equipment accuued oy a taxpayer for taxpayer is entitled to deduct 6 mont cember 23, 1975. There was a partial a specifically assigned function in the depreciation and to claim the inve:
shutdown of the unit on December 24, taxpayer's trade or business that is ment credit on its 1975 Federal 1:
1975, which was due to an abundance operational but is undergoing testing come tax return with respe't to thi '
e of hydro-generated electricity rather to eliminate any defects is considered unit.
than to any problems concerning the to be in a condition or state of readi-Compare Rev. Rul.76-256, page 4E.
unit.
ness and availability for a specifically. this Bulletin, which concerns when r The taxpayer elected to apply the. assigned function.--.
ca_=
coal-fired electric generating unit we '
provisions of section 1.167(a)-11 of -
Section 1.167(a)-11(c)(2)(iii) of first placed in service for depreciatio:
the Income Tax Regulations concern-the regulations provides, in part, that and investment credit purposes.
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4 Vh _
TESTIMONY OF HERMAN M.
DIECKA
' " ](- $Q l BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION
(
0 I-79040308 et al I am President and chief operating officer of General Public Utilities Corporation and a director of each of the three public utility subsidiaries of GPU that a r,e the owners of the Three Mile Island nuclear generating station.
On April 23, 1979, I presented testimony relating to the Three Mile Island Unit No. 2 accident to the Subcom-mittee on Nuclear Regulation of the U.
S.
Senate Com=ittee on Environment and Public Works.
A copy of the prepared statement that I submitted to that U.S.
Senate Subcommittee is a t ta ch ed, as well as a memorandum and an attachment giving a p r elimina ry analysis of the time sequence of the
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nccident.
I shall orally summarize the ma.terial contained in those documents.
I sh'ould also like to comment on the allegation I
that has been made that TMI-2 was prematurely declared to be in commercial service.
Implicit in this allegation ds the incorrect assumption.that a declaration'that a nuclear generating unit is "in commercial service" governs its physical operation.
That assumption is contrary to fact.
The NRC has pointed out that the timing of beginning of physical operation of a nuclear generating unit and the circumstances of such operation are governed by the NRC operating license and have nothing to'do with whether the unit has been declared to be "in commercial service."
(
l 1
in the case of THI-2, the
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operating license wa s issued by the NRC on February 8, 1978.
The physical opera-tions of TMI-2 were determined by that operating license and by the technical specifications which it in c o rp o ra t ed.
The declaration of a generating unit as being "in commercial service" is an accounting and ratemaking concept which was discussed at length with this Commission over a period of several months in 1978.
Fo r example, on Fe b rua ry 17, 1978, there was oral argument before the
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Administrative Law Judges in Met-Ed's then pending rate case at R.I.D. 434 concerning the appropriate criteria for a declaration of " commercial service".
There was oral, argument before the Commission itself on May 10, 1978 in that same
(
proceeding dealing with the same subject.
Th e re was further discussion of the subject at the June 23, 1978 Annual Review meeting with the Commission concerning Met-Ed following the conclusion of'that proceeding.
As a result of that discussion at the Annual Review, I sent the Commission a letter, dated July 19, 1978, reporting on the TMI-~2' start-up and test status.
Sub-s eq uently Mr. Kuhns sent a letter, dated August 11, 1978, to the Commission pointing out that the Uniform System of Accounts and decisions applying that System defined the 6
time for declaration of, commercial service as the time when a unit is " ready for service",
even though clean up construc-l l
tion has not been completed nor full capacity utilization achieved.
Copics of both of these Ictters l-are annexed.
l l
L
3-I doubt that the declaration of the commercial in-service date of a particular generating unit has ever received,as much attention from so many sourecc as was the ecse for THI-2.
We have sought to make clear that our view of the appropriate time for the declaration was the successful co=pletion of a long series of tests and we invited the Commission, its Staff and the Office of the Consumer Advocate to witness such tests, if they desired.
Those tests were outlined in the 25-page Exhibit No. E-21 p res ented by Mr.
R.
C.
Arnold in R.I.D.
626.
On Nove=ber 30, 1978,' Mr. Euhns vrote to both your Com=ission and the New Jersey Board, with copies to the Connumer Advocate in both jurisdictions, giving a status
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report on the unit.
A copy of that letter is annexed.
The additional tests contemplated by that letter were completed on December 28, 1978, and during the next two days the unit was brought up to approximately full power and declared to be in commercial service.
During the closing stages of the Met-Ed rate case, no one cuggested that the declaration that THI-2 wa s in com=crcial service was premature or sought to exclude TM1-2 from rate base.
Indeed.-the Consumer Advocate had sought to exclude portions of Met-Ed's inv e s tm en t on the alleged ground that TMI-2 should have been
- r. omp l e t e d at an earlier date.
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l There have also been suggestions that income tax 4
I considerations dictated the physical operation of the unit.
i t
This is also not true.
As I previously pointed out, the I
physical operation of the Unit isegoverned by the NRC operating license; it is not afL tted by the question as to 9
whether or not depreciation deductions or investment tax t a k>e n credits may be for incone tax purposes.
I am not an expert on the income tax laws and regu-Intions, Uhich have their own special rules and. conventions.
Bovever, I was informed, in 1978, by GPU's tax department that TMI-2 would qualify for liberalized depreciation deduc-tions and investment tax credits in 1978 whether or not TMI-2 was declared to be in commercial service for Uniform System of Accounts purposes.
In other words, there are three separate criteria to be consid e red :
1.
For physical operations purp*oses, a
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nuclear unit may be operated once an NRC operat-ing license has been issued.
The particular power level at which the unit is opercted is determined by the terms of that operating license and compli-ance with the technical specifications which are made a part of that operating license; j
v.
5-2.
For accounting purposes, a nuclear generating unit is to be declared to be in com-mercial service and to be tra.nsferred from CWIP to plant in service (with the correlary that AFUDC accruals and capitalization of taxes and certain other costs stop) when the Unit is " ready for service" after a reasonable test period for which the FERC standard is not more than 120 days, unless the f acts jus tify a longer period; and 3.
For income tax purposes, depreciation deductions may begin and investment tax credits may be taken even though the unit has not been declared to.be in commercial service for Uniform System of Account purposes.
Saticfaction of the first criterion, namely, obtain-ing the NRC operating license, will always precede, and be indispensable to, satisfaction of the second and third criteria.
Moreover, satisfaction of the third criterion may occur prior to satisfaction of the second criterion.
In summary, well in advance of the event, we set forth the detailed steps to be taken leading to a declara-tion of commercial service for TMI-2.
Over a period of many months we sought to present to the Commission and to
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the. parties to the rate proceedings of Het-Ed and Penelee the various considerations and factors bearing upon the determination of the appropriate time to transfer THI-2 from CWIP to Plant in Service'and the accounting and financial consequences of that action.
We periodically reported on the progress of testing and invited the vit-1978 The declaration on December 3 0, nessing of tests.
of THI-2 as being in commercial service was consistent with the criteria that had previously'been presented to the conmission.
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METROPOl.lTAN EDISON C O M P A N Y sos,ioi.,y o, com,.i eosnc uir., ce,no,,1,oo Subject Amendment No. I to DPR-73 Location Three Mile Island Date December 3, 1979 To M. F. Travieso-Diaz, Esquire During my deposition taken by the NRC/TMI Special Inquiry Group on
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September 24, 1979, I was asked certain questions concerning Amendment No. I to the Three IRle Island Unit 2 Facility Operating License No. DPR-73 issued by the U.S. Nuclear Regulatory Commission on March 3,1978 (reference transcript pp. 127-130).
The first question (p. 127, lines 12-14) implied that the Amendment permitted the postponement of certain hydrostatic tests.
Such was not the case, the Amendment did not permit the tests to be postponed, rather it allowed the tests to be performed at temperatures and pressures other than those originally provided in the Technical Specifications.
The next question related to the delays which would have been occasioned by f ailure to obtain the change or modification in the Technical Specifications (p. 128, lines 5-7).
In this regard, adherence to the original Technical Specifications in conducting the hydrostatic testing would have required the removal of the fuel from the pressure vessel because the testing temperatures and pressures could not be met with fuel in the vessel.
This would have caused a delay up to six weeks.
~
However, it is important to recognize the distinction between the hydrostatic test covered by ASME Section III (called for in the Technical Specifications) and the hydrostatic test contemplated by Metropolitan Edison Company for which Amendment No. I was requested.
The Section III test is an initial system test and constituted a full and complete hydrostatic test.
With respect to TMI Unit II, the Section III test was completed and accepted by the inspector on June 3, 1977. The test for which Amendment No. I was requested was a " leak" test which was to be performed because certain new mechanical pressure boundaries were established following the Section III test.
The new mechanical pressure boundaries are described in the
" Discussion" of the Safety Evaluation by the Office of Nuclear Reactor Regulation Supporting Amendment No. I to Facility Operating License No. DPR-73, a copy of which is enclosed.
Since the Section III test had been completed, ASME Section XI wac applicable to the intended test under Amendment No. 1.
Section XI allows alternate test temperatures and pressures, including the temperature and pressure permitted under Amendment No. 1.
lNTER-OFFICE MEMORANDUM
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]
M. F. Travieso-Diaz, Esquire December 3, 1979 i
i 4
One of the consideratio..r for performing the test at a lower temperature l
was the ability to locate leaks, if any, more precisely in a non-steam i
environment.
If tests are conducted et temperatures above the boiling poiat, the leakage immediately evaparates at ti.e point of dischar,;e f rom the pressurized system.
Unless the leak is sufficient to crea':e a general steaa atmosphere in the vicinity of the leak, the leak may not be able to be identified because of the absence of water accumulation. When the test is performed at a temperature lower than the boiling point, the area of the leak is easier to access and the point of discharge likewise is easier to locate.
Since the. E Codes could be met, and Babcock & L'ilcox ascertained that i
the tests could be perfor.ed safely within the proposed temperature and pressure parameters, the varianc.e, from the Technical Specifications sought in Amendment No. I were appropriate.
9 i
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UC JA.'.1-vi)L -
R. C.
trnold RCA:rt t
Enclosure 4
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