ML19309D015
| ML19309D015 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek, 05000363, Crane  |
| Issue date: | 04/03/1980 |
| From: | Hafer F GENERAL PUBLIC UTILITIES CORP. |
| To: | Vollmer R NRC - NRC THREE MILE ISLAND TASK FORCE |
| Shared Package | |
| ML16341C651 | List: |
| References | |
| NUDOCS 8004090477 | |
| Download: ML19309D015 (140) | |
Text
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GPU Service Corporation gen 100 Interpace Parkway uwW Parstocany, New Jersey 07054 201 263-6500 TELEX 136-482 Wnter's Direct Cial Nurnber (201) 263-6013 April 3, 1980 t
Mr. Richard H. Vollmer Director, Three Mile Island-2 Support Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission 7920 Norfolk Avenue Be'.nesda, Maryland 20014 RE:
NRC Docket No. 50-289 - TMI-l Restart Proceeding
Dear Mr. Vollmer:
In response to the NRC's requests in connection with the above-captioned proceeding for financial information enclosed with your letter dated September 31, 1979Property "Letter" (as page type) with input value "Unable to interpret the "September 31, 1979" input value as valid date or time component with "Month 9 in year 1979 did not have 31 days in this calendar model." being reported." contains invalid characters or is incomplete and therefore can cause unexpected results during a query or annotation process. to R. C. Arnold, and supplementary requests for financial information telecopied to C. W. Smyth on November 9, 1979, enclosed are eight copies of the following:
1.
Additional response to Supplementary Financial Information Request No. 10 (NJ BPU's inquiry as to supply options for Jersey Central's service territory).
2.
Additional response to Financial Information Request No. 9 (PA PUC's TMI-l and Met-Ed franchise "show-cause" proceeding).
Please acknowledge receipt of this material by signing, dating and returning the enclosed copy of this letter. A stamped, self-addressed envelope is enclosed for that purpose.
Sincerely yours, f
(k Y
pl ph F. D. Hafer Vice President k
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Rate Case Management N
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g (Q FDH:j b Enclosures cc:
J. C. Petersen (W/ Enc.)
- 3. Silver (W/0 Enc. ; to be distributed by NRC) i 80040 90p/
GFU Servce Cor::orat;cn is a n.cc:c47 :. Oere.u Puoiic Utdmes Corporaticn h
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Person Responsible for Preparation:
F.
D. Hafer, Vice President - Rata Case Management, GPU Service Corp.
Telephone:
(201) 263-6018 Date:
April 3, 1980 Page 1 of 2 GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Company, Pennsylvania Electric Company and Jersey Central Power & Light Company NRC Docket No. 50-289 Three Mile Island Unit No. 1 Restart Proceeding Additional response to NRC Staff's Supplemental Financial Information Request No. 9, telecopied 11/9/79 (item number refers to initial requests dated 9/21/79):
"(10.b and 10.c) Subsequent to our September 21, 1979 request, it was reported (Wall Street Journal, November 2,1979, p.
- 12) that the, Pennsylvania Public Utility Commission (PPUC) issued a show cause order to Met-Ed regarding the company's ability to provide utility service in Pennsylvania.
Provide copies of the PPUC order and copies of Met-Ed's response to the order when available.
Continue to keep the NRC Staff informed of all developments in the show cause proceeding.
Provide copies of all subsequent PPUC orders and other directives and Met-Ed responses related to this proceeding."
Response
As'an additional response to this request, enclosed are copies of the following:
1.
Exhibits of the companies' witnesses before the PA PUC in the Meted /
Penelec consolidated proceedings in Docket No. I-79040308.
The enclosed exhibits include those items prepared and submitted as part of the companies' direct case, as well as those exhibits prepared in response to requests of the intervening parties.
The enclosed exhibits are as follows:
A.
J. G. Graham /F. D. Hafer Exhibits A-88 through A-101 inclusive.
Exhibit A-88 is the 1979 Annual Report of General Public Utilities Corporation.
B.
R. C. Arnold Exhibit D-10 through D-12 inclusive.
C.
B. H. Cherry Exhibits E-34 through E-40 inclusive.
D.
E. F. Carter Exhibits J-14 through J-22 inclusive.
E. Newton, Jr. Exhibits G-13 and G-14.
E.
I F.
Exhibit P-1, an order adopted 4/20/78 by the PA PUC which denied the application of.the three GPU operating companies for a realign-ment of their ownership interests in TMI-2 and the proposed Forked River nuclear generating station, which is a general exhibit not sponsored by any specific company witness.
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Parmen Raaponsible for Preparation:
F. D. Hafer, Vice President - Rate Case Management, GPU Service Corp.
Telephone:
(201) 263-6018 Date: April 3, 1980 Page 2 of 2 G.
H. M. Dieckamp sponsored Exhibits F-1 and F-2, the primary Report of the President's Commission on The Accident at Three Mile Island, dated 10/30/79, and the report, issued in January, 1980, by the Nuclear Regulatory Commission Special Inquiry Group directed by Mitchell Rogovin, Esq., respectively.
'n'e have not enclosed these reports as we presume you have the same available to you.
2.
Transcripts of hearings in Docket No. I-79040308 held on January 17, 1900; February 13, 27 and 28, 1980; and March 18, 1980.
e
Parcon Rmaponsible for Preparation:
F. D. Hafer, Vice President-Rate Case Management, GPU Service Corp.
Telephone:
(201) 263-6013 Date:
April 3, 1980 GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Compeny, Pennsylvania Electric Company and Jersey Central Power & Light Company NRC Docket No. 50-289 Three Mile Island Unit No. 1 Restart Proceeding Response to NRC Staff's Supplemental Financial Information Request No. 10, telecopied 11/9/79 (item numbers refer to initial requests dated 9/21/79):
"(10.b and 10.c)
Subsequent to our September 21, 1979 request, it was reported (Newark Star-Ledger, November 3, 1979, p. 6) that the New Jersey Board of Public Utilities (NJ BPU) is studying alternatives to JCP&L's franchise, in;1uding a possible transfer of the franchise to another authority.
Provide any information available to JCP&L regarding the scope of the study alternatives to be considered and target date for the report.
Provide copies of any related NJ BPU orders and directives and any JCP&L responses thereto."
Response
The NJ BPU on !! arch 13, 1980 announced its decision to retain Arthur Young
& Company as the consultant to pursue the strategic options study.
Adding tv our previous responses to this request, enclosed is a copy of the NJ BPU's press release regarding the selection of Arthur Young & Company, a copy of Arthur Young's proposal as presented to the NJ BPU on 2/8/80 and a copy of Arthur Young & Company's revised detailed work plan expanded to include a preliminary review of the short-term viability of Jersey Central as transmitted to Dr. F. S. Grygiel, Chief Economist of the NJ BPU, under letter of 3/26/80.
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3.Vs wa ARTHUR YOUNG & CO M PANY 277 PARK AVENUC N EW YC R K, N. Y. l O C17 March 26, 1980 Dr. Fred S. Grygiel New Jersey Board of Public Utilities 1100 Raymond Boulevard Newark, New Jersey 07102
Dear Dr. Grygiel:
As we discussed in our meeting on March 17, we have revised our detailed work plan.
The following revisions reflect the Steering Committee's request to include a preliminary review and evaluation of the short-term viability of the company:
A summary overview of the major revenue and expenditure streams faced by the company over the next five years.
This will not be a detailed analysis, but will be limited to the use of company projections, modified where possible to develop reasonable estimates of the company's financial position.
A review of the legal issues and financial implications of bankruptcy.
This will include the identification of the affected parties, and where possible, a quantifi-l cation of the cost of this option.
A short-term analysis (18-24 month time frame) concen-trating upon the identification of operational and financial opportunities for improving the company's cash flow.
In order to satisfy these additional requirements, we have provided for an expanded role for the legal, investment banking and operations analysis teams.
During our meeting, we estimated that the work described above would require approximately six to l
eight weeks.
Based on our revised work plans, we believe that this work can be completed in eight weeks.
,'. '!'s AGTH U R Yo u N G & Co M PANY
. Since many of the tasks in our work plan must be performed sequentially, we have increased our estimate of the time required for the completed study.
We believe that the project teams can complete all study tasks in a thirty-six week period from the starting date.
The ten-week increase from the original work plan reflects the expanded scope at the beginning of the project, and an additional two weeks for the analysis of the elasticity in demand outlined in Task 19 We believe that this revised work plan meets the require-ments outlined by the Steering Committee.
As we discussed by phone today, it is our understanding that you will be forwarding copies of our revised work plan to all members of the Steering Committee for their review and comment.
In addition, we will review this plan with our participating legal, investment banking and economic associates for their comments.
If you will coordinate the return to us of all comments from Steering Committee members, we will endeavor to reflect these comments in a final draft of the work plan for our April 10 meeting.
We recognize this may require some additional discussion with you or other Committee members prior to this meeting.
We look forward to discussing the project with you, and will be available, at your convenience, to hold informal dis-cussions.
please contact me at (212) 922-2997 or Mr. Robert E.
Ne'Ison at (212) 922-2990 if you have any questions regarding this revised scope statement.
Ve yv s,
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Dona 1d
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Task 1 - project Initiation - pre-contract Our experience has demonstrated that comprehensive orientation and planning at the initiation of a study of this complexity provide a sound foundation and perspective for sub-sequent tasks.
In this initial task, we will broaden our under-standing of study objectives and scope as viewed by the Board and its representatives.
We will accomplish the following:
1.1 Conduct Orientation Meetings A series of orientation meetings will be conducted with:
Board representatives, to arrange coordination during the study and provide initial input into refining our methodology and defining strategic policy options.
Company representatives, to present our meth-odology for the study and establish the mechanism for obtaining information relevant to the study.
Other interested parties, tb.present our methodology for the study and solicit their input into defining strategic policy options.
1.2 Revise The Workplan Any changes to the initial work plan which. result from the project initiation tasks will be included at this stage.
These changes will be reviewed with the Board's representatives:
Revise work plan Detail deliverables Finalize project organization 1.3 Review The Workolan With The Steering Committee 1.4 preoare Draft Contract For Review 1.5 Finalize The Contract 1.6 Organize Study Team The study team members assigned will be assembled to discuss and review task assignments, the wo rk schedule, and the study control procedures with our project irector.
1.7 Identify The Financial, Operational And Legal Information To Be Reviewed 1.8 Begin The Preliminary Research And Review Task 2 - Background Research The following list of review material will be updated, based on our preliminary review in Task 1.7.
The purpose of this review is to provide a common source of background material for team members as quickly as possible due to the requirements for analyzing short-term viability and bankruptcy.
We believe that this basic research is a priority which will require a greater investment of time than originally pla,aned at the front end of the project.
2.1 Review Statutory Requirements Public Utilities Holding Company Act of 1935 New Jersey Public Utilities Board Regulations Price-Anderson Act 2.2 Review Articles Of Incorporation General Public Utilities e
Jersey Central Power & Light a
2.3 Review Regulatory Proceedings All recent regulatory proceedings before the Board involving Jersey Central will be reviewed to determine their impact on the study.
Pre-TMI (the most recent case prior to TMI)
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Post-TMI 2.4 Review prior New Jersey State power Authority Studies The prior studies undertaken by the Board concerning the creation of a state power authority or a mechanism fc r financial l
assistance will be reviewed in more detail.
These reviews will provide further background as to the options to be considered and l
any special analyses to be prepared.
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s 2.5 Review Management Reports /Special Studies Selected reports (identified in Task 1.7) involving Jersey Central or General Public Utilities (GPU) will be reviewed to determine their impact on the study.
Management Audit Reports Consultant Studies Internal Studies
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Pennsylvania Commission Studies related to TMI N.J.
Board Studies related to TMI Power Pool Studies 2.6 Review Financial / Operating Statements Audited Statements Board of Public Utility Reports a
Internal Financial Statements 2.7 Review Credit Agreements Bond Indenture a
Bank Debt including revolving Credit Agreements Preferred Stock 2.8 Prepare A Summary Outline Of Significant Items From These Documents Impacting The Conduct Of The Study Statutory Restrictions Rate making process Make-up of rate base Rate of return Cost flowthroughs Financial Restrictions Coverage Requirements Financing Instruments Options Other major items
2.9 Jersey Contral/GPU Update's Project Team on Events Related To TMI 2.10 Identify And Follow Up On Other Information Requirements Based On Steps 2.8 And 2.9 Task 3 - Overview Evaluation Of Financial Viability 3.1 Acquire Company Projections l
Revenue Operating Costs Fuel Costs Purchased Power Costs Cashflow I
Debt Service Preferred Equity 3.2 Compile Estimates Of TMI Damages Damage Estimates Insurance Recovery Estimates 3.3 Identify The Base Case Assumptions / Parameters Time Frame Discount Rate 3.4 Perform A Present Value Analysis NPV of Cashflow Projections 3.5 Review The Overview Evaluation With The Board Steering Committee Task 4 - Evaluation Of Legal Issues Surrounding Short-Term Viability 4.1 Define Bankruntcy As Related To Jersey Central This would include a definition of all relevant legal issues including the criteria related to voluntary and involuntary bankruptcy.
4.2 Identify The Parties That Would Be Affected By Bankruptcy, Including Where Possible A Quantification Of The Impact Task 5 - Review Of The Short-Term Viability Of Jersey Central The primary output from this task will be a series of funds statements reflecting operational and cashflow improvements.
This will include a description of key assumptions and potential financial restructuring alternatives.
5.1 Establish The Base Case Identification of the basic assumptions Evaluation of the usability of the Company projections Validation of the short-term demand projections Review of the impact of recent rate increas?a on the short demand forecasts Modification of the assumptions and data as necessary 5.2 Identification Of Cashflow Improvement Opportunities Operational improvements Income from sale of assets Deferral of capital expenditures Deferral of outside contracts
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5.3 Revise The Base Case To Reflect The Cashflow Improvements 5.4 Evaluation Of All Reasonable Financial Restructuring Options This would include the identification of all reasonable j
options, and the selection of the most viable alternations that could be pursued by the company.
5.5 Revise The Base Case To Reflect These Options 5.6 Analysis Of The Short-Term Viability Of The l
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Task 6 - Presentation Of The Results From The Short-Term Viability Analysis To The Board This presentation would include a review of:
The base case financial projections; The revised base case reflecting the operational and cashflow improvements identified in the analysis; and Any short-term strategies identified Task 7 - Identification Of Issues And Options The purpose of this task is to identify the key issues and related strategic options which should be addressed in this study.
The RFP suggests a number of options which should be con-sidered, and these, along with any others identified, will be evaluated.
The tasks involved in identifying the issues and options are:
7.1 Conduct Interviews To Identify Key Issues and Options A number of interviews will be conducted to ensure the identification of significant issues and options.
Those persons interviewed would include:
Board members and representatives Executives of Jersey Central and GPU Executives of sister utilities in New Jersey Executives of the Pennsylvania-New Jersey-Maryland (PJM) power pool Representatives of the Pennsylvania Public Utilities Commission Other appropriate parties 7.2 Outline The Key Issues Id en't i fied Following the in terviews, an outline of the key issues relating to Jersey Cent ral 7111 be developed.
These are expected tc include:
Ganoration requirements Legal / regulatory implications Economic impact Financing limitations Operations and costs It is essential for this outline to be comprehensive, in order to ensure that all significant strategic policy options are identified.
7.3 Outline The Key Options Available A preliminary list of the options available, which are responsive to the issues identified, will be developed.
A draft descriptive statemeut explaining each option will be prepared, including:
Legal entity required Potential financing instruments Operating characteristics 7.4 Review The Issues And Options To ensure the outlines of issues and options are com-prehensive, and that there is agreement on them early in the J
study, we will review them with the Board representatives and Company representatives.
If appropriate, we will also review the outlines of issues and options with the Board for their final input into the definition of strategic policy options to l
be studied.
7.5 Submit Written Status Report We will prepare a written status report to ensure that there is a clear understanding among all concerned of the issues l
and strategic options to be addressed.
7.6 Review And Update Work Plan The work plan will be adjusted to reflect any changes resulting from the issues and options identified.
Task 8 - Conduct Initial Screening Of Major Options The purpose of this initial screening is to identify those strategic policy options which represent potentially viable options which should be studied further.
This will help prevent the performance of additional analysis on options (alternatives to business-as-usual) which are not feasible.
The following analyses will be prepared for the options indicated below.
Any special studies prepared by Jersey Central /
GPU (or sister utili_ ties) related to these options will be reviewed, and once verified, the results of these studies will be incorporated into our evaluations.
8.1 Analyze Bankruptcy Option Identify any major legal / regulatory barriers to implementing this option.
Perform liquidation cost analysis to identify what the impact of bankruptcy will be on Jersey Central /GPU stockholders and lenders.
Evaluate the impact of bankruptcy on the capital markets and the ability of utilities to raise funds.
Prepare summary evaluation, indicating probable feasibility of option.
8.2 Analyze Utilities Consolidation Option Identify any major legal / regulatory barriers to implementing this option.
Estimate the cost of service of a consolidated utility relative to Jersey Central's cost of service.
Estimate impact of this option on rate payers.
Prepare summary evaluation, indicating probable feasibility of option.
8.3 Analyze State Take-Over Option Identify any major legal / regulatory barriers to implementing this option.
Perform a buyout cost analysis and analyze the State's ability to finance a buyout given its borrowing capacity and funding requirements.
Make a preliminary assessment of the political feasibility using as a guide the experience with other attempts to finance major expenditures, or takeover of private enterprise (as with certain New Jersey bus lines).
Prepare summary evaluation, indicating probable feasibility of option.
8.4 Analyze Investor-Owned Generating Company Option Identify any major legal / regulatory barriers.
Estimate the impact on electric rates relative to Jersey Central.
Estimate wholesale cost of power, taking into account any potential differerce due to rate of return allowed.
Prepare summary evaluation, indicating probable feasibility of option.
8.5 Analyze State Financing Optio,n Identify any major legal / regulatory barriers.
Identify the cost of State financing relative to Jersey Central, and in particular, determine the tax status of State debt.-
Estimate the rate impact of this option, based on the relative cost of State financing.
Identify other options for State financial support involving utility consortium ownership and management, or some form of State guarantee.
Prepare summary evaluation, indicating probable feasibility of option.
8.6 Analyze State Power Authority Option Identify any major legal / regulatory barriers to implementing this option.
Assess the State's ability to finance this option given its borrowing capacity and funding for other public programs.
Estimate the rate impact of this option, based on the relative cost of state financing.
Prepare summary evaluation, indicating probable feasibility of option.
8.7 Identify The Viable Options For Further Evaluation At this time, those options which are clearly not feasible, will be identified.
This will be based on an objective evaluation of 1 gal / regulatory barriers, financing requirements and restrictions, and political acceptability.
Any option for which feasibility is questionable, will be identified as requiring further study.
8.8 Review Analysis Of Options We will review the analysis of major strategic policy options with the Board representatives.
This will allow the Board's representatives to challenge the identification of options as not feasible, and will ensure that there is agreement on the options requiring further study.
Task 9 - Conduct Board presentation After agreement has been reached with the Board represen-tatives, our analysis of major strategic policy and options will be developed into a presentation for the Board.
Those options not feasible will be thoroughly documented.
The analysis of options will be cresented to the Board for their consideration.
The Board will approve those options requiring further study.
9.1 Submit Written Status Report We will prepare a written status report, indicating which options will be evaluated further, e.nd whieb will be eliminated from further consideration.
Once the initial screening of major strategic policy options is complete and those meriting further evaluation are identified, there are a series of tasks which must be completed, including developing and evaluating the underlying assumptions, performing additional analysis and finalizing the standard evaluation technique.
These tasks include:
Task 10 - Finalization Of Standard Evaluation Technioue The objective of this task is to provide an organized method for evaluating and ranking the various options being studied.
We will finalize a standard evaluation technique for studying each of the options, as well as develop a computer-based financial model to expedite the financial analysis and provide the capability for sensitivity analysis.
10.1 Finalize The Standard Evaluation Technioue On a preliminary basis, we have identified four evaluatier.
areas for each viable strategic policy option.
These. areas are:
Legal Analysis The legal parameters of an option, including:
Federal Constitution, statutes and regulations State Constitution, statutes and regulations Investment Analysis The financing alternatives of an option, in terms of:
the types of instruments available investment ratings capital availability interest rates Tax Analysis The tax implications of an option, considering:
the tax status of types of funding instruments the tax impact on entity income the impact on tax revenues at each level of government Financial Analysis The financial feasibility of an option, in terms of:
financing requirements and costs operating costs administration costs revenue requirements 10.2 Finalize Indicators For Each Evaluation Area Within each evaluation area, indicators for measuring the impact of implementing a given option will be identified, e.g.,
indicators for the financial analysis area could include:
Re',enue Adjustment - The difference between revenues earned based on the current rate structure and revenues required to cover operating and financing costs.
- Rates per kilowatt hour.
Cost af service per kilowatt hour.
Capi.a1 Funding - The amount of funds generated available to meet future capital axpenditure requirements.
10.3 Develop...nputer-Based Fina'ncial Model In order to facilitate the timely evaluation of the financial impact of each option, and also to provide a capability for sensitivity analysis of the key assumptions, a financial model will be developed.
The tasks required to develop the model will be:
Define the outputs and inputs.
This will include at least the financial indicators referred to above.
Obtain approval for detailed specifications from the Steering Committee.
Specify the logic to integrate the relevant revenue and cost factors, and provide the sensitivity analysis capability.
Program the model on a timeshare system.
Test and debug the model.
10.4 Precare Standard Documentation Package An evaluation package will be developed as a standard format for collecting all pertinent information relating to a specific option.
The basic format will include for each evalua-tion area:
Key Indicators Assumptions Support for Area of Analysis Professional Assessment 10.5 Review And Finalize Standard Evaluation Technique, Indicators, Financial Model And Documentation Package This review will be with Board representatives and Company representatives to obtain a consensus on our approach to analyzing and documenting the viable strategic policy options.
Task 11 - Confirmation Of Generation Reouirements The purpose of this task is to develop an estimate of the incremental generation capacity required.to satisfy the long-term requirements of the Jersey Central-f ranchise area.
Factors affecting both the future load demand sad oower supply will be reviewed.
11.1 Review Existing Forecasts Of Load Demand Review forecasts of load demand for the next 15-20 years for:
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Jersey Central /GPU The PJM power pool Sister utilities in New Jersey 11.2 Evaluate The Reasonableness Of Jersey Central /
GPU Forecasts Evaluate whether the load forecasts adequately reflect opportunities for load management and energy conservation.
Con -
sider the following factors:
How conservation trends will impact load demknd.
How load management will affect demand.
How rate design will affect demand.
The extent to which reserve requirements can be adjusted.
11.3 Review Existing Sources Of Power Supply Review the existing capacity to determine the extent of power supply from these sources:
Jersey Central Other GPU Subsidiaries The PJM Power Pool Sister Utilities in New Jersey Other Sources, e.g.,
Ontario Hydro This evaluation will take into account the analysis performed in Task 4, Evaluation of Power Plant. Operating Efficiency.
11.4 Review Capacity Expansion Plans Review capacity expansion plans and planned retirements for the next 15-20 years for:
Jersey Central /GPU
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PJM Power Pool
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Sister Utilities in New Jersey l
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e 11.5 Identify Future Sources Of Power Supply
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Identify the possible availability of future power supply from:
Excess capacity of sister utilities possible joint ventures to assure long-term supply of power Any other sources 11.6 Evaluate Generation Requirements For Jersey Central's Franchise Area This evaluation will be based on the following factors:
The estimate of future demand, based on the forecasts made by the utilities.
The estimate of future supply, based on future planned capacity of the utilities.
Any adjustments required, based on an evaluation of opportunities for load management, improved efficiency or conservation, etc.
A summary will be prepared which documents our evaluation of Jersey Central's generation requirements.
11.7 Review And Finalize The Generation Reauirements The results of our evaluation of generation requirements for Jersey Central will be reviewed with Board representatives and Company representatives.
This will result in a concensus on the future generation requirements of Jersey Central.
Task 12 - Confirmation Of Construction Costs In Ccpacity Expansion Plans In this task, we will review the cost estimating approaches used in projecting capital expenditure requirements for the Company.
Our review will cover both generation and transmission construction costs.
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12.1 Review Historical Cost And Schedule performance A review will be made of the Company's cost and schedule performance against original and revised plans to identify any recurring patterns or trends in cost or schedule variance which should be evaluated in detail.
12.2 Review project Cost And Schedule planning Estimates The systems and data employed to prepare, review and t.pprove project cost estimates and schedules will be reviewed for reasonableness.
The review will consist of a sampling of genera-tion and transmission projects.
Any points of disagreement or exceptions to cost and schedule estimates prepared by the Company will be identified.
12.3 Review And Finalize Construction Cost Figures The results of our evaluation of construction costs used in capacity expansion plans will be reviewed with Board representatives and Company representatives.
This will result in a consensus on construction cost figures to be used in the aanlysis of viable s~trategic policy options.
Task 13 - Identify Key Assumptions And Data Inputs Discount Rates Time Frame Inflation Generation Requirements Construction Requirement Unit Rates Task 14 - preoare Status Review For The Board The status review will cover progress to date on the study including those areas reviewed with the representatives of the Board and the Company.
The following topics will be included in the presentation:
Confirmation of generation requirements for Jersey Central service area.
Confirmation of construction costs for planned capacity expansions.
Identification of assumptions underlying the further evaluation of viable strategic policy options.
The standard evaluation technique and indicators.
14.1 Prepare And Conduct Board Presentation We will prepare a Board presentation to cover the progress achieved since the identification of strategic policy options requiring further study.
This presentation will high-light the results of Tasks 4-7.
A presentation will be made to the Board.
The Board will approve the standard evaluation technique developed and any assumptions underlying the further evaluation of options.
14.2 Submit Written Status Report We will prepare a written status report outlining the results of the Board presentation.
This is the third work pro-duct to be delivered to the Board.
Once the Board has reviewed and approved our standard evaluation technique and the basic assumptions and estimates made in Tasks 4-6, we will evaluate each viable strategic policy option previously selected by the Board.
Our standard evaluation of these options will involve:
Task 15 - Conduct Legal Analysis Of Each Viable Oction The objective of this task is to consider the pertinent constitutional, statutory and regulatory issues impacting each of the options.
A significant portion of the legal research will have been performed during the initial screening tasks.
Most of the legal criteria pertain to the State of New Jersey and the power of the State or an entity created directly by the State (usually through a State department) to carry out a project at the State level.
In addition to acting in its own right, a state may create a public corporation.
15.1 Ressarch The Partinent Federal Constitution Sections, Statutes And Regulations Identify prohibitions and restrictions Identify any changes required for each option 15.2 Research The Pertinent State Constitution, Sections, Statutes And Regulations Identify prohibitions and restrictions Identify any changes required for each option 15.3 Assess Legal Feasibility Of Option, In Terms Of:
Legal / legislative changes.
Complexity of changes Potential for litigation 15.4 Prepare The Legal Portion Of The Standard Documentation Package Task 16 - Conduct The Investment Analysis Of Each Viable Option The advantages and the disadvantages of financing alternatives will be analyzed for each of the options.
Since financing alternatives selection is dependent on market conditions and interest rates which are unpredictable, this step will identify reasonable alternatives that are feasible over a wide range of market conditions and monetary policies.
Careful considerations will be given to the capital market's ability to provide the capital funding required to more projects from the planning to operational stage.
Within the national investment scene, the market ability of New Jersey's electric utility issues, whether equity or debt, taxable or tax-exempt, will be evaluated. -
16.1 Determine Estimated Capital Funding Requirements The determination will be based on incremental planned capacity and the estimated cost per installed kilowatt, which will have been developed in an earlier task.
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16.2 Assess The Credit Worthinesa Of The Relevant Financing Authority This would be expressed in terms of probable ratings by:
Moody's Standard & Poor 16.3 Identify Financing Alternatives For Each Option All reasonable financing alternatives will be identified for each option.
For example, this list of alternatives 7ould include:
Equity issues General obligation bonds Revenue bonds Special assessment bonds Bank term loans 16.4 Identify The Key Features Of The Financing Alternative:
The terms and repayment schedule Funding period and the average capital costs Coverage requirement or similar restrictions on funding instruments 16.5 Assess difficulty In Marketing The Funding Instruments ibis will take into account the magnitude of capital funds required and the credit worthiness of the financing authority involved.
16.6 Prepare Investment Portion Of Standard Documentation Package
Task 17 - Conduct Tax Analysis Of Each Viable Option An important item in the study of alternative financing arrangements is the determination of the tax status of the entity and/or issues used to raise capital.
In this subtask, we will research pertinent income tax statutes, regulations, rulings and case law, and review pending legislation as they relate to the various financing alternatives.
Current House Ways and Means Committee studies and hearings on tax reforms, investment tax credit legislation, and other congressional actions to foster capital format.on will be included in the research.
17.1 Determine The Tax Status Of:
Funding Instruments Capital Properties Sales Revenues Entity Income 17.2 Assess Impact Of Tax Status On:
Federal Revenue-Sharing Local Tax Base State Tax Base 17.3 Prepare Tax portion Of Standard Documentation package Task 18 - prepare Financial Analysis Of Each Viable Option Each option will have a number of financial consequences that will impact upon the delivered cost of electricity.
Specific areas to be studied for each option are:
The cost of capital differentials Operating efficiency State and local tax base effect, including an analysis of payments in lieu of taxes Revenue requirements A computer model will be used, both to expedite the analysis, and to provide the capability for sensitivity analysis.
18.1 Calculato Investod Capital In Nec Facilitica This will be based on an assessment of incremental generation capacity required and the cost of capital under the option.
18.2 Calculate Kilowatt Hours Generated And Marketed f
This will be based on an estimate of generating unit availability and loss rate in transmission and distribution of power.
18.3 Calculate Cost Of Service Based On The Following Factors Production costs General and administration costs Property /other taxes Depreciation (if needed)
Income taxes Financing costs 18.4 Calculate Revenues Revenue requirement for the option to be financially feasible Revenue available under existing rate structure 18.5 Calculate Cash Flow Available For Future Capital Projects This will take into account noncash items such as depreciation, where applicable.
18.6 Prepare Financial Portion Of Standard Documentation Package Task 19 - Analyze Demand Elasticity In Terms Of The Revenue Reouirements Of The Strategic Policy Options The rate structure implicit in each policy option will be reviewed'to determine the impact on forecasted demand.
These rate structures will be compared against the current rate structure reflecting expected inflation rates.
Tack 20 - Rovico The Financial Analysis To Reflect Changes In Demand As Reficcted In Task 19 Task 21 - Finalize The Standard Documentation Package For Each Option The various portions of the standard documentation package will be edited, and a summary for the option will be prepared.
1 Task 22 - Prepare Summary Evaluation Of Viable Strategic Policy Options The analyses for Phase I will be integrated and evaluated, and'the results presented in this task.
The strategic policy option will be ranked both quantitatively and qualitatively for considera-tion by the Board.
22.1 Precare A Comparative Summary Of Options The key results will be summarized to facilitate compari-son of the options.
The comparative summary will focus on:
Legal indicators Tax indicators Investment indicators Financial ind ic ato rs Economic and political implications 22.2 Precare A Qualitative Ranking Of The Strategy Options This ranking will be based on the assessment of the legal / regulatory complexity and preliminary assessment of the political acceptability of each option.
22.3 Precare A Quantitative Ranking Of Options This ranking will be based on:
The estimated cost per kilowatt hour The revenue increase required to achieve i
the necessary return on investment l
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The feasibility of raising adequato financing As appropriate, other financial indicators 22.4 Prepare A Summary Ranking Of Options The summary ranking will be based on:
An assessment of the options which are feasible from the qualitative point of view The quantitative ranking of options Based on this ranking, we will recommend options for further study.
22.5 Review Results Of The Comparative Analysis And Ranking Of Options The results will be reviewed with:
Representatives of the Board Representatives of the Company Task 23 - Conduct The Board Presentation The comparative evaluation cf the options and the recom-mended ranking will be presented to the Board for their review and approval.
The two or three options to be studied further in Phase II will be identified.
23.1 Submit Written 4tatus Report This report will document the results of the Board presentation and will identify the strategic policy options to be studied in detail in phase II.
Task 24 - prepare phase I Report i
A report for phase I of this study will be prepared and presented in draft for review and comment by the Board and its representatives.
We will review the comments received and if appropriate modify our report and issue it in final form.
Our report will contain a summary section which will be written in terms that can be understood by a nontechnical reader.
It will also include the standard documentation packages for the options studied.
PHASE II:
IN-DEPTH REVIEW OF MOST VIABLE STRATEGIC POLICY OPTIONS The objective of Phase II is to analyze further the two or three most promising strategic options identified in Phase I.
Task 1 - Revise And Update Phase II Work Plan We will prepare an update Phase II work plan to:
Reflect input from Board in Phase I Finalize responsibilities of consultants and subcontractors Task 2 - Review Regulatory Proceedings And Results Of Relevant Studies As part of our responsibility to keep informed of the Board regulatory proceedings, we will review any proceedings or results which have implications for this phase of the study.
Task 3 - Conduct Political Impact Survey Experience with major public or utility undertakings has shown that political acceptance is key to their being success-fully implemented.
For this reason, we will survey key political constituencies to obtain their input to the evaluation of the
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strategic options under consideration.
3.1 Design Survey Of Key Constituents Describe the strategy options and their likely impact Develop questions to solicit input on j
the options' socio-political desirability Review the survey wi.th representatives of the Board and the Company 3.2 Perform Survey Of Key Constituents To Solicit Inout The members of the State Legislature Consumer groups
Utility representativos Business groups Other interested parties 3.3 Summarize The Results Of The Survey Task 4 - Update The Financial And Economic Analysis Phase I included a financial analysis of each option.
At this stage the financial analysis will be reviewed, and the validity of the assumptions in particular will be re-evaluated.
It may-also be appropriate to perform more in-depth analysis in some areas.
4.1 Review Financial Analysis And Economic Impact The areas for review for each option will include:
Financing requirements and costs Revenues and revenue requirements Operating costs Administration costs Each of the strategic options could result in different costs of power for the users in the Company's service area.
The cost of power can significantly impact the economic attractiveness of the service area to industry, as well as the standard of living of the residents.
Ac co rd ingly, the impact of each option will be evaluated in terms of:
The increase / decrease in rates charged to residents, relative to what they have historically been charged,. and the rates
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The rates charged to industry, particularly large energy users, and how this compares to rates in other service areas where industry would consider locating.
e Task 5 - Review The Results With Board And Company Representatives i
The results of the work to date in Phase II will be reviewed with the representatives of the Board and the Company.
j The review will cover:
The results of the political acceptance survey The updated financial and economic analysis Following the review, a written status report will be developed and presented to the Board for approval.
Task 6 - Develop Legal Implementation Plan In addition to the legal analysis conducted in Phase I, legal issues relating to the two or three most promising options may have to be explored further.
The additional legal analysis would relate primarily to evaluating the legal / regulatory com-plexity of implementing the strategic options under consideration, and identifying the legal steps required to implement each option.
Task 7 - Develop Organization Implementation Tasks A detailed implementation plan will be developed for each option.
This will include an estimated implementation timetable.
Task 8 - Develoo Consolidated Implementation Plan The implementation plans will include tasks relating to:
Regulatory, legal and legislative Organizational and administrative Financing and cash flow The estimated costs of implementing these tasks will also be developed.
J Task 9 - Develop Recommendation For Interim Regulatory Treatment We will develop alternative approaches to regulatory treatment of the Company for the period between the completion of the study and implementation of any structural remedy.
The approaches will focus on developing an appropriate rate strategy for the Board.
Following consideration of the alternatives, a recommended treatment will be developed.
i Task 10 - Review The Results The results of the following tasks will be reviewel with the representatives of the' Board and Company:
The legal implementation plan The organization implementation plan The consolidated implementation plan Task 11 - Develop Priority Ranking For Strategic Options At this stage, the analysis in Phase II will be integrated and evaluated on a comparative basis, to determine the priority ranking of the options.
We will prepare a qualitative ranking of options.
The following factors will be considered for each option:
The results of the political acceptance survey The assessment of the legal or legislative complexity of implementing the option The assessment of the organizational or operational complexities involved in imnlementing A degree of difficulty ranking will be developed fo r each of these factors.
We will also prepare a quantitative ranking of options.
Each of the options will be evaluated in terms of:
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Financing requirements and cost Operating and administrative costs Construction costs Cost of electricity The relevant indicators for each area will be developed for purposes of presenting the results.
A summary evaluation and ranking of options will be developed.
This summary evaluation will be based on:
An assessment of the option which is feasible from the quantitative point of view The quantitative ranking This evaluation will be reviewed with the representatives of the Board and the Company.
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Task 12 - Prepare And Conduct Board Presentation Tha results of this study will be summarized and recom-mendations will be developed for presentation to the Board.
Task 13 - Prepare Written Progress Report The results of the analysis, and the recommendations emerging from Phase II will be summarized in a written progress report.
The report will be presented to the Board for review and approval.
Task 14 - Prenare Pht.se II Reoort We will prepare a Phase II draf t report and review it with the representatives of the Board and the Company.
We will incorporate any review comments in our final report.
Task 15 - Give Exnert Testimony We will p'repare expert testimony for use in Board pro-ceedings, and will give testimony as and when required.
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State of Netu 3lerseg OFFICE OF PUBLIC COMMUNICATIONS TRENTON. NEW JERSEY 0662S (609) 292 9600 FCR RELEASE CONTACT: George Dawson Shrch 13.1980 (201) 648-2529 NENARK -- The Baord of Public Utilities awarded a contract today to Arthur Ycung 5 Co., of 277 Park Ave., New York, a management consulting firm, for a study of future optiens for the financially troubled Jersey Central Power 5 Light Co.
The study will take six to eight months to complete and cost an estimated
$500,000. The Board directed the firm to study whether the ultimate costs-to Jersey Central custcmers of the accident at the Three Mile Island No. 2 nuclear plant in Pennsylvania 12 months ago could be lessened if the corporate structure of the conpany was changed or reorganized.
Tne consultant will study the impact of the options of a company merger with Public Service Electric 5 Gas Co., Atlantic City Electric Co., or any other utility; state financial guarantees to the ccmpany for future borrowing; state operation cf scme or all of the generating plants of the ccmpany thrcugh a power authority; astatetakeoveroftheAcmpany;andccmpanyreorganizationthroughbankruptcy proceedings; among others.
"The Board is cennitted to see that the study goes forward in all its parts,"
president George H. Barbour said.
"The censultant will give equal attentien to all the options, and study them in a way to bring cut all possibilities."
The Eoard invited management consultant fims nationwide en Jan.11 to submit proposals for the study, and received 11 respenses. These ccmpanies were narrcwed to three by the Board last week, and the finalist selected today.
The review of the responses was undertaken by Dr. Fred Grygiel, the Board's chief ecencmist, with the assistance of a panel of three evaluators. The Public Advocate, Jersey Central Power 5 Light, and other parties of interest in the study, were also invited to ccament on the selection.
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_2 Barbour said the Arthur Young company was reccmended unanimously by Grygiel and the three evaluators, as well as by the parties.
The members of the evaluation team were Dr. Michael Crew, assistant professor of economics for the Graduate School of Business, Rutgers University; Dr. Paul Kleindorfer, professor of decision sciences for the hharton School, University of Pennsylvania; and Dr. Michael Jensen, professor of finance and director of the Managerial Science Research Center, University of Rochester.
Jersey Central, the second largest of the four investor-owned electrical utility companies serving New Jersey customers, is a 25 percent owner of the Three Mile Island No. 2 plant, which was damaged by a nuclear accident on March 28, 1979.
H e company also owns 25 percent of the Three Mile Island No. 1 plant, which had been shut down for maintenance before the accident and will not be allowed to re-open until the approval of design and operations changes by the federal Nuclear Regulatory Comission.
The principal owner and operator of both plants is Metropolitan Edison Co.,.
of Reading, Penn., a sister company of Jersey Central.
Both companies are wholly owned subsidies of General Public Utilities Corp., of Parsippany-Troy Hills.
The Board approved an increase of $41.7 million in annual revenues for Jers':y Central last June, to pay the costs of replacement power purchased to offset the 1(ss of the two Tnree Mile Island plants, and will be considering a request for an additional $37 million in annual replacement power revenues in a few weeks.
The Board has also requested legal memoranda on the question of whether to find Jersey Central at " fault" in the Three Mile Island No. 2 accident; and if so, whether to order a reduction in rates as a consequence.
It expects to start hearings on this issue shortly.
He Board has also decided to hold hearings on the question of whether Jersey Central's investment in Three Mile Island No.1 should be removed from its rate base, so that current customers are not required to pay towards the cost of that investment.
Le Bocrd removed the damaged Three Mile Island No. 2 plant frca the Jersey Central rate base last year.
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-MORE-s Arthur Young 4 Co. is not boing required to address the " fault" issun in its own study, although it must incorporate any findings made by the Board on this matter in its final report.
The firm will address the issue of ccmpany financial needs and the impact en customers of a possibic bankruptcy action in an early phase of its study, and report en this in three months.
The specific cost of the study will be the subject of further negotiation and final approval by the Board. 'Ihe Board also retains the right to approve any subcontractor. Jersey Central will be responsible for the costs of the study, other than staff support services provided by the Board. Grygiel will remain as the project director.
"The major concern of this study is the impact of the Three Mile Island accident on Jersey Central Pcwer S Light's ability to provide pcwer to its custcmers at a reasonable cost." the Board said.
It said the study will address the question of whether the " ultimate cost of the accident will lead to proposed increases in rates which are higlier than under an alternative corporate structure or a new state entity." -.
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