ML19309D025
| ML19309D025 | |
| Person / Time | |
|---|---|
| Site: | Wolf Creek, 05000363, Crane  |
| Issue date: | 02/29/1980 |
| From: | ARTHUR YOUNG & CO. |
| To: | |
| Shared Package | |
| ML16341C651 | List: |
| References | |
| NUDOCS 8004090483 | |
| Download: ML19309D025 (125) | |
Text
e 4EW JERSEY BOARD OF PUBLIC UTILITIES A 3rooosa o Concuc-An Anaysisa S ra egic Oo-lons for
.erseyCenTa bwer& _igTComoany ARTHURYOUNG February 1980
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ART H U R YO U N G & COM PANY P
27 ' PAR K AVE N U E N EW YORK, N. Y. BOOT 7 February 8, 1980 Mr. George H.
Barbour President, Board of Public Utilities Department of Energy State of New Jersey Newark, New Jersey 07102
Dear Sir:
Arthur Young & Company is pleased to present this proposal to perform an analysis of strategic options for Jersey Central Power & Light Company.
This proposal has f
been prepared in response to the Board's Request for Pro-posal (RFP) dated January 11, 1980, and is in all respects responsive to the requirements of that RFP.
Our proposal is comprised of:
An Executive Summary, which summarizes our tech-nical proposal.
A technical proposal, which presents our detailed response to the RFP.
We believe that Arthur Young & Company is particularly well qualified to conduct this analysis of strategic policy options bechase:
We have a reputation for objectivity, independence and competence.
Thesa attributes will be an essen-I tial requirement for the successful completion of this study.
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We performed a similar study for the Governor's Advisory Commission on Electric Power Alterna-
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tives in the State of Michigan.
Several key members of our proposed study team participated in the Michigan Study.
We have extensive experience in providing manage-ment consulting services in the utility industry.
.I Our services have included: conducting management audits, serving regulatory commissions, and recom-mending improvements to utility operations.
We are supplementing our own skills in specific areas by retaining the services of qualified firms in the areas of investment banking, law, utility economics, and utility engineering, j
We believe chat the study will be complex and time consuming, and vill require the commitment of substantial Board, Jersey Central and consultant resources.
Based upon our understanding of the Board's requirements, we believe the study we propose can be accomplished in a six-month period from its initiation.
r We appreciate the opportunity to respond to your request for proposal and look forward to discussing our proposal with you.
We will be available, at your convenience, to hold infor-l mal discussions or to make a formal presentation.
Please con-
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tact Mr. Donald E. Law at (212) 922-2997, or Mr. Robert E. Nelson I
at (212) 922-2990, if you have any questions regarding this roposal.
Very truly yours, i
EXECUTIVE
SUMMARY
Arthur Young & Company has been invited by the New Jersey Board of Public Utilities (the Board) to submit a proposal to perform an analysis of strategic policy options for Jersey Central Power & Light Company (Jersey Central).
This Executive Summary presents highlights from our technical proposal and is organized as follows:
Understanding of the Problem Objectives and Scope Strategic Policy Options Study Methodology Organization and Qualifications Understanding of the Problem The New Jersey Board of Public Utilities is in the diffi-cult position of addressing the regulatory concerns of cost and safety in its investigation of the accident at the Three Mile Island Nuclear Generating Station.
In meeting its responsibilities, the Board must evaluate the ability of Jersey Central Power &
Light Company / General Public Utilities to meet existing and future requirements of its franchise to provide safe, reliable and cost-effective electric service.
The Board faces a number of significant policy issues in the evaluation of strategic policy options.
These issues include:
Whether there are sufficient cost differences'in opera-ting either investor-owned or publicly-owned systems to favor one form of organization over the other.
To date, there is little evidence that public authority power would be produced at a materially different cost of service than private utility power.
However, in today's financial environment, publicly-owned systems may have lower capital costs and taxes.
.1 The extent of potential legal and political obstacles to initiating constitutional, statutory and regulatory changes at both the Federal and State level, if alter-nate organization structures are warranted.
The Company's response to any actions which it may consider contrary to its well being, must also be considered.
The Board must also face the issue of public acceptance to further State involvement in the utility industry.
The Board has requested the services of a consultant to evaluate the strategic options available in the aftermath of the Three Mile Island acciden?.
We believe that, on behalf of the Board, the consultant will need to address two fundamental questions, as follows:
First, will the Company be able to provide safe and reliable electric power to existing and future cus-tomers at a reasonable cost?
Second, is there a more cost-effective means of deliver-ing electric service to existing and future customers?
Once the above questions have been answered adequately, the Board should be able to pursue a policy strategy consistent with its regulatory responsibilities.
This strategy should be based 1
on a careful balancing of the vested interests of the Company, its debtors and shareholders, customers and other interested parties, including the general populace of the State of New Jersey.
Objectives and Scope In its RFP, the Board is explicit in defining the primary objective of the consulting study as follows:
"To determine, evaluate and prioritize a range of alter-native steps available to the Board to ensure the safe and reliable delivery of electricity to customers in Jersey Central's service territory at the lowest possible cost."
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The study is to be conducted in two phases, each of which has specific objectives.
It is apparent that the scope of the study envisioned by the Board is comprehensive and that the consultant selected will need to identify and address the full range of strategic policy options available in studying the financial and economic problems currently and prospectively facing the Company.
phase I is to involve the identification and screening of viable strategic policy options in terms of their financial and economic feasibility, as well as their legal complexity and political acceptability.
Phase II of the project is to. consist of an in-depth study
.e of the most viable strategic policy options as selected by the Board and will entail further evaluation of legal, political and economic issues as well as reassessment of the financial analyses prepared in phase I.
At the conclusion of this study, we will identify a preferred strategy for consideration by the Board, and will prepare an implementation plan for that strategy including legal and organization steps to be undertaken.
In addition, an interim regulatory treatment will be recommended for adoption by the Board, for the period prior to the implementation of any strategy emerging from the study which involves major structural 1
changes.
f Strategic policy Options j
The scope of this study is comprehensive, and available l
policy options which are to be addressed have not been limited.
f Based on-the.information contained in the RFP.and our prior ex-perience in performing a similar study for the State of Michigan, i
we have identified, on a' preliminary basis, the following major strategic policy options:
_4-Business As Usual This option may be feasible if the Company's rate struc-ture is adjusted to the level necessary to meet interest coverage, preferred and common stock dividend requirements, and contribution to retained earnings.
While this option appears to offer an advantage in terms of minimal structural charge, it may also be difficult to justify to the Company's cust omers in view of recent increases in rates.
1 Bankruptcy A key consideration in this option is the impact of bank-ruptcy on the ability of the Company and other utilities to meet future capital funding requirements.
Moreover, bank-Dunediate hard-ruptcy would potentially cause a severe, ship for the Company's shareholders, some of whom are dependent upsn existing dividends for a significant portion of their income.
Utilities Consolidation This option will consider the full merger of Jersey Central into a sister utility in New Jersey or a transfer of a portion of the Jersey Central franchise area.
The underlying issue of this option is the impact on the cost of service to the rate payers in the Jersey Central fran-chise area, as well as the rate payers of the utility which absorbs all or a part of Jersey Central.
State Take-over The key considerations of this option are the borrowing capacity of the State and the impact of a State take-over on the potential funding of other public programs (e.g., mass transit).
It would represent, moreover, a major new manage.nent responsibility to the State and a major shift frou private ownership to State control.
New Investor Gwned Generating Comoanv This option will consider the establishment of a separate generating company within the General Public Utilities structure or as a joint venture involving New Jersey utilities.
The underlying issue of this option is the cost of power passing through from a wholesaler to the retailer ' and ultimately to the con-sumer.
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. State Financing / Guarantees The key issue of this option is the potential impact on rates resulting from possibly lower financing costs attributable either to the tax exempt status of the investment instrument or the credit worthiness of the State.
Another important issue under this option is avoidance of the burden of direct management over the generating company by the State.
State financing or assistance in terms of financial guarantees will also be considered in connection with a consortium of existing shareholder-owned utilities.
This has the advantage of combining the closer, continuing involvement of State government with existing company expertise in providing reliable and economical service to the consumer.
State power Authority This option will consider the establishment of a State authority to construct new generation facilities and operate as a wholesaler (or possibly also a retailer) of electric power.
In addition to lower finance costs, the under-lying issues are the cost-effectiveness of public versus private power and the impact on the State and local tax bases.
This option would result in State involvement in the generation and delivery of power to the maximum degree and represent a major new approach within the State.
There are also a number of variations on these options, and possibly other options, which will be identified early in the study.
Study Methodolovv Our methodology involves two phases, each of which will provide specific work products for consideration by the Board and its representatives.
Phase I - Identification and Evaluation of Strategic Policy Options The major tasks in this phase, and the associated work products, are as follows:
. e Identifit.ation of the key issues and options which should be addressed.
This task w;11 include a series of interviews with appropriate parties to solicit their input.
Result:
A formal outline of the issues and options.
e Initial screening of options for major problems which may eliminate some options from further evaluation.
Result:
Identification of viable options.
e Confirmation of the estimates of incremental generation requirements for the Jersey Central service area, assessment of other possible sources of supply, and determination of construction costs for capacity expansion plans.
Result:
An estimate of the future capital fund-ing requirements.
e Analysis of the legal, tax, investment banking, and financial / economic issues related to each option.
Result:
An assessment of each option in terms of these issues.
e Comparative analysis, and ranking of options, using both qualitative and quantitative factors.
Result:
Identification of the two or three most promising options for further study in Phase II.
Phase II - Evaluation of the Two or Three Most Promising Options Identified in Phase I e
Performance of a survey of key constituents and interested parties to assess the potential poli-tical acceptability of implementing each of the options.
Result:
An assessment of the political accept-ability of each of the strategic options.
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__ 9 e Reevaluation of the financial and economic analy-sis of each option.
Result:
Estimates of the financial and economic impact of each strategic option, (in terms of key indicators such as service rates, r'evenue adjustments and capital funding potential).
e Development of legal and organization implementa-tion plans for each strategic option.
Result:
Implementation plans for each option, along with the associated cost and timing.
o Pifority ranking of the strategic options, on the-basis of quantitative and qualitative factors such as political acceptability and difficulty of implementation.
i Result:
A prioritization of the strategic options.
J In addition, an alternative approach for regulatory treatment of the Company will be neveloped for the period between the completion of the study and implementation of any structural remedy.
Organization and Qualifications The nature of this study is such that it-demands the assign-ment of professionals who are highly qualified in a number of functional areas.
In order to ensure the successful completion of this study, we have assembled a highly qualified and experienced team.
The members of the team are as follows:
i Firm Analysis Area Arthur Young & Company Financial, Operational and Tax To be selected later Investment Banking Nolan, Bell & Moore Legal r
Dr. Franklin E. Robeson Generation Requirements Nielsen, Wurster & Asso-Construction Costs ciates, Inc.
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Arthur Young & Company will be the primary contractor, and will provide overall project management and direction to ensure the planned tasks are completed on schedule, and that the work products are of the highest quality.
To achieve these objectives, we have assigned partners and directors of our firm to this study who have extensive experience in managicg major consulting studies in the utility and other industries.
Mr. Donald E. Law, a Director of Arthur Young &
Company, will be Director-in-Charge of this study, and Mr. Robert E. Nelson, a partner in Arthur Young & Company, will be Project Director.
As evidenced in the qualifications section of our technical proposal, we believe that Arthur Young & Company and the consulting team assembled, is uniquely qualified to perform the study re-quested by the Board.
Of particular importance in evaluating our qualifications is our prior experience in performing a similar study for the Governor's Advisory Commission on Electric Power Alternatives for the State of Michigan.
Our study team for the Jersey Central study includes the senior level profeasionals who l
were actively involved in the Michigan study.
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i CONTENTS I.
Introduction II.
Our Understanding of the Problem I
III.
Objectives, Scope and Options IV.
Study Methodology j
i V.
Project Management 4
VI.
Organization and Staffing VII.
Qualifications VIII.
Time and Fee Estimates J,
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I.
INTRODUCTION Arthur Young & Company has been invited to submit a proposal to analyze strategic policy options available to the New Jersey Board of Public Utilities (the Board) to ensure the safe and reliable delivery of electric power at the least possible cost to existing and future customers of Jersey Central Power & Light Company, a subsidiary of General Public Utilities.
As a professional services firm experienced in performing management, operations and finan-cial studies for various Federal agencies, regulatory commissions and utility companies, we appreciate this opportunity to demonstrate our capabilities to assist the Board in its investigation.
In its Request for Proposal (RFP), the Board sti pu-lates that a myriad of demand, supply, cost, financial, operational and legal considerations will have to be ad-dressed in i dent i f yi ng, evaluating and prioritizing viable st rat egi c policy opt ions.
We believe that the investiga-tion contemplated by the Board will require extensive knowledge of utility operations as well as expertise from a variety of disciplines, including financial analysis, cost accounting, legal, investment banking, engineering, regu-lation and utility economics.
To ensure the quality of the Board's investigation, we have assembled a study team consisting of professionals from our firm as well as a number of other firms with expertise in specific areas.
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I I-2 Arthur Young & Company will be the prime contractor responsible for the successful and timely completion of the overall investigation.
Each firm will assume responsibility for the portion of the study within its areas of expertise, thereby providing creditability and objectivity to the investigation.
We believe that our proposal addresses succinctly those requirement s stipul at ed in the RFp issued by the Board.
Our proposal takes into account the previous studies undertaken by the Board in evaluating the creation of a State power authority or assisting State utilities in financing new power generation facilities.
Our proposal also builds on our previous experience in conducting a similar study for the State of Michigan, and our study team will include seni or-l evel consul t ants who actively participated in the Michigan study.
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II.
OUR UNDERSTANDING OF Tile PROBLEM This section of the proposal presents our understanding of the issues and questions facing the New Jersey Board of Public Utilities in its investigation of the impact of the Three Mile Island accident on the ability of Jersey Central Power & Light Company to meet the obligations of its fran-chise.
BACKGROUh-For many years, the effectiveness of electric utilities and their management in providing reliable, economic service was rarely questioned by regulatory commissions.
This re-sulted primarily from a long history of lowering unit costs and a mi nimum of major service int erruptions.
Recently, the ut ili ty regulatory climate has changed as commissions have responded to adverse consumer reaction over frequent rate increases and apparent public concern over the safety and reliability of nuclear generating power stations.
The New Jersey Board of Public Utilities is in the di f ficul t position of having to address both regulatory concerns of cost and safety in its investigation of the accident at the Three Mile Island Nuclear Generating Station.
The Board must evaluate the ability of Jersey Center Power & Light Company / General Public Utilities (the Company) to meet existing and future requi rement s of its franchise to provide safe, reliable and cost-effective elect ric service.
i II-2 IMPACT OF THREE MILE ISLAND ACCIDENT The tota! impact of the Three Mile island accident is an ext remely compl ex quest ion that is unlikely to be answered in the near future.
In the long term, this one incident related to nuclear power could result in a restructuring of the manner in which our nation meets its fut ure elect ric energy needs as well as the technology to be employed.
Of immediate concern, however, is the impact of the accident on the Board in meeting its regulatory responsibilities, and the Company in ful filling its franchise obligation.
That there has been an impact is indisputable as illus-trated by the following excerpts from recent newspaper articles.
These excerpts highlight the pressures confront-ing both the Board and the Company in the aftermath of Three Mile Island.
New York Times, January 22, 1980 The Jersey Central Power & Light Company will ask the State tomorrow to approve a rate increase that would raise residential customers' elect ricity bills 19 percent.
The request to the State Board of Public Utilities for a $142 million rate increase is being asked to offset oil price increases and the cost of replacing elect ricity formerly generated by the Three Mile Isl and nuclear power pl ant, the company said Saturday.
The average customer would face an increase of $5.50 a month, according to George Metzger, a spokesman for the company.
The utility last won a rate increase in September 1979 when residential users' bills rose about 8.1 percent.
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II-3 New York Times, September 15, 1979 Jersey Central Power & Light Company, which has suffered economic hardships aince its Three Mile Island nuclear power plant shut down, is facing the possibility of losing its franchise.
The Three Mile Island closing has eliminated 13 per-cent of Jersey Cent ral 's power supply, and forced it to buy expensive energy from Pennsylvania-New Jersey-Maryland power pool.
Parent company General Public Utilities' stock has declined to $8.25 and credit has become di f ficul t to obtain, creating cash flow problems.
Jersey Central has been granted two rate increases and plans to apply for more to help ease the situation.
State Board of Public Utilities Commissioner Edward Ilynes notes that main alternatives to continued rate increases are assign-ing Jer.ey Central territory to other utilities, s
creating state power authority to take over the franchise or bankruptcy.
New York Times, June 20, 1979 General Public Utilities, holding company for utili-ties that own the Three Mile Island nuclear power plant, wins $209 million revolving credit line from consortium of 43 banks after Jersey Central Power
& Light, one of its subsidiaries, is awarded $45 million rat e increase.
GPU says agreement will probably be sufficient to meet system's external cash requirement through
'80.
Steward B. Clifford of Citibank, agent for the banking group, says rate increases grant ed to Jersey Cent ral and to GPU's Pennsylvania subsidiairies were the most important factors in banks' decision to arrange credit.
II-4 New York Times, June 7, 1979 Accident at Three Mile Isl and nuclear power pl ant has placed General Public Utilities in financial squeeze between utility regulators in Pennsylvania and New Jersey and banks.
The Corporation's next major borrowing, if approved, will require as col-lateral all its shares in two Pennsylvania sub-sidiairies, Metropolitan Edison and Pennsylvania El ec t ri c, and its New Jersey subsidiary, Jersey Central Power & Light, a requirement previously unheard of in utility financing.
The Pennsylvania Public Utilities Commission has taken two actions that could have substantially adverse effects on General Public's ability to meet its obligations, rescinding rate increases to Pennsylvania subsid-laries on grounds they were intended to pay for and operate the Three Mile Island p' ant and de-ciding to re-examine a provision that permits the utility to pass on to consumers cost of power pur-chased from neighboring utilities, pending an investigation of causes of the accident.
Banks are unwilling to lend money to purchase power unless utilities are allowed to pass on to their customers the full cost of purchased power imme-d i a t el y.
General Public says it faces bankruptcy i f banks withdraw credi t.
In responding to the impact of the Three Mile Island accident, the Board and the Company face a number of signi-ficant issues which are listed below.
The first two issues are common to both the Board and the Company whereas the remaining issues are of greatest concern to the Board, i
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II-5 Fi nanc i al Stability There is a serious issue as to the financial sta-bility of Jersey Central (and General Public Utili-ties) as it meets the existing energy needs of its customers at a reasonabl e cost.
The regulatory response to the Three Mile Island accident, e.g.,
taking Three Mile Island Unit #2 out of the rate base, has had the impact of not only reducing the profits which could be earned but also diluting the credit worthi ness o f t he Company.
As indicated in the newspaper excerpts, the invest-ment community is responding negatively to the regulatory decisions affecting the Company.
These decisions, plus regulatory lag, are contributing to the financial crisis facing the Company in meet-ing its working capital requirements regardless of the cost of funds.
This severe financial con-dition has also led to deferral of capital expendi-tures for planned capacity expansion.
Future Energy Needs At present, the Company is meeting the energy needs of its franchise areas through purchase of power to su ppl emen t output from its existing generation fa-cilities.
Sources of supply, though costly, are available to meet demand in the near term.
A signi ficant concern of both the Board and the Company is the Company's capability to meet future energy needs given the uncertainties related to bringing Three Mile Island Unit #1 on-line, reha-bilitating Three Mile Unit #2 and deferral of existing construction programs, e.g.,
the Forked River Nuclear Generating Station.
Future genera-tion requirements may also be impacted by new load management programs, conservation by customers, and innovative rate structures.
II-6 Public Utliity Operations s
The Board faces the issue of determining whether there are differences in operating efficiencies between investor-owned and publicly owned systems.
To d a t e, there is little evidence that public authority power would be produced at a greater or lesser economic cost of service than private utility power.
Typically, published public utility power rates are lower than those of private utilities, but this may of ten be att ributable to a more advan-tageous fuel mix which makes heavy use of hydro-electric generation.
Publicly owned systems may also have cheaper capit al costs and tax savings.
Legal Feasibility and Public Acceptance The Board must concern itself wi th the pot en-tial legal obstacles to initiating constitu-tional, statutory and regul atory changes at both the Federal and State level if alternate organization structures are warranted.
The Company's response to any actions which it may consider contrary to its well being, must also be considered.
The Board must also face the i ssue of public acceptance of further State involvement in the utility industry.
There are a number of exist-ing (and potential) public programs which require funding and any funding requirements related to mee t i ng the elect ric energy needs of the Jersey Central f ranchi se area woul d compete wi th require-ments for other public programs.
This may be a particularly sensitive area since the populace in other sections of the state could be subsidiz-ing the existing and future customers of Jersey Central.
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II-7 The issue of management performance in undertaking, designing, const ruct i ng and operat i ng the Three Mile Isl and Generating Station has been intentionally excluded from the issues discussed.
This latter isssue is to be the subject of a separate study by the Board.
BOARD REQUIREMENTS To evaluate the financial and economic impact of the Three Mlle Island accident on the Company, the Board will need to answer two fundamental questions, as follows:
Fi rst, will the Company be able to provide safe and reliable electric power to existing and future customers at a reasonable cost?
Second, is there a more cost-effective means of delivering electric service to existing and future customers?
Expressed differently, the Board must consider alter-natives for meeting the elect ric energy needs of Jersey Cent ral's f ranchise area in terms of their financial and economic feasibility.
Once the above questions have been answered adequately, the Board should be able to pursue a policy strategy consis-tent with its regulatory responsibilities.
This strategy will be based on a careful balancing of the vested interests of the Company, its debtors and shareholders, customers and other interested parties, including the general populace of the State of New Jersey.
III.
OBJECTIVES, SCOPE, AND OPTIONS In this section, we identi fy the objectives and scope of the Board's investigation, and on a preliminary basis, the strategic policy options to be studied.
OBJECTIVES AND SCOPE In its RFP, the Board is explicit in defining the primary objective of the consulting study as follows:
"To determine, evaluate and prioritize a range of alternative steps available to the Board to ensure the safe.nd reliable delivery of electricity to customers in Jersey Central's service territory at the lowest possible cost."
The study is to be conducted in two phases, each of which has its specific objectives.
It is apparent that the scope of the study envisioned by the Board is comprehensive and that the consultant selected will need to address a wide range of strategic policy options in studying the financial and economic problems currently and prospectively f acing the Company.
Phase I Objectives Phase I is to involve the identification and screening of viable strategic policy options in terms of their financial and economic feasibil it y, as well as their legal complexi ty and polit ical acceptability.
The specific objectives include:
To identify policy issues and options for potential evaluation.
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III-2 This will involve researching previous studies and regulatory proceedings, and interviewing members of the Board, management of the Com-pany, and other interested parties.
To screen major policy options in terms of their viability.
This will require identifying any legal /regu-latory barriera, preparing special cost analy-ses, and assessing the probable impact on the Company, its rate payers and other interested parties.
To confi rm the Company's elect ric load fore-casts in terms of reasonableness, and plans for meeting projected demands.
This will involve reviewing load forecasts and capacity expansion plans, identifying potential factors impacting demand and supply, (e.g. Im-proved operating ef ficiency), and i f necessary, preparing an adjusted schedule of generation-requirements, or identifying alternative supply approaches.
To evaluate policy options selected by the Board for further study.
This will require finalizing our evaluation ap-proach discussed in the methodology section of our proposal and preparing the legal, investment, tax and financial analyses requi red.
To prioritize the policy options for the consid-eration by the Board.
This will involve finalizing the ranking'cri-teria discussed in the methodology section of this proposal and preparing a comparative analysis and. ranking of the policy options.
III-3 In meeting these objectives, we will analyze the strategic policy options in suf ficient depth to allow the Board to select the two or three most promising options. which shoul d be subject to further in-depth study.
As a minimum, the analysis of each policy option in phase I should include:
Fi nanci al estimates in terms of the rates charged to Company customers, the tax reve-nue of the stat e and local governments, and the incremental cost, if any, to the state.
An assessment of the ability of either the st at e or the Company to implement the option under consideration within an acceptable time period.
Identi fication of any regulatory or legal barriers, and any related social or poll-tical issues.
An overall summary evaluation of the bene-fits, cost s and risks of following each option.
The system for screening and prioritizing the available policy options will be clearly identiffed and will be presented in conjunction with the prioritized ranking of policy options.
Phase II Objectives Phase II of the study is to consist of an in-depth
'9 view of the most viable strategic policy options as
III-4 selected by the Board, and will entail further evalua-tion of legal, political and economic issues as well as reassessment of the financial analyses preparad in Phase I.
For each option, an implementation plm.. is to be prepared outlining the legal and organizational steps to be taken.
At the conclusion of this review, we will identify a preferred strategy for consideration by the Board.
In addition, an interim regulatory treatment will be recommended for adoption by the Board, for the period prior to the implementation of any strategy emerging from the study which nvolves major structural changes.
STRATEGIC p0LICY OPTIONS As indicated above, the scope of this study is compre-hensive, and the available policy options which are to be addressed have not been limited.
The options will include those which entail the current Company organizational struc-ture, as well as those opt ions which envision a major re-structuring to meet the energy needs of the Jersey Central franchise area.
Based on the information contained in the RFP and our prior experience in performing a similar study for the State of Michigan, we have identi fied, on a preliminary basis, the following major strategic policy options.
Each option is described in terms of its generic characteristics.
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Business as Usual This option will consider business as usual wit h no change in organizational approach, funding of gen-eration requirements or regulatory policies.
It is likely that this option is feasible if the Company's rate structure is adjusted to the level necessary to meet interest coverage, preferred and common stock dividend requi rements, and contribution to retained earnings.
While this option offers an apparent ad-vantage in terms of minimal structural change, it 4
may also be most di f ficult to justi fy to the Com-pany's customers.
The required increase in rates would follow several recent increases and poten-tially result in a strong consumer reaction.
Bankruptcy This option will address the reorganization of Jersey Central and/or General Public Utilities under the Federal Bankruptcy Act.
Once reorganized, the Com-pany would conduct its business as usual.
A key j
consideration in this option is the impact of bank-ruptcy on the ability of the Company to meet future capi t al funding requirements Moreover, bankruptcy would po 2ntially cause immediate hardship for the Company's shareholders, some of whom are dependent upon existing dividends for a significant portion of thei r i ncome.
This may lead to a re-evaluation of the safety and reliablity of utility stock among investors.
Utilities Consolidation f
This option will consider the full merger of Jersey Central into a sister utility in New Jersey or a transfer of a portion of the Jersey Central fran-chise area.
The underlying issue of this option is the cost of service as it impacts the rate payers l
In the Jersey Central franchise area, as well as l
any impact on the rate payers of the other major l
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i III-6 utilities in New Jersey.
This option would probably result in little change to either the physical fa-cilities of the Company or its internal organization st ructure and employment,
Detailed analyses would be required to determine an appropriate rate struc-ture for the consolidated utility and the terms of consolidation to be offered to existing shareholders of the individual companies.
State Take-over This option will address a state take-over of Jersey Central in toto or generation facilities only.
The key considerations of this option are the borrowing capacity of the state and the impact of a state take-over on the potential funding of other public programs (e.g., mass transit).
Agai n, this alternative would affect the existing Company's physical plant and or-ganization to a minimal degree.
It would represent, however, a major new management responsibility to the state and a major shift from private ownership to state control.
Investor Owned Generating Company This option will consider the establishment of a separate generating company within the General public Utilities structure or as a joint venture involving New Jersey utilities.
The underlying issue of this option is the cost of power passed through from a wholesaler to the retailer and ultimately to the consumer.
This option offers a wide variation of scope in terms of the size of the company formed.
As size increases, the potential risk associated with the loss of any single unit is spread over a larger economic base, thus improving the capability of the new company to absorb the loss.
Currently, several utilities may enter into joint ownership agreements because no one utility can abosrb the power available for a new generating facility.
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III-7 ownership, financing and management to the current arrangements.
This option would result in the newly formed company acting as a power wholesaler to existing companies whose operations would be restricted to distribution.
State Financing and Guarantees This option will address a number of financing ap-proaches or alternatives, including the construction of generating f acili ties and thei r subsequent sale or lease back to the Company, and financial assistance to the Company through debt guarantee or equity pur-chase.
The key issue of this option is the potential impact on rates resulting from possibly lower financing costs attributable either to the tax exempt status of the investment instrument or the credit worthiness of the state.
Another important issue under this option is the removal of the burden of direct management over the generating company from the state.
State financ-ing or assistance in terms of financial guarantees should also be considered in connection wi th a consor-tium of exi st i ng sharehol der-owned ut ilit ies.
This has the advantage of combining the closer, continuing in-volvement of state government with existing company expertise in providing reliable and economical service to the consumer.
State power Authority This option will consider the establishment of a state i
authority to construct new generation facilities and operat e ei ther as a wholesaler (or possibly a ret ailer) of elect ric power.
In addition to potentially lower finance costs, the underlying issues are the cost-cffectiveness of public versus private power and the impact on the st ate and local tax bases.
This option would resul t in state invoviement in the generation and delivery of power to the maximum degree and represent a
major new approach within the state.
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III-8 There are a number of variations of these major options that can be identi fied and studied i f deemed appropriate by the Board.
These variations will depend on factors such as the type of investment instrument (e.g., general revenue bond) or the mechanism for rate relief (e.g., automatic rate adjustment).
In our methodology, we have included speci fic tasks to allow the Board and other interested parties to con-tribute to the definition of the strategic policy options to be studied.
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IV.
STUDY METilODOLOGY This section of the proposal describes the methodology that we will use in our study of the future financial and corporate viability of Jersey Central.
Our methodology involves two phases, each of which will provi de speci fic cork products for consideration by the Board and its repre-sentatives.
We have included as Exhibit I a schematic of our methodology which highlights the work tasks to be accom-plished and their interrelationships.
The schematic also ident i fies the work products to be delivered and the timing of progress meetings.
PilASE I:
IDENTIFICATION AND EVALUATION OF STRATEGIC POLICY OPTIONS This phase of the study will involve determining, evaluat ing and prioritizing strategic policy options f acing the Board in meeting its responsibility to ensure the safe and reliable delivery of elect ric power to existing and future customers in the Jersey Central service territory at the lowest possible cost.
There are two discrete sub-phases in our approach to this phase, including an initial screening of the major policy options identified previously, followed by an evaluation of viable options using a standard evaluation and documentation technique.
Thi s will result in the identification of the two or three most promising options to be studied further in Phase II.
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IV-2 Task 1 - Project Initiation 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 subsequent tasks.
In this initial task, we will broaden our understanding of study objectives and scope as viewed by the Board and its representatives.
We will accomplish the following:
1.1 Organize Study Team The study team members assigned will be assembled to discuss and review task assignments, the work schedule, and the study control proce-dures with our Project Di rect or.
1.2 Conduct Orientation Meetings A series of orientation meetings will be con-ducted with:
Board representatives, to arrange coordi-nation during the study and provide ini-tial input into refining our methodology and defining strategic policy options.
Company representatives, to present our met hodology for t he study and establish
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j Other interested parties, to present our methodology for the study and solicit thei r input into defining strategic policy options.
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IV-3 1.3 Review Regulatory Proceedings All recent regulatory proceedings before the Board involving Jersey Central will be reviewed to determine their impact on the study.
1.4 Review Prior State Power Authority Studies The prior studies undertaken by the Board concerning the creation of a state power authority or a mechanism for financial assistance will be reviewed in more detail.
These reviews will pro-vide further background as to the options to be considered and any special analyses to be prepared.
1.5 Review Management Audit Reports Any recent management audit reports involving Jersey Cent ral or General Public Utilities (GPU) will be reviewed to determine their impact on the study.
1.6 Review and Update the Work Plan Any changes to the initial work plan which result from the project init iation t asks will be included at this stage.
These changes will be reviewed with the Board's representatives and the study team assigned.
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IV-4 Task 2 - 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 considered, and these, al ong with any others identified, will be evaluat ed.
The tasks involved in identifying the issues and options are:
2.1 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 Je rsey-Ma ryl an d (PJM) power pool Representatives of the Pennsylvania Public Utilities Commission Other appropriate parties
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IV-5 2.2 Outline the Key Issues Identified Following the interviews, an outline of the key issues relating io jersey Central will be developed.
These are expected to include:
Generation requirements Legal /regul atory implications Economic impact Fi nanc i ng limitations Operations and costs It is essential for this outline to be com-prehensive, in order -to ensure that all signifi-cant strategic policy options are identified.
2.3 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 statement explaining each option will be prepared, including:
Legal entity required Potential financing instruments Operat ing characteristics
IV-6 2.4 Review the Issues and Options To ensure the outilnes of issues and options are comprehensive, and that there is agreement on them early in the study, we will review them with the Board representatives and Company representa-tives.
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 be studied.
2.5 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 and strategic options to be addressed.
2.6 Review and Update Work plan The work plan will be adjusted to reflect any changes resulting f rom the i ssues and options identified.
Task 3 - Conduct Initial Screening of Major Options r
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The purpose of this initial screening is to iden-tify those st'rategic policy options which represent pot entiall y vi able options' which shoul d be studied further.
This will help prevent the performance of I
i additional analysis on options (alternatives to busi-ness-as-usual) which are not feasible.
IV-7 The following analyses will be prepared for the options indicated below.
Any special studies prepared by Jersey Central /GPU (or sister utilities) related to these options will be reviewed, and once verified, the results of these studies will be incorporated into our evaluations.
3.1 Analyze Bankruptcy Option Identi fy 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 stock-holders and lenders.
l Evaluate the impact of bankruptcy on the capital markets and the ability of utili-ties to raise funds.
Prepare summary evaluation, indicating probable feasibili t y of option.
3.2 Analyze Utilities Consolidation Option
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Ident i fy any major legal / regulatory barriers to impl ement i ng thi s opt i on.
Estimate the cost of service of a con-solidated ut ili ty relative t o Jers ey Central's cost of service.
Estimat e impact of this option on rate payers.
Prepare summary evaluation, indicacing probable feasibili ty of option.
IV-8 s
3.3 Analyze State Take-Over Option Identify any major legal / regulatory bar-riers 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 poll-tical feasibility using as a guide the experi-ence wi th other attempts to finance major expenditures, or takeover of private enter-prise (as with certain New Jersey bus lines).
Prepare summary evaluation, indicating prob-able feasibility of option.
3.4 Anal yze Invest or-Owned Generat i ng Company Option Identi fy any major legal / regulatory barriers.
Estimate the impact on electric rates rela-tive to Jersey Central.
Estimat e wholesale cost of power, taking into account any potential di f ference due to rate of return allowed.
- ' Prepare summary evalaution, indicating prob-able feasibility of option.
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IV-9 3.5 Analyze State Financing Option Identi fy any major legal / regulatory bar-ri ers.
Identi fy the cost of State financing rela-tive 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 fi-nancing.
Identify other options for State financial support involving utility consortium owner-ship and management, or some form of State guarantee.
prepare summary evaluation, indicating prob-able feasibility of option.
3.6 Anal yze St at e power Aut hori t y Opt ion Identify any major legal / regulatory bar-riers to implementing this option.
Assess the State's ability to finance this option given its borrowing capacity and funding for other pubile programs.
Estimat e the rate impact of this option, based on the relative cost of state fi-nancing.
Prepare summary evaluation, indicating probable feasibility of option.
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IV-10 3.7 Identify the Viable Options for Further Evaluation At this time, those options which are clearly not feasible, will be identi fied.
This will be based on an objectiva evaluation of legal /regula-tory barriers, financing requirements and restric-tions, and political acceptability.
Any option for which feasibility is questionable, will be identified as requiring further study.
3.8 Review Analysis of Options We will review the analysis of major stra-tegic policy options with the Board representa-tives.
This will allow the Board's representa-tives to challenge the identification of options as not feasible, and will ensure that there is agreement on the options requiring further study.
3.9 Conduct Board presentation After agreement has been reached with the Board representatives, our analysis of major st rategic policy and opt ions will be developed into a presentation for the Board.
Those options not feasible will be thoroughly documented.
The analysis of options will be presented to the Board for their consideration.
The Board will approve those options requiring further study.
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3.10 Submit Written Status Report We will prepare a written status report, indicating which options will be evaluated further, and which will be eliminated from further consideration.
Once the initial screening of major stra-tegic policy options is complete and those meriting further evaluation are identi fied, there are a series of tasks which must be completed, including developi.ig and evaluat-ing the underlying assumptions, performing addi t i onal analysis and finalizing the stan-dard evaluation technique.
These tasks include:
Task 4 - Evaluat ion of Power Pl ant Operating Efficiency In this task, we will review the efficiency of power plant operations in which Jersey Central has an ownership interest.
Factors which will be reviewed include unit availability, design capacity versus actual performance of generating units, production dispatch, etc.
Improvements in efficiency will in-crease the Company's capabili t y of meeting its exist-ing and future energy needs.
1 IV-12 4.1 Review Utilization of Individual Generating Units Included in this review will be all factors af fecting the economic and reliable performance of all generating facilities including:
Availability Forced and planned outages Heat rates The scheduling and conduct of major overhauls 4.2 Identi fication of potential Impact on Economy and power Needs Changes will be identi fied which would either result in improved unit economy or improved avail-ability.
The impact of these findings on overall operating costs and on future power requirements will be estimated and evaluated.
4.3 product ion Dispatching The design and conduct of the production dispatching function will be reviewed for:
Economic dispatching using current performance indicles Costing methods used to transact economy transfers Accurate transaction records Variance of actual. operation from design
IV-13 4.4 Ident i ficat ion of Potential Impact on Economy and Power Needs Potential improvements in the production dis-patching function will be identified which would have a favorable impact on either system economy or total power costs.
Task 5 -
Con fi rmat ion of Generat ion Requi rements The purpose of this task is to develop an esti-mat e of the incremental generation capacity required to sat isfy the long-term requirement s of the Jersey Central franchise area.
Factors affecting both the future load demand and power supply will be reviewed.
5.1 Review Existing Forecasts of Load Demand Review forecasts of load demand for the next 15-20 years for:
Jersey Central /GPU The PJM power pool Sister utilities in New Jersey 5.2 Evaluate the Reasonableness of Jersey Central /GPU Forecasts Evaluat e whether the load forecasts adequate-ly reflect opportunities for load management and energy conservation.
Consider the following fac-tors:
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llow conservation trends will impact load demand.
l How load management will affect demand.
flow rate design will affect demand.
The extent to which reserve requirements can be adjusted.
5.3 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 Thi s evaluat ion will take into account the analy-sis performed in Task 4, Evaluation of Power Plant Operating Efficiency.
5.4 Review Capacity Expansion Plans Review capacity expansion plans and planned retirements for the next 15-20-years for:
Jersey Central /GPU PJM Power Pool
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IV-15 5.5 Identify Future Sources of power Supply Identif y the possible availability of future power supply f rom:
Excess capacity of sister utilities possible joint ventures to assure long-term supply of power Any other sources 5.6 Evaluate Generation Requirements for Jersey Central's Franchise Area This evaluation will be based on the follow-ing 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.
5.7 Review and Finalize the Generat ion Requi rements The results of our evaluation of generation requirements for Jersey Cent ral will be reviewed with' Board representatives and Company represen-tatives. This will result in a concensus on the f ut ure generation requi rement s of Jersey Cent ral.
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Task 6 - Confirmation of Construction Costs in Capacity 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.
6.1 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 det ail.
6.2 Review Project Cost and Schedule Planning Estimates The systems and data employed to prepare, review and approve 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 iden-tified.
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IV-17 6.3 Review and Finalize Construction Cost Figures The results of our evaluation of construc-tion costs used in capacity expansion plans will be revi ewed wi th Board represent atives and Com-pany representatives.
This will result in a con-sensus on const ruction cost figures to be used in the analysis of viable strategic policy options.
Task 7 - Finalization of Standard Evaluation Technique The objective of this task is to provide an orga-nized 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 capa-bility for sensitivity analysis.
7.1 Finalize the Standard Evaluation Technique On a preliminary basis, we have identified four evaluation 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.
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IV-18 Investment Analysis The financing alternatives of an option, in terms of:
the types of instruments available investment ratings capital availability 1
interest rates Tax Analysis The tax implications of an option, consi deri ng :
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 Anal ysi s The financial feasibility of an option, in terms of:
financing requirements and costs operating costs administration costs revenue requirements
I IV-19 7.2 Finalize Indicators for Each Evaluation Area Wi thi n each evaluation area, indicators for measuring the impact of implementing a given option will be identi fied, e.g., indicators for the financial analysis area could include:
1 Revenue Adjustment - The di f ference between revenues earned based on the current rate structure and revenues required to cover operating and fi-l nancing costs.
Rates per kilowatt hour.
Cost of service per kilowatt hour.
Capital Funding - The amount funds generated available to meet future capital expenditure requirements.
i 7.3 Devel op Comput er-Based Fi nanci al 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.
This will include at least the financial indicators re-ferred to above.
Speci fy the logic to integrate the rele-vant revenue and cost factors, and pro-vide the sensitivity analysis capability.
program the model on a.timeshare system.
Test and debug the model.
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IV-20 7.4 Prepare Standard Documentation Package An evaluation package will be developed as a standard format for collecting all pertinent in-formation relating to a specific option.
The basic format will include for each evaluation area:
Key Indicators Assumptions Support for Area of Analysis Professional Assessment 7.5 Review and Finalize Standard Evaluation Technique, Indicators, Financial Model and Documentation Package This review will be with Board represen-tatives and Company representatives to obtain a consensus on our approach to analyzing and documenting the viable strategic policy options.
Task 8 - Prepare 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.
IV-21 j
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.
8.1 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 highlight 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 under-lying the further evaluation of options.
8.2 Submit Written Status Report We will prepare a written status report out-lining the results of the Board presentation.
This is the third work product to be delivered to the Board.
Once the Board has reviewed and approved our standard evaluation technique and the basic assump-tions and estimates made in Tasks 4-6, we will evalu-ate each viable strategic policy option previously selected by the Board.
Our standard evaluation of these options will involve:
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IV-22 Task 9 - Conduct Legal Analysis of Each Viable Option 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.
9.1 Research the Pertinent Federal Constitution Sections, Statutes, and Regulations Identi fy prohibitions and restrictions Identi fy any changes required for each option 9.2 Research the Pertinent State Constitution, Sections, Statutes and Regulations Identify prohibitions and restrictions Identify any changes required for each option
IV-23 9.3 Assess Legal Feasibility of Option, in Terms of:
Legal / legislative changes Complexity of changes i
Potential for litigation 9.4 Prepare t he Legal Portion of the Standard Documen-tation Package Task 10 - 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 +;x reforms, investment tax credit l egi sl at ion, and ot her congres-sional actions to foster capital formation will be included in the-research.
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i IV-24 10.1 Determine the Tax Status of:
Funding Instruments Capital Properties Sales Revenues Entity Income 10.2 Assess Impact of Tax Status on:
Federal Revenue-Sharing Local Tax Base State Tax Base 10.3 Prepare Tax Portion of Standard Document ation Package Task 11 - Conduct the Investment Analysis of Each Viable Option The advantages and the disadvantages of financing alternatives will be a'nalyzed for each of the options.
Since financing alternatives selection is dependent on market conditions and interest rates which are unpredict-able, 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 move projects from the planning to
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i IV-25 operational stage.
Within the national investment scene, the market ability of New Jersey's elect ric utili ty issues, whether equi ty or debt, taxable or tax-exempt, will be evaluated.
4 11.1 Determine Estimat ed Capit al Funding Requi rements The determi nation will be based on incre-mental planned capacity and the estimated cost per installed kilowatt, which will have been developed in an earlier task.
11.2 Assess the Credit Worthiness of the Relevant Financing Aut horit y This would be expressed in terms of prob-able ratings by:
Moody's St andard & poors 11.3 Identi fy Financing Al ternatives for Each Option All reasonable financing alternatives will be identi fied f or each option.
For example, this j
list of alternatives could include:
Equity issues General obligation bonds Revenue bonds Special assessment bonds Bank term loans
f IV-26 11.4 Identify the Key Features of the Financing Alternative:
The terms and repayment schedul e.
Funding period and the average capital costs.
Coverage requirement or similar restrictions on funding instru-ments.
11.5 Assess Di f ficulty in Marketing the Funding Instruments This will take into account the magnitude of capital funds required and the credit worthi-ness of the financing authority involved.
11.6 Prepare Investment Portion of Standard Documenta-tion Package Task 12 - Prepare Financial Anayisis of Each Viable Option Each option will have a number of financial con-sequences that will impact upon the delivered cost of el ec t ri ci t y.
Specific areas to be studied for each option are:
The cost of capital differentials.
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IV-27 Operating ef ficiency.
State and local tax base effect, in-ciuding 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 sensi-tivity anal ysis.
12.1 Calculate Invested Capital in New Facilities This will be based on an assessment of incremental generation capacity required and the cost of capital under the option.
12.2 Calculate Kilowatt Hours Generated and Marketed Thi s wi l l be based on an estimate of genera-ting unit avai l abili ty and l oss rate i n t ransmis-sion and distribution of power.
12.3 Calcul ate Cost of Service Based on the Following Factors Production cost s General and administration costs Property /other taxes Depreciation (i f needed)
Income taxes Financing costs
IV-28 12.4 Calculate Revenues Revenue requirement for the option to i
be financially feasible.
Revenue available under existing rate structure.
12.5 Calculat e Cash Flow Available for Future Capital Projects This will take into account non-cash items 4
such as depreciation, where applicable.
12.6 Prepare Financial ~ Portion of Standard Documenta-tion Package Task 13 - 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 quantita-tively and qualitatively for consideration by the Bo a r d.
l 13.1 Finalize the Standard Documentation Package for Each Option The various portions of the standard docu-i mentation package will be edited, and a summary.
for the option will be prepared.
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i IV-29 13.2 Prepare a Comparative Summary of Options The key results will be summarized to facilitate comparison of the options.
The com-parative summary will focus on:
Legal indicators Tax indicators Investment indicators Financial indicators Economic and political implications 13.3 Prepare a Qualit ative 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.
13.4 Prepare a Quantitative Ranking of Options This ranking will be based on:
The estimated cost per kilowatt hour.
The revenue increase required to achieve the necessary return on investment.
The feasibility of raising adequate fi nanc i ng.
As appropriate, other financial i
indicators.
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r IV-30 13.5 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.
13.6 Review Results of the Comparative Analysis and Ranking of Options The results will be reviewed with:
Representatives of the Board Representatives of the Company 13.7 Conduct the Board Presentation The comparative evaluation of the options and the recommended 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 identi fied.
13.8 Submit Written Status 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.
IV-31 Task 14 - Prepare Phase I Report A report for Phase I of this study will be pre-pared 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 non-technical reader.
It will also include the stan-dard documentation packages for the options studied.
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i IV-32 PHASE II:
IN-DEPTH REVIEW OF MOST VIABLE STRATEGIC POLICY OPTIONS The objective of Phase II is to analyze further the too or three most promising strategic options identi fied 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 consul-tants 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 under-takings has shown that political acceptance is key to their being successfully implemented.
For this reason, we will survey key political constituencies to obt ain thei r input to the evaluation of the stra-tegic options under consideration.
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17-33 3.1 Design Survey of Key Constituents Describe the strategy options and thei r likely impact.
Develop questions to solicit input on the options' socio-political desirability.
j Review the survey with representa-tives of the Board and the Company.
3.2 Perfor.1 Survey of Key Constitutents to Solicit input The members of the State Legislature Consumer groups Utility representatives Business groups Other interested parties 3.3 Summarize the Resul ts of the Survey Task 4 - Update the Financial and Economic Analysi s Phase I included a financi al analysis of each option.
At this stage the financial analysis will be reviewed, and the validity of the assumptions in par-1 ticular will be re-evaluated.
It may also be appro-i priate to perform more in-depth analysis in some i
areas.
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h IV-34 4.1 Review Financial Anal ysi sand Economic Impact 4
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 signi ficantly impact the economic attractiveness of the service area to industry, as well as the standard of living of the residents.
Accordingly, 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 charged in neighboring service areas.
The rates charged to industry, particu-larly large energy users, and how this compares to rates in other service areas where industry would consider locating.
Task 5 - Review the Resul ts with Board and Company Representatives The results of the work to date in Phase II will be reviewed with the representatives of the Board and the Company.
The review will cover:
The results of the political acceptance survey.
IV-35 The updated financial and economic analysis.
Following the review, a written status report will be developed and presented to the Board for approval.
l Task 6 - Develop Legal Implementation Plan In addition to the legal analysis conducted in Ph ase 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 complexity of imple-menting the strategic options under consideration, and identifying the legal steps required to implement each option.
Task 7 - Develop Organization Implementation Tasks A det ailed implementation plan will be developed for each option.
This will include an estimsted imple-mentation timetable.
Task 8 - Develop Consolidated Implementation Plan The implementation plans will include tasks relating to:
Regul at ory, legal and legislative Organizational and administrative Financing and cash flow The estimated costs of implementing these tasks will also be developed.
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IV-36 Task 9 - Develop Recommendation for Interim Regula-tory Treatment We will develop alternative approaches to regula-tory treatment of the Company for the period between the completion of the study and implementation of any structural remedy.
The approaches will focus on de-veloping an appropriate rate strategy for the Board.
Following consideration of the alternatives, a recom-mended treatment will be developed.
Task 10 - Review the Results The results of the following tasks will be reviewed 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 i
option:
The results of the political acceptance survey.
i
IV-37 The assessment of the legal or legis-lative complexity of implementing the option.
The assessment of the organizational or operational complexities involved in implementing.
A degree of difficulty ranking will be developed for each of these factors.
We will also prepare a quantitative ranking of options.
Each of the options will be evaluted in terms of:
Financing requirements and cost Operating and administative costs Construction costs Cost of electricity The relevant indicatr4rs for each area will be developed for purposer of presenting the re-sults.
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 quantative ranking This evaluation will be reviewed with the repre-sentatives of the Board and the Company.
IV-38 Task 12 - Prepare and Conduct Board Presentation The results of this study will be summarized and recommendations will be developed for presentation to the Board.
Task 13 - Prepare Written Progress Report The results of the analysis, and the recommenda-tions 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 - Prepare Phase II Report We will prepare a Phase II draft report and re-view it with the representatives of the Board and the Company.
We will incorporate any review comments in our final report.
Task 15 - Give Expert Testimony We will prepare expert testimony for use in Board proceedings, and will give testimony as and when required.
I IV-39 A NOTE ON Tile DEVELOPMENT OF FORECASTS A key el ement of this study is the development of projections of ranges of rates, revenues and other data, as a basis for evaluating alternative strategic options.
It should be recognized that because financial projections are dependent upon future events, there is no assurance that the projected results are achievable.
Because the under-lying assumptions are critical to the projections, we will present these at regular intervals to the Board and their representatives for review and approval.
In certain areas, we will look to our subcontractors cho will have primary responsibility for performing the analysis, such as for evaluation of financing alternatives.
We will look to these specialists to provide us with the necessary input to assure ourselves of the reasonableness of the underlying assumptions.
Our subcontractors will join eith us in presenting their projections or estimates, along alth the underlying assumptions, for review and approval by the Board.
V.
PROJECT MANAGEMENT The scope of the Board's study requires a significant level of effort and attention to project management.
Our project management policies and practices adhere to the basic steps of effective engagement management and should satisfy the needs of the Board.
The control techniques chich we will use on this audit include:
pl anning Control Effective project planning requires explicit at tention to t ask schedules, work flow, and manpower utilization.
A substantial portion of the initial pl anni ng requi rements have al ready been performed in the process of preparing this proposal.
Initial pl an ni ng, regardless of how well done, is inevitably subject to review and adjustment based upon the results of orientation and review meetings conducted at the outset of the project and upon progress as measured at significant milestones.
For this reason, both contin-gency planning and backup support have been built into our detailed work plan.
We will mai nt ain, for the duration of this audit, an updated master schedule of activities, the basis of which is provided in the work plan in Exhibit III.
The schedule will be updated from the internal progress report s on task act ivities.
In the updat e and review process, potential revisions to the schedule will be developed to refl ect anticipat ed slippages or changes in scope of the work to be completed.
Budget Control We place cosiderable emphasis on this aspect of project management.
Actual utilization and costs for the consultants assigned will be compared semi-monthly with budgeted levels of effort to assure adherence to these levels as well as scheduled milestone dates.
We will review any eignificant devi ations to identi fy the nature of the di f ficulty and the action necessary to resolve the deviations in expenditures, particularly in view of t he schedule requi rement s.
V-1 Quality Control Quality control is an important aspect of our approach to project management.
The control tech-niques which we will initiate on this study to assure quality control over all efforts reflect the concern within our Fi rm with professional performance and delivery of a quality product.
As one aspect of quality control, we will hold con-currently with representatives of the Company and the Board, revision sessions to confirm the validity of the data used in the development of our assumptions and recommendations.
As needed, we will also prepare brief reports detailing particular review methods or findings, as may be required.
Our experience with large, complex studies has reinforced our view of the importance of managing resources, reviewing performance, updating plans and reporting progress.
We have concluded that a major element of our success as professional consultants is attributable to the considerable attention that we devot e to t hese ef fort s.
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6 VI.
ORGANIZATION AND STAFFING In this section we present our proposed project organi-lzation plan, a description of the duties and responsibilities to lbe performed by the consulting team, and the resumes of the Arthur Young
'parsonnel we intend to assign to this engagement.
The resumes for the parsonnel from the other professional firms are included in the Qualifications section of the proposal.
Study Team Requirements There are certain basic requirements which we view as essential to the success of this study.
We believe that the consulting team selected should possess:
Sound Leadership and Effective Organizational Approach An essential element to the successful completion of this study is the use of an organizational approach which effectively brings together individuals skilled in many functional and utility industry specialities.
This, in turn, requires the assignment of a senior leadership team which posseses demonstrated experience in the management of large-scale consulting projects involving the participation of many highly skilled and experienced professional consultants.
Competency in Function and
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Industry Skills The nature of this project is subh that it' demands the assignment of professionals who are highly experienced and qualified in functional areas such as law, investment banking, taxation, economics, and financial analysis.
In addition, the success of this project requires specific knowledge of electric utility matters, including operations and maintenance, system planning and construction planning and control.
Knowledge of Regulatory Environment Since one of the basic objectives of the engagement is to assist the Board in fulfilling its regulatory responsi-bilities, it is essential that the selected consulting team have a thorough understanding of the regulatory environment.
This is also important because regulatory requirements and restrictions have a direct impact on utility's ability to obtain capital financing.
VI-2 Project Organization II illustrates our project organization for Exhibit The key features of this organization are as follows:
this study.
Project Director will be The Project Director, Mr. Robert E. Nelson, responsible for the overall planning and management of the and for the quality of the work done by the per-
- project, sonnel assigned.
He will provide technical guidance to the its project team and maintain close liaison with the Board, He is a partner of Arthur representatives and the Company.
Young & Company and has extensive experience in financial planning and control systems and special financial analysis in both the public and private sectors.
Director-In-Charge While the Project Director has direct responsibility Arthur Young & Company for the performance of the project, believes that a client has the right to expect senior partner level involvement in the areas of:
Quality assurance and control, and o
Technical and administrative support.
o the Director in charge of our overall Mr. Donald E. Law, utility consulting practice, will assume these responsibilities.
Mr. Law has had extensive utility experience for almost ten years and has personally managed many of our important engage-i ments in this industry, Technical Advisors l
f The Technical Advisors will provide technical support The advisors and quality control for the consulting team.
will include Messrs. T.J. Kelly, R.G. McLendon, J.F. Laezza, j
D.A. Tierno and B.P. Walsh.
Each Technical Advisor brings i
extensive experience to this project in terms of either l
utility experience or government program administration.
Team Leaders For each area of analysis, the firm responsible has the conduct of the designated a team leader who will direct work tasks assigned and the quality of the' work performed.
VI-3 Team Members The detailed analysis required will be the responsibility They will work under of specific professional staff members.
The resumes the close supervision of assigned team leaders.
of members of the study team are provided in this section of If it becomes necessary to assign additional our proposal.
their resumes would experienced professionals to the study, be submitted for review prior to their assignment.
EKRIBIT 11.
CRGANIZATION AND STAFFtrG New Jersey Board of Public Utilities l
Interested Board Steering Committee Parties General Public Utilities
& Jersey Central Power & Light A'
a Arthur Young & Company Arthur Young & Company D.E. Law T.J. Kelly J.F. Leezza parector-in-Unarge R.G. McLendon D.A. Tierno B.P. Walsh Tecnnical AGvisor6 Arthur Young & Company R.E. Nelson Project utrec tor To be se-Arthur Young & Company Franklin E Robesen
- Nielson, Arthur Young & Company l
Wurster and Arthur Young & Coogang Nolan. Bell lected later Associates Inc
& Moore Team Leader:
Team vencer:
Team Leader:
Team Leader:
Team Leader:
Team Leader:
Team Leader:
D. Aronson Franklin E Robeson A.L. Dellon J.E. Wheet J.M. Nolan W.R. ?,.aher Staffing:
Staffing:
Itaffing:
Staffing:
Staffing:
Staffing:
D.G. Rowley W. Weber L. Wolfert A. J. Passenante D.J. Moore Generation Cons truc tion operations Analysis R. Goldman p
Costs Analysis 61 Legal Investment T. Walsh Requirerents rax Analysis Analysis Analysis L. Baumgarten Analysis D. Smith S. Schwartz G. Long risancial Analysis i
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VI-4 1
i Donald E.
Law Mr. Law is a Director (Partner equivalent) with our 1
firm and is a graduate of Hobart College, with a B.S.
degree in Mathematics and Physics.
He received his masters degree from Columbia University in Industrial Engineering.
Since joining Arthur Young & Company, Mr. Law has been responsible for the management of engagements involving cons truction taanagement, and numerous projects in the utility industry.
Mr. Lak's most recent experience includes:
- Director-in-charge for a comprehensive management /
operations study and profit improvement program in a large electrical utility company on the East coast.
This engagement included a study to determine the extent of loss due to current diversion and development of a cost-effective system to minimize that loss.
In the program, approximately 100 company analysts were involved in the review and establishment of management control systems for all departments of the company, manpower planning, power plant maintenance and operating efficiency and work load scheduling.
In addition, he is directing a power plant construction control project, computer control systems, a telecom-munications study, and a budgeting program for this company.
Director of a full-scale management audit for a majo'r producer of electric power and gas distribution company located in New York State.
The basic objective of the study is to identify problem areas in the Company's management and operations and to propose solutions to these problems.
Director-in-charge of two utility management /
operations studies in the Midwest.
The first involved construction of a nuclear generating facility and the second, a comparative review of all operations at a municipal utility.
VI-5
- Director-in-charge of an evaluation of manage-ment control programs for an electric utility client.
- Technical advisor on a number of other utility engagements conducted by other Arthur Young &~
Company offices in this and other countries.
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- Project manager responsible for the analysis of financial reporting and general operations for a New York company, including planning for the transfer of company operations to a new facility.
- Task leader responsible for the design and imple-mentation of process system controls, labor controls and forecasting systems, production control for computer operations and methods for a New York stock exchange.
Mr. Law is a member of the American Institute of Indus-trial Engineers and has authored a number of articles relating to the utility and other industries.
A recent article entitled "Are You Being Mugged at Your Meters?" appeared in the May 11, 1978 edition of Public Utilities Fortnightly.
He is a frequent speaker at utility seminars on subjects related to utility management and productivity.
Recent speeches include Solving the Productivity Dilemma, presented at the annual meeting of the Southeastern Electric Exchange in Atlanta, Georgia; Pian for Improving Productivity, presented at a productivity and managerial assessment symposium co-sponsored by the New York State Department of Public Service and the School of Business Administration, State University of New York at Albany; and llow the Management Audit Should Be Performed, presented at the management and operational auditing of utility cor-porations symposium co-sponsored by the New York State Public Service Commission and Rensselaer Polytechnic Institute.
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VI-6 Mr. Law has given expert witness testimony before the New York State public Service Commission regarding the cost reduction potential of management audit recommendations for in The recommendations were expected to result a utility.
fcture cost avoidance, cost reduction and potential revenue enhancement.
In addition, Mr. Law has provided expert witness testimony regarding utility operations before the regulatory commissions in Florida, Colorado, Missouri and Kentucky.
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VI-7 Robert E. Nelson Mr. Nelson is a partner in our New York Of fice.
lie graduated from the Georgia Institute of Technology, with a B.S. degree in industrial management, and received an M.B.A.
3 degree from the University of Alabama.
Mr. Nelson's management consulting experience encom-information passes financial planning and control, management systems, project management systems, capital budgeting and control systems, organization, opcrations and acquisition review, including extensive experience in the utility industry.
A representative list of Mr. Nelson's consulting experience includes:
- Project Manager, for a study requested by the State of Michigan's Governor's Advisory Commission, in charge of tne evaluation of financing alternatives for investor-owned and municipal electric utilities within the state.
The evaluation encompassed the economic and operational impact of municipal power authority, municipal utility finance corporation and joint venture approaches.
- Tear. Leader, responsible for the analysis of several financial and project management functions as part of a comprehensive management and operations study of a large New York State electric and gas utility.
Included heavy involvement la the capital budgeting, contracting and construction management activities of the company.
project Director, for a large east coast utility, e
responsible for development of a project management organization for engineering, procurement, con-struction and licensing of nuclear and fossil power plants costing approximately $600 million annually.
Developed management information and control systems for corporate and project management, including a commi tment planning and control system for the managerial and contractual commitment process for capital expenditures programs.
Team Leader, for a state public service commission,
- responsible for the evaluation of an investor-owned utility's plans to construct two nuclear power plants, including project management organization and project planning, reporting and control systems.
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VI-8
- Senior Technical Advisor, for one of the largest public utility holding companies, for providing special financial services.
The report is required to be submitted to the U.S. District Court for the District of Columbia and the Securities and Exchange Commission.
- Project Director responsible for advising a major aluminum company in case preparation for public utility rate and financial management hearing with the Securities and Exchange Commission, the Federal Power Commission and the involved s, tate public service commission.
Project Director in charge of the development of
- a capital budgeting system for a manufacturer of steel specialty products.
The system included evaluation of investment alternatives, management review and approval, control reporting, and integration with long-range planning.
Project Director responsible for the development of executive office management information and business planning systems for a major international packaging company.
Mr. Nelson is a Certified Public Accountant in New York and is a senior member of the American Institute of Industrial Engineers.
lie is a frequent speaker on Cost Accounting, and Planning and Budgeting, including numerous speeches and seminars on Zero-Base Budgeting.
lie has also authored a number of articles which include Liquidity Improvement:
A Management Approach which appeared in the October 1977 edition of Business llorizons; and Making Cost Control Work which has been incorporated into the McGraw-Hill publication, "The Handbook of Business Problem Solving."
VI-9 W.
Russell Asher Mr. Asher is a Principal in our Stamford Office.
He graduated from the University of Maryland with a B.A. degree in Commerce and received an M.B.A. degree in Accounting from the University of Pennsylvania.
Mr. Asher's consulting experieace encompasses financial planning and control systems, operations improvement, orga-nization development, and managerial accounting and reporting systems.
Specific examples of his related experience are as follows:
- Participated in a study requested by the State of Michigan's Governor's Advisory Commission which evaluated financing alternatives for investor-owned and municipal electric utilities within the state.
This engagement included the evaluation of the economic and operational impact of municipal power authority, municipal utility finance corporation and joint venture approaches.
- Team leader for the evaluation of the strategic planning system for a large southeastern electric utility.
This study centered on a review of all major corporate planning systems and their inter-relationships with strategic planning.
- Evaluated corporate financial management, planning, budgeting, accounting and reporting activities of a water utility company in New England.
- Evaluated financial systems requirements in preparing a stragetic information processing plan for a utility holding company in Connecticut.
- Team leader for the development of implementation controls of recommendations resulting from a com-prehensive management and operations study of a large electric and gas utility in New York State.
Also evaluated the following functions as part of this study:
capital budgeting, management of large construction projects, and power plant operations.
Evaluated systems planning, capital budgeting, and construction management activities in a management audit-of a water utility company in Pennsylvania.
l VI-10
- Team leader for the development of a capital budgeting system for a large electric utility in Florida.
This system focused on power generation projects and related expected schedule progress to budgeted costs in order to insure project performance reporting.
Also team leader for the development of a commitment control system which separated the commitment process into managerial and contractual commitment planning and control.
For an electric utility in the Southeast, developed a management reporting system which encompassed both responsibility and exception reporting.
- Other examples of Mr. Asher's experience include:
- For a wholesale company, directed the development of a product contribution reporting system.
- Prepared an income tax impact study for a wholesale company, identifying foreign subsidiary losses subject to U.S.
income tax provisions.
- For a manufacturing company, directed the development of a standard cost system.
- Developed a branch procedures manual for a manufacturing company, encompassing organization, purchasing, inventory con-trol, sales and accounting activities.
1 Mr. Asher is a Certified Public Accountant in the State of Florida and holds membership in several professional associations including the Planning Executives Institute.
lie is a frequent guest speaker for professional associations on financial planning and control requirements.
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liarvey J. Goldman Mr. Goldman is a Principal and Director of the Financial, Planning and Control Group of the Newark Office.
Mr. Goldman i
holds a B.A. degree in Accounting from Duke University.
He riso received an M.B.A. f rom the liarvard Graduate School of Business Administration, concentrating in Business Planning and Financial Management.
lie has more than ten year's experience in financial management of which approximately five years are in con-sulting.
He has directed a variety of engagements with commercial, government and non-profit clients involving design and implementation of management control systems, financial management systems, budgeting and forecasting
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systems and the development of indirect cost allocation plans.
Mr. Goldman's recent professional experience includes the following representative activities:
- Engagement Director in charge of project for New Jersey State Department of Energy to assist that organization in defining the requirements for a financial management system.
Principal in charge of our work for Passaic Valley Sewage Commissioners to develop User Charge and Industrial Cost Recovery Systems (UC/ICR).
Principal in charge on a project to design an Industrial Cost Recovery System for the Puerto Rico Aqueduct and Sewage Authority.
Principal in charge of our work to develop a transition plan which identified the adminis-trative, financial, organizational and operational factors which must be addressed in the formation of the Atlantic City Municipal
-Utilities Authority.
This Authority is designed to include water, sewage and solid waste disposal operations.
VI-12
- Principal in charge of our work to design User Charge / Industrial Cost Recovery systems for the N.W.
Bergen Sewage Authority.
- Principal in charge of our work to assist the Pemberton Municipal Utilities Authority develop an improved methodology to receive indirect cost reimbursement from the EPA on construction grant projects.
- Engagement Director in charge of project for a major consulting engineering firm to assist that organization in establishing improved financial management systems deemed necessary due to its significant work for grantees, the EPA and other funding authorities.
Engagement Director in charge of a project to design and implement zero-based budgeting procedures and improved internal reporting for one of the country's largest newsprint manufacturers.
Engagement Director of a project for a local N.J. community concerned with the development of an indirect cost allocation plan for reimbursement of indirect costs incurred in the administration and operation of federal grant programs.
Engagement Director in charge of several projects to define needs and implement improved automated financial systems for major health and community service organizations.
These projects included the development of multi-year data processing plans and the design and installation of specific systems based upon the needs and priorities of the organizations.
Engagement Director in charge of a consulting project for an international pharmaceutical manufacturer.
The engagement involved defining, designing and implementing an automated accounting and financial management system.
Engagement Director in charge of a project for the City of Worcester, Mass. involving the design and installation of a Feders'. Grant management control system.
Components of the project included grant processing, monitoring, auditing and contract performance evaluation procedures; local, regional and Federal reporting; and administrative system evaluations of grant recipients.
VI-13 l
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- Engagement Director in charge of a consulting i
project for a major New England teaching hospital.
The project involved developing automated financial, operational and staffing forecasting models, with the results being utilized by State funding authorities and regulatory rate setting commissions.
Mr. Goldman is a frequent speaker on topics directly re-lated to this proposal.
Examples of his recent presentations include the following:
. Conducted workshop seminars for both the Consulting Engineers Council of New Jersey and the New York Association of Consulting Engineers designed to train their members on (1) User Charge / Industrial Cost Recovery System and legislative requirements, (2) government contract accounting, and (3) the development of indirect cost allocation plans.
. Delivered a keynote address and conducted workshops on grant accounting systems and UC/ICR systems at the EPA's Program Management Workshop for Government Officials.
. Selected by the Association of Metropolitan Sewage Authorities (AMSA) to deliver a keynote address on Administrative Cost Control and Indirect Cost Reimbursement at their Financial Management Seminar.
- Conducted workshop seminars under the sponsor-ship of the New Jersey Department of Environmental Protection and New York Department of Environmental Conservation to advise grantees of the UC/ICR requirements and the steps involved to satisfy those requirements.
- Selected by the Authorities' Association of New Jersey to conduct a seminar for its members on the EPA's pretreatment requirements and related management information system needs.
Mr. Goldman is a Certified Public Accountant and a membe.r of the American Institute of Certified Public Accountants.
He is a member of the New Jerse3 School Association and Director and Treasurer of the Authorities' Association of New Jersey.
VI-14 Dennis Aronson Mr. Aronson, a Manager in the Management Services Department of the New York office, is responsible for the development of our utility industry practice and project management of engagements within the industry.
He is a graduate of Tulane University in New Orleans where he re-ceived a B.S.
degree in Electrical Engineering in 1968.
He has also earned a Masters degree in Business Administration from the University of Miami.
Mr. Aronson has devoted his entire professional career to the utility industry.
He joined Florida Power and Light Company in 1968 and held responsible positions in Engineering, Treasury, Management Services and Power Resources before leaving to join the Missouri Public Service Commission in 1975.
In Missouri, he organized the first-of-its-kind team of manage-ment analysts to perform studies of states' utilities.
- Later, he was promoted to Director, Utility Services.
Prior to joing Arthur Young, Mr. Aronson was an instru-mental part of A.T.
Kearney's North American utilities practice.
In his most recent position, he was Vice President, Management Consult ing for Zinder Management Services, Washington, D.C.
His experience on assignments for utility companies, associations and commissions includes the following:
- Directed the activities of a study team of five analysts during the review of a combination electric, gas and water utility.
This general management audit included a review of financial management, resource management, commercial operations, electric, gas and water operations, and staff support functions such as data processing, engineering, internal auditing, accounting, personnel, purchasing, rates and safety.
i VI-15
- Team leader, for a combination electric gas transit, steam heat and industrial steam utility, responsible for the evaluation of financial planning and control, resource management, customer services, power plant operations, and general office staff activities.
The latter activities included accounting, data processing, engineering, internal auditing, corporate communications, personnel, purchasing rates and safety.
- Directed the activities of a study team of five analysts in the review of a major electric utility's construction management program.
Efforts were concentrated upon power plant projects in Kansas and Missouri.
The study team reviewed the planning, scheduling and control systems utilized by the architect /
engineering firm, the construction contractor, and the utility's management group.
Since the proposed expenditures for the projects under study exceeded $1 billion, the study team conducted an extensive, in-depth review of existing and planned cost controls.
Several key recommendations have been implemented by the company.
- Project Team Leader of thirteeen consultants during the general management audit of a Bell System operating telephone company.
This study, at the request of a state public utilities control authority, included a review of organiza-tion, operations, finance, marketing custor..er service and engineering.
- Developed and implemented a performan,a reporting system for a consumer services department at Consumers Power Company.
Studies of over 200 employees across the State of Michigan resulted in the development of job standards, performance reports and manpower forecasting systems.
- Developed the resource requirements of a major pacific northwestern city for asserting jurisdic-tion over the utilities within the city boundaries.
This study, at the_ request of a major gas dis-tribution company, was commissioned to determine the costs of dual jurisdiction to the city, rate-payers, and the investor-owned utilities.
- Directed the activities of a project team in the evaluation of several materials mankgement soft-ware packages for a midwestern electric and gas utility.
VI-16
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I Designed and developed a vehicle and equipment
- management system for a midwestern electric and gas distribution company.
Study recommendations included formalized operating procedures, a centralized staff, lease / buy analyses, purchasing policies and a maintenance program.
Designed and installed an information system to monitor, index, store, and distribute material to EEI member companies on matters related to state and federal regulatory proceedings.
Mr. Aronson is widely known in utility and regulatory circles throughout the United States.
He has given numerous presentat ions on raanagement auditing, some of which are highlighted below:
"Several Issues of Major Concern to Regulatory Agencies When Ordering a Management Audit",
Midwest Association of Railroad and Utility Commissioners (MARUC), 1976 Annual Meeting, Tulsa, Oklahoma.
. "The Management Audit", 54th National Conference of Regulatory Utility Commission Engineers, June 1976, Hershey, Pennsylvania.
"The Management Review and Its Emerging Role in Regulation", Missouri Telephone Association 1976 Annual Meeting.
"The Management Audit", Missouri Valley Electric
. Association (MVEA), 1976 Annual Meeting, Kansas City, Missouri.
" Management Audits Performed by Commission Staff",
Management Audit Symposium, R.P.I.,
March, 1977, Troy, New York.
"The Use of Commission Staff as Management Auditors",
Advanced Management Research (AMR) Management Audit Seminar, June, 1977, Chicago, Illinois.
"The Partial Management Audit", Advanced Management Research (AMR) Management Audit Seminar, 1977.
- "The Focused Management Audit", Advanced Management Research (AMR), Management Audit Seminar, March 1978, Washington, D.C.
VI-17
" Management Audits of the Materials Function",
American Gas Association, Transmission and Distribution Conference, May, 1979, Hollywood, Florida.
" Materials Management Audits -- The Regulatory Perspective", Missouri Valley Electric Association Annual Meeting, September, 1979, Kansas City, Missouri.
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VI-18 James E. Wheat Mr. Wheat is the Director of Taxes with our Newark Office.
Mr. Wheat holds both B.S. and L.LB degrees from University of Kansas.
Mr. Wheat is responsible for a wide range of corporate clients, including General Instrument Corporation, Thiokol Corporation and Midland Glass Company.
In addition, he has served as a special tax consultant to Southern Naturel Resources and the Offshore Company.
His experience includes extensive involvement in corporate acquisitions and reorga-nizations.
In the past, Mr. Wheat served with the National Tax Group in our Washington, D.C. office.
Mr. Wheat has served as a director of the National Association of Estate Planning Councils and as president of the Estate Planning Council of North Jersey.
A former chairman of the Journal and Publication Committee of the New Jersey Society of CPAs, Mr. Wheat is the author of several articles that have been published by the Society as well as in other professional journals.
He is a member of the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants.
l VI-19 David A. Tierno Mr. Tierno is a Partner and Director of the Management Services Department of the New York Office.
He is a graduate of St. Joseph's College in Philadelphia where he received a B.S. degree in Accounting in 1963.
Mr. Tierno has the overall responsibility for the provision of a wide range of management consulting services to clients in many industries.
He has had a wide range of management consulting experience, and has been active in professional organizations at the state and local levels.
Ilis major engagements have covered such services as review and analysis of operational and financial reporting systems, conceptual systems design, feasibility studies, design and implementation of management planning and control systems, and Equal Employment Opportunity Compliance.
Projects in which Mr. Tierno has been actively involved include the following:
- Operations Project Director, for a study requested by the State of Michigan's Governor's Advisory Commission which evaluated financing alternatives for investor-owned and municipal electric utilities within the state.
This engagement included the evaluation of the economic and operational impact of municipal power authority, municipal utility finance corporation and joint venture approaches.
- Partner-In-Charge for the review of the operations in a management audit of a water utility company.
The review covered capital expenditure planning and budgeting, distribution systems maintenance, water treatment and pumping station management, materials management, and meter setting and testing.
- Partner-In-Charge for a special study for the Office of the Lieutenant Governor of the Common-wealth of Pennsylvania to develop a new energy conservation program for the. Commonwealth.
Project involved program feasibility assessment, evaluation of alternative programs, development of organizational recommendations, and the preparation of a comprehensive plan to implement the program at the state, regional and local levels.
VI-20 l
Partner-In-Charge for a project to conduct a study of the organization structure and per-sonnel management practices and policies of the Pennsylvania Public Utility Commission.
This engagement resulted in a determination of the adequacy of the existing Commission organization structure and resulted in rec-ommendations for its improvement.
Mission statements were prepared for organizational units as well as position descriptions for key personnel.
Partner-In-Charge for a project to evaluate the feasibility of utilizing electron'.c data processing techniques to assist the Pennsylvania PUC in fulfilling its respon-sibility to regulate over 5,000 transportation and fixed utilities operating within the Commonwealth.
Virtually all operations of the Commission were reviewed and documented as necessary to analyze the procedures of the Commission and determine the feasibility of using data processing techniques.
Regional Coordinator of an engagement with the Philadelphia Regional Office of the Public llealth Service.
The project involved develop-ment and implementation of a structurally sound management by objectives (MBO) program to replace the agencies' operational planning system (OPS).
The effort required the develop-ment of a curriculum and training guide, conduct of initial training courses, provision of MBO training, structural reorganization and MBO implementation.
Directed an operational review of the financial reporting system of a medium-size city and developed and implemented financial reporting systems based on review recommendations.
Other consulting experience includes:
- Regional Project Director on a national contract with the Law Enforcement Assistance Administration (LEAA) to provide financial and management technical assistance to various state planning agencies responsible for administering LEAA grants-in-aid.
VI-21
- Project Director for an engagement with the Pennsylvania Developmental Disabilities Planning and Advisory council to conduct an inventory and analysis of providers directly servinr, developmentally disabled persons and surport units administering programs which benefit them.
- Project Director for the preparation and presentation of a series of training modules to the Lehigh Valley Manpower Program, a CETA prime sponsor.
- Partner-In-Charge of an engagement with the City of Philadelphia to implement a pilot productivity program.
Mr. Tierno is a Certified Public Accountant.
Ile is a frequent speaker before professional groups on subject re-lated to financial management systems and control.
Mr. Tierno is a member of the American and Pennsylvania Institutes of CPAs, the Municipal Finance Officers Association and the Planning Executives Institute.
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VI-22 Barry Walsh Mr. Walsh is Office Director of Management Services for the Toledo Office.
He received his B.S. degree in Mathematics from Bowling Green State University in 1962 and has completed post graduate work in accounting.
In addition, he has com-pleted special studies in materials management, management by objectives, financial planning and control and computer programming.
Ilis project experience includes:
project Director, for a study requested by the a
State of Michigan's Governor's Advisory Com-mission which evaluated financing alternatives for investor-owned and municipal electric utilities within the state.
This engagement included the evaluation of the economic and operational impact of municipal power authority, municipal utility finance corporation and joint venture approaches.
project Director for the design and implementation of an energy supply and demand information system for the State of Michigan.
The system provides the State with energy management information and allows the State to develop scenarios of future supplies and demands to assist in establishing long-term policies for energy management within the State.
It also provides necessary infor-mation for managing the allocation program used during the 1974 winter petroleum shortages.
The system consists of a large data base and several models for forecasting supply and demand including a large linear programming model.
Managed a technical assistance program for 250 distributors of a Michigan manufacturer.
The program consisted cf design and implementation of an automated accounting system, a management information system and a distribution improve-ment system.
Managed development of a computer based financial planning model for a Michigan manufacturer.
The model operated on a time-share system and was specifically designed to analyze sales, price and cost data for evaluating alternative marketing and operational strategies.
VI-23
- Managed an engagement to develop a management planning and control system for a manufacturing company.
This engagement consisted of the design and implementation of an inventory control system, a cost accounting system and a budget system.
- Served as team leader on a project to identify services and develop IIEW-SRS billing procedures for social and rehabilitation services provided to public assistance recipients under Titles IV -
and SVI of the Social Security Act by the Illinois Department of Public Aid.
- Overall management of total consulting activities performed for one of the largest cooperatives in Michigan.
Program consisted of analyzing current operations, developing operating budget, defining methods improvement opportunities and providing management control procedures.
Participated in a feasibility study for redevelop-ment of a downtown area.
- Managed other engagements in the area of financial planning, control and information systems for several major clients in Michigan.
Mr. Walsh's experience prior to joining Arthur Young &
Company includes investment analysis, cost / effectiveness, studies and budgets and profit planning for the Ford Motor Company.
In addition, he is experienced in financial evalua-tions for proposed operating methods and improvements, analyses of potential facility investments and paybacks, preparing and conducting cost control programs and developing and installing budgets and profit plans.
lie has been a guest speaker for the American Institute of Certified Public Accountants, the National Association of Accountants, and Planning Executives Institute and Operations Research Society of America.
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VI-24 l
l John F.
Laezza, Jr.
Mr. Laezza has more than 27 years experience in handling accounting, auditing and financial consulting matters prin-cipally for county and municipal governments, school districts and water and sewer authorities.
Mr. Laezza is a Partner in charge of the N.J. Government practice of Arthur Young & Company.
He obtained his B.S.
degree in Commerce and his M.A.
degree in Public Administra-tion from Rider College, Trenton, New Jersey.
Mr. Laezza, a Certified Public Accountant and a Registered Municipal Accountant, is a member of the N.J. Society of C.P.A.'s and the Registered Municipal Accountants Association.
He also served as a member of the N.J. State Board of Certified Public Accountants and was a co-adjutant instructor of Public Finance at the graduate level in Rider College.
Prior to joining Arthur Young & Company in October 1979, hir. Laezza was the Director of the Division of Local Govern-ment Services in the Department of Community Affairs with selected responsibilities to the State Treasurer in matters relating to the fiscal integrity and financial management of local and county governments, t
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VI-25 Thomas J.
Kelly Mr. Kelly is responsible for all consulting projects for clients based in New Jersey.
In addition, he has client consulting responsibility for major national companies' computer systems and related management information systems and organizational activities.
Mr. Kelly presently serves as the Practice Director of Data Processing Consulting for the Metropolitan New York, New Jersey and Connecticut region and has performed a similar role for our Midwest Region.
As Practice Director, he is responsible for determination of consulting scope and quality control for all engagements involving computer systems and related activities.
Mr. Kelly has more than thirty years experience in data processing and related management information reporting systems, of which the last twenty-two years are in consulting.
Some of his recent professional experience includes the following:
. Director in charge of work with Passaic Valley Sewerage Commissioners to develop User Charge and Industrial Cost Recovery Rates and supporting systems.
- Director in charge of assisting in the planning for establishing a municipal authority for Atlantic City for management of water and sewage services and subsequent studies of operating costs and rates based on projected services, requirements and operating costs in the future.
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VI-26
. Director in charge of consulting engagement with a major shipping company recently formed through the purchase of assets and operations from three shipping companies.
This engagement consisted of the development and installation of the accounting and operational information system essential to operate the new company.
This included detailed design of the system and related reporting, in the selection and installation of the computer equipment in two new computer centers, the monitoring of the software development and installation of the computer system.
In addition, the design and installation of the financial organization and related policies and procedures were accomplished.
Mr. Kel~1'y holds a B.S. degree in Business Management
~ ~ ~
from Seton Hall University.
He is a member of the Institute of Management Consultants.
He has written articles and participated in many professional meetings and educational seminars as a speaker and instructor on topics related to management information systems, computer systems management, planning, auditing and control.
He also serves as a member of the Board of Directors of Catholic Community Services, Diocese of Newark.
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VI-27 Robert G.
McLendon partner, New York office.
Mr. McLendon holds a B.A.
degree from Yale University and an M.B.A. degree from Rutgers University.
Mr. McLendon is the Director of Accounting for our Firm's Metropolitan Region.
In this role, he consults with the offices in this region on a variety of accounting and, reporting problems.
lie is also a member of our Firm's Accounting and Auditing Standards Committee and serves as Coordinating Partner on a number of major engagements, including Teleprompter and Avco.
Mr. McLendon is a certified public accountant and is a member of the American Institute of Certified Public Accountants.
lie has served on the Accounting Standards Executive Committee of the AICPA and is currently serving on the FASB's Screening Commi ttee on Emerging Problems.
VI-28 Thomas A. Walsh, Jr.
i Senior Project Manager, Newark Of fice.
He received a B.B.A. degree in Accounting and an M.B.A. with concentration in Management and Finance from the University of Notre Dame.
lie served on the audit staff of the Newark Office prior to joining the Management Services Department.
lie has directed or participated in numerous engagements involving specialized financial analysis and the design of financial and operating information systems.
Examples of Mr. Walsh's recent consulting experience include:
- Project Manager for our work with the Passaic Valley Sewerage Commissioners to develop User Charge and Industrial Cost Recovery Systems (UC/ICR).
Responsibilities included:
- Conceptual Design of Integrated Accounting and Management Information Systems (including UC/ICR).
- Detail design of UC/ICR Systems.
- Public information programs for member municipalities and industrial, commercial and tax-exempt users.
- Development of preliminary UC/ICR rates in conjunction with PVSC's consulting engineer.
- Development of an indirect cost allocation plan to obtain reimbursement from EPA for certain grant administration costs.
- Served as a technical advisor on a project to design an Industrial Cost Recovery System for the Puerto Rico Aqueduct and Sewerage Authority.
Responsibilities included development of rate setting methods for this island-wide authority which has numerous interconnected facilities and over 200 separate EPA construction grants.
- Managed an engagement to assist a local sewerage authority obtain reimbursement for direct and indirect costs incurred in the administration of an EPA construction grant.
Project Manager for the design of UC/ICR systems for a medium-sized regional sewerage authority in New Jersey.
VI-29
- Pa r t i c i pa ted as a panel member in UC/ICR seminars for grantees sponsored by the New Jersey Depart-ment of Environmental Protection and the New York State Department of Environmental Conservation.
- Managed an engagement to assist a local sewerage authority obtain reimbursement for direct and indirect costs incurred in the administration of an EPA construction grant.
Participated as a panel member in UC/ICR seminars for grantees sponsored by the New Jersey Depart-ment of Environmental Protection and the New l
York State Department of Environmental Conservation.
Participated as a speaker and panel member at a national seminar sponsored by EPA.
- Managed an engagement for a large New Jersey city to develop an indirect cost allocation plan used to obtain reimbursement for indirect costs from federal grant programs.
This project involved analyzing the organization and financial structure of the city and recommending the most beneficial method of computing indirect cost rates.
Indirect cost rates were then computed in accordance with applicable federal guidelines.
- Managed an engagement for a consulting engineering firm to review the preparation of indirect cost rates for epa-f unded cost plus fixed fee contracts.
- Managed an engagement to design and install general accounting procedures for a large law firm.
Manual procedures were designed to support newly-installed automated cash receipts, cash disbursement and general ledger systems.
A month-end closing schedule and financial statement preparation procedures were designed and installed.
- Conducted a review of the internal control procedures of the New Jersey State Lottery Commission which identified internal control and operational improve-ments.
Advised Lottery.regarding control procedures to be established for the Pick-It game.
Also. advised the Lottery regarding security procedures for ~ the printing of the Instant Lottery tickets and accounting procedures for the distribution of these tickets.
Supervised monthly audits of the Lottery organizations.
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- Conducted a survey of a large mental health and welfare organization which identified significant accounting and organizational improvements.
Directed the implementation of a major change in the revenue and accounts receivable system; the improved system resulted in more than a 100%
increase in identifiable and collectible accounts receivable.
Advised client personnel during implementation of other recommendations.
- Developed a budgeting system for a major recycling company utilizing the zero-based budgeting philosophy.
- Assisted in the development of financial and accounting policies and procedures for a major This government-ouned ocean freight carrier.
engagement included:
- Developing the chart of accounts
- Designing management and regulatory reporting systems
- Analysis of the cash management system
- Assisting the client in establishing accounting policies
- Developing guidelines for internal audit activities Interacting with a third-party data pro-
- cessing software vendor during the implementation of the client's accounting and information systems
- Designing a container inventory / locator system.
- Assisted in the design of an inventory control system for a manufccturer of custom-designed environmental control systems.
Mr. Walsh is a Certified Public Accountant in the State of New Jersey.
lie is a ' member of the New Jersey Society of Certified Public Accountants and serves cn its Committee on Government Accounting.
He is also a member of the Association of Government Accountants and the American Institute of Certified Public Accountants.
l VI-31 Albert J.
Passante Mr. Passante is a Tax Principal in the Newark Office of Arthur Young & Company.
He received a B.S.
degree in accounting from St. Peter's College.
Mr. Passante's responsibilities include the planning and supervision of tax services for various clients including publicly and privately held corporations in industries such as electronics, real estate and equipment ma nu f ac t u r i ng.
In addition, Mr. Passante has had extensive experience in matters of taxation regarding multinational companies, corporate reorganizations and non-profit organizations.
Mr. Passante is a member of the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants.
He is also currently serving as a member of the Cooperation with the Internal Revenue Service Committee of the New Jersey Society of Certified Public Accountants.
VI-32 Warren M.
Weber Senior Consultant, New York Office.
Mr. Weber received a B.S.
in Mechanical Engineering from CCNY and an M.B.A.
from the llarvard Graduate School of Business Administration.
lie has also done graduate work at the University of Connecticut School of Law.
Mr. Weber has had extensive experience in the manufacturing and operations area with emphasis on strategic and long-range planning, capital budgeting, materials management, engineering, operations, and risk management.
Mr. Weber's recent professional experience includes:
D?veloped a manpower planning and control system for planning, scheduling, dispatching, monitoring and controlling transmission and distribution operations for a major northeastern electric and gas utility.
Developed and implemented a planning and control system for formulation, selection evaluation and control of discretionary projects and programs.
Developed and implemented an operating performance measurement system.
Developed long range and strategic planning capabil-ities including the preparation and formulation of goals, objectives, strategies and tactics to effec-tively utilize corporate resources.
Developed improved policies, methods and procedures, for capaci ty measurement, inventory control, sched-uling, forecasting, purchasing and overall material management.
Implemented a Materials Requirement Planning (MRP) type production control system for use in improving production planning effectiveness.
- Developed a complete program including scheduling, plant layout, cost estimates and engineering for tes t market production of a modified product line.
f VI-33 Jerformed a study of economic and technical easibility including scope, schedule and cost of several product modifications for use in marketing decisions.
Other experience includes:
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- Advisory operating management on extensive operating functions within a metal cutting process.
- Numerous assignments utilizing a risk manage-i ment approach to solving a wide variety of management problems.
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VI-34 Laurence M. Wolfert Mr. Wolfert is a graduate of Boston University with a B.S. degree in Business Administration.
He received his M.B.A.
degree from New York University.
Mr. Wolfert has been involved in assisting companies in the areas of financial planning and controls, capital budgeting and controls, management information systems and product profitability studies.
Specific professional experience includes:
Developed guidelines for a major northeast utility company related to performance budgeting and zero-base budgeting systems.
- Developed and implemented monthly management reports relating performance to management objectives.
Var-lances were explained in more concise, timely and meaningful terms to provide responsive corrective action programs.
- Revised existitig Capital Budgeting system to incor-porate more comprehensive management review, more substantial control reporting and integration with long-range planning.
- Developed a system to capture branch profitability studies in a centralized reporting environment which provided significantly more controls at the local level and permitted effect on profit analyses of elimination at the divisional level.
- Responsible for development of a financial procedures control manual and associated reporting mechanism to insure compliance with financial controls and proce-dures.
- Task Leader responsible for implementation of Standard Cost system for a multi-plant manufacturing Concern.
- Developed a manpower utt11zation report which gave management a more accurate monitoring of manpower effectiveness versus budget.
VI-35 Stephanie P.
Sctiwartz Senior Project Manager, Newark Office.
Miss Schwartz received her B.S. degree in-Mathematics from the Massachusetts Institute of Technology and received an M.B.A.
from Fairleigh Dickinson University, concentrating in Finance.
She has over eight years experience in financial planning, automated financial and accounting systems and data processing.
lier recent experience includes:
Served as a Senior Consultant in charge of a a
cost of service study and rate setting analysis for a New Jersey Authority providing water, sewage and solid waste services to a major community.
Project Manager in charge of the implementation of a General Ledger and Financial Reporting System for an international Fortune 500 Corporation.
Participation extended from initial systems testing, through parallel operation and turnover to a produc-tion environment.
Management responsibilities included definition and coordination of activities requiring the combined support of Financial Reporting and Data Processing personnel.
These activities ranged from testing and monitoring system performance to development and communication of policies and procedures.
I Pa rt ic i pa ted in transportation study for a major manu facturing concern.
The study focused on the advantages / disadvantages of a private fleet versus a common carrier operation.
Linear programming was used to determine the maximum benefit and to develop an operational model for the private fleet operation. _This project resulted in annual cost savings of $150,000.
Participated on a task force chartered to conduct an operational and profitability review of one
~
segment of a large chemical company.
This review resulted in a decision to divest that business area, significantly reducing the company's operating losses.
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VI-36 i
Prior to joining Arthur Young & Company, Miss Schwartz-was employed.by a Fortune 100 company.
As a member of the Corporate Controller's and Treasurer's Departments, she was responsible for a wide variety of financial analysis and planning functions.
During this time she was also responsible for'the design and development of automated financial systems including a cash flow system, a generalized monitoring system for multiple investment funds and a financial model to generate the Corporate Sales Price Indices.
She was previously employed in the Data Processing field in the systems development area.
In this capacity she was responsible for systems design, programming, implementation and documentation of large modular syst?ms for scientific and business applications.
Miss Schwartz has worked on preparing the agenda and ma t eri al for a seminar on corporate financial functions presented to candidates for financial management.
She has also served as an advisor to the General Business and Ac-counting Explorer's Post Career Program.
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l' VI-37 David J.
Smith Manager, New York Office.
Mr. Smith received his B.S.
degree in Applied. Mathematics from Brown University and an M.S. in Computer Science from the University of Southern California.
He has completed all requirements except his
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dissertation for the Ph.D. in Computer Science at the University of California, Los Angeles.
Mr. Smith has 13 years of software engineering, data processing and infor-mation sciences experience.
On this study he will assist in the development of a computer based simulation model to support the financial analysis.
Mr. Smith is a member of the Association for Computing Machinery (including the special interest groups on pro-gramming languages, operating systems and software engi-neering) and the Computer Society of the Institute for Electrical and Electronics Engineers.
lie has also been elected a member of the national computing sciences honorary society, Upsilon PL Epsilon.
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VI-38 i
Larry Baumgarten i
Manager, New York office.
Mr. Baumgarten obtained an W.B. A. degree f rom the Wharton School, University of Penn-sylvania where he concentrated in finance.
He received his undergraduate degree at the University of Cape Town, South Africa, and he is a Chartered Accountant.
Baumgarten's experience has primarily been in the Mr.
areas of strategic and financial planning, and the design of His recent profes-financial reporting and control systems.
sional experience includes:
. Strategic and Financial Planning
- Performed the financial evaluation of a proposed large scale system for a direct marketing division of a financial institution.
The financial analysis involved cash flow projections, estimating costs and savings, and using present value and payback analysis to assess the net benefit of the proposed project.
- Developed a worldwide. pricing strategy for a major financial services corporation.
The tasks included developing guidelines for:
determining the allocation of funds to pricing actions; monitoring the effectiveness of pricing actions on a countr'y-by-country basis; setting up a planning mechanism which would generate the pricing proposals for each country each year.
- Developed approaches for creating supplementary distribution channels for a consumer products The tasks included reviewing long-corporation.
run competitive a'nd environmental trends, and projecting the financial impact of expanding the distribution system.
- Financial Reporting Systems
- Reviewed the financial accounting system of a large insurance corporation to determine:
whether the level of accounting data being recorded was appropriate; the amount of effort involved in making systems changes to allow additional data gathering; the conceptual design and associated cost and organizational impact of an alternative design.
VI-39
- Reviewed the clients' implementation ef fort for the financial accounting system referred to above.
The tasks included reviewing the system's con-ceptual design and supporting chart of accounts.
- Developed a comprehensive set of management reports for a European Bank, including the nec-essary data flows and a chart of accounts to provide the accounting information.
VI-40 Gary S. Long Senior Consultant, New York office.
Mr. Long is a gradu-ate of Davidson College where he received a B.A. degree in Economics; Harvard Business School where he received an M.B. A.
in Finance; and Northwestern University where he completed the Professional Accounting Program.
His most recent experience includes:
- An international strategy development study for major travel-related services.
This study involved a comprehensive analysis of the inter-national markets for the financial products of a major company.
The study analyzed the competitive environment, market trends, impact of various pricing alternatives, and potential expansion of the distribution network in major countries overseas.
Based upon this analysis, strategies were developed for expanding the distribution networks, penetrating new markets and maximizing long-term profitability of the product line.
Strategic business planning for retail and whole-sale travel operations.
This project involved developing action plans for redesigning systems to support the retail travel selling function and to redesign the back-office accounting applications to generate the required financial, accounting and marketing information. _The study also involved system development to support wholesale travel planning and selling, including integrated tour costing and pricing, access to a common data base of supplier services and expansion of the systems to accommodate travel agents worldwide and to interf ace with back-of fice accounting. applications.
Detailed cost / benefit analyses were performed.
These analyses entailed consolidating for all systems the identified benefits and costs of both an operating and development nature and performing ten-year projections of operating results under various assumptions.
The project also involved determining the feasibility of mechanizing retail outlets and analyzing alternative methods of fi-nancing the system redesigns.
Financial planning for a company in the financial services area.
The job involved developing a methodology for analyzing the financial impact of a potential competitive product.
The study
VI-41 analyzed in detail the existing market structure and projected the characteristics of the new product and its related operating system.
Based upon these projections and various assumptions on the potential market penetration, pricing structure and impact on total market, detailed pro forma financial analyses were performed.
The results of the study were used as a basis for developing a strategy for the company in the event of the product's introduction.
Mr. Long is a CPA in New York and a member of the American Institute of Certified Public Accountants.
Resumes for Other Firms These have been included in Section VII.
i VII. QUALIFICATIONS We believe that the consulting team organized by Arthur Young & Company has outstanding credentials and is therefore cap-able of fully meeting the objectives of the Board.
To ensure the quality of this consulting engagement we have selected a study team consisting of professionals from the following firms:
A.
Arthur Young & Company B.
Investment banking firm to be selected later C. Nolan, Bell & Moore D. Nielsen, Wurster & Associates, Inc.
E.
Dr. Franklin E.
Robeson A. Arthur Young & Company In this section we present the qualifications of Arthur Young & Company to conduct the analysis of strategic options for Jersey Central Power & Light Company.
Major parts include:
- An introduction to Arthur Young & Company
. Government and Regulatory Commission Experience Utility Management Audit Experience
- Other experience with the utility industry 1.
Introduction to Arthur Young Arthur Young & Company is a major provider of professional services -- auditing / accounting, tax services, management con-sulting and educatier.a1 services -- to a wide and diverse clien-tele throughout the world.
Our firm has a long-standing repu-j tation for quality, objectivity and results in rendering pro-i l
fessional services.
The scope of our consulting services is comprehensive and is tailored to meet the continuing needs of our broad client base.
Our consulting teams represent a wide range of experience in utility consulting and a commitment to assist clients in the development of implementation oriented solutions to problems.
l' VII-2 We blend together six functional skill areas in our project teams and these are described below.
It is our belief that these skills and qualities are necessary to advise our clients in the complex problems f acing the utility industry today.
Financial planning and control
- Management information systems;
- General and cost accounting systems;
- Computer-based planning models;
- Project accounting systems;
- Planning and budgeting systems;
- Cost / benefit analysis.
- Operational planning and control Inventory management;
- Production planning and control;
- Facilities planning;
- Methods improvement;
- Work measurement and standards development;
- Industrial engineering.
- Marketing
- Sales control and reporting systems;
- Product pricing analyses;
- Distribution analyses and programs;
- Transportation and shipping studies.
Organizational planning
- Organizational structure;
- Report ing relationships;
- Management succession planning;
- Position classification analysis;
- Compensation planning analysis;
- Executive search.
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I VII-3
- Operations research
- Operational analysis and resource allocation;
- Trade-off decision analysis;
- Transportation and distribution studies;
- Economic analysis and forecasting.
- Data processing
- Short-and long-range EDP planning;
- Feasibility studies;
- System design and implementation;
- liardware and sof tware evaluation;
- Computer auditing.
Our assistance to the utility industry (including public and investor owned utilities and regulatory agencies) has been as varied and complex as the skills we offer.
Some of the in which our firm has provided services include:
areas Large-scale financial analysis related to utility construction programs.
- Management or operational audits of an entire utility as well as specific divisions, departments or func-tional units.
- Administrative problems including planning, budgeting, organization, financial management, and labor relations.
Rate problems including rate design and testimony before regulatory agencies.
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- Cost containment projects including planning and scheduling, manpower planning and control, inventory management, construction planning and control, and equipment utilization.
Data processing problems including automated billing systems, financial models, accounting systems and budgeting systems.
The following summaries demonstrate that Arthur Young &
Company has the direct experience and consulting resources re-quired to complete this project.
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VII-4
- 2. Government and regulatory commission experience Michigan Department of Commerce - Governor's Advisory Commission on Electric Power Alternatives This state client initiated a study to investigate state financial assistance alternatives for privately-owned electric utilities.
The need for continued low-cost electric power and concern for the financial posture of the entire electric utility industry caused the Governor's Advisory Commission to consider programs of state assistance to finance expansion of electric generating capacity.
Most of the fundamental issues limiting the availability and increasing the cost of capital are national and int ernational in scope so that they impact the entire elec-tric utility industry.
We were engaged to assist the commission in developing the alternatives for a program of financial assistance.
The product of the study performed by Arthur Young & Company, with the assistance of a leading investment bank and legal counsel, is a report reflecting the evaluation of various alternatives in such areas as:
Investment
- Tax status Legal / legislative
- Economic
= Operational Power Authority of the State of New York Arthur Young & Company was hired by the Power Authority of the State of New York to provide an independent opinion as to the costs incurred by Consolidated Edison Company (the com-pany) for construction of Indian Point unit No. 3 (Nuclear) and Astoria No. 6 (fossil).
This work consisted of:
An examination of the records and construction expen-ditures of the company, its contractors, sub-contrac-tors and others as necessary in order to verify costs incurred in connection with construction of the facili-ties.
This involved extensive audit procedures in
6 VII-5 connection with sources of disbursements and the exami-nation of various contract files, contract progress estimates, paid vouchers files and releases issued by the various contractors.
- An opinion on these costs taking into consideration generally accepted accounting principles, applicable regulatory systems (FPC, AEC or PSC) of accounts, and the company's normal and consistent procedures for all of its plant construction.
- Extensive tests of the various bids files to determine that contracts were awarded in accordance with the com-pany's established bidding and contract award practices.
- A determination where field orders were issued for work not contemplated by basic construction contracts, that such work was properly authorized.
- A determination that the major items for which funds were disbursed were physically installed.
Our ef forts were coordinated with those of Stone and Webster, the Engineering consultants assigned to this project.
Michigan Energy Office The firm completed an engagement to develop a fuel /
energy demand and supply information system for the State of Michigan.
This effort involved:
Development of a conceptual demand / support distribu-tion model Determination and specification of energy demand /
supply data requirements Development of an energy price and shortfall fore-casting model Development of a conceptual data storage / retrieval system Design and implementation of a hardware dependent system The objective of this study was to provide the State of Michigan with an energy information system and a forecasting mechanism to:
Forecast energy supplies by fuel type for a ceriod of
.up to 12 months
VII-6
- Estimate current energy supplies in the state on a county basis each month Assist in distributing energy supplies in times of energy shortfall
- Assess the impact of price changes and policy options on Michigan industries Identify probable long-term supply and demand inequalities Determine probable long-term price patterns in Michigan for various fuels
- Evaluate the adequacy of proposed increases in energy capacity
- Evaluate the effect of policy decisions on the ava.
ability of specific fuels to specific classes of consumers Passaic Valley Sewage Commissioners (PVSC)
The firm has conducted several engagements for PVSC and has on-going assignments to assist in the design and implementation of financial and operational control systems for what will be the Enst Coast's largest sewage treatment plant.
Our work for PVSC, chich has a direct relationship to this proposal, includes the following:
Analyzing present and proposed operations to develop new rate o structures which reflect the costs and operations for a sophis-ticated waste-water treatment plant.
The design of the new rate structure and the related billing and collection systems involved coordinating the ef forts of PVSC's internal engineers, consulting engineers and legal counsel.
Assisting PVSC's management to conduct public hearings with o
the communities and industries which it serves.
N.W. Bergen Sewage Authority (NWBSA)
The firm has assisted NWBSA in the design of new rate setting, billing and collection systems to reflect the expanded Rate operations and increased sophistication of the Authority.
setting work involved user charge and industrial cost recovery systems.
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VII-7 Atlantic City Municipal Utilities Authority (ACMUA)
The firm has assisted the ACMUA in a variety of projects over the last few months which included the following representa-tive assignments:
Developed a transition plan which addressed the financial, o operational and organizational considerations of creating a new entity to operate the water, sewage, and solid waste operations of Atlant ic City.
This work involved close coor-dination with the MUA's consulting engineers, legal counsel and board counsel.
o Assisted the MUA in preparing operating budgets and rate set-ting methodologies.
Arkansas Public Service Commission We were engaged by the Arkansas Public Service Commission to conduct an operations audit of its Utility Division.
The basic objectives of the audit were to:
Identify problem areas in management and operations Propose solutions to those problems attributable to the Commission's management
- Prepare a comprehensive case tracking procedures manual.
Federal Energy Administration - Sensitivity Analysis of Electric Utility Cost /KWil to Varying Fuel Prices Under a task ~ order contract with the FEA, the firm deter-mined how electric utility costs vary with changes in fuel supply and demand for geographic regions in the United States.
Several different scenarios were hypothesized which resulted in changes in fuel supply and demand and the resulting impact on costs /KWii.
Two models were utilized to develop the overall electric utility fuel-cost assessment model.
The first model, a finan-1 l
cial model, determines the cost per KWil as a function of the l
demand for electricity and the changes in capital investment, fuel costs, and operation and maintenance costs.
The second model is a linear programmi ng supply / demand model.
This model incorporates all applicable fuel constraints,
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i VII-8 production facilities, and modes of energy transmission while minimizing the total cost of energy needs to satisfy a pre-specified demand.
Using the linear programming approach, var-ious scenarios were hypothesized (as part of the sensitivity analysis).
Scenarios included modifications in:
- Export and import limitations Emission standards Cost of capital Strip mining regulations Price controls on natural gas and domestic oil Fuel availability through new discoveries or delivery capabilities Technology advancements Switching capabilities among various fuels Economic activity as measured by GNP Develop Financial Model -- U.S.
Department of Energy Arthur Young assisted the Department in assessing the relationships between cost /KWil and demand.
This study resulted in the creation of a financial modet which determined the cost /
KWil as a function of the demand for electricity and changes in capital investment, fuel costs and operation and maintenance costs.
Information for the model was obtained from the follow-ing sources:
An analysis of the financial structures of 80 utilities Examination of fuel-cost-pass-through data available from state regulatory commissions Examination of Federal Energy Regulatory Commission and Department of Energy data.
U.S. Department of Energy - Develop Supply / Demand Model Energy Arthur Young assisted the Department in assessing the relationship between supply and demand.
This study resulted in the development of a model incorporating applicable fuel
VI I-9 constraints, production facilities and modes of energy trans-mission while minimizing the total cost of energy needs to satisfy a prespecified demand.
Using the linear programming approach, varicus scenarios cere hypothesized which resulted in significant fuel price changes.
These scenarios included modifications in:
Price controls on natural gas and domestic oil Emission standards
=
- Cost of capital Strip mining regulations Export-import limitations Fuel availability through new discoveries or capabilities a
Technology advancements Switching capabilities among various fuels Economic activity as measured by the GNP.
Federal Energy Administration Arthur Young & Company was engaged in gathering financial information, which is in the public domain, on over 80 Class A investor-owned utilities, the TVA, the Bonneville Power Adminis-tration, the major U.S.
Army, and the U.S. Bureau of Reclamation Power Systems.
The resulting data base was used by the FEA in evaluating potential federal policies which may have an impact on electric and gas utilities.
U.S. Department of Energy - Financial Analysis of Investor-Owned Utilities Arthur Young performed an in-depth financial analysis of 80 Class A investor-owned utilities for the FEA Office of Plan-ning and Analysis.
The engagement required designing a standard analysis form detailing the financial structure of each utility to include:
composition of short-term debt, expected cash flow, bond ratings, financial ratios and projected capital expendi-tures.
The analysis further required a study of rate structures, rate request history and rate changes over the past two years.
VII-10 Federal Energy Administration - Consumer Relations Survey Arthur Young & Company performed a survey of the consumer relations programs of several of the electric utility industry's largest investor-owned companies for the Office of Industry Analysis of the FEA.
This nationwide study focused on the issues of consumer communication and education.
The result of this study was the development of model consumer relations program guidelines that were generally applicable to the electric utili-ty industry.
Utilities were visited in Florida, California, North Dakota, Michigan, and New York.
Federal Energy Administration - Automated Short-Term Supply / Demand Forecasting Model for Coal Arthur Young & Company performed an engagement for FEA to produce an automated, seasonalized, short-term supply / demand forecasting model for bituminous coal and lignite.
The model included sufficient data bases and methodologies for forecasting regional consumption and production of coal and its distribution, taking into account relevant factors which influence the avail-ability of coal, demand fer ;oal, and inventory policies.
The model was fully automated and established on existing FEA com-puter systems.
1 The separate elements of the model (e.g.,
econometric demand equations, supply-side constraints, distribution system simulators) were integrated in an appropriate systems model which provided FEA the capacity to examine the effects of a wide range of economic, technological, and political influences on the supply of a demand for coal.
Such influences include, but l
are not limited to, embargoes and tariffs on imports of fuels j
that compete with coal, the rate of development of nuclear facilities, and curtallments of domestic natural gas supplies.
Federal Energy Administration - Control Systems for the National Strategic Petroleum Reserve Program I
In this ongoing engagement, the firm is one of five con-f tractors assisting the FEA in Planning the National Strategic
l VII-11 Petroleum Reserve Program.
This program was to be implemented in two phases, the Early Storage Program (ESP) and the Long-Range Program (LRP).
The ESP focuses on developing a strategic petroleum reserve during the next few years for limited protec-tion against near-term disruption of imports.
The LRP, incor-initiated concurrently on a planning, site porating the ESP, was It acquisition, and construction basis during FY 1976 to 1978.
cas directed toward identifying potential sites for large quan-tity storage which have total construction lead times of greater than three years.
Within this total effort, the firm was responsible for The developing the control systems for the strategic reserves.
project team postulated (1) control system concepts for the purchase of crude oil or refined product to ensure that a fair price is paid for the purchase and that all transactions result from arm's-length negotiations; (2) control systems to monitor input and output of crude oil and product from purchase to trans-port facility, from transport facility to storage, from storage to transport facility, and from transport facility to end-user custody; (3) control systems to monitor volume of crude oil or product in storage; and (4) control systems for the crude oil and product distribution.
Federal Energy Adininistration - Natural Gas Curtailment Program Arthur Young & Company performed a natural gas curtail-ment impact analysis.
The tasks included:
Review and evaluation of data available on natural
- gas supply and demand and the effects of natural gas curtailment on petroleum product demand.
Forecasting the impact of natural gas curtallments
- upon petroleum product demand for the 1974 - 1975 winter heating season.
Evaluation of the available data for natural gas
- demand and petroleum product supply and demand.
Project ion of regional shortfall postures for petroleum products.
i VII-12
- Analysis of natural gas curtailments and substitute fuels on a regional and state-by-state basis.
Kansas State Corporation Commission - Financial analysis of rate application This engagement consisted of a review and analysis of financial and operating data included in an application for electric service rate increases.
During the engagement, we accomplished the following:
- Reviewed the historical performance and comparative operating statistics of the applicant
- Analyzed short-and long-term plans and their ultimate effect on pro forma financial statements
- Compared historical operating statements with appro-priate indices and financial ratios of the industry and evaluated those statements
- Analyzed the proposed rate adjustments and cost allo-cations for propriety and reasonableness
- Reviewed the proposed rate schedule and the pro forma statements included in the application, and Prepared excerpts and testimony on behalf of the a
Kansas State Corporation Commission.
3.
Utility management audit experience Union Electric Company We were engaged to perform a management audit of a nuclear construction program at Union Electric Company.
In connection with this audit, we performed detailed reviews of the following functions:
Organization Planning:
Review of responsibilities and procedures for coordination, including both in-house and contractor organizations.
Load Forecasting:
Review of the Company's load fore-casting system including the variables considered, the historical correlation between act'ual and projected loads and the degree of differentiation between the base and peak load, l
VII-13 Engineering, Procurement and Construction Planning:
o Review of procedures for design and contracting with specific emphasis on a level-by-level approach to planning which provides for specified increases in degree of planning detail as design phases are com-pleted.
Const ruction Scheduling and Productivity Controls:
. Review of activities which occur beginning with the start of const ruction and continue throughout the construction period.
Niagara Mohawk Power Corporation We were selected to perform a management audit of the Company's management aad operations to identify problem areas and to propose solutions for these probiems.
The review was structured into two phases as follows:
1 Phase I was primarily diagnostic in nature and covered
- analysis and evaluation of the general situation at Niagara, definition of problem areas and recommenda-tions to correct problem areas where potential solu-tions were readily apparent.
Phase II was struc tured to provide implementation assistance related to the Phase I recommendations for in-depth study.
The project plan for accomplishing Phase I was further structured into tasks to cover the wide range of Company opera-tions and construction projects.
The scope of our work at Niagara Mohawk can best be illustrated by the following list of the functional review tasks completed.
Broadly stated, they cere as follows:
- Management of Large Capital Projects, Project Manage-ment Systems Power Plant Operations Corporate Engineering Fuel Procurement a
Fuel Contingency Planning System Integration Rate Case Management Tr ans po r ta tion Materials Management Relationship with Regulatory Bodies
i VII-14 Strategic Planning o
o Law Depar tmen t Con trol lersh i p Ac t iv it ies, Cash Forecas ting e
Budgeting and Accounting e
Capital Budgeting and Expenditure Control o
Corporate Planning o
o Environment Man ag eme nt e Fuel Utilization Systems Planning o
Electric and Gas Loss Investigation o
Corporate Organization Divisional Operations, Commercial Office, T&D Oper-ations Company EDP and Information Services Pe rsonn el and Industrial Relations Financial Community Relations Lincoln (Nebraska) Electric System We were engaged to conduct a management audit of the Lincoln Electric system (LES).
The purpose of the management audit was to assist the LES Ad Hoc Committee (representing the Mayor and Ci ty Council, LES Administrative Board, and City Finance Department) to evaluate overall utility operations and to develop specific recommendations for improvements having near-term and long-term financial impact.
The key tasks involved in this project were as follows:
provide a diagnostic review of LES operations, manage-e ment performance, and the budgeting process.
The Divisions and functions reviewed were:
- Operations Division:
Operations Managemen t, Electrical Equipment Maintenance, System Control, Overhead Lines, Underground Lines, Street Light-ing, general Serviens 'snd Transportation.
- Engineering and Power Supply Divisions:
Engineer-ing, Management, System Planning, Rates, Genera-tion Engineering and Construction, Administrative Services, System Energy Management, Power Pro-duction.
f
VII-15
- Finance and Accounting Division:
Administration, Purchasing and Stores, Systems and Data Process-ing, General Accounting, Customer Accounting.
- Administration and Customer Service Divisions:
Administration, Personnel, Safety and Training, Conservation and technical Assistance, Media and i
Communications.
Review and evaluate the organization structure and re-o lat ionships among the LES Administrative Board, LES i
Administration, Mayor, and City Council.
- Structure, interfaces, policies and planning, assumptions, technical processes, manpower decisions.
Managerial consistencies and controls, resource justification and scheduling, accountability, analysis and measurement of performance and ef f ec-tiveness, management practices, budgeting.
Identify major areas for improvement potential in terms of increased ef ficiency and ef fec tiveness.
Develop a Phase II (in-depth study) program plan for selected improvement opportunities, including poten-tial benefits, resource requirements and timing, and a priority sequence for management action planning.
Philadelphia Suburban Water Company We conducted a management audit of the Philadelphia Suburban Water Company.
It contained a broad but comprehensive diagnostic review of company management and operations, covering the following areas:
General Management Functions:
Including personnel management; corporate financial management; financial systems, procedures and controls; electronic data processing services.
Continuing Company Operations:
Including analysis of
. the adequacy o f responsibili ty definition, basic busi-ness systems, resource utilization and organizational ef fect iveness within line and line support operations.
Long-Range Planning; Including strategic planning;
- demand forecasting; system planning; and contingency planning.
Construction Planning and Control:
Including inter-
. face between capital system planning and demand fore-casting; selection of projects; project initiation; scheduling; and cost control.
External Factors:
Including relationships with regula-tory bodies; environmental management, financial com-munity relations; rate case management.
VII-16 Based on the phase I studies and coordination with the public Utility Commission, we were able to determine:
- Those areas of significant opportunity having greatest priority due to benefits to be achieved or sensitivity to the problem.
- Those areas where the Company, rather than Arthur Young, should develop specific recommendations, plans, or policies for improvement.
- The extent to which remaining areas should be carried forward to phase II for definition of specific rec-ommendations within a context of the reasonable capa-bilities of the Company to act on recommendations without impairing normal operations.
Ontario llydro A comprehensise mandgement ("value-for-money") audit of its operations was initiated by Ontario Hydro last year and will continue through approximately 1981.
Arthur Young, Clarkson, Gordon & Company (our Canadian affiliate), which is the financial auditor f o r On t a n f r. alyd ro, was selected to conduct the manage-ment audit.
We are part icipating with our af filiate in the de-velopment and conduct of this work.
Colorado - Ute Electric Association, Inc.
We were engaged to perform a detailed diagnostic review of the management and operations of Colorado - Ute Electric Association, Inc.
The review focused on the construction, generation and transmission functions, as well as the purchas-ing, material management and fuel management components of the organization.
We have recently completed the phase I diagnostic review where we developed our recommendations, identified benefits, and estimated implementation costs.
Stamford Water Company We conducted a management audit of Stamford Water Company, involving a diagnostic review of management and operations.
Our audit covered corporate management, management planning and
VII-17 control systems, financial and administrative services, opera-tions management, management of major capital projects, and in-1 surance costs and property taxes.
The Management Audit Summary the Company is included as an appendix to from our report on this proposal.
- 4. Other experience with utility industry Florida power and Light Company We were engaged to review Company management and opera-tions to ini tiate a comprehensive, Companywide managemen t con-trol and cost containment program.
The objective of the pro-gram was to improve overall management and operat ing ef fec tive-ness.
As such, it covered phases involving problem definition, recommendations, development and implementation.
Early phases of the engagement involved the following:
power Plant Operations a
Service Centers District 01fice Inventory Control General Office Operations e
A subsequent assignment consisted of assisting FpL with the development of comprehensive programs for improving construc-tion productivity for both nuclear and fossil plants.
This was complementary to the power plant construction management system developed in the initial engagement.
The construction manage-ment system emphasized organizational budgeting and top-level planning.
The subsequent project focused at the plant site level wit h cr ew scheduling, crew productivity and implementation of other requirements by the contractor.
The ongoing savings resulting from this project were substantial.
Additiopal engagements with FpL included the development and implementation of the following:
VII-18
- Distribution Engineering manpower planning and sched-uling, including a planning and scheduling system be-tween the district offices, distribution engineering ana service centers; Data communications studies to economically plan com-munications requirements; General engineering manpower planning and budgeting e
systems, including methods improvements; Strategic planning, including organizational relation-ships, scenario development, strategic issue resolu-tion, and linkage to supplemental plans and budgets; Organizational planning and executive recruitment;
- and, llevision of capital and operating budgeting procedures.
e Utah Power & Light Company We have been recently engaged as consultants to Utah Power & Light Company (UP&L) with expectations that several projects will be completed over the next few years.
One project which has been identified at this time is:
Distribution Construction Management Syctem (DCMS)
UP&L embarked on a comprehensive load management pro-gram, self-initiated by Customer Services.
Several pilot tests and simulations have been conducted to estimate the amount of load reduction.
However, the estimated and actual results have not linked into a performance reporting system.
Additionally, a method to link the LM results to the effects on earnings per share, delayed plant costs, and rate base has not been done.
We have been retained to develop tile method-ology for a continuous performance and financial re-porting system showing the effects of load management on UP&L.
Los Angeles Department of Water & Power We have been engaged by the Department to provide as-sistance in several areas, including:
VII-19
- Management Audit of the Board of Water & Power Commissioners In this engagement, we conducted a review of the op-erating policies, and interactions between the Depart-ment, the Board Commission office staff and the Board of Commissioners.
In addition, we analyzed the in-formation flow between the Department and the Com-mission for completeness, clarity, and adequacy, including informational reporting by the Department of performance and activity level indicators.
Underground distribution productivity study In this engagement, we conducted a productivity study of the underground distribution field activities.
The objectives of this engagement were to develop time benchma rks for major underground distribution activ-ities a,d to develop and field test a scheduling and performance reporting system.
General Services Division:
Stores, vehicle servicing and landscaping studies We have recently been asked to assist the Division in three areas of interest.
They are stores, vehicle servicing, and landscaping.
Specifically, management wants to conduct three studies, covering the pro-ducttvity, systems, organization, paperflow and super-vision of the three areas.
Ilecommendations from this ef fort will include improved estimating, scheduling, and reporting systems along with improved techniques to manage these functions.
Inventory management and purchasing Several studies have been conducted over recent years, each presenting recommendations to improve the inven-tory management and purchasing functions at LADWP.
We have been asked to assist in the implementation of im-proved systems.
One of the first activities will be to form an implementation organization, to analyze the various recommendations and to determine an appropri-ate course of action.
Without question, changes will occur in the automated systems, responsibilities, organizations, and approaches to materials management.
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VII-20 Anaheim Utilities Department We conducted a management / operations review of this municipally-owned water and power distribution utility to identify operating improvements and make cost control rec-ommendations.
The review involved analyzing organizational effectiveness in such areas as manpower and resource uti-lization, management information systems, budgeting, plan-ning, scheduling labor standards and crew sizes.
The final report recommendations included a change to the FPC chart of accounts from the municipal accounting system, and automated customer information system and inventory man-agement systems.
Consolidated Edison Company of New York, Inc.
We were engaged to review Consolidated Edison's pro-gram to reduce the theft of gas and electric service.
The study included the review and analysis of the current or-ganization structure, policies, procedures and methods used by the Company to identify and minimize the loss of rev enue attributable to customer theft of service.
Based on our review and analysis, we developed recommendations for improvements in the current program, designed to minimize the loss of revenue in the most cost-effective manner.
Central and South West Services, Inc.
We were engaged to conduct an information needs study and develop a long-range information systems plan for the holding company and its operating companies, including Central Power and Light Company, l'ublic Service Company of Oklahoma, Southwestern Elect ric Power Company, West Texas Utilities Company and Transok Pipeline Company.
The plan broadly defines management information needs for each utility com-pany and identifies sources and processing requirements to meet these needs.
i VII-21 l
American Electric Power Company We were designated the special auditor for American Electric Power Company, to conduct an investigation into the operation of certain coal mining assets and related cost recoveries in the pricing of coal sold to affiliates.
Our review consisted of an evaluation of the proper charges of fuel and other costs in the uniform system of accounts of the purchasing utility.
The report resulting from this work was submitted to the Securities and Exchange Commission and the Federal Court for the District of Columbia.
Montana-Dakota Utilities Company This client is involved in the production, transmission, and distribution of electric gas services.
It has 14 operat-ing divisions.
We were engaged to perform a management reporting sur-vey which consisted of a classification of organizational re-lationships and a definition of reporting requirements.
A complete new management reporting package was developed in-corporating divisional profitability reporting, capital ex-penditure status reporting, and manpower status reporting by division.
Subsequently, we were engaged to implement the new reporting system.
Truckee-Donner Public Utility District, Electric and Water Service - California We were asked to perform two engagements for this mu-nicipal utility district.
They are:
Rate study We are currently conducting a rate study in order to establish revised electric and water service rates.
Our work includes a cost-of-service analysis and development and analysis of alternative rate struc-tures.
Structures analyzed included cost-of-service, lifeline, conservation, and declining block.
VII-22
- Accounting system development We developed and implemented a revised accounting system and budgeting procedure for this client.
Our work included preparation of a revised chart of ac-counts and development of procedures for budgeting i
and reporting, accounts receivable processing, ac-counts payable processing, and work order processing.
Powell Valley Road Water District This engagement involved a detailed study of revenue and expenditure data, historical water consumption trends planned construction activities, planned freeway dislocation of existing services, nd population estimates for the dis-trict.
This analysis resulted in a five-year plan for meeting expected demand and the attendant financial requirements for fiscal years 1972 through 1976.
Grand River Dam Authority We conducted a feasibility study for the Grand River Dam Authority to determine the probable effect on future _ates of the construction of added hydroelectric pumped storage.
We have previously performed other studies of rates and costs for the Authority.
e City of Columbia, Missouri We have been engaged to conduct an analysis of the feasibility of selling the electric portion of the city's water and power utility.
A second phase of our study includes a management audit of both water and power operations.
The purpose of the management audit is to identify areas where significant opportunities for improvement exist in the organi-zational structure, planning, and operations of the municipal utility.
The audit will encor. pass most major functions related to utility operations within the water and light advisory board, city charter, city council, city administrative staff, office of the city manager, finance department, and the depart-ment of water and light.
VII-23 City of Loma Linda, California The city retained us to assist in the development of a utility growth implementation plan, focusing primarily on water services.
The project includes an evaluation of citizen and developer growth expectancies, a definition of future physical asset requirements, a review and evaluation of financial capa-bilities, and the development of appropriate guidelines and methodology for planned growth in the event that a conflict exists between the city's aspirations and its ability to sup-port the growth.
Sun Oil Company Expert tes t in.'ny before the Federal Power Commission Rates charged by interstate natural gas pipelines to gas distributors are subject to FPC jurisdiction.
In this case, Florida Gas filed for a rate increase before the FPC; and Sun Oil Company, a large transporter of natural gas on the Florida Gas system, petitioned the FPC to enter the case as an intervenor.
Arthur Young was engaged by Sun Oil to prepare exhibits and expert testimony in the area of account-ing for the allocation of income taxes relative to Florida Gas Company.
We prepared and presented exhibits and testimony on income tax collection.
California Department of Water Resources This engagement involved a complex costing and rating problem for a statewide system of aqueducts which supplies water to over 40 counties, districts, and municipalities as well as federal and state agencies throughout California.
We designed the cost accounting and cost apportionment system to accumulate costs and establish rates by type of agency, type of use, and geographic segment of areawide waterways.
We de-veloped the cost basis for rates by which water contractors (users) are billed.
The rates which were developed included provision for periodic adjustment for changes in cost, volume, and other variables.
l l
VII-24 In addition to the design work, we directed the im-plementation of data processing systems for cost accounting, encumbrance accounting, water contractor billing, and project control of construction cost.
Greater Anchorage Area Borough Areawide Sewer System Based on an engineering study covering a forty-year master sewer implementation project (1970-2010) and embracing 14 separate drainage areas, taxing districts, and population centers, we developed a master financial plan consisting of the following:
- A comprehensive rev.enue plan consisting of a mix of grants-in-aid, special assessments, service charges and ad valorem taxes, balanced to projected costs and the economic capacity of the Jesign population within each of 14 separate areas by time period.
. A computerized cost accounting system which accu-mulated costs by area and by trunk and lateral im-provement districts.
A computerized financial cash flow model which accepts actual construction costs to date and accepts changes in variables, including projected costs and revenue rates, and computes the projected cash flow by area and time period.
The model treats costs and revenues in accordance with generally accepted fund accounting principles under each of the three funds involved in the project:
construction fund, O&M enterprise fund, and debt service fund.
Additional bond sales required are computed and indicated under various alternatives.
A computerized service charge billing system which bills the users of the sewer facility.
Separate rates were developed for various classes of users, such as home owners, apartment houses, trailer courts, in-dustrial concerns, etc., which are handled appropri-ately by the billing system.
- A computerized billing system for special assessments to property owners.
This system provides for appropri-ate billing under several alternative installment options and computes interest on the unpaid balance.
VII-25 As the financial consultants to the borough in this master sewer project, we presented our recommendations to the boroegh administration, the elected assembly, the Alaska Public Utilities Commission, and to the public as required.
In ad-dition to the technical financial skills involved, this engage-ment required that we consider the complex social and political environment in apportioning costs of the facilities to segments of the design.
Central Kansas Power Company l
Arthur Young was engaged to prepare timely electric and natural gas rate increase applications in compliance with rules and regulations of the Kansas Corporation Com-mission.
We assisted CKP in the following areas:
Directed the collecting and accumulation of informa-tion
- With CKP, prepared adjusted expenses relative to known and measurable costs that had been incurred or that I
CKP was commi tted to in the 12 months following the test year cutoff
- Prepared cost of service schedules for both electric and natural gas operations in compilance with Kansas rules As appropriate, allocated costs in both rate applica-tions between Kansas and other jurisdictional cus-tomers Prepared revenue deficiency schedules and determined additional revenue required to produce desired rates of return llevi ewed the client's proposed rate schedules to ensure the proposed tariffs would produce the desired levels of revenue
- Prepared and presented expert testimony
- Assisted the client with filing electric and gas rate
' increase applications and assisted them with Kansas auditors in the review of the applications.
VII-26 B.
Investment Banking Firm - to be selected later As indicated in our work plan, an investment banking firm will perform an important role in evaluating the financing issues for each strategic option under consideration.
We discussed an approach to analyzing the financing issues with a number of leading Wall Street investment banks, and our conclusion was that it would not be appropriate to identify a single firm at this point in time for inclusion in the proposal.
Rather, once the wide range of strategic options has been narrowed after preliminary analysis, investment banking firms with special expertise in the relevant type of financing would be retained to assist in the performance of the analysis.
In our view, this will result in higher quality analysis than if a single firm were selected at this time without knowing the emphasis of the invest-ment banking analysis which will be required.
We are, however, at the present time in the process l
of identifying the firms which would have suitable qualifications.
prior to final selection, we will review this selection with the Board and seek its approval.
4 VIl-27 C.
Nolan, Bell & Moore - Legal Firm The firm of Nolan, Bell & Moore is engaged in the general practice of law and maintains offices in the City of Newark and Brick Town, New Jersey.
The firm was founded in 1954 by Joseph M.
Nolan and presently consists of eight attorneys and support staff.
The practice of the firm is concentrated in the area of general corporate law, reorganizations, construction,
- taxation, labor relations, commercial law and trials before federal and state courts and agencies.
It is anticipated that several members of the staff will assist in the performance of legal services related to the study of Strategic Policy Options.
Mr. Nolan and Mr. Moore will have responsibility for the firm's work in the study.
MR. JOSEPil M.
NOLAN Mr. Joseph M.
Nolan is the senior partner of the firm and is responsible for all management activities and the scope and development of the firm's oractice.
lie has participated actively in the reorganization of publicly owned, quasi-public and closely held corporations.
Ile has acted as counsel for companies holding public franchise in the fields of transportation, water supply and sewerage disposal and has practiced extensively before administrative bodies of the State of New Jersey, most recently before I
agencies of the Department of Environmental Protection in matters relating to the Ocean County Sewerage Authority.
Ilis activities in professional associations bring him into frequent contact with attorneys involved in major decision making in business and government throughout the country.
lie is a member of the Judicial Conference of the Third Circuit, a Special Master for the Third Judicial Railroad Reorganizations and was appointed by Governor Brendan Byrne as a Commissioner to the National Commission on Uniform State Laws.
lie was a member of the Nominating Committee of the National Conference of Bar Presidents and President and Vice President of the New Jersey State Bar Association.
lie is also State Delegate from New Jersey for the Amercan Bar Association and served as a member of the flouse of Delegates of the Amercian Bar Association.
lie is a fellow of the American Bar Foundation, lie was born in Newark, New Jersey in 1919 and admitted to the Bar of the State of New Jersey in 1949.
He received the degree of Bachelor of Science in Business from New York University in 1943 and his Law Degree from Rutgers University in 1948.
lie is licensed by the New Jersey Board of Certified Public Accountants as a PSA.
l VII-28 MR. DANIEL J.
MOORE l
Mr.
Daniel J.
Aoore assists Mr. Joseph M.
Nolan in the daily management and operation of their law firm.
lie has participated in the reorganization of publicly owned, quasi-public and privately owned corporations.
lie has acted as counsel for companies whose activities are regulated by government agencies in the oil production and public trans-portation fields.
At present he is Trustee in Bankruptcy operating two water companies and a sewerage disposal company in Morris County.
He has practiced extensively before the courts and administrative agencies of the state and federal governments.
Prior to entering the practice of law, he was on the audit and later tax staff of a major accounting firm and is licensed as a Certified Public Accountant in New Jersey.
lie has been a member of the f aculty of Seton Hall Law School since 1958 serving as an adjunct professor.
In 1972-1973 he was Chairman of the Millburn Township Charter Study Commission and presently serves as a member of the Township Recreation Commission.
lie is a member of the Essex County, Ocean County, New Jersey State and American Bar Associations and is a member of their sections on Taxation; Corporation, Banking and Business Laws; and Creditors' Rights, lie was born in East Oranga, New Jersey in 1929 and was admitted to the Bar of the State of New Jersey in 1958.
)
lie received the degree of Bachelor of Arts in Economics f rom the College of the lloly Cross in 1951 and his Law Degree from Seton llall University in 1957.
VII-29 D.
Nielsen, Wurster & Associates - Construction Costs Nielsen, Wurster & Associates have developed a computer augmented cost data system for the implementation of a cost estimating program.
This system represents the most compre-hensive data source currently available to owners, architects, contractors and engineers.
The important characteristics of this cost data system include the following:
The data bank includes unit costs for commercial, industrial, institutional and residential construc-tion.
In addition, there are over 5,000 unit costs covering large construction such as fossil fuel plants, nuclear power plants, and sewerage treatment facilities.
The cost data system provides cost estimates for any stage of the project 's development (from budgetary analysis through conceptual, schematic, working and bid documents).
The information is available in a variety of formats including estimates by building system, construction trades, and building function.
The system is updated quarterly with the current material costs and wage rates for over 500 U.S.
cities.
In addition, the information base is maintained by utilizing a cost data acquisition, storage, and retrieval system.
For example, upon completion of the quantity take-off, various project cost data is collected and stored in the retrieval system so that it will be available for subsequent use.
VII-30 Collection of Cost Information All cost information at Nielsen, Wurster is obtained in the following manner:
Material Costs - Bills of material and copies of the applicable specification sections are forwarded to potential suppliers or manufacturers.
In addi-tion to receiving the basic material costs, infor-mation on discount schedules and material avail-ability is obtained.
Labor Wages - Local trade councils are the primary source of wage information.
In addition, several periodicals are researched for wage rates for parti-cular trades and cities.
These include:
The U.S. Department of Labor - Bureau of Labor Statistics Hourly Wage Report The Bureau of National Affairs Inc. - Construc-tion Labor Report.
productivity - Since productivity is a nebulous area of construction estimating, the most reliable sources of production rate information are the past project records maintained by Nielsen, Wurster's Construction Management Division and industry-accepted man-hour manuals.
Recognizing that every project is unique I
in terms of size, required tasks and location, pro-ductivity rates are adjusted to reflect local circum-stances.
Material / Labor Escalation - Material and labor escala-I tion has become an increasingly important factor in projecting accurate construction costs.
Published statistics are the prime source from which escalation percentages are obtained.
These statistics include information published by Engineering News-Record (Construction Cost Index) and the U.S. Department of Labor Bureau of Labor Statistics.
project Markups - All projects undertaken by Nielsen, Wurster are analyzed by the firm's staff economist.
The analysis focuses on key elements such as construc-tion volume in the project area and availability of contractors, labor and materials.
The results are also analyzed by Nielsen, Wurster cost engineers to assist in the determination of reasonable overhead, profit and contingency costs.
l
VII-31 After each of these elements have been collected and analyzed, total project costs are determined.
The components of this total project cost are then entered into Nielsen, Wurster's historical cost file where they are available for retrieval and use on subsequent projects.
Project Experience Nielsen, Wurster has provided cost estimating, budgetary analyses, cost validation and other services on the following projects:
Project and Related Cost Description Service t
Raul Leoni Dam (Guri)
Dam and Hydro-Contract Management Final Stage, Caroni electric Genera-River, State of Bolivar, ting Plant Venezuela
$1,300,000,000 Southeast Water Pollu-Advanced Wastewater Cost Engineering tion Control Plant Plant San Francisco, Cali-fornie.
$150,000,000 Yampa Project, Craig Coal-Fired Power Cost Management Generating Station Plant Craig, Colorado
$6,000,000 Mirror Fusion Test Test Facility for Cost Engineering Facility, Livermore, Laser Use in Con-California trolled Nuclear
$500,000,000 Fusion Program Niagars County Treat-Water Treatment Plant Change Order Validation ment Facility, Buf-falo, New York
$2,500,000 East Kentucky Power Generating Cost Engineering 1
+
Power AutLurity Station Claims Analysis Charleston Bottoms, Kentucky j
$450,000,000
VII-32 David G.
Rowley David G.
Rowley, Senior Consultant, Nielsen, Wurster and Associates, Inc., received his BSE from Guildford Technical College, Guildford, Surrey, England.
He received a Construction Superintendent Certificate from the Mechanics 1
Institute, New York City.
- Mr. Rowley is The Nielsen, Wurster Group's senior general construction trades expert.
lie has extensive hands-on experience with substructure, superstructure and interior construct ion work.
lie is thoroughly familiar with the construction methods and procedures, estimating, and scheduling of steel, precast concrete and reinforced concrete work.
- Mr. Rowley has lately been involved with delay claims and litigation work for the Air Mail Facility in Detroit, Michigan and the Florida State Capitol Complex, among others.
This experience involved preparation of schedules, manpower analyses and other documentation for court presentation.
- Before moving to the United States, Mr.
Rowley held several increasingly re-sponsible positions, culminating an a Project Manager,~for the majo British General Contractor, Trollope & Colls, Ltd.
While there, he performed extpfsive duties as a cost and quantity surveyor.
- Most recently, Mr. Rowle" served as a Project Mariager for an i t.
'rnational construction management co..sulting firm.
Prior ~to that time, he was a Project Manager and EEO. Officer for E.
W.
Ilowell Company, a large New York area General Contractor.
Mr. Rowley's experience over the past 15 j
years has been diversified and includes work of all types of commercial, institu-i tional and industrial construction.
Mr. Rowley is a member of the American Association of Cost Engineers and has served as a Guest Lecturer on " Life Cycle Costs" at The Columbia University Graduate School of Architecture.
VII-33 Alfred L.
Dellon Alfred L.
Dellon, Vice President, Nielsen, Wurster and Associates, Inc. is a Certified Cost Engineer, with special expertise in project management, planning and scheduling areas.
lie has applied this expertise to all aspects of utility construction, heavy industrial mechanical and electrical process work both within and outside the United States.
Mr. Dellon has over thirty years of diversified experience in engineering and construction management.
This management experience encompasses more than twenty years as a project manager, construction resident manager, consultant to utilities, state and federal agencies and private industry.
Mr. Dellon's background includes senior management responsibility for heavy construction projects in:
- Principal prototypes in the power plant field
- Combined cycle plants
- Fossil plants
- Nuclear plants
- Waste water treatment plants
- Chemical facilities
- Petro-Chemical facilities
- Metalurgical facilities 1
Mr. Dellon is a member of the American Association of Cost Engineers, Past President of New York Section and National Director, American Society of Engineering Education-and the Project Management Institute.
I I
3 VII-34 E.
Franklin E.
Robeson - Generation Requirements Mr. Robeson is an Associate Professor of Economics of the School of Business Administration, College of William and Mary.
Mr. Robeson is a graduate of the University of Cincinnati and of Indiana University, where he received his Masters and Doctorate degrees in Business Administration.
Mr. Robeson's professional and research interests are in the areas of managerial economics, public utilities and public,
policy.
His recent consulting and professional development experience includes the following:
Consultant to private firms in the areas of market, economic, and financial analysis, 1973-79.
Program Coordinator for seminar and gas rates spon-sored by the American Gas Associati-n 1977 and 1978 at the University of Maryland.
Seminar speaker at Univerrity of Hawaii seminar on public utilities in Honolulu, Hawaii, 1977.
Indiana University: Bureau of Business Research, 1967-79.
Research Associate in study of Indiana business tax impact.
Worked on developing Indiana economic data base.
Supervised study on Retail Trade in Indiana and neighboring states.
Mr. Robeson's recent research activities in the area of energy mrnagement include:
a Published Research Economic and Social Costs of Over-Supply Versus Under-Supply of Electric Generating Capacity.
Washington, D.C.,
Edison Electric Institute, 1978.
(With Douglas Norland).
Social, Economic and Energy Costs of Increased Off-peak Industrial Electric Energy Consumptic".
Washington, D.C.,
Edison Electric Institute, 1978.
(With D.
Norland and M. Gannon).
i
+
g
VII-35 Evaluation of the Conserving Effects of Increased Use of Electricity.
Washington, D.C., Edison Electric Institute, 1978.
(With D. Norland).
"An Empirical Analysis of Regression Techniques for Evaluating Economies of Scale" in Proceedings:
Wes-tern AIDS, 1977.
(With M. Parent).
"A Comparison of NPS and USFS Regulations and Their Effects on Concession Efficiency" in Proceedings on River Recreation Management and Research, from a Sym-posium sponsored by U.S. Department of Agriculture and University of Minnesota in Minneapolis, Jan. 24-27, 1977.
(With M. Parent).
"An Examination of the Financial Characteristics of River-Running Concessions" published in the Proceedings of Symposium on Research in National Parks at Albright Training Center, Grand Canyon National Park, Oct. 3-5, 1976.
Papers Presented at Professional Meetings "Home Heating Sources, Residential Property Values, and Wealth Transfers:
The Case of Natural Gas,"
Western AIDS, Reno, Nevada, March, 1978.
"The Demand for Natural Gas," Fifth Annual Symposium on the Rate Making Problems of Regulated Industries, Kansas City, Missouri, February, 1979.
" Multivariate Models to Forecast PSRO Review Costs",
Northeast AIDS, Washington, D.C., 1978 (with L. Bedin ar.d R. Pfaffenberger).
" Electricity Demand -- A Pooled Time Series and Cross Sectional Analysis Using Household Data" at Western AIDS, Phoenix, Arizona, March 17-18, 1977.
"The Economic Interpretation of the Goal Programming Objective Function in Financial Applications", Finan-cial Management Association, Montreal, Canada, October, 1976.
f n
VII-36 Research Under Editorial Review "The Demand for Electricity:
An Economic Investigation Using Household Data" (with C.E. Olson).
" Electricity Pricing and Shift Work Patterns" (with M. Gannon and D. Norland).
Current Research "An Analysis of Electricity Usage, Income Levels, and System Demand Variations for Residential Households",
(with C. Olson).
"The Corporate Role in Public Policy:
An Economic Analysis".
"A Microeconomic Analysis of Natural Gas Consumption by Residential and Commercial Users", (with C. Olson).
" Industrial Peak Load Pricing and Shift Work" (with M. Gannon).
Mr. Robeson has recently provided expert testimony before the Massachusetts Department of Public Utilities and the Massachusetts Energy Facilities Siting Council, regarding his evaluation of the residential, commercial, and industrial fore-casts submitted by The Boston Edison Company.
The testimony involved a detailed evaluation of forecasting methodology, projection variables, and computer modeling programs, including the performance of various sensitivit y analyses on the fore-casts.
E
l VIII.
TIME AND FEE ESTIMATES The major tasks to be completed in the study have been described in detail in the Methodology Section of this proposal.
We believe that the Arthur Young & Company project team can complete these tasks in a twenty-six week period from the starting date.
Our professional fees and those of the other professional firms involved are based on per diem billing rates which have been established for different personnel classifications.
Fees for this engagement will be based on the actual time spent by personnel assigned at their per diem rates.
Based on our work plans and anticipated staffing for this project, we estimate that the total fees and expenses will not exceed $425,000.
Should the minimum hours be less than our current estimate, we will bill the lesser amount.
Conversely, however, should it become apparent that the time extimates used in formulating our fee schedule require expansion due to scope of work changes requested by the Board, we will discuss with you the impact of these changes on our fee estimates.
Fees for our service will be billed on a monthly basis together with out-of-pocket expenses incurred.
Detailed estimates of the costs to be incurred in the completion of Phase I and Phase II are indicated on the following page.
Our estimate of the hours required to complete the study, by phase and task is shown in Exhibit IV, and the timing of our work is shown in Exhibit III.
VIII.2 Hours Cost i
PHASE I PHASE II TOTAL PHASE I PHASE II TOTAL Arthur Young s Company Partner / Director 700 354 1,054 84,000 42,480 126,480 Task Manager 572 484 1,056 51,480 43,560 95,040 Consultant 764 240 1,004 45,840 14,400 60,240 2,036 1,078 3,114 181,320 100,440 281,760 Other Firms Partner 436 200 636 52,320 24,000 76,32C Associate 648 80 728 38,880 4,800 43,680 1,084 280 1,364 91,200 28,800 120,000 Total 3,120 1,358 4,478 272,520 129,240 401,760 EXPMNSES Travel, telephone 10,000 Computer Timesharing 4,000 Report Production and presentation materials 9,000 Total Fees & Expenses
$424.7G0 BILLING RATES PER llOUR Partner / Director
$120 Task Manager 90 Consultants / Associate 60 The time required for the analysis of each option will be similar
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V Exhibit IV I
Other Firs 1 Arthur Young & Comptny TIME REQUIRED TO COMPLETE THE ST3Y Phase / Task Dartner/ Director Task Managers Consultants Partner Associate Hours Identification and Evaluation PRASE I of Strategic Policy Options 24 32 56 40
~
16 1.
Project Initiation 156 72 88 128 92 192 2.
Identification of Issues and Options 72 3.
Conduct Initial Screening of Major Cptions 40 60 60 4.
Evaluation of Power Plant Operati., Efficiency 40 72 248 5.
Confirmation of Generation Requirements 8
16 24 6.
Confirmation of Construction Costn in Expansion Plans 24 40 104 16 7.
Finalization of Standard Evaluation Technique
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48 40 40 24 24 l
8.
Prepare Status Review for the Board 18 24 48 9.
Conduct Legal Analysis of Each Viable Option 8
32 80 10.
Coaduct Tax Analysis of Each Viable Option 9
8 40 80 11.
Conduct the Investment Analysis of ekch Viable Option 24 56 120 12.
Prepare Financial Analysis of each Viable Optio'.
13.
Prepare Summary Evaluation of Viable Strategic 168 104 198 72 Policy Options 80 32 32 32 32 14.
Prepare Phase I Report 700 572 74 4 436 648 Es 21uation of Two or Three Most PHASE II Promising Strategic Options 4
8 1.
Revise and Update Phase II Wort Plan 8
24 Review Regulatory Proceedings and Results of 2.
Relevant Studies j
40 80 160 I
3.
Conduct Political Impact SurveF 30 40 80 4.
Update the Financial and Economic Analysis 16 8
Review Results witb Board and Company Representatives 40 80 5.
16 8.
Develop Legal Implementation Vlan 8
24 7.
Develop Organization Implemeatation Tasks 32 60 8.
Develop consolidated Implerrentation Plan 9.
Develop Recommendation for Interim Regulatory 32 8
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Review the Results 3s 40 16 l
11.
Develop Priority Ranklag for Strategic Options 18 40 g
12.
Prepare and Conduct DOard Presentation 24 24 16 13.
Prepara Written Progress Report 32 40 g
14.
Prepare Phase II Report 64 80 ge 15.
Preparation and Gaving of Expert Testimony 354 484 240 200 80
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