ML19318C896
| ML19318C896 | |
| Person / Time | |
|---|---|
| Issue date: | 06/25/1980 |
| From: | NRC COMMISSION (OCM) |
| To: | |
| References | |
| REF-10CFR9.7 NUDOCS 8007070011 | |
| Download: ML19318C896 (98) | |
Text
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UNITED STATES OF AMERICA NRC e vaiIs,
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NUCLEAR REGULATORY COMMISSIGN parker bfml 3
BRIEFING FOR COMMISSIONER GILINSKY BY AIF ON FINANCIAL 4
STATUS OF UTILITIES S
5 PUBLIC MEETING
'E 6l Nuclear Regulatory Commission-R Room 1130 b
7 1717 H Street, N.W.
E Washington, D.C.
5-8 N
d Wednesday, June 25, 1980 6
9 Y
The Commission met, pursuant to notice, at 10:00 a.m.
10 BEFORE:
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JOHN F. AHEARNE, Chairman of the Commission z'i 12 5
VICTOR GkLINSKY, Commissioner j
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RICHARD T.
KENNEDY, Commissioner g
14 PETER A. BRADFORD, Commissioner E
15 m:
NRC STAFF PRESENT:
16 j
'd LEONARD BICKWIT, General Counsel b,
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5 ALSO PRESENT:
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On Behalf of the Atomic Industrial Forum:
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'5 LELAN F.
SILLIN, JR., Chairman and Chief Executive Officer 20l Northeast Utilities 21
~ ERNEST L. GROVE, JR., Vice Chairman
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The Detroit Edison Company GEORGE B.
CAMPBELL, Financial Vice President 23 l The Southern Company 24 CARL WALSKE, President
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Atomic Industrial Forum, Inc.
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ALSO'PRESENT: (Continued) e 2
RICHARD W. MANDERBACH, Senior Vice President Bank of America 3
(Chairman, Committee on Financial Considerations) 4 m
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CHAIRMAN AHEARNE:
Good morning.
The Commission meets 3i this morning on a briefing that was originally set up by f
4 Commissioner Gilinsky.
So, I will turn it over to Vic.
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COMMISSIONER GILINSKY:
Well, we talked, I think, at 8
3 6
the end of an earlier meeting.
If you don't mind, I will just R
7 relate -- anything you said to me -- I think y ou felt the j
8 Commission was not -- I think I said we had a very good briefing I
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9 on that occasion, a useful exchange.
I felt we ought to do that l
ich 10 more often.
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E 11 You wondered whether the Commission was interested in I
e 12 doing that sort of thing.
I said, "Sometimes our meetings are E=j 13 jurt exchanges of slogans."
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l 14 That is not too useful, but certainly when we are 2
15 talking about substance, I was very much interested, and I'm Y
j 16 sure other Commissioners would be and felt strongly that an e
p 17 i informed Commission is a better Commission.
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18 I very much wanted to hear in particular about the 19 financial situation of the utilities.
I think that is the out-R 20 growth of this occasion.
21 CHAIRMAN AHEARNE:
I certainly support all those 22 !
words.
Lee?
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m MR. SILLIN:
Thank you very much.
I believe, Mr.
23 'I 24 Chairman, that you know everyone here this morning.
There is
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hl Carl Walske; Richard Manderbach, Senior Vice President, Bank of 25 I ALDERSON REPORTING COMPANY, INC.
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1fAmerica; George Campbell, Financial Vice President, The Southern bfm4
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2l Company; and Ernie Grove, a former colleague of mine now Vice l
3" Chad.rman of the Detroit Edison Ccmpany.
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4 Mr. Chairman, I thought before getting into the material l
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54 we would like to review with you, I would like to give a little a
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6 perspective and draw on my own company's experience.
The impor-0 1
E 7;j tant thing I do want to communicate, talking about the financial l
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3' condition of the industry is that nuclear power has been very 9!
successful to date.
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5 10 The first goal is it has been enormously cost effective, 3j 11 providing the electric power industry with probably the most j
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12 anti-inflationary tool.
Also, the very significant contribution E
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in reducing the nation's oil dependence.
l 14 Citing our own experience since 1979, nuclear power l
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15 has been abour 53 percent of our total energy requirements.
We 5
g' 16 take all of the fixed charges, depreciation, taxes.
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p 17 that we have earned the allowed return on common equity that l
18 has been authorized by our state regulators.
We include provi-I F
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19 sion for the total dismantlement of a nuclear facility, and we n
20 measure that against the fixed charges.
21 Well, in 1979, that resulted in some $219 million 22 dollars in benefits to our consumers.
In 1973 through April of I
1980, our nuclear entitlements have displaced some 120 million 23 i
t 24 i barrels of oil, which at the current price woulc have cost our f
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system about $1.8 million.
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1 During that period, net savings to our consumers of b2m5 1l I
2' about S860 million, which is more than the total investment we e
'3 have in all of our nuclear facilities.
Despitt these enormous 4
benefits, the consumers utilities, ourselves are experiencing e
5 great difficulties in recovering capital costs in our rates.
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Up to now, the regulatory process has not been fairly 1
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compensating the investors for having made such savings to Aj 8
consumers possible.
In our own case, we have been seeking to d
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redress the balance between the well served interest of consumers, io 10 and the neglected interest of investors to several rounds of Ej 11 rate cases.
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12 We have had very limited success.
The implications
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Despite the demonstrated cost effective-2 15 ness of the technology, nuclear technology will not be utilized wz 16 in the future.
Decision-makers will select not the most cost j
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17 effective technology, but rather, that which is least capital ax 18 intensive.
E 19 The results will be that the cost of energy to consumers n
20 will be more costly.
It will run counter to the national oil 21 reduction objectives, and will create increased environmental l
22 impacts.
When we speak of delays -- I would like to separate
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One is delays that are associated with 24 licensing kinds.of problems, s
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dircctly with financial constratints; the first example I give i
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2 is, I think, more directly related to licensing kind of problems.
3, Here, we draw a comparison between the Shorehen plant and the i
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Millstone 2 plant.
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5 Both those plants were the same size.
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CHAIRMAN AHEARNE:
Are you talking about the original
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design of Shoreham, or the second design of Shoreham?
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8 MR. SILLIN:
The original design, the size o f them.
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said the megawatt capacity remains the same.
They have not 10 changed the megawatt capacity.
El 11 CHAIRMAN AHEARNE:
The original Shoreham was a lower k
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It was originally a 500-something megawatt.
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13 i MR. SILLIN:
860.
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l 14 CHAIRMAN AHEARNE:
My point was Shoreham, when it was 5
2 15 originally -- part of the lengthy time on Shoreham was when they w=
g 16 came in they had a smaller design.
They changed it to a larger e
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18 MR. SILLIN:
They did have an original cost estimate E
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19 that was within S22 million of one another.
The Millstone 2 A
20 plant came in service in 1975.
The shoreham plant was originally 21 planned to start up about the same time.
22 It is now scheduled for 1983.
The actual cost of our t
23 Millstone 2 plant was S434 million.
The present estimate for i
24 h Shoreham is S2.3 billion.
Millstone 2 has saved to date some 4
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little over 36 million barrels of oil.
That would have cost some i
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lS67million.
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2j The oil savings for Shoreham, between '75 and '93 would [
3 amount to some 73 million barrels, which at our cost -- I don't 4l know what Long Island's oil cost is -- but the cost in our e
5 system, that would be 2.3 billion barrels of oil.
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Obviously, in the future, the energy from Shoreham R
7 would cost approximately five times the dost of oil.
The other s
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kind of a problem is one associated with our Millstone 3 plant,
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9 the financial constraints.
Y 10 The plant was originally scheduled to come into E
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11 service in 1979.
It had an original cost estimate of some S
j 12 S800 million.
It is now going to cost over $2 billion.
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Mill-E 15 stone 3 would have benefited had the service been completed in 5
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17 Had the unit been completed in 1979, the revenues to 5
5 18 our consumers today would be some 20 percent lower.
Some 63 --
E 19 the deferral of that unit will impose upon our consumers an E
20 additional cost of about S2.3 billion.
21 Between now and the 1986 service date, some 63 million 22 barrels of oil estimated to cost some S3.1 billion will be 23 l burned instead, to meet energy requirements that would have been i
24 supplied by that plant between now and 1986.
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I would say that without Millstone 3 and some coal
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mately 250 million barrels of oil, which we estimate would have 3
a cost in excess of $17 billion.
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As the financial data that I am going to review with e
5 you indicates, the utility industry generally is in a severely j
6 weakened financial condition.
In order to maintain nuclear R
7 operations, the industry needs an understanding and a commitment s
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that additional regulatory costs will not be imposed unless they J
9 are thoroughly justified.
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y 10 Given that kind of financial condition, what I am saying z;
j 11 is NRC should be mindful of that finanical implication, and 3
y 12 should satisfy itself that, indeed, those things which it is
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It has prioritized -- it should be assured that there
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- 14 will be a prioritization of that and the conditions that are 2
15 being imposed have been rigorously tested on the basis of a w=
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17 Also, if we look down the road, as you and I were w=
18 talking earlier -- who knows what the policy will be -- but E
19 assuming there is to be a nuclear policy, clearly national 5
20 policy is going to have to speak more clearly to this issue in 21 terms of its support.
22 Utilities cannot ask investors to put their capital
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23 at risk unless nuclear facilities are clearly recognized as 24l meeting national energy -- (inaudible).
It was within that t
25l. national policy the NRC must, if there ever is to be a re-ina'ug-ALDERSON REPORTING COMPANY, INC.
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a 1furationof4ena---~Ae) the NRC will have the very real responsi-bfm9 g
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24 bility of restoring an orderly licensing process to give investors!
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3l and managers real confidence, and have the ability to schedule 4!
and control costs of this enormously capital intensive technology l
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Getting explicitly into the financial da:a,.I do want N
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to say that rather than re-invent the wheel, we have a study rhat do 9
has been performed by Booz, Allen, and Hamilton for a briefing io 10 for the Department of Energy.
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11 (Inaudible.)
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12 So, it is basically from Boo:, Allen for the purpose.
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I think we can say with confidence that 2
15 the financial condition of the industry has not improved.
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16 results of the '78 data are still good today.
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17 In many instances, it is actually deteriorated beyond 5
18 the point shown, particlarly as a result of the kind of exper-
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The double gn 20 digit inflation, and the extremely high interest cost.
21 Some of the summary of the financial conditions found 22,
by Boo: Allen identified what the current financial condition l
23 of the utility industry limits its access to reasonably priced 24 capital, that utility earnings have dropped as a proportion of 25,,
revenue, and fixed cost take up their share of the revenue.
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ns a result, coverage, ratios, and return on 3
equity have dropped.
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4 The industry's weakened financial condition is also e
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reflected in the slow growth in its cash earnings versus the 0
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rapid increase in the cost of building the plant.
The financial R
7l community has reacted to the development by down grading the Z
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utility bond ratings, and making financing more difficult.
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9 The equity markets have reacted to the utility by i
10 driving the price of the common stock below book value.
I would Ej 11 say a repeated sale of common stock at less than book value has a
y 12 become an unacceptable alternative.
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15 rising up to that point in terms of their equity interest in
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The constraints on the ability to raise capital are 5
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18 more serious because of the industry's dependence on external E
19 f'.nancing to finance growth.
These capital raising constraints M
20 are so wide-spread, but more serious for those utilities that 21 are dependent on oil.
22 Due to the short focus, the state regulatory bodies 23 :
have not allowed the utility revenues to keep pace with rising i
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costs.
Thus, operating investment and financial costs increase.
k 25 l Utilities direct rate increase requests to public utility 1
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j commissions -- in regulating the industry, the regulatory bodies l
i 2 il at the state level do balance both the short and long term.
3 Among those influencing the regulatory body's 4
decision are various consumer groups.
There has been an emphasis 5
g on the short term.
Many of the commissions have responded to F.i i
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n As a result, earnings have fallen.
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community increasingly is evaluating its utility on the basis of II its management (inaudible).
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Regulatory bodies to those needs (inaudible).
On the 13 contrary, those that are more favorable to those kinds of z
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I4 financial requirements are giving a better rating.
Utilities, I
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which are more heavily dependent upon oil (inaudible), financial
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The reduced consumption of oil n
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.to COMMISSIONER BRADFORD:
Could I stop you a second?
2I You said that the commissions were less responsive to utilities j
22 dependent upon oil.
It has been a while since I was in that i
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kind of work, but when I last was, the fuel adjustment clauses 24 {
seemed to be more resconsive to increasinc oil costs.
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MR. SILLIN:
I think, Mr. Bradford, that the problem l
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you run into is that because of very large increases that people 2
are experiencing as the co't of oil has gone roughly from S3 a I barrel to $30 c barrel,.aat the distinction is not made between 3
4, those revenues that ara required to keep the utility in a g
5 financially sound condition.
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It is a compounded effect.
So, as you struggle to e
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7 displace that oil, you are still living with those escalating aj 8
oil costs.
The regulatory body being very sensitive to what is d
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happening to those costs.
io 10 It tries to pare down the amount that will be allowed E
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d 12 to displace that oil.
I think the data that is in this material E=j 13 will demons'trate very clearly that it has been a financial I
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15 COMMISSIONER BRADFORD:
The point then is not that
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17 raise the capital necessar.v.
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18 MR. SILLIN:
I ccn't get the revenues sufficient to P;
19 maintain the basic financial position of the company.
We are M
20 basically recovering most of our costs for oil.
It is the 21 funda:aental financial condition, the recovery of the oil does 22,
keep us from going bankrupt, but it does not help develop the i
23 [ kind of financial capability to carry out these large capital 24 intensive projects.
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As I sa!., one of the things that I do think is the I
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lt 12 bfm13 1 h name of the game, and we'have almost since 1973, been trying to i
2 persuade both federal and state regulators that the so-called l
3g question of need for power needs a new definition.
4 We 7et into great debates as to what the impact of e
5 conservation will be, and what the long term forecasts will be, R.
j 6i and whether or not there will a need for that capacity.
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reality is that there is a new dimension to this issue.
The name sj 8
of the game is how I can displace oil, cost effectively displace d.
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i 10 We have been struggling very hard to generate that E
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People will argue that that results in excess capacity, is d
12 but indeed the capacity -- if the capacity is obsolete, indeed, E=
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18 but again, wh,e will it be cost effectiverM ond tl 19 (Inaudible.)
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the electric industry, i general, is going to be Li.uudible)
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22 ' for all of the reasons that all of us are familiar with.
The 23; Booz, Allen study which, I think, at the time was based upon 24l an estimated 4 percent growth in electricity nationwide in the i
25,
coming decade, indicated that some 230 gigawatts capacity was i
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bfml4 1 ) going to be required by 1990.
2 l, The program focused on the displacement of existing I
3 oil capacity or conversion to coal.
What we basically are 4
saying with respect to the nuclear program that Booz, Allen I
e 5-were looking at, and frankly we examined it too, is looking at 9
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both coal a7d nuclear.
They are both very capital intensive.
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contruction increase, conservation, and the use g
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9 of other non-oil and gas generation forms can eventually reduce z
h 10 oil consumption.
That is what we are all tryin to accomplish.
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11 If the oil consumption in the d' ~ + i4y sector is 12 to be reduced, conservat).on must b implemented (In udibly.) M /
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The development of cap / ital limitation brought on by JA W
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2 15 the poor financial health, has and will contribute to resulting 5
y 16 deferred capacity needed to meet the national objective of oil us d
17 reduction.
As we said before, the industry has been the largest 5w to 18 spending industry in the country.
Until recently, we had the c
19 capability to do that.
5 20 I think we have seen that change taking place during 21 the decade of the '70s.
The cost of nuclear and coal plants 22 have both increased dramatically since the end of the last decade.
23 Thus, Booz, Allen found that to meet 1980 growth, it means that 24 we would have to spend in 1979 dollars, about S330 billion by
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25 l 1990.
Displacing oil fired capacity would require an additional ALDERSON REPORTING COMPANY, INC.
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S36 billion.
2E If the capital is not available at reasonable costs, 3
coal and nuclear plants are likely to be deferred.
Oil and 4
gas fired plants cannot be displaced on an economic schedule.
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Base load plant deferrals will leave the utilities with two S
6 options to serve load, neither of which will permit accelerated ES 7
oil and gas displacement.
That is, increased use of existing j
8i plants, additions of new gas turbines.
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9 As a resul, utility oil and gas consumption would
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10 rise dramatically frem current levels.
Customers will receive 3_
11 less reliable service at unnecessarily high costs.
The bottom a
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12 line is only if large amounts of capital can be raised, and
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I4 net fuel bill by some $8 billion a year and reduce the U.S.
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15 oil import by some S11 billion per year I would say those are z
j 16 modest figures.
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I7 (Inaudible.)
l 18 I wonder now if I might have the slides.
May I have
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the slides please?
a 20 COMMISSIONER GILINSKY:
What price are you assuming for 2I oil in the long term?
You gave a set of figures.
22 l
MR. SILLIN:
You mean-in terms of --
23 i COMMISSIONER GILINSKY:
At one point, it says 250 24 million barrels and $17 million.
25 l MR. SILLIN:
We have used for the basis of our calcula-ALDERSON REPORTING COMPANY. INC.
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'1 tion in our system numbers that have been developed by DRI, 2
Data Resource people.
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The Department of Energy has told us that they use 4
DIR as well.
That all the instruments that they look at, the DRI numbers are at the lowest end of the scale.
Having said 3
6 that, they are estimating that the price for the quality of oil e
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7 that we are burning is going to increase about 16 percent per nf 8
.9 year.
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COMMISSIONER GILINSKY:
I see.
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10 MR. SILLIN:
I would exceed the real rate of inflation,
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I forget what they assume is the rate of a
f I2 inflation.
It is a growth rate of about 16 percent per year.
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13 Up until about 1986 or
'87, then it drops off to about 5
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14 percent per year through the balance of the decade.
g is coxx1331onga art 133xy, see m,,,x you,qu,seicn e3,e
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g 16 troubles me.
I don't know whether you can answer it or not, e
17 but there is, it seems to me, a limit to how much you can reduce E
18 the residual oil fraction, at least for the present.
When you
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refine barrel oi, I gather it is on the order of 10 percent, n
20 although there is talk oa new process that will reduce that 21 further, but at least for the moment, I think that the average 22 is about 10 percent.
23 :
We are using less than 10 percent, at least the i
24 utilities are overall about 10 percent as residual oil of the 25 total amount of oil that we are using.
What, then, happens with I
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2 MR. SILLIN:
I'm afraid -- someone else will have to 3
give an answer for you.
I would say that, frankly, I am not 4
qulaified to give an answer to that.
I do know this:
That there e
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is clearly an imperative to us, first for an economic reason
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experienced.
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prospective cost is.
The other is there is a mixed pressure
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that the national administration is saying -- as you know, they
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are currently going through the Congress.
The coal conversion, d
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the oil conversion --
3 13 COMMISSIONER GILINSKY:
There is no question.
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ought to be --
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MR. SILLIN:
I cannot answer your questio because I 16 g
have taken, as my point of view, the mandate, both from a cost 6
17 effective point of view and from a national interest point of w
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view as articulated by the government.
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I should get off oil.
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20 MR. WALSKE:
Besides the point you make about balance I
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of payments, this is often raised, this question.
Well, if we l
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are only getting.16 percent of our electricity from oil, doesn't 23
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that place a limit on how much you can save?
It comes -- not l
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1 all of it comes from residuals by the way.
A good fraction is i
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-You cannot say that all that is true.
For peaking
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in the future.
That is too narrow a point of view to take for 4
the long run.
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For the short run, it might be true in terms of your A
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direct replacement possibilities.
Keep in mind that the gas that
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-is used under boilers is a very flexible fuel.
Across the years, nj 8
as that' gas is saved, it can be a replacement for oil usage in Jd 9
other parts of the economy.
io 10 COMMISSIONER GILINSKY:
That ie true.
A lot of the E
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11 oil now is being replaced by gas.
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'f 12 MR. WALSKE:
The penetration of electricity, in general, c
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15 For example, electric heat pumps which are the most.
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effective means of heating and cooling homes, can replace oil 16 e
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Electrified mass transit can replace oil 5
18 in the transportation sector.
The same way with the electric l
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19 car, as it begins to come in the mid-1980s.
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So, in the longer run -- this is a long run busniess, 21 electrical generation.
It is not appropriate just to focus on 22 the oil which is directly used in electrical generation as being
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' the limiting f actor cn1 what you can save from coal and nuclear l
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I thought you were getting at improvements i
ALDERSON REPORTING COMPANY. INC.
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tant to get off the oil, it seems to me.
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9 CHAIRMAN AHEARNE:
It depends on what --
Y 10 COMMISSIONER GILINSKY:
I think it depends a lot -- it 3l 11 depends on a lot of factors.
My impression is it may be a momen-3 y
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How far down did it go?
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About $26 a barrel for oil.
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19 COMMISSIONER GILINSKY:
I heard a number as low as 5
20
$16.
21 MR. SILLIN:
You will hear different numbers.
Bear in 22 mind, a lot has to_do with the quality of the oil.
I am burning m
a 23, - by state requirement 100 percent sulfur oil.
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variation, unlike -- I believe, 2 percent sulfur oil today is l
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ALDERSON REPORTING COMPANY,INC.
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COMMISSIONER GILINSKY:
I don't want to suggest in any
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Just as a L7:rel
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4 MR. WALSKE:
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People are talking about a 0"
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2oy 10 MR. WALSKE:
What the cost of it is, I do not know.
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If you can do that, it changes 3
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2 ALDERSON REPORTING COMPANY, INC.
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What happens to the residual bfm21 p
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My understanding is the U.S.
supply of oil, 2
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Yes.
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I cannot answer that precisely, at all.
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I'm sorry for the --
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When you take the higher products out,
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I think this was our traditional approach 14 as an industry, in terms of looking at it.
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24 (Commissioner Bradford leaves the hearing room at 10:05.)
25,
(Slide. )
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COMMISSIONER GILINKSY:
When you say " regulatory risks" ALDERSON REPORTING COMPANY. INC.
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A combination of things that goes with that I
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13 COMMISSIONER GILINSKY:
What was the date of this
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I believe it was 1978 and '79.
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S30 a barrel in 1985 to almost S80 in the year 2000.
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4 COMMISSIONER GILINSKY:
What would you regard as the c.
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18 COMMISSIONER BRADFORD:
Is yours a utility that finances
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20 MR. SILLIN:
Do we finance --
21 COMMISSIONER BRADFORD:
I know some utilities in various 22 parts of the country have experiemented with programs under which 23 they finance insulation, or other.
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We do not.
We are doing a great deal with 25 our customers on energy conservation.
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2I COMMISSIONER BRADFORD:
I was wondering where a line 3
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23 l CHAIRMAN AHEARNE:
Oil jobbers are a better approach.
24 COMMISSIONER BRADFORD:
In other parts of the country, 25,
where electric heat and air conditioning together would be --
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I do not understand why they are doing
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These are millions of dollars 21 of what?
These are millions of dollars.
Yes, sir.
t 23 :
COMMISSIONER GILINSKY:
Of rate increases?
24 '
MR. SILLIN:
Of rate increases.
25 COMMISSIONER GILINSKY:
Okay.
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25; (Slide.)
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A plant completed in '78?
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It says on-line dates.
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Yes.
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Yes.
24 COMMISSIONER GILINSKY:
These are what? '78 dollars?
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'4 COMMISSIONER GILINSKY:
What -- what do you attribute l
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Rate of inflation?
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No, what do you --
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Why are they costing more than inflation?
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Yes.
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The situation on the slide is a little worse on the 2
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They seem to be roughly comparable.
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That was the actual experience, 5cz 18 the 1978 estimate which obviously was reflecting that experience.
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ALDERSON REPORTING COMPANY, INC.
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3 6
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7 (Slide.)
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I don't think there is any real GT
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No.
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It was high.
3 5
10 (Commissioner Bradford leaves the hearing } room at 11 00.)
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that we have in trying to move forward with this kind of d
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capital intensive industry, whether it is coal or nuclear.
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10 (Commissioner Bradford reenters the hearing at 11:03.)
.E II (Slide.)
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12 This shows the industry is going to have to double
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13 its investment in plants in the decade of the '80s to displace
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The expenditures during the '70s amounted to $270 billion.
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to displace oil; it rises to some S540 billion.
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that number.
It is really a very significant indication.
5 20 (Slide.)
21 We showed you earlier for the case study what has been 22 allowed.
What has been requested.
You can see that the exper-23 I ience in '71,
'73,
'75, and in more recent times (inaudible) 24 !
the first time in months.
25,
e78 shows the degree to which, as you move forward.
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ALDERSON REPORTING COMPANY, INC.
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I think the-implications of it as you move forward into a much 2il more highly inflationary economy, you have increasing difficulty 3
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financial condition about which we are talking.
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You see what also happens with th returns on yquity p J.ae.at &
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more recent times than '78, and which they, as I said earlier, oh 10 E
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How do you define " required"?
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MR. SILLIN:
It is what it would take in order to
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CHAIRMAN AHEARNE:
Do you know --
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MR. SILLIN:
As we touched that position, I would have 5
to 18
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us.to do that would require a 17 percent reutrn on common equity, which is the market book relationship.
21 Again, with the kind of inflation we are looking at, 22
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we are now assuming a higher rate of inflation.
The case study 23 i
was against a five percent rate of inflation and 14 percent return i
24 So, if you have a 10 percent rate of inflation, that 25 -
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CHAIRMAN AHEARNE:
What leads to the big gap between 3
2 l the authorized and the --
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What is the reason for the big gap?
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Between authorized and required?
5 MR. SILLIN:
There are two things that contribute to e
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6 that, Mr. Chairman.
One of them is that traditionally, the e
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December
'78, when did you W
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18 MR. SILLIN:
We filed -- we filed in early 1979.
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19 COMMISSIONER BRADFORD:
This is a jurisdiction that xn 20 uses an entirely historic --
21 MR. SILLIN:
Yes, sir.
22 COMMISSIONER BRADFORD:
I did not know there were many 23 I of those left.
24 MR. SILLIN:
There aren't many that I know of.
I do i
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not believe we are quite (inaudible.)
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MR. GROVE:
I would guess that at least half of the l
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Those that use l
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example, we received a decision im March based upon 1979 cost 5l data that we filed in the fall of 1978.
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that point.
So, you are almost two years out of phase.
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The other thing that struck me w=
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case.
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What I said was the particular case that 5{
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The decision came down in 21 July -- June of 1980.
I 22 l
COMMISSIONER BRADFORD:
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24 MR. SILLIN:
It was filed later than that.
One of the
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things, Commissioner Bradford, we no longer, because of the
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volumes of data that are now required in connection with rate g
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EC IO COMMISSIONER BRADFORD:
I never thought of myself as P
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having been a generous Commissioner before, buy we did do away n
20 with the. historical test year.
2I MR. SILLIN:
I think the other thing that happens is --
22
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ALDERSON REPORTING COMPANY,INC.
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the case asking for less-than it needs, if it is going to
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the rate relief.
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5 18 of that seven percent.
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'20 realities are, witn respect to the reutrn on equity -- I think 21 as a former Commissioner you know the judgemental quality --
f 22 when I lo-k, for example, at a regulator that is 1977 -- he
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comes along in 1980 and says "I am coing to give you 13.8."
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I think I interrupted you when 5
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the 11.5.
n 20 MR. SILLIN:
All I was really trying to point out was 21 that the problem is obviously compounded in the later period 22 h for reasons we are frankly talking about, the inflation experience l
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and what have you.
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(Slide.)
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CHAIRMAN AHEARNE:
I have to say, Lee, that with regard l
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with it than in the past, after struggling in the Congress this
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We are not allowed a rate of N
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I think in this particular slide, it is Y
5 10 very important to make reference to this thing called AFUDC.
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19 to the amount of ASUDC that is being reflected.
2 20 (Slide. )
21 A weakened financial condition, again, is shown here 22 by the increasing share of the capital expenditures that had to 23,
be financed externally.
You can see the kind of relationship.
14 If you look at that relationship, you can certainly see the year i
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It could be interpreted as showing Y
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'75.
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There has been some recovery, but it is now selling 22 4 about 75 percent of book.
What you say here is, you know, that 23 cannot continue.
24 I said earlier, you not only find increasingly u'..lity 25 ;
management taking (inaudible) but they cannot go on without I
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6-25-80 Tapa 4 1 j MR. CAMPBELL:
As our forces turn, our uncertainties c 7nclly i
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Institutional investors lost interest in electrical i
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What filled the gap and has up until now I
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They are living off this for an income, I
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What percent?
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I2 MR. CAMPBELL:
Six percent.
Seventeen months, up through 5
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a 13 5
December of 1979, not earning its current rate of dividend.
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During that time the dividend
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It was paid.
It was paid principally on e
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We have to finish it, and we know cs 19 g
from Con Ed's experience that certainly if we dealt with the down-e.
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2I! equity market.
So we had to keep on, and we now are earning in 22 excess of it and have for the last four or five months.
And we l.
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25l But the re'ason we were able to pay that dividend 17 months k
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Was that a constant dividend or g
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It did not increase during that time.
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E 10 MR. SILLIN:
I think one of the points --
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1)
COMMISSIONER KENNEDY:
What kind of common equity financinc
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13 MR. CAMPBELL:
Our latest public offering was November E
E 14 1977, $183 million realized issue.
Prior to that every year we d
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In.1974 we came to the market.
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16 COMMISSIONER KENNEDY:
Not your shareholder distributions BJ.
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Into the public market.
We have had good
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20 currently near S17 million per quarter.
Our savings plan for the 21 employees generates about a million, and others about S10 million 22 per year.
With that we have been able to just barely hold together.
23 When we ended in 1979, our common equity ratio was 29 24 percent, demonstrably way too low.
Our goal is 31 to 32 percent.
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certainly were not happy with it.
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MR. SILLIN:
Coming back now to the earlier comment I 7
made', when I indicated that the utilities that are dependent on E
oil for more tha h if o# theiroutouthavelthelowest securit d-8 2ldnti /4A/s f 4 Wy &r &
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h 10 those who have the greatest need to get off oil at the present time z
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I am still -- I am not sure I 3
h 13 quite understand the why of that.
Is it because they have the need E
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15 ed to get them off of oil?
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I do not think so.
I think frankly it is BW g
17 what I tried to describe earlier, Commissioner Bradford.
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19 l cost for energy.
Therefore, because their cost of energy has gone
!r.
20 up, it is the sense of the body politic that somehow we will have 21 to hold down the amount of rate release because of what is being 22 experienced.
23h So you have the doubling effect then of being unable to
' maintain the kind of financial condition necessary to do the job 24 25l and to get off that stuff that is causing the problem.
I think that.
9 ALDERSON REPORTING COMPANY, INC.
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place, particularly in the 74 period, '75 period when they had I
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16 interest.
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18 to increase from 530 gigawatts to almost 800 gigawatts between P
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'78 and '90.
On the basis of that 4 percent load growth, there F.
20 are some scenarios that Booz, Allen has shown here.
Assuming there 21 is a five-year delay in bringing coal and nuclear capacity on'line, 22 the nation would use some 22 million additional barrels of oil by i
23 1990.
Assuming the load growth is met by nuclear and coal but 24 h there is no displacement of oil-burning capacity, oil requirements 25, through 1990 would still be about 10 billion barrels of oil.
And l
ALDERSON REPORTING COMPANY, INC.
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!and displace oil, the dependence on oil could be reduced to about 2
l2billionbarrels.
That is really a dilemma that I think both we and the 4
nation face, and the kind of financial constraints that we'll try n"
to describe.
d 6
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f Gilinsky for encouraging us to be with you.
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COMMISSIONER GILINSKY:
That was certainly very interest-9 Y
ing.
I am not sure I understand these numbers.
Just looking at h
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11 3
displaced and then that 2 billion dollars -- 2 billion barrels --
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MR. SILLIN:
Yes.
As I said earlier -
you are talking r
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Yes.
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of your existing base load generation.
Even I think the demonstrad tion of the oil backup program, I think it is something like 3,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> per year.
Those facilities would operate no more than that.
They would not be swept in under the oil backup program.
E Be that is several thes the 25 l ALDERSON REPORTING COMPANY, INC.
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+1 amount wa aro using now, isn't it?
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You have some quality of load growth.
This 2
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is assuming -- this is taking place on our own system.
If you look 4
at us at a particular point in time, you would see that we more 5
than cut in half our 1973 oil consumption, but now we are seeing e
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By the year 1990 we will be burning as much oil e
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over a 10-year period.
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The last item you have, coal and-o=
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15 is displaced, and you still end up needing 2 billion barrels of M
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17 l COMMISSIONER GILINSKY:
Which is four times what we 5
E 18 are using now.
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19i CHAIRMAN AHEARNE:
Earlier your chart had 600 million X
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20 barrels of oil.
We had discussed whether it was 500 or 600 barrels,i 21 but your earlier chart had 600 million.
This has 2 billion, 22
, assuming all the load growth and current oil capacity is displaced.
I 1
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I cannot reconcile those numbers for you.
24 iI think, though, it is a matter of principle.
The chart is correct i
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It may be that one of those I
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MR. SILLIN:
That is cumulative consumption.
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I see.
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MR. SILLIN:
That is cumulative.
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Over 12 years?
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MR. SILLIN:
It is cumulative consumption.
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CHAIRMAN AHEARNE:
All right Do you have any other n
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questions?
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10 COMMISSIONER GILINSKY:
I guess I don't.
I wonfered if E
11 Mr. Manderbach has something to add in terms of the banks.
J 12 CHAIRMAN AHEARNE:
If you could talk a minute on -- I E
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And I guess that there were later reports many months E
16 later that there might have been a change in that.
It would be
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17 interesting to get Bank of America's views on that.
5 18 MR. MANDBRBACH:
Mr. Chairman, thank you.
Ar E
19 Last year's announcement or misannouncement was something 5
20 that was picked up at our shareholders meeting.
I was asked from 21 the floor what our position was.
We have a sizable investment, 22 and the comment was made to the effect we were in "a holding 23 f pattern. "
Next question.
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It got tremendous distribution about two weeks later,
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make credit available.
What we meant to say -- excuse me -- we 2
would continue to make credit available to any creditworthy I
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specifically ruling out any type of generation, whether it be e
5 nuclear or whatever.
And we received more comment from that than N
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And since then we have continued to make e
7 nuclear fuel financing available.
That did not get very much 8
Publicity, but we have made new commitments.
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10 direction of the Financial Considerations Committee.
To answer E
I think the banks are most interested in seeing that E - 11 your comment,
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12 the utilities entering programs of nuclear construction and so E=
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COMMISSIONER GILINSKY:
What is the time over which you 3 elend money?
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We will lend money today on a commercial e
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At the moment do you -- and speaking i
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MR. MANDERBACH:
Speaking as a Californian, no.
24 (Laughter.)
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Are banks -- I am not sure whether you e
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use of all types of energy.
We are certainly committed to that, i
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Let me, if I could, probe one step 9
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The insulation question you should under-21 stand (inaudible).
The industry is required to go forward with 22 ' these clas, A audits.
23 CHAIRMAN AHEARNE:
I understand that well.
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All I am trying to say is a little outfit i
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I know.
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They will be included in the cost of electri@
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I did not want to leave any questions, e
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I know that very well.
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I wonder, Mr. Chairman, if I could comment N
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M 20 COMMISSIONER HENDRIE:
Two units.
21 MR. GROVE:
Two units.
The point is today we have all 22 i the licenses and permits we need to. construct and operate that
-23
. plant, so we can proceed with c cnstruction in that plant with 24 great confidence.
But when it is completed, we can operate it and k
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8 This is a situation that we are facing there, and I am J
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You are saying that there really l
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That is right.
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As perceived by the investors.
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What particular experience do 3M i
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Some of it is associated with what has
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And they still do not have operating permits.
22 COMMISSIONER BRADFORD:
And it is your perception that they would stand idle indefinitely?
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24 MR. GROVE:
We do not know.
That is the uncertainty, Mr.
25, Bradford.
Nobody knows today for sure what is going to happen.
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MR. NALSKE:
They are not standing idle for free.
Having 3
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adding to the cost of the plants at a high rate.
3 MR. GROVE:
And eventually the customer is going to have 4
to pay for it.
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What strikes me -- maybe it is N
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If we had an option today, we are not willing E
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That is an unrealistic risk for kM g-j7 the company and its investors to assume.
We need more certainty.
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Did yo,u quantify this in terms
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20 23 MR. GROVE:
Not really, Mr. Commissioner, no.
We made 22 the best projection that we could, assuming that licensing would
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24 And as I say, based upon those estimates, nuclear was by far the 25 i best economic choice.
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Did this have anything to do 0g 9
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Are you replacing that capacity m
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That is what we wcald intend to do.
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21 COMMISSIONER GILINSKY:
Is that what you intend to do?
22 MR. GROVE:
That is what our present intention is.
CHAIRMAN AHEARNE:
Dick?
23 l 24 I COMMISSIONER KENNEDY:
No.
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What seems puzzling to me about i
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We would have $200 million invested probably e
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But the point is that there are alternatives.
22 While they may be less economic, there is more certainty in the 23,, process far a coal-fired plant, as I just indicated.
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2l COMMISSIONER KENNEDY:
What kind of ratcheting experience 3
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In terms of backfitting?
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Yes.
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None.
You are not faced with the sort of e
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Not even on some of the EPA standards?
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These are generally fixed pretty well on i!
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The equivalent to ratcheting in W
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22 COMMISSIONER KENNEDY:
No contingent clauses?
23 (Laughter. )
24 MR. GROVE:
There is provision for escalation.
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25 MR. SILLIN:
I think also you know these things get to be I
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One other question.
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We have a preferred rate for residential BW l
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For your residential customers?
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The differential we can offer them, since 8
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1 21 planning any peaking capacity other than -- there is no major kind 22 of contribution.
What we can offer them is the fuel efficiency 23 - between off-peak and on-peak, and that is basically how we do most h
24 j of that.
We have about 26,000 customers.
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Twenty-six thousand residential t
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How many of those would be 4
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All of them.
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In Michigan we have them available for all es J
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We have had the same experience with the
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There is very little interest in it.
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Is it because it really does not c=
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They don' t want to change their life style d
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21 cost, and it is very sizable in our system.
It is a million 22 kilowatts, and it is the best thing in the world from a load 23, management and economic point of view -- better for the customer 24 than all the kinds of things we could do in terms of trying to get b
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The other point is as long as e
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It is not voluntary for anyone who wants e
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They're on a time of day rate?
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CHAIRMAN AHEARNE:
Lee, Jim --
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May I add a postscript?
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And it can be borne out, I think, 22 by the fact I think that last year there were no orders of nuclear 23 plants.
There are about six gigawatts ordered of coal plants.
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If you cannot get it from 21 22. natural gas, you have to pump cnal and nuclear into the economy, 23, and all the nuclear has to go in through electricity, and a good 24 ;I deal of the coal has to go in through electricity.
25 l And here we have my good friends in the utility industry, l
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j wh'ich is in such a prostrate condition financially that they are 2
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It is something that has to be turned around, in my 21
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I MR. CAMPBELL:
The cost of this to the consumer is not 22 l
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Is that 11 1/2 percent before or e
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Thank you.
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And, gentlemen, as Commissioner Gilinsky said BW g-17 at the beginning and as you had mentioned, sharing information is a
b 18 bound to help; so we appreciate the ef fort, thdt you put in.
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19 (Whereupon, at 11:58 a.m.,
the meeting was adjourned.)
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20 21 22 23,
24
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25 l 1
ALDERSON REPORTING COMPANY. INC.
This is to certify that the attached proceedings before the NUCLEAR REGULATORY COMMISSION in the matter of:
BRIEFING FOR COMMISSIONER GILINSKY BY AIF ON FINANCIAL STATUS OF UTILITIES - PUBLIC MEETING Date of Proceeding:
June 25, 1980 Docket Number'.
Place of Proceeding:
Washington, D. C.
were held as herein appears, and that this is the original transcript thereof for the file of the Commission.
David S. Parker Official Reporter (Typed)
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Official Reporter (Signature)
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1 SLIDES NRC COMMISSIONERS BRIEFING
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JUNE 6,
1980 l
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EXECllllyE SlH1ARY.
1.
IllE_CSERLEIIWlCJAL CONDJ110lLOF_IllE_UllillLillWSIRY_LIIilIS_IIS_ACCES.S_LOJ1EAS00AllLY BlLCEILCA111AL 9
UTILITY EARillNGS llAVE IJt0PPED AS A PROPORTION OF REVEtluES, AS FUEL AND FIXED COSTS TAKE' UP A GROWING SilARE OF Tile REVENUE DOLLAR e
SPIRALLING CONSTRUCTION COSTS AND PROTRACTED LEAD TIMES IIAVE TIED UP LARGE SUMS OF MONEY IN tl0N-REVENUE PRODUClflG ASSETS 9
AS A RESULT, COVERAGE RATIOS AND RETURNS ON EQUITY llAVE DROPPED e
Tile INDUSTRY'S WEAKENED F1flANCI AL llEALTil 1S ALSO REFLECTED lli Tile SLOW GROWill lil CASil EARNiilGS, VERSUS Tile RAPID IrlCREASE IN Tile COST OF BUILDING PLAllT 9
WALL STREET llAS REACTED TO TilESE DEVELOPM"ENTS BY DOWNGRADING UTILITY B0flD RATINGS, MAKillG DEllT FINAtlCING MORE DIFFICULT 8
Tile EQUITY MARKETS IIAVE ALSO REACTED T0 llTILITY FINANCIAL CONDITIONS, ilY DRIVillG Tile PRICE OF COMMON STOCK WELT. BELOW Il00K VALUE 9
CONSTRAIIITS Oil Tile AlllLITY TO RAISE CAPITAL ARE ALL Tile MORE SERIOUS BECAUSE OF Tile INDUSTRY'S DEPENDEllCE Off EXTERNAL CAPITAL TO FillAtlCE GROWill
~
11
/
L.
8 TilESE CAPITAL-RAISING CONSTRAltlTS ARE WIDESPREAD, BUT tt0RE SERIOUS FOR Til0SE UTILITIES DEPENDENT Oil OIL GENERAT10!1 II.
WE_ID_I1EULSJIORT-TERll FOCUS, PUCS llAVE_IIDLALL0l!ED UTILLILilEVINUE.S TO KEEE IEE_XlllLRIXII1E_E01TS S
AS OPERATING, INVESTMENT, AND FINAtlCIAL COSTS INCREASE, UTILITIES DIRECT RATE INCREASE REQUESTS TO PUBLIC UTILITY COMMISSIONS (PUC'S).
8 BUT, IN REGULATillG Tile UTILITY IllDUSTRY, PUC'S ARE REQUIRED TO BALANCE BOTil Sil0RT-AND LONG-TERM INTERESTS.
AMONG Til0SE IllFLUENCING PUC'S, PUBLIC OFFICI ALS AtlD CONSUMER GROUPS TEND TO FOCUS ON Tile Sil0RT TERT 1, AND BE Tile MOST VOCAL.
8 MANY PUC'S IIAVE RESPONDED TO Sil0RT-TERM INTERESTS BY PROVIDING SIGillFICANTLY LESS TliAN ELECTRIC UTILITY RA'
'lCREASE REQUESTS.
8 AS A RESULT OF TilESE RATE DECISi0i!3, EARNINGS IIAVE FALLEll BELOW INVESTOR REQUIREMENTS.
9 Tile INVESTMEllT COMMUNITY RErdNIZES Tile It1PORTANCE OF PUC ACTION'S AS A DETERMIflAtlT OF UTIL1TY FItiliNC1 AL llEALTil AND CRITICALLY EVALUATES Tile PUC'S Oil TilEIR DECISIONS.
111 V
%.y
__u-__
't IN GENERAL, Tile IIIGilER RATED PUC'S IIAVE PROVIDED LARGER AND MORE TIMELY RATE INCREASES AND llAVE ADOPTED ACCOUNTl!1G POLICIES WillCil RESULT IN lilGilER QUALITY
[
EARNINGS.
e TilESE MORE FAVORABLE RATE DECISIONS AND ACCOUNTING TREATMENTS IIAVE PRODUCED lil'GilER RETURNS AND COVERAGE RATIOS FOR UTILITIES IN TilESE JURISDICTIONS.
e AS A RESULT, UTILi' ES IN Tile lilGilER RATED JURISDICTIONS ARE IN BETTER FINANCIAL CONDITION TO BUILD NEEDED PLANTS.
0-UNFORTUNATELY, MOST OF Tile UTILITIES WillCll BURN LARGE PERCENTAGES OF OIL AND ARE TliUS MOST IN NEED OF Tile ABILITY TO FINANCE NEW COAL AND NUCLEAR CAPACITY, ARE REGULATED BY AVERAGE OR BELOW AVERAGE PUC's.
REDUCEILCONSl ME110N_DE_0.lLilY_UllLI.UES_REQUJ RES_MSfLACING_EXISII NL0lL AND_6AS.
Ii1.
U CAEAC llL_AND_SAILSE11 NE_ LOAD _G B0 RILL 1111LNON201LANILGAS-IlDRNINLCAl'AC llY.
e DEMAND FOR ELECTRICITY AND UTILITY CONSUMPTION OF OIL llAS GROWN RAPIDLY IN
~
Tile PAST.
0 DEMAND FOR ELECTRICITY WILL GROW 110RE SLOWLY IN Tile FUTURE, BUT 230 GIGAWATTS 0F CAPACITY ADDITIONS WILL STILL BE REQUIRED BY 1990.
W IV
(.
(
V
)
A PROGRAM FOCUSED Oil DISPLACEMEllT OF EXISTitlG OIL CAPACITY-VI A Col. ERSIOff 8.
TO COAL, ACCELERATED COAL AllD flVCLEAR PLANT C0ilSTRUCTIOll, IllCREASED CONSERVATION, AND USE OF OTilER fl0ft-0!L-AND GAS-GENERATI0ft FORMS-CAff SUBSTANTI ALLY REDUCE UTILITY C0flSUf1PTIOff 0F Tills FUEL.
e BUT, IF OIL r0!!:L"iPTION til Tile UTILITY SECTOR IS TO BE REDUCED, CONSERVATION PROGRAMS MUST !!E ItiPLEMEtlTED, AND LOAD GROWTil SATISFIED BY Tile INSTALLATION OF C0AL~, [10 CLEAR, AllD REllEWABLE RESOURCE TECilNOLOGIES.
4 IV.
IlLE_IlEVELDEUENT OF CAELIAL_LillLIAl10NS_BR0.USilL0filY P40lLE111AllCIAL!!EALIILilAS,.
ANDJilLL_CDULINRE_ILRESULLULIllE_DEriRRAL.fECAPAC.llLNEEllELTO HEEI ADU1ILLSEAILON OIL RLSELACENEitLIARGELS_
e Tile UTIL'ITY INDUSTRY IS BY FAR Tile LARGEST CAPITAL-SPEllDlHG INDUSTRY UNTil RECENTLY, Tile UTILITY IIIDUSTRY ',fAS BEEN ABLE TO INVEST llEAVILY lil o
CAPITAL-INTENSIVE PLANTS BUT, Tile COSTS OF COAL AND NUCLEAR PLANTS llAVE INCREASED DRAMATICALLY SlHCE 9
1969, AND ARE EXPECTED TO CollTitlUE TO ESCALATE OVER Tile COMING DECADE.
AS A RESULT, TO MEET 1980's GRONTii, UTILITIES WILL llAVE TO SPEND--Ill 1979 e
DOLLARS--A110UT $330 B1LL10N BY 1990.
DISPLACING EXISTING 0iL-F1 RED CAPACITY WILL REQUIRE AN ADDITI0llAL $36 BILLlori.
v
}
v
e IF CAPITAL IS tl0T AVAILABLE AT REASollABLE COSTS, COAL AfID fluCLEAR PLAlilS ARE LIKELY TO BE DEFERRED, AtlD OIL-AtlD GAS-FIRED PLAllTS MAY ll0T BE DISPLACED Oil AN EC0tl0MIC SCllEDULE.
O BASE LOAD PLANT DEFERRALS WILL LEAVE UTILITIES WITil TWO OPT 10flS TO SERVE LOAD GROWTil--flEITl!ER OF WillCil WILL PERMIT ACCELERATED OIL AND GAS DISPLACEMENT:
INCREASED USE OF EXISTING PLAllTS ADDITION OF NEW COMBUSTION TURBINES e
AS A RESULT, UTILITY OIL AllD GAS CONSUMPTION liAY RISE DRAMATICALLY FROM CURRENT LEVELS, AtlD CUSTOMERS WILL RECEIVE LESS RELI ABLE SERVICE AT UNNECESSARILY llIGli COST.
9 Tile BOTTOM LillE:
OllLY IF LARGE AMOUNTS OF CAPITAL CAN BE RAISED Call UTILITIES:
REDUCE TilEIR OIL AtlD GAS CONSUMPTIOff TO ECONOMIC LEVELS REDUCE TilEIP tlET FUEL BILL BY $8 BILL 10t1 PER YEAR REDUCE Tl!'d U.S. OIL IMPORT BILL BY $11 BILLlott PER YEAR VI
Background
~
ilistorically...
I Forecast of Demand Hequired Reliatile fleserve Service Margins Most Lowest Economic
> Consumer Generation Costs 3
Capital Requirements
m m.
Background
Tomorrow...
Forecast of Demand Capital Constraints L west Reduced Capital fleserve Margins Get r tion i f i f Loss liigher of Consumer Relialaility?
Costs?
9
A Case Study
~.. - -
Some Background...
- A Moderate Sized, East Coast Utility, With Heavy Oil Consumplion
- Committed to Significant New Nuclear Capacity to Meet Load Growth and Cut Oil Use
- A Hostile Regulatory Commission Whose Rate Decisions Caused a Deteriorating Financial Condition Since the Arab Embargo i
l w
e
A Case Study Booz, Allen's Study Yielded Several Not Unexpected Conclusions e
- While Conservation Would Cut Demand, to Almost % Pre-Embargo I
Rates, New Growth. Capacity Would Be Needed by 1990
- Nuclear Power Was the Least Costly Alternative and Was Cheaper Than the Projected Cost of Oil Alone e Nonetheless Booz Allen Recommended and Our Client Subsequently Cancelled 2300MW of Nuclear Capacity:
- Untenable Regulatory Risks
- Unacceptable Financial implications e
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A Case Study The Financial Constraints...
40 g
Key
\\
tJucIcar-Two 1150 TAW tJuclear Units installed in 1990/92
- Coal-Two DOOPAW Coal Units Installed in 1990/92 30
- \\
~~ ~+= Gas Turbines-Gas Turbines Heplace the Capacity Pro by 1990/92 tJuclear uniis neplaccinent oil Cost-Fuel Cost Alone For oil Plants Levelized Generation Cost (Conts Per Kilowatthour)
\\ *.,
20 h *N Gas Turhines Replacement Oil Cost 10
..****..........................Co a l Nuclear
I OO 20 40 60 80 100 Capacity Factor-%
9 b
\\
A Case Study The Financial Constraints...
1,200 1,000 800 Annual Capital Expenditures 600 Excluding AFDC (Millions of Dollars) 400 11 storical Peakj 200 (_
o 77 80 85 90 Year l
1 W
,y
A Case Study The Financial Constraints...
1,000 750 Total External 500 Long Term Financing (in Millions of Dollars) llistorical Peak 250 0
I I
77 80 85 90 93
-wa
A Case Study TI1e Financial Constraints...
150 125 Capital Expenditures 100 Generated internally
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75 50 25 O
I I
I 77 80 85 90 93 I
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A Case Study The Financial Constraints...
4.0 l
AAA/Ana 3.5 AA/Aa
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~he Financial Constraints... i 1
i S350 Actual i
Projected Need I
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300 i?dBi:]
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A Case Study The Financial Constraints...
$5 L u
Gas Turbines
\\,-
4 3
5.1 Billions of Dollars Nuclear (063MW)/
Gas Turbines 7
2
- /
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- r Coal (1200MW)/
f 2.5 i
N,)fL Gas Turbines 2.3 f:
i:
Reference Nuclear O
" "' * "
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Expansion 75 80 85 90 95 2000 O
J L.
National Dimensions The Need For Capital is Spiraling e
The industry's Financial Condition is Not What it Should Be o
The Utilities With Greatest Oil Dependance Are Least Able to e
Finance New Capacity O
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1990 Generation 1978 Generation 2200 Gigawatthours 3500 Gigawatthours in e$g#g
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i
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$308 - with $20B Invested in Coal and Nuclear Plants.
Total Industrial Capital Expenditures (1978)
Utility Industry Capital Expenditures (1978)
Transmission Oil,ier Production 8%
160 istribution and Other M".
-=
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National Dimensions These Capital-Raising Constraints, Brou0ht on by Financial Difficulties, Are Most Critical Precisely For Those Utilities Which Most Need Capital to Displace Oil Generation AA or AAA Rated A of BBB Rated Utilities Utilities NN i_
Utilities with Greater utilities with Utilities with Less Than 50% Oil Generation 25W50'X. Oil Generation Than 25% Oil Generation (17)
(12)
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i Strategic implications Oil Use Could Spiral...
.eewee 5-Year Delay in Building Z~ _ ' l'lZ Coal & Nuclear Capacity, No 353???
Displacement of Current Oil B00
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ZZZZZC Capacity s
q w,}) /
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k{i Z I No Displacement of Current
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533 Oil Capacity, Load Growth f
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Capacity (
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M Phd fN 1
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78 90 Capacity Capacity Requirements t
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