ML19322C229
| ML19322C229 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 10/31/1978 |
| From: | Beverly Smith PENNSYLVANIA, COMMONWEALTH OF |
| To: | PENNSYLVANIA, COMMONWEALTH OF |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001160656 | |
| Download: ML19322C229 (7) | |
Text
~
~-
FEGIVED BEFORE THE OCT 311973 PENNSYLVANIA pUBLIC UTILITY COMMISS10';
Public Utilityy Commissica Pa. Public Utility Commission p,8) v.
R-78060626
~
Hetropolitan Edison Company HEMORANDU'1 0F LAW:
CRITERIA FOR DETERMINING VHEN A' NUCLEAR FACILITY IS USED AND USEFUL
~
On August 30, 1978, the presidin;; Administrative Law Judge in the above-captioned case instructed all parties to develop and transmit suggested ' criteria for determining phen a 'nu' clear facility is "in
' commercial service."
The term was further clarified on the record by the notation that "in commercial service" is equal to "used and useful" for the purposes of rate making procedure, Tr. 4.
At the ~ outset, it is important to distinguish between the terms "in commercial service" and "used and useful."
The term "in commercial service" has been used by the Company to indicate when a plant, according to Company standards, has completed its precommercial testing program and is ready to operate at 100% power.
See Het-Ed Exh.
E-19.
The term "used and useful," on the other hand, has traditionally been employed by the Commission to denote the Commission decision that a given plant is eligible for inclusion in rate' base.
It is the latter y-f
=
bfE-
_ d u,.n UE,
., T"
'i k
(,,
~
. concept, when a-plant become's used and useful, uhich will be discushed in this memorandum because it is this concept, and only this concept, uhich has significance for rate making purposes.
.The determination of when a generating facility becomes used and useful in the public service is a legal decision based on technical criteria _ resulting in financial implications to the Company,and its l
ratepayers.
It is important to keep the Icgal,- technical and financial -
roles separate.
The legal foundation for the concept of "used and useful" was
. laid b'y the United States Supreme Court in Smyth v. hites,'169 U.S. 466 (1897).
Recognizing that a public utility is not necessarily entitled to. carn a rate of return from its ratepayers on all utility property
.just because that property is owned by the utility, the Court held that the basis of all calculations as to the 1
reasonableness of rates... nust be the fair value of the property being used by it for the convenience of the public.
Id. at 546.
What the Company is entitled to ask is.a fair return upon the value of that uhich it employs.for the public convenience.
Id. at 547.
Consistent with this principle, the general practice has been to.
uithhold from the rate base plant construction costs until the plant itself has become part of the used and useful property.
. James Bonbright, Principles of Public Utility Rates,1178 (1969).
Pennsylvania courts and the Pennsylvania -Public Utility Convaission have consistently applied the concept that a plant must be
~
used,and useful to be eligible for inclusion in rate base.
Most recently, in the last Metropolitan $dison (llet-Ed) rate case, R.I.D.
434, the Com:nission excluded T!!I #2, the same plant that is at issue in this case, from the rate base.
In so doing, it recognized and wF1 im-p q.l. flh 0 h,u y ;
o 2
- J' f
. m,.
.i y
_ i p-5
C
-l
" generally agreed" uith the conclusion of the Consumer Advocate and Commission trial st.af f that the plant could not be included in rate base
~
service.
because it uns not used and useful
'in the public,
Pennsylvania Public Uti.lity Commission v. lletropolitan Edison Company, R.I.D. 434 at 5 (Sept. 18, 1978).
- It is clear from the Commission's decision in RID 434 that the plant
- must, at the very
- least, have completed the Company's precommercial testing program and reached the 100% level of generation, i.e.
it must have met the Company's definition of. ' "In commercial 1
operation."
See RID 434 at 6 (Sept. 18,.1978)'.
Met Ed's experience
. uith the main steam safety valve in the latter days of testing TML f2' under the origin schedule, in and of itself, ' is.cufficient. reason to require completion of the testing progrnm and attainment of the 100%
~
level of generation prior to declaring a plant used and useful.
However, the Pennsylvania Public Utility Commission has not had the
- opportunity to go beyond that. point to indicate what ~ other criteria should be used in determining when an operating plant can properly be considered to be " employed for the ' convenience of the public" and, 'thus, to have attained used and useful status for ratemaking 1.urposes.
The Federal Power Commission (FPC), now the Federal Energy Regulatory Commission, on the other hand, has considered this probica at,
no set fornula length.
Although the FPC has recognized that there is for determining uhen a plant becomes used and'useful, it han identified certa,In criteria which must.be employed in determining used and 'useful As stated in Re Pennsylvania Water & Power Co., 82 PUR lls 193, status.
237 (1949 FPC), in which the FPC considered tdiether a 5 unit pouer plant q?
cr
'n' was used and useful, g,
mm e
3 e
l
- l. I '
k.,
"... reasonable time should be allowed for test periods..
and trials, the correction of defects and adjustments, and time for the plant to become sufficiently completed to be. reasonably reliable for service for the purpose for which it was intended."'
y In other words, reliability is a necessary component of hsed and useful status.
The pertinent facts which the Federal Power Coremission examined in determining whether the plant's service and reliability were-
. adequate to justify inclusion of the plant in rate base werei (1) the length of time each unit of the plant had been operating;~
(2) the
~
actual capacity of each unit as a function of.it.: rated capacity; and (3) the presence or absence of outages and the cause of each outage.
Id. at 234-6.
In each. instance, the Commission found that every unit, -
except one, had been in operation for at least one month, that eacli unit, had been operating at its rated level and that the outages, if any, were' insignificant or natural in origin.
Mr. Arnold has testifie1 that as of October 22, 1978, TMI #2 was at the 75% power test plateau, where it will remain for'
'approximately 12 days. Then it will proceed to the 100% IcVel where it -
uill. remain for an additional 10-12 days of testing. Tr. 1259.
In his '.
direct testimony Mr. Arnold stated that the precommercial test' program t
' vill be completed by November 10, 1978.
After that. time, a 13 day outage is scheduled, and commercial generation vill begin on liovember 23, 1978.
Met-Ed Exh. E-19'.
Therefore, according to liet-Ed's present schedule on or about November 23, 1978, Tl!I #2 will have met the first two criteria outlined above: It vill be in operation and it will be generating at its rated capacity.
However, at that point in time, lict-Ed will not have had 4
L :.- D.v '.w -
^
6
T.
r r(
E
~'
'e
=
sufficient experience with TtlI #2 to judge uhether the unit will operate reliably at its rated capacity.
Het-Ed's uitness, Herbein, stated in his direct testimony th[it "
80% is the assumed capacity factor for TMI #1 and #2 between the normal six week refuelings.
Het-Ed statement D at 12.
This 80%. factor -,.'
~
includes a measurement of reliability since the percentage reflects a
~
20% outage factor coupled with 100% generation the remainder of' the time. Therefore, if TdI #2 operates at 80% - 100% capacity over a given' period of time, it will have met the test for reliable service.
~
Use of the 80% capacity factor as a measuremeht of reliable operation is conservative given the Company's experience oith TMI #1.
Rated at an 80% capacity factor between refuelings,' TMI #1 has had an 83% capacity factor in the first cyclc, an 86% capacity factor in the second ' cycle and art 89% capacity factor in the third cycle.
Tr. 526.
Hevertheless, since 80% is the rated capacity for TMI #2 ~ bettieen refuelings and since 'TMI #2 is just starting up, an 80% capacity factor.
is an adequate benchmark.
The use of the actual capacity factor experienced bettreen refuelings would delay the determination of used and useful status until the fourth quarter ~of 1979.
Such r. delay would benefit neither the ratepayers nor the Company.
- However, some time, span between commencement of full operation and declaration of used and useful status is necessary to assure the " reliability of service.
It is, therefore, suggested that a minimum of one month uith an 80% actual capacity factor be reqbired.
In addition, the Company should assure the Commission that no substantial, outages are schedttled or anticipated which would preclude
\\
the possibility of maintaining 80% capacity between refuelings.
~
p 4
\\_, t L
i
,..t.
(-
~. f-9 One note should be made uith regard to the financial impact of.
not declaring a plant used and useful the moment the plant completes its.
testing program.
The Company has frequently argued that the costs of adding a new plant must be borne by the customers who are deriving the energy cost benefits from that plant.
liaintaining that the customers automatically receive the energy benefits uhen -the plant becomes operat.ional, Met-Ed concludes that they must also bear the rate base costs at that time.
This argument, however, ignores the fact that energy clause savings are not immediately reflected in customer rates.
In general,I
'In addition,.
the energy clause is based on a six month rolling average.
there is a two-month 1ag between the accrued enirgy costs and the billed
~
costs.
Therefore, if.TMI. #.2 were to become commercial at the end of from the use of nuclear fuel would not
- November, the energy savings
.~
begin to be reflected in customer bills until January, of 1979 and uould not be fully reflected until July of 1979.
Furthermore, since Het-Ed has adopted a transitional energy clause which levelizes the clause fron July of 1978 to May of 1979, Met-Ed customers vill not be affected by actual nuclear fuel savings until, May of 1979.
The'refore, alleged energy clause savings due.to operation of TMI #2 shoul'd not affect the determinatio'n of when Till #2 is eligible for inclusion in rate base.
of reliability and full operation t'o In applying the criter a the timetable projected for Tlil #2, the facility should be t 3 and useful by the end of December, 1978.
If, however, THE #2 Cails to become fully. operational by the end of November or fails to give reliable service, i.e. maintain as a minimum an 80*/, capacity factor, during December, the facility should not be determined to be used and useful until such time as it can meet these criteria.
1~
f-r
- .,.t '.
L o
e It is clear that the status of TtII #2 should be closely monitored by the Co:nmission at. least through December of 1978.
In the event that evidentiary. hearings will be completed before that time,. the record in R-78060626 should be kept open for the cole purpose of monitoring the actual operations of TtII f2 through December and' the proj ected operations and outages through its first year of service.
Respectfully submitted, t__-=
0, k h Barbara L. Smith Assistant Consumer Advocate DATED:
October 31, 1978 D
t S
n f
7rg gg'a w a auu c -
7
.