ML19329E240

Ack Receipt of AEC 740529 Ltr to CPC Requesting Util Financial Info.Discusses Util Financial Difficulties Re Losses,Costs & Earnings,Personnel Problems & Credit Ratings. Util Press Release Encl

ML19329E240
Person / Time
Site:	Palisades, Midland
Issue date:	06/05/1974
From:	Cherry M JENNER & BLOCK
To:	Giambusso A US ATOMIC ENERGY COMMISSION (AEC)
References
NUDOCS 8006120536
Download: ML19329E240 (8)

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. June 5, 1974 / ga U kg> $ \ k ,.[W 0, %;g7 d.m 3 eqQ -

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Mr. Angelo Giambusso j M I ,g Deputy Director for Reactor Projects 4

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Directorate of Licensing \,' d C'~ 9/

Office of Regulation U. S. Atomic Energy Ccmmission t'5d' 0_-4

$5 50-329 Washington, D. C. 20s45 50-33'O

Dear Mr. Giambusso:

Re: Consumers' financial croblems I have reviewed your letter of May 29, 1974 to Consumers Power Company requesting certain financial infor-mation. In my judgment the letter doec not request all of the information necessary'for the AEC to have an adequate understanding of the very serious financial problems which

. are now facing Consumers. Accordingly, I have taken the liberty of addressing myself to the ten categories in your er. _ les ur.;e Lt.- the letter cant to cnam. rs.

1. The assumptions in paragraph 1 are unrealistic; in any event you should have Consumers set forth the source of funds considering the possibility that Palisades may not be on line for some time, or that the construction of Midland may not continue on schedule. In this connection, let me point out that the Iron Workers Union is striking in the Midland area, a fact t/nich may have caused a halt or sicw down in the Midland schedule. In addition, I understand that Mr. Aymond has told Mr. William Ralls of the Michigan Public Ser/ ice Commission that Palisades would not be back in operation until at least Saptember, 1974 and that Consumers _would incur, in addition to other charges, approximately $22,000,000 in purchasing power to meet their obligations for the Michigan power pool. Accord-ingly, it would seem that you should secure from Consumers their source of funds on the condition that Palisades and Mid-land may or may not go forward over a spread of months.

2. Paragraph 2 suggests a necessity to reach a parity bett,een estimated construction funds and the construction

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• I Mr. Angelo Giambusso June 5, 1974 Page Two budget. I do not believe this approach necessarily makes sense because what we really are talking about is the amount of funds Consumers will have available to meet all costs including the construction budget. Thus, Consumers should not be in a position of having to cut back or scrimp on other services which may be important to the public health or safety in order to get the Midland Plant on line. You should deal with the amount of funds available to Consumers for the next year to cover the all of its expenditures including, but not limited to, construction budget. In this regard, I also believe that more than a parity between income and outgo should be required sinco Constmers must be in a position to have a sufficient overage in income as opposed to costs to provide for contingencies.

Finally, I do not believe that requesting information for the year June 1, 1974 through June 1, 1975 is 0" *. ~ ~ ~. ~ ~. O *.~. O . II CC"%.;; U;Gt & I. h me **a'"' '

, thculd rOQuC;.;t .:.G formation from Consumers for the next five years so that the

' Commission can get a feeling for the financial trend of Con-sumers, a trend which I believe is disastrously down.

3-10.

I believe this information should also be provided for longer than a one-year period of time.

Additional Cerments:

(a) I believe that you should secure frem Consumers or other sources the current credit rating of Consumers with regard to any indentures it may have outstanding or may wish to float; (b) I believe you should get information concerning not only lines of bank credits available but also whether or not any banks or financial institutions have refused, or have indicated they would refuse, credit to Consumers; f

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• Mr. Angelo Giambusso June 5, 1974 Page Three (c) I believe Consumers should be obligated to state what it would do in the event that earnings are below the current $2.00 dividend rate and what effect that will have not only on the payment of dividends but on Consumers acceptance in the financial ccmmunity; (d) The Commission should take care to ascertain whether any of the source of funds which Consumers may suggest to the Commission are funds of the phon,y rather than hard cash variety. You do know the practice of utilities to count as income, interest during construction. These funds, however, are not really available to the utility and should be separated out in any consideration of their financial position; (e) I believe you should inquire into Consumers ca: . p. .: ; r- ; . .n n. . .

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offering and what effect would any postponement have on Con-sumers' indenture obligations both in respect to interest and retirement. This raises a very serious question since the most recent Prospectus of Consumers (April 11) with respect to the cancelled share offering indicated that the funds would be used to pay short-temm debts which I believe would include indenture obligations as well as the Midland obligations; (f) I believe you should ask Consumers to list for you all extraordinary claims which have been or might be made against the Company as to which it maintains reserves. The obligation to maintain reserves will obviously interfere with consumers use of any available funds; (g) You should have Consumers provide information to you with respect to the gas portion of their business. While not under AEC jurisdiction, Consumers is having considerable difficulty in its gas ventures which is having an effect on its financial position and could carry over to funds available for the nuclear end of their business; b

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Mr. Angelo Giambusso June 5, 1974 Page Four (h) The Palisades matter should be separated out and the AEC should be provided with the exact dollar amount of losses and costs incurred as a result of Palisades being down. As indicated above, I believe these are substantial figures; (i) Consumers should point out whether any funds which it suggests it will have will come from prospective rate increases. Given the situation in the State of Michigan, I strongly suggest that future rate increases should be dis-counted, since I know that both the Environmental Defense Fund and the West Michigan Environmental Action Council are actively opposing Consumers rate hikes.

. Yesterday I was in the Bay City area and received a copy of the enclosed press release issued by Consumers Power Company. You will note that Consumers Power Company admits that it is in financial difficulty because of " soaring costs and declining earnings" and has indicated that it intends to

- restrict its construction program as well as reduce the Com-pany's work force by at least 5%. This is a very serious admission on the part of Consumers and I am sure the AEC will want to know if any of the work force being eliminated is part of Consumers nuclear force, whether directly or indirectly, and whether any of the construction programs being eliminated or reduced have to do with Midland or Palisades.

Since it is clear that your earlier letter to Consumers does not request all of the relevant information, and since I believe that your financial people will agree with most, if not all, of my suggestions in this letter, I am taking the liberty of sending a copy of this letter to Mr. Howell of Consumers

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Mr. Angelo Giambusso -

June 5, 1974 .

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Power Company, so that he can begin to gather the necessary information.

You will recall that I suggested that the AEC contact the Michigan Public Service Commission in the course of its in-vestigation into Consumers' financial problems. I believe this is now even more necessary since Consumers Power Ccmpany has stated in the enclosed press release that it will file for rate increases, in addition to those now pending. The justification by Consumers for these rate increases, no doubt, will be its critical financial position, a factor which certainly is relevant to the AEC's deliberations in its investigation. I suggest, there-fore, that you might do well to contact one or more of the PSC Commissioners and in particular Commissioner William R. Ralls

, who appears to me to have a decent grip on the facts and con-ditions concerning Consumers. His address is Michician Public 5ervic : v=:le rien. 5 H :cet  :: rwa, r_2nci=.g. .ticrig e : s aj a ,

and for your information his telephone number is Lansing 373-8096.

4 The AEC's investigation into Consun. ors ' financial position is important and serious and should proceed forward with as much dispatch as possible. I should like to continue to receive copies of information which you send to or receive from Consumers.- By carbon copy of this letter I am asking Mr.

Howell to provide me with a copy of all financial information which is sent to AEC in light of my clients ' continuing interest in this matter and outstanding request for the current investi-gation. Mr. Howell should understand that his supplying me with the information directly will ultimately assist in a speedy con-clusion to this matter.

Siricerely, b 1l w i e MMC:I Myr . M. Cherry!,v Enclosure ,

cc: Mr..S. H. Howell Mr. W..R. Ralls

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FOR RELEASE I!CCDIATELY I.

Jackson, Mich, June 4 -- Consumers Power Co=pany said today that soaring costs and declining carnings have =ade it necessary to reduce,its construction progrca and eli=inate functions which are not absolutely necessa to the operation of the business.

In a personal letter to each of the Co=pany's 11,500 employees, A H Aymond, chaircan of the board and president, said that, because of the diminishing work lead resulting from these cutbacks, it vill be necessary to reduce the Company's vork force.

However, he added, layoffs are expected to effect less the- 'i- ,.ereen: ~~ ti= :::s:n: *

(A spokesman for the Cc pany unid the cutbacks inevitably vould be reticcted in sc e curtailment of services, although the Company vill continue its practice of responding i=nediately in all e=ergencies involving public health and safety.)

. .r Mr. Ay=ond reviewed the impact of =any adverse economic factors which have converged at this point in the Co:pany's history. He centioned signifi-cantly increased costs for coal, crude oil, natural gas, construction work , and costs for every other activity associated with providing utility services to the Company's customers.

These, he said, include soaring interest rates for borroved money, required for expansion to nect future needs.

Another factor, he said, has 'ceen the difficulty in returning the Palisades ::uclcar o Plant t service, requiring the purchace of large quantities of power frc= other utilities.

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n - 2 "As a result of these and other factors," Mr. Ay=end said, " earnings per share have declined dra=ctically. This decline has created a critical need for higher rates, and a reduction of costs wherever possible. The Co=pany already has pending several requests for higher rates, and vill file for others in the near future." .

The construction budget, he said, alrecdy has been reduced by approx-imately $h0 million in the remainder of 1974, and by approximately $120 million in 1975 In addition, a number of desirable Company progra=s must be curtailed i

or eli=inated.

"Because of the diminishing vorkoad as a result of these cutbacks " ,

he said, it vill be necessary to reduce the sice of our workforce. iTnile I ,

cannot say exactly there the~ ~d"?ti n= in Ste.fr v417 + '

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this is still being vorhed out, I can tell you that less than five percent of  !

our workforce vill be affected."

"Therpu ,osc of this letter is to share this infor:atio n with you at the earliest possible nonent. l Fr Tkly, this step'has been taken with great l

reluctance, because the Company ~ continues to place a high regard on hu=ci ,

l as it has in the past.

To help case any disruption that results from verkforce reducticas, the Personnel Department vill provide all assistance possible in i i

helping affected e ployees to find other ceploy=ent."

, Mr. Ay=ond concluded "Some of the steps thttt have been taken to =cet ,

the challenge of this period are unprecedented in the Company's histo ry. However, as a result of these actions, I cm convinced that Consumers Power Company vill meet the challenge that lies ahead."

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AEC DISTRI3Un O' FOR PART 50 DCCKET Er RIAL *

(TEMPORARY FORM) CONTROL NO: 5132 FILE:

FRCH: DATE OF DOC DAIZ REC'D LTR TWX RPT CT:-2R Jenner & Block Chicago, IL Myron M. Cherrv 6-5-74 6-10-74 X TO: . ORIG CC OT'-2R SENT AEC PDR .'C G A. Giambusso 1 signed CLASS U:: CLASS PROP INFO INPUT NO CYS REC'D DOCKET NO:6 -33'i XXX 1 50-25F 0 - 3 2 9 DESCRIPTION: ENCLOSURES:

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! ACKNOWLEDGED DO NOT REMOE PLANT NAME: PALISADES FOR ACTIC:'!I:UCD'lTICN 6-25-74 GMC BUTLER (L) SCHWENCER (L) ZIEMANN (L) REGAN (E)

W/ CYS W/ CYS W/ CYS W/ CYS CLARK (L) STOLZ (L) DICKER (E)

W/ CYS W/ CYS W/ CYS W/ CYS

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W/ CYS W/ CYS W/ CYS W/ CYS KNIEL (L) / PURPLE (L) YOUNGBLOOD (E)

W/ CYS W/3 CYS W/ CYS W/ CYS INTERNAL DISTRI3CTION h TECH REVIEW DENTON LIC ASST A/T IND rua HENDRIE GRIMES DIGGS (L) BRAITMAN OGC SCHROEDER GAMMILL GEARIN (L) JALTZMAN IUNTZING/ STAFF MACCARY KASTNEr. GOULBOURNE (L) 43. HURT CASE KNIGHT BALLARD KREUTZER (E)

GIAMBUSSO PAWLICKI SPANGLER LEE (L) PLANS

./BOYD SHA0 MAIGRET (L) MCDONALD MOORE (L)(LWR-2) STELLO ENVIRO REED (E) CHAPMAN DEYOUNG (L)(LWR-1) HOUSTON MULLER DUBE w/ input

/ERVICE (L)

KOVHOLT (L) NOVAK DICKER g/SHEPPARD (L) E. COUPE

/GOLLER (L) ROSS KNIGHTON SLATER (E)

P. COLLINS IPPOLITO YOUNGBLOOD SMITH (L) D. THOMFSON (2)

DENISE TEDESCO REGAN TEETS (L) KLECKER jREGOPR LONG PROJECT MGR UILLIAMS (E) EISENHUT FILE & REGION (3) LAINAS WILSON (L)

MORRIS BENAROYA HARLESS

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