ML19329E242

Discusses Util 740613 Response to AEC Request for Addl Info Re CPC Financial Capabilities.Util Response Insufficient. Suggests Areas Where Investigation Should Be Directed

ML19329E242
Person / Time
Site:	Palisades, Midland
Issue date:	06/20/1974
From:	Cherry M JENNER & BLOCK
To:	Giambusso A US ATOMIC ENERGY COMMISSION (AEC)
References
NUDOCS 8006120538
Download: ML19329E242 (1)

Text

. N $]~235

.. .u . 1. . .

LAW G FFICEO # /\ .,

ENNER & BLOCK S '~-

oscnew atAza /

P P 'jp

, , cascAco. ittinois seeir g b yh '

= = = - -

^* *^ coot 8'8 9

g-

Vl'N051974 c .J 0

y a ;.y. . .

^ ,._. ..; 4i

.n. !

June 20, W4 k.

wq

. : *n '/

J.f.t u...~.a.

~ y y- .%..R.

.V /

2N

~

N'N h O

'b Deputy Director for Reactor Projd Mr. Angelo Giacbusso IgAa 9 Mg}50/-329 cts CM g Directorate of Licensing 4 W n , .,

Office of Regulation U. S. Atomic Energy Commission D/ ,* o . ., 5:r Washington, D. C. 20545 50-330 Re: Consu.er Pcwer Company's Financial Capabilities

Dear Mr. Giambusso:

You will recall that on the fifth day of June, 1974 I sent you a letter su.marizing my views regarding the narrow-ness of your first request for financial information from Con-sumers Power Company, dated May 29, 1974. Since that time, while I have not heard from you or your associates concerning the merits of my comments, I have received a copy of your follow-up letter to Consumers fnv wn Power Company which somewhat expands your request

-*e.... I' 3- O till, hc=+ v - ~~ & A

'... , ~ ., 7 . . . . . . . v e guv vme 3vu wi tu cne narc inrormat:.on  ::t rh .t th:u you need. unicn Yesterday I received a copy of Mr. Howell's letter to you dated June 13, 1974 in which he purports to answer your first request for information. An analysis of those documents rein-forecs my earlier position that the requested information is in-sufficient and in fact the information supplied by Mr. Howell is so vague and general as to provide almost no meaningful in-formation. Indeed, if Consumers, interested in expanding or securing a financial relationship, submitted the kind of infor-mation as they have to you, to any financial organization they would promptly be the laughing stock of the financial community.

Accordingly, I have taken the liberty of analyzing Consumers '

response and below in this letter I point out where I believe your investigation should be directed.

My remarks are in direct response to the responses of Consumers Power Company contained in Mr. Howell's June 13, 1974 letter.

A. Internal Funds Consumers indicates that, depending upon the starting 3EGULATORY DOCKETFILE COPY g. _

, 8006120 g~p 3 7 ,

, , . /3 T

. j.

Mr. Angelo Giambusso June 20, 1974 Page Two date of Palisades, they will have internally generated funds in the sum of between 597,000,000 and $132,000,000. Consumers has generally described these sources as " retained earnings, depreciation, deferred taxes, and several other miscellaneous items." This is an insufficienu description of the internal sources.of funds. It seems fairly clear from the current finan-cial condition of Consumers that they presently do not have and will not have any retained earnings, so I suspect that the in-ternal funds will come from other sources. You should request Consumers to list by category and amount the source of the in-ternal funds to determine whether Consumers ' conclusory estimates are correct. For example, if the major part of the internal j funds comes from deferred taxes or similar items, then the in-ternal funds are really another form of borrowings and should be viewed as external sources of funds.

It is also important to find out if Consumers' estimate of internal sources of funds is based upon successful application for new rate increases or execution of any further cutbacks of serv;ea % -.: nr H:- - .,r- m = n;~i.ngratica,. L % 21 thsrc definitienc nn: ccncauccry riguro cr internal innas is a meau-ingless figure.

B. External Funds Consumers Pouer Company has told you that in order to meet its construction budget for the 12-month period ending May 31, 1975, it has to secure S190,000,000 from the financial com-munity. This alone raises several questions:

1. Consumers Powe _ Company must ieduca its dividend and its stock is slipping every day. It is also a virtual cer-tainty that Consumers ' credit rating will decline. Under these circumstances, and particularly in light of the poor reception utility offerings are having in the market, Consumers should be asked to explain in much more detail where they will get their

. funds, whether arrangements have been made, .what underwriting

. organizations will handle the offering, what interest rates will apply and what the probabilities are of successful offerings;

2. Consumers should be asked to explain why they are not selling common s tock or even preferred stock. Thus, has Con-sumers received any advice from the financial community indicating

7

. . . o q Mr. Angelo Giambusso June 20, 1974 Page Three that an offering of common or preferred stock would not meet with success;

3. Consumers plans to sell " preference stock."

This should not be confused with preferred stock but rather is a new class of stock recently authorized by Consumers.

What 'are the particularities of preference stock and why has the Company chosen this new class of stock? ,

4. Consumers has also indicated that it has nego-tiated a $50,000,000 7-year term loan from the First National City Bank of New York. What are the terms of this loan? The terms of the loan could be very significant and the AEC should request a copy of the loan agreement plus all papers submitted by Consumers to the First National City Bank of New York in support of that loan request.

a --

5. Consumers has indicated that it is securing a

: : :. ':= a w.: m .: aue1 : .u. .: . ., u... .=. .

. : a :. . . . . > -, .;;. .w. .,,

lease and what are the terms of the lease? .

6. One further question obviously is whether there are any other sources of external funds to Consumers if one or more of the categories in the lists become unavailable to it?

C. Construction Budcet Consumers has indicated that it has estimated con-struction requirements for the relevant period of .S364,000,000.

Consumers Power Company has not, however, informed any one as to what construction projects are included within that budget.

This obviously is extremely important since if Consumers has to cut back on the construction budget because of a lack of funds, the AEC should be in a position to know where the cut-backs are likely to occur. Will Consumers be forced to cut cornars or buy second class safety equipment? We obviously can make no judgment on this until information as to the categories is sup-plied. Certainly in view of the ser.ious financial situation in which Consumers finds itself, the public interest cannot afford to offer -Consumers any favorable assumption in the absence of hard core information.

, . . ,5 s

Mr. Angelo Giambusso June 20,1974 Page Four D. Projections Consumers Power Company has not submitted any infor-mation to indicate what is likely to be their financial position for the future either in the next twelve months or any other.

period. Nhile Consumers has (inadecuately) set down projections for sources of funds versus a construction budget, that obviously is not the entire picture. One must know what are Consumers obligations and whether funds are available to pay for those obligations in addition to the construction budget. Thus, for example, even considering Consumers estimates that they will have available for the relevant 12-month period $383,000,000

($286,000,000 plus S97,000,000), Consumers tells us that S364,000,000 of this will be used for the construction budget; and this does not leave any room for contingencies. That leaves only $19,000,000 to run the Company for a year, a figure which seems hardly enough considering the fact that Consumers' expenses for ourchasing power f:: Lh . r :e 197" .. -nn an -i n an si o .na:. . .

. n . th: L Llie $3 7,00G,000 e=Lisaate of internal funds may be nec after pay-ment of all operating expenses, this is certainly not clear frcm Consumers papers. Even if the S97,000,000 figure is net after paying operating expenses, the AEC should find out what expenses Consumers has and p.rojects for the next twelve months in order to determine whether it is supportable to assert that S97,000,000 will be left after the payment of expenses. At least based upon recent history (Consumers announced cutback on personnel) we know that Consumers is having difficulties meeting current obligations.

Accordingly, we believe that it is imperative for Con-sumers to supply projections or a balance sheet for all or a sub-stantial portion of all of the next twelve months. Companies of Consumers' size always deal in projections and I am certain that internally Consumers most likely has 12-month projections which are probably updated every thirty days. In addition, it is a virtual certainty that Censumers supplid projected figures to the First National City Bank of New York in connection with the

$50,000,000 loan, and the AEC obviously should be entitled to receive at least the same information which is tendered by Con-sumers to financial institutions.

E. Other Matters I continue to believe that securing information from i

S S Mr. Angelo Giambusso June 20, 1974 Page Five Consumers for a 12-month period of time is insufficient. Par-ticularly is this true since Consumers ' Midland project will take several years to complete . (if permitted by the Courts) .

Accordingly, I strongly suggest that irou require Consumers to provide information to you for at least through 1976. It may be that Consumers will try to windowdress the period 1974 to 1975 and thus the AEC will not have a true picture of the financial prognosis for Consumers.

F. Project Projections I believe that you should secure from Consumers a p'r ojection of all of its construction planned for the next five years together with a statement as to the funding for such projects. This information will tend to indicate how much additional capital Consumers must seek, from time to time, from the financial carket. This might give us some indication Of how succesafvl Consumers is lik. sly in be in

~'--'o.. . . . . . . . .e. c;; ; . e n . . p . . . y . . . . . . . . ., . . . . . . . , . . . , . .

Finally, I continue to urge you to contact the Public Service Commission to seek its assistance in your investigation.

The Michigan Public Service Commission has a statutory obligation to see that an adequate amount of electric power at a fair price is available to the residents of Michigan. That obligation can not be discharged (particularly where rate increases are con-cerned) without a firm input into Consumers financial problems.

Sipcerely, I lh C+

,f Myr.on{L i ~)L-7 MMC:I M. Cherry / L /

I I cc: Mr. Bruce Herd Mr. Stephen H. Howell William R. Ralls, Esq.

e#

e - -. ,y

'f/ - AFC DISTJ.i2U* '! FOR P.s.RT 50 DCCKET v.ATERI.st (TDiPORARY FO?d) CONTROL NO: 57P ._

t FILE:

FROM: DATE CF DOC DATE REC'D LTR TWX RPT CTHER Jenner & Block Chicago, IL Myron M. Cherry 6-20-74 6-25-74 X Tog # ORIG CC CTHER SENT AEC PDR M A. Giambusso 1 signed CLASS UI. CLASS PROP INFO INPUT NO CYS REC'D DOCKET N05 0 - 3 3 9 XXX 1 50-2 M 'd Z 9 DESCRIPTION: ENCLCSUP23:

Ltr re their 6-5-74 ltr furn info re Consumer Power Company's Financial Capabil- ACKNOWLEDGED ities........

90NOT REM 011 PLANT NAP : PALISADES F02 ACTICN/I? !"?.'O.TICU 6-25-74 GMC BUTLER (L) SCHWENCER (L) ZIEMA'N (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 KNIEL (L) URPLE (L) YOUNGBLOCD (E)

W/ CYS W/3'CYS W/ CYS W/ CYS 4 INTERNA _L DISTRIEUTIO::

sf EG FILE TECH REVIEW DENTON LIC ASST A/T IND -

HENDRIE GRDIES DIGGS (L) BRAITSLC

/v_

CGCv w:- SCHROEDER GASD!ILL GEARIN (L) j3ALTZ1!.G t/[UNTZING/ STAFF MACCARY KASTNER GOUL30URNE (L) #3. h"JRT SE KNIGHT BALLARD KREUTZER (E)

IA'LSUSSO PAULICKI SPANGLER LEE (L) PLANS SOYD SHAO MAIGRET (L) MCDONALD MOORE (L)(LUR-2) STELLO ENVIRO REED (E) CHAPMAN DEYOUNG (L)(LWR-1) HOUSTON MULLER ERVICE (L) DUBE w/ input KOVHOLT (L) NOVAR DICKER SHEPPARD (L) E. C0tTPE

/GOLLER (L) ROSS KNIGHTON SLATER (E)

P. COLLINS IPPOLITO YOUNGELCOD SMITH (L) D. THOMPSON (2)

DENISE TEDESCO REGAN TEETS (L) KLECKER LONG PROJECT .'.GR WILLI.CS (E) EISENHUT fEGOPR FILE & PIGION (3) LAINAS WILSON (L)

MORRIS BENAROYA HARLESL STEELE VOLLMER _

e EXTERNAL DISTRIBUTION Q[:p VI - LOCAL PDE KAL/3t\ ZOO . MI

- TIC (/JI?.::ATHY) (1)(2)(10)-NATIONAL LASS 1.-PDR-SAN /LA/NY 1 - N5IC (3UCHANAN) 1-ASL3P(E/W Sid;;, R:r. 529) 1-5ROCKHAVEN :a! ~._C 1 - ASLE 1-W. PENNINGTCN, Rn E-201 GT 1-G. ULRD:SC',, co';

1 - P. R. DAVIS 1-B&M SWINESEGAD, Rm E-201 GT 1-AGMED (RUTH G05:'_.' .

16 - ACRS HOLDING 1-CONSULTANTS Rn B-127 GT NEWMARK/ PLUME /AC3ASLU 1-RD..MUILLE., b 5- .

GT