ML19331D538
| ML19331D538 | |
| Person / Time | |
|---|---|
| Site: | Oyster Creek |
| Issue date: | 08/22/1980 |
| From: | NEW JERSEY, STATE OF |
| To: | |
| References | |
| NUDOCS 8009030162 | |
| Download: ML19331D538 (158) | |
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VOLUME 3
~
I UEU JERSEY DEPARTMINT OF ENERG'i
/~'
1 BOARD CF PUBLIC UTILITIES 2
NEWARK, NEW JERSEY FRIDAY, AUGUST 22, 1980 3
4 In the Matter of the Petition of
)
OAL COCKET NO.
5j Jersey Central Powcr & Light Com- )
pany for approval of an increase
)
PUC 3518-20 in rates for electric service
)
o and for amendment to the Levelized)
BPU DCCKET NO.
804-285 Energy Adjust = ant Clause and fac- )
7 tor for such service.
)
807-488
______________)
3 BEFORE:
STEPHEU G. IGRSHALL, ESQ.,
9 Administrative Law Judge 10 II l
AP5 EARANCES:
.12 For the Petitionar, Jersey Central PCwer
& Light Company, appears:
13 a
KIRSTEM, FRIEDMAN & CliERIN, ESQS.,
14 JACK B. KIRSTEN, ESQ., and BY:
i DOLO.US DMAR, ESQ.,
E 15 17 Academy Street Newark, New Jersey i
16 and 17 l
WILLIAM F. HYLA'iD, ESQ., of Counsel 18 JAMES B. LIBERMAN, ESO., of Counsel For Department of Public Advocate, Division of Rate Counsel, appears:
20 ALFRED L. NARDI.LLI, ESQ.,
21 Deputy Director RAYMOND MAKUL, ESQ.,
99 i
i Deputy Public Advocate THIS DOCUMENT CONTAINS
~~
10 Cornerce Ccurt POOR QUALITY PAGES 93 i
sewark, New Jersey
~
p)
I J. H. 3UEERER &
'4
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24 Cc=nerce Stra j
25 Newark, New Jerst (201) 623-1974 8009030l g
i I
314 1
A P P E A R A N C E S:
(Continued) 2 For the Staff of the Board of Public Utilities, appears:
3' CARLA VIVIAN BELLO, ESQ.,
4 Deputy Attorney General 5
I. PAUL SLEVIN, Supervising Rate Analyst 6
For the Board of Chosen Freeholders of 7
Ocean Cot laty, appear
?
S BERRY, SUMMERILL, PIOC E, EAC_Mi &
PRIVETERA, ESCS..
9 BY:
JOHN C. SAHRA0 NIX, 250.,
34 Washington Street 10 Toms River, New Jersey 11 Oi 12 I v-13 4
3 w*
14 a
5 15 3-8 16 17 18 l
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1 21 1
22 23,
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l JUEGE ?%R5EALL:
Gecd 0.craing, ladies
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(_~)
2 and,qentleren.
Chis is a continued hearing l
3' in the totter of the Petition of Jersey Central i
P;yar & Li ht Corgany, GAL Uceket Ho PUC 4
2 5
3518-80, with the Board Docket Nos. 604-235 6
and 804-488.
7 My nate is Stechen Marshall.
I as the 8
Presiding Administrative Iaw Judge.
9 May I have the appearances of the 10
- parties, i
11 MR. KIRSTEH:
Jack B. Kirsten and 12 Dolorea Delabar, Kirsten, Friedzan & Cherin,
();
13 attorneys for the Petiticner, Jersey Central i
j Power and Light Company, Mr. James 3. Lieber=an I4 15 and William F. Hyland, of Counsel, i
16 HS. HELLO:
Carla Vivian Bello, Deputy 17 Attorney General, for the Board of Public 18 Utilities.
19 FE. MAKUL:
Raymond Makul and Alfred 1
20 Hardelli, with the Departcent of Public 21 Advocate.
i l
22 MR. SARRAEUIK:
Jchn C.
Schradnik, of l
l 23 the firm of Berry, Suanerill, Fiscal, Kagen &
p) i 24 Privatera, for the County of Ocean.
s.,
i 25 !
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v.:
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JiJDG2 endSE'.LL:
3ef:re w urecaed to O
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2 chs.ti:nesJes, are chere an;/ hcusereeg2.ng t
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ca;;0rc the pe.rties we.nt to bring upy l
4
(;;o redponse. )
5 JUDCE 13R3 HALL:
I would like to taka i
6 a centien of the fact I believe one of the 7I parties told ce a; lass night's hearing I sde 8
a reference to tha apcoming Spz.rta hearing 9
which is scheduled for X:nday eveni&3 10 I bellava I ray have 2.2ds a 21sta.ka in zj 11 stating the ti.ne during one of uy stata=ents, 12 that I cay have se.id 01:+.
it was hasday rather O
l 13 than Monday.
4 E
l 14 I will note for the recorl that it's a
5 15 schedulsd for M nday evening at 7:30 Ok2y.
1 l
16 '
Shall,;e then proceed with the presentati:n of' 17 Pr. Kirs ten's witnes sea?
1 18
- ,R. KIRSET
2nnk you, sir.
I just 19 wanted to interrupt the exad nation of M.
20 Steger for a moment.
I thought it would be 21 appropriate at the beginning of the day today.
22 Mr. Gentieu has scue updated infor:.stion
}
23 which he'd like to refer to.
..r.
C-entieu is i
O i
I 24 l prsviously swcrn.
1 25 1
i i
1 t
f i
317.
1 LAWRENCE
?.
- GENTIEU, previously sworn j
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2 cn behalf of the Petitioner, resumes the l
3 stand.
[
i 4
DIRECT EXAMINATION (CCNTINUED) i 5
BY MR. KIRb!EN:
6 Q
Pr. Gentieu, would you proceed.
A Yes.
Mf purpose in leading off this corning 7
8 is to enable Mr. Steger to be finished with his testimony 9
and cross-examination today, and in order.to do that we need 10 to start off by discussing the background of two signifi-33 cant adjustaents that-we made to the filing, adjustments 12 that at a discovery meeting held at GPU, we were asked to
()i 13 have confirmed by runs of GPU's production cost progran 14 which is a co=puter dispatch program that essentially bot-i i
d 15 ties not cnly Jersey Central's generation as well as GPU's, a
Ii 16 but the generation of the entire PJM interconnection with 17 which GPU is interconnected.
18 Eecause this is on the computer, that makes 19 it feasible to deal with this tany units.
The two adjust-20 ments involved were the sales adjustment, and if you'll 21 refer first to Exhibit JCA, Page 3, this page su=tarizes 22 not just the sales but all' adjustments we cade to the 23 budgeted energy costs that for ed the basis of the LEAC
()
24 filing, but the One that we're interested in appears in the 25 second coln n of Pase 3, an adjustment to reduce our budgeted i
1 Gentieu-direct 318.
l sales by 468 gigawatt hourc.
3 Mr. Raber would be testifying as to the de-2 8
d"*
3 E'
~
tions that underly the a=ount.
What was then done, given 4
i 5
that sales adjustment, that leads to obviously a reduction 6
in our energy costs because with the lower sales it will be a lower generation, lower interchange, and so forth, and 8
y u see the effect on IZAC.
Energy cos ts of the sales ad-justm5nt in Column 6 where we esti=ated that adjustrent 9
10 I w uld lead to a 22.2 million reduction in LEAC period energy costs.
33 l
12 i
13 5
w'i 14 i
5 15 i
E 16 17 18 i
19 20 21 i
22 i
23 1 24 25
6 Genticu-direct 319 l
1 A
(Continuing)
In response to a data request 2
of us asking for tha derivation of that adjustment, we 3
supplied 2xhibit A-5, and if we can turn to that for just 4
a moment, I think the exhibit is basically self-explanatory, 5
but I think in a fow sentences it may not hurt to recap the 6
method we ' employed to maka the sales adjustrent.
7 The first thing to note with respect 8
to sales is that short-term changes in sales do not affect 9;
base load generation, and by base load generation in Jersey i
10 Central's case, we mean Keystone, Oyster Creek and TMI when 11 it would return to service.
Those units will run regardless g
2 12 l of the level of sales.
O,!
13 The caly factor that affects their 14 operations are scheduled maintenance outages or unforeseen f
15 forced outages.
i 16 JUDGE MARSHALL:
Excuse me.
Off the 17 record.
18 (Whereupon, there was an off the 1
19 record discussion.)
20 JUDGE MARSHALL:
Back on the record.
21 Please continue.
22 THE WITNESS:
Once you exclude Lase 23 generation en the basis that it simply is not affected by sales in the short run, 24 i
25 ';
cbviously, 20 years from ncy when the sales I
l
Gentieu-direct 320 I
would, for example, continue to grow, we would 2l at that point hava core base load generatien i3' because they're a long-range consideration.
Right now short actual swings in sales 4
I 5'
won' t af fect base generation.
That means in 6
the intermediate peaking and purchase power i
7' are the sources that are affected in the short 8
term by salas, and for purposes of making our adjustment, we assume that all of the sales 9li change would affect Jersey Central's interchange 10 11 I and p trchase power.
If you turn to page 2 of A-5, that shows 12 O
a sample calculation illustrating the method 13 j
and I think a reading of that page will explain 14 i
the method in detail.
i 15 The end result is for the month of July.
5 16 The sales adjustment that we assumed
~,7 j
was first conv rted to equivalent net system 18 19 requirement.
The sales adjustment was 49 gigawatt hours.
The equivalent energy required 20 to be produced or associatedwlth that amount 21 of sales is 55 gigawatt hours.
That then was
.o.n assumed in this case; it was a reduction, and 23 O
we assume that that reductica in energy require-24 I
=ents would lead to reduce PJM and G2U inter-25 l f
Gentieu-direct 321 1
change purchases, reduce over energy purchases, tha t is, the non-PJM purchases like Jacastoim, 3
AEP and so forth, and finally,1.the reduced 4
sales would lead to incraased sales of inter-5 change all in the same ratios and at the same 6
l rates as were forecasted before the adjustment.
7 very simply, that assumption, if you 8
take the weighted average cost of those three 9
components and apply it to the gigawatt hour 10 reduction, very simply yields the adjustment l
11 '
of that, in this case, the 55 gigawatt hours 12 of NSR times the weighted rate of purchases O-13 and sales of 37 mils yields the sales reduc-f 14 tion of 2.0 mils and that's the figure appear-f 15 ing on this page 3 of JC-A.
i:
16 l 17 18 19 20 21 22 23 O
i 24,
t 25 :
i 8'
20 Genticu-direct 322 I
' HIE WITITESS:
(Continued.)
The next ba
.ca,3e, Fase 3, two pages, 3 and 4, simply re-3 pelts that calculation in an abbreviated form 4
for the remainin6 conths of the LEAC period, 5
the end result to the 12 months of August, 6
you see the last figare on the pages 22.2 7
million.
That effectively prices or is the 8
result of having priced the USR reduction 9
equivalent to the sales at 43 5 mils.
10 At the discovery meeting at GPU, we i
j 11 were asked to confirm the reasonableness of 12 this method by running a computer study using O *g 13 j
the production cost program or the PCP that I I4 centioned earlier, and that was dcne very 15 l
simply by using the 3 plus 9 budget, which was 16 the basic budget for the filing at the budgeted 1
17 level o'f-sales running the program for the LEAC 18 period 12 months August.
Normally the program 19 runs on e calendar year, or let me more pre-90 cisely, it also runs on a calendar year so we 21 had to do a little bit of manipulation to get
./
22 this non-ca1endar year period but nevertheles's 23 that was done, so it was run for the 12 months O
24;!
iugust at the buegeted 1 eve 1 of se1es emd them 25 run a second time at a level of NSR, actually
G en tiea-direct
- 323, i
1 i about 500 fismintt hoar lower, an th3 tao dg~
2 runs were just simply compared, the end resul 3
of that :::a tha productica cost progras yield 4
and energy coat reduction of 25.1
= 23 co -
5 pared to the 22.2 cils that we estimated 6
canually and that 4? Vaa-a.sould be farther 7
questions as to the.ne:hanics of the PCP run, t
8 Bob Steger uould address those.
9 That is, I tr. ink, all we need to say 10 on the sales adjus tnent.
3.j 11 The nent adjus taent, not really an ad-12 juGtment, but an assumption that we Inde as A '8
\\J 13 to the sensitivity of Jersey Central's energy i
i 14 cost to changes in oil c0st.
a f
15 If you recall, again if you refer back 16 to JCA, Page 14, we did in the initial filing 17 as part of the basic cxhibits that sr.turarized l
18 our forecasted energy cost, namely, JCA, we 19 included a description of come =ajor variables l
20 that could subs tantially affect +Jr.e forecas t.
21 They are described on Fages 14 and 15 of JCA.
22 Under the section denoted oil prices l
23 '
appears this stat ement: "It is sstimated that s
24 for each El per barrel change in Oil prices f
l 25 :,
Jersey Central's IZAC period energy c est uculd; i
i
Centien-direct 324.
I change by about 6 mils.
mis estimate is 2
preliminary and is significantly affected by 3
the ascu=ed level of Jersey Central's power 4
purchases outside PJM which are largely coal-5 fired in sort."
6 7
8 9
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11 E
12 13 14 a
E 15 i
16 17 18 19 20 s
21 22 23 l O
u 25 I i
J J
Genticu-direcc 325 1
'lHE WI'E.'ESS:
(Continuing.)
We were O
\\/
2 asked at ona of our discovery casting to c on,-
1 3
firm tha 6 =iilien per year esticate with a 4
similar producticn ecs t progra attdy and that 5
was donc, 6
3efore we go to the results of that, 7
hcwever, I want to review how we arrived at 8
the admittedly altple and with a manual esti-9 mate of the 6 tillicn 4hich we did dtnote was 10 preliminary, and to do that, if we c:uld refer
=
l 11 to Page 8 of JC.1, that particulac pase simply 12 sursarises for the LEAC perled the 12-conth (N) i 3
\\_
13 totals of the varicus sources of energy, 4
e j
14 nuclear, coal, oil and gas interchansa, other d
15 purchased power and so forth, and it's useful e
2 1
16 as a reference to very cc= ensensically look 17 down the list and see what is affected by oil 18 and what is not, and obviously nuclear is un-19 affected.
20 Oyster C; cok and TMI-1, there is a small 21 amount of incidental
'l that is burned at 22 those stations, but for all oractical purposen 23 that's insignificant.
l
(~%s,)
24 j Icystone, the ca=e is true there.
There i
1 25 is start-off oil used at Keyctona, sinilar to I
f i
G en ticu-direct 326.
I more oil there than at the nuclear stations, 2
but nevertheless Keystone, obviously being a 3
coal unit, is not terribly affected by in-4 creases in oil prices.
5 h e next section, oil and gas, is 6
Jersey Central's intermediate and peaking 7
capacity, cost of which was oil-fired.
8 me costs shown on this sheet, however, 9
on the summary, do not break down the gas and 10 the oil but a later exhibit does.
11 he pump storage obviously is not in-j 12 g
volved.
Tnen we go to interchange and pur-(\\
m a 13 j
chas ed power.
'Ihere we ar.,ume that all of I4 the PJM purchases would be oil-fired and f
15 source.
i 16 We assumed none of the GFU purchases 17 would be oil fired, and I think that the 18 reasonableness of that -- although it's prob-19 ably not 100 percent true -- is borne out by 20 the differential rates.
21 If you see -- I'll refer to the sheet --
22 the PJM interchange is at 66 mils.
Be GPU 23 is at 29 i
24 With respect to the interchange sales, i
25 we assu=ed that the sales to FJM -- for a
l Gentisa-direc t 327.
1l reason I'll txplain in a romant -- Wara tuc-(^)
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,m.,-
w.a,.m..--
., i.- a.,.,
4,
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3 accused to ba all cac1.
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U.. der Ot.tr e. car y p r-r.assa, obvio aly c
i A?S is all coal.
A3? and West we assure to I
6I j
be all ccal, as sa did for Jarastown and I
Catario.IIydrc.
??iL obvicusly is all oil, 8
as is Central iudsen.
r 9
The Salem purchass, as was discussed 10 yesterday, althous' we ar.2 buying energy s
i 11 '
equivalent to the Salen outp20, uhich Sale:
2 19 g
is a nuclear unit, the energy is priced at
.6 -
13 i s/ ;
95 percent of the running rate, a
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14 '
The running rate in turn reflects to e.
l
-I 13 large degree the cast of oil-fired sources, 16 i not all but predaciaently as seen by the rata, Therl e 17 at least, ue have issumed in the budget.
I 18 is a heav.y oil'coc.canent there bicouse this is t
I 19 bare load generation; h vever, F:e characteris-90 tic of that is that it's produced 24 h0urs 4
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ol day, seven days a week, for sa cany weeks as
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the unit is able to run before encountering I
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rate that 'ie're talkinc ateu as cp;csed
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328.
Gentieu-direct asy, on-peak rate > and there we simply assuhed I
again that there would be a weightin6 of coal 2
and oil involved here, and the weighting we 3
simply used was one-third coal, two-thirds 4
5 oil, and how we got that again was very simple, 6
7 8
9 10 i
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11 12
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14 15 8
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17 18 19 20 21 22 23 <
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2D Gentieu-direct 32c.
1 TU3 UTOMES3:
(0:ntinuin;. )
If you ts' 2
assane that you're inrg 17 bufins coal in the 3
off-peah hour; at ni.;ht and On ths !!achando, 4
you'll find that about 40 percent cf your 5
energy 1:culd come from coal under thtt sicple l,
6 assumption, but cohl has a significantly lower 7
price than oil, so the cort would not neces-8 sarily be 40 percent.
9 Recognising that, we just simply used 10 a third as the coal component.
l 11 I hope this-has not been an unneces-12 sarily conplicated or detailed explar.ation,
-) l 13 but in view of the potential significance of a
l l
14 the oil pricing in this proceeding, I think 15 it is well that we examine the impace of tho I
16 oil assumpticoc on the total energy coat 17 picture, and that's why I'm going through this 18 in detail.
19 So, with that as background, I ccn re-20 view now how we got to the 6 cillion.
l 21 JUDGE MARSHALL:
Excuse me.
Off the l
record a moment.
\\
92
~
23 (A discussion was held off the record.)-
w-)
Ji.TGE MARSLALL:
Back On :na record, 94 25 IEE WI:5ZSS:
I w:uld defer to 3cb Steger l
4
Genticu-direct 330 on the explanation of the PCP.
I think he's
()
1 2
tetter qualified than me.
MR. MAKUL:
Okay.
3
' DIE WII'ESS:
'Ihen returning to the 4
5 oil sensitivity analysis, if you'll turn to 6
Exhibit A-3, this exhibit sinply shows for 7
the LEAC period a rather detailed breakdown S
of the oil costs and quantities that were 9
budgeted for the 1EAC period, that's the top half or the page, and the second half of the 10 page, I'm on Page 2, incidentally, 8.3,. the 11 i
second half of the page reflects the oil costs 12 (1)!
13 after we made our gas adjustments.
I 14 We did maka a significant adjustment i
on the assumption of increased availability i
15 16 of natural gas which would replace oil.
The 15 )
. effects of that are also shown on the sheet.
In saking our 6 million estimate, how-18 19 ever, we used -- if you'll look at the next-20 to-tbe-last column, the top half of the page --
the total cost of oil, this is Jersey Central 21 intsrnal Eeneration, now, for the LEAC period 22 was budgeted to be $130 =1111on.
23 If you'll recall, just to try to tie 24 :
all there schedules todether, JCA, Page 2, we !
25
I 3
Genticu-direct 333.
shou for tctal oil nd gn: 145 nil.'.10n.
The r')
I
(>
j difference between tha and the 130 nillion o
~
la just 21:=17 thot !.3 1= cil :n. 7, CA naz-3
. cry page 1 011 cri 30s, juct to :.'/cid con-4 1
5 fusion.
j
,i 6
So, in anking our 6 nillion esti=ata, the first thing we did was to say clearly the 7
8 cost of internal -- the oil coct of internal 9
generation would te very simply increased or 10 dec reas ed, depending on the price of oil assumed.
The unadjusted oil cost per barrel that 11 we assume in the LEAC filing was $37.50.
The.t 12
(~)/a a
13 shows on this sheet as well as 37.5h.
s-4 5
14 A $1 per barrel increase in that cost or going to 38.50 is a 2.7 percent increase.
i 15 We then -- I nisht point out right. now, I
16 in error -- applied the 2.7 increase to the 17 18 130 million of budgeted oil cost, yielding an f
19 increase cf 3 5 million.
I say that was done in error because 20 it should have been applied to the lower set 21 i
of figures reflecting the gas adjustrent which 22 23 you'll see in the same coluen of figures is 24
$80 million, On Exnibit A.3 I will return i
i l
25 to that in a coment.
1 l
i l
Gentieu-direct 332 THE WITNESS:
(Centinuing)
In any
{}
3 event, wo noglacted to -- Icoking at our internal oil -- we neglected to reflect the 3
gas reduction.
- "E
- 5 an increaSa of 3.5 =illion that should have been 2.2 millica, namely,2.7 percent of 80 7
m a ra er an pc cent of 130 million.
8 The next thing we did, if you can re-l 9
i turn to JCA, page 8, the cost of the PP&L i
purchase, Martin's Creek, I'm locking at 12 11 months ended August, it's the third column
()i8 from the and en page 8 of JCA, the PP&L cost 13 4
e i
to the PP L, which obviously is all oil, is 14 17 million.
d 15 The Central Hudson la 14 million.
The 16 total of those two is 31 million and 2.7 per-17 cent of that is.S millien.
18 The PJM purchases, again on the same page, are 23 million, 22,650,000.
2.7 percent 20 of 23 million is.6 millien.
21 i
The PJM sales, I mentioned we assumed 22 were two-thirds oil, ene-third coal.
Largely 23,.
I ve ' rs assn =ing, as Mr. Stager testified to 24 !
l yesterday, taat they'rs lar ely as a resule 25 l 1
I I
j 333 Gentieu-diract
()
1 of reselling the Salem energy.
2 Under that assumption, n increase there f
3 leads to an increass in revenua, if you will, 4
of.8 millien.
5 That's an offset.
That's simply 44 6
millien of sales times t<o-thirds, times.027 7
is an increase in receipts of.8 million.
I i
8 In other words, as oil costs go up we l
r i
9 nake more money on interchange sales.
i t
10 The last element was the Salem purchase, 11 133 million.
Again, we assumad that the undar-12 lying sources that gave rise to that cost were O!
13 a mixture of coal and oilsand their ratio is 5
w'i 14 two-thirds oil, one-third coal, and again using i
'he 2.7 increase, due to the ene dollar per 5
15 t
2 16 barrel change, and reflecting the 95 percent l
17 running rate adjustment that the centract 18 calls for, the Salem coats would be increased 19 by 2.3 millicn for a dollar per barrel increase 20 in oil.
Adding those up, those figures I just e
l 21 22 recited, yields a total of 6.4 millien, and we roended that to be conservative to 6 millien.
23
(:)
Ecwever, I mentioned that in calculacing cur 24 l 25 l intersti oil ec=penent we did that befors f
l
f I
Gentiou-direct 334 l
()
I reflecting the gas adjustment in error.
2 If you corract that error, namely, apply 3
our 2.7 increaso factor to 80 millien of in-I l
4 tarnal oil rather than 130, the 6.4 should be 5
rs 9.uced by 1.3, and af ter correction then would.
i 6
become 5.1.
7 So, the manual precedure with its 8
associated simplistic assumptions that I just 9
discussed after correction would indicate that Id Jersey Central's energy costs ara effected f
en an annual basis to the tune of. $5 million 33 12 for each dollar per barrel change in the cost
(])
13 Of 011*
e With that elaborato background, we're 14 i
now in a position to go to the PCP study to d
15 e
see what it showed, given the same question, 16 1
namely, for the LEAC period, if you increace, 17 decrease, the same would bo true, the oil 18 price assumption by a dollar per barrel, 39 what is the effect of that.
20
- 7. I will, just as I did with respect to 21 l
the sales adjustment, I will simply give the 2
end result and then depend en Mr. Stager
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for decalled support.
l 24 That study showed a 3.9 millicn or 5
i
Genticu-direct 335 1
let's call it 4 millica censitivity conpared j
2 to the 5 millien that we estimated canually, 3
the 5 millien being the corrected manual 4
estimata that correspends to the 6 million 5
that we originally indicated in the filing 6
material.
7 8
9 10 e
t 11 2
12 13 4
s d
14 5
15 i
16 17 IS 19 20 l
21 22 l
23 O
,y I
25 i i
i l
l
E Gentieu-direct 336.
- )i:
(])
1 THE WITNESS:
(Centinuing. )
I m1 ht 6
2 point out before Mr. Steger comes back up, in 3
both cases the PCP estinates used only data 4
as budset.
It did not in any way try to 5
nirror the rest of the adjustments that we 6
=ade to the forecast for the IZAC filing 7
purposec, coat significantly the gas which 8
also yielded about a 20-plus million reduc-9 tion.
That adjustment was not reflected in 10 the PCP runs end, for exa=ple, one would ex-l 11 pect that if it had been, the 26.4 million i
12 sales adjustment would presucably have been 13 something other than that and probably lower, e
f 14 The similar consideration would apply i
i 15 to the oil estimate.
All of those things are 3i 16 inter-related.
17 I ment' ion the gas adjusttent simply 18 because that is one that we made in the filing 19 but to the extent that you would assume other 20 adjustments beyond the gas, i.e. differing 21 Oyster Creek availability, when you do taat 22 there is a definite i= pact on all of the other 23 sources, purchase power, short-term pcVer
()
i 24 i purchases.
i 25 l If you =ade further sales adjustment, I
l
i l
Gentieu-direct 337.
(m)
I they certainly have an inter-related effect; v
2 so just to be careful on tha; point, ycucan!
3 not look at a single adjustten; in ico10; ion 4
in that they' rs all inter-related and the t.
.o estimates that the PCP cane up with chould be
}
t 6
kept in mind just bcsed on our original budget 7
cscu=ptions.
S I think, then, uith that nec'occary 9
background, unicss there are questions of me, 10 ve could have Bob resure the stand:to pick up ij 11 where he left off yesterday, cad then review 12 Cq !
the PCP runs that vere Inde to yield the cd-13 justments I just. referrtd to.
4.
E l
14 JUEGE MARSHALL:
We have not been on a
t*
15 the record for a full hour yet, fEfthe 16 parties want to take a break --
1~
MR. "rfUL:
That might be appropriate j
18 because with the numbers it might be necca-l 19 sary to have a peu-wow cad I would like to 20 have some numbers read back to te and it could 21 be off the record.
~
22 JUDGE MARSIDLL:
We will go off the 23 record for ten min *1:es nau, or longer, if th e (s)
\\
s 24 j partie? need it.
25 (Whereupen, a recess was taken.)
l
F1 Cantiau - direct 338 1
TJCG3 IG_23EALL:
Back on tiu record, 2
Mr. Kirsten, do you wish to present the next 3
witness?
4 MR Kins 23;
- 1r. Steger has resumed i
5 the stand and he's been previcusly svorn.
i i
6!
ygact 29,asnALL.
c;.,37 7
ROBERT
- STEGER, previcualy sworn on behalf of 8
Petitioner, resumes the stand.
9 l
DIRECT EXAMINATION I
10 BY MR HIRS cis i
i i
t 11 2
O Mr. Steger, during the testimony of Mr.
l 12 Gentieu this morning referring to the PCP progran, he sug-a 13 5
gested you would be in a better position to e:cplain how 4
l 14 3
that works.
Could you do that now?
5 15 l
A Yes.
A brief explanaticu of the PCP or pro-16 duction cost progran which is used to make several of the studies used in this and other casos is the progran is
'18 developed 1y PJM and casentially a model of the PJM system.
19 It includes each of the units on PJM j
and their associated costs and also their associated forced 21 and planned outages.
22 It also includes a lead model for PJM n
23 and GPU and the progran essentially on an hourly basis U
24 i the hour with the required generation, matches the lead for l
25 !
dispatrhing the cheapest generation first.
l l
1 I
t F2 Steger - direct 339 O
i The= 1e c21=u1==e> ehe 1=ee=chense he-2 tween companias and pricca the sales of the lon<J cc:apany 3
and the purchases of the short co=pany.
4 5
6 8
9 10 I
~
11 13 4
a
.I 14 i
5 15 I
16 I
17 18 J
19 20 21 22 23 O
24 f l
l 25 l i
I i
l l-t 340 l
Stegor - direct G1 i
()
1 A
(Continuing)
And printouts as a monthly or 2
annual total.
Also, in doing this calculation it calculates 3
the running rate and also prints that out as either a =onthly or annual total so it is essentially what is a program 4
5 that can go through and model the PJI! system as it would be dispatched in actual practica subject to tha assumptions 6
7 made on the input of the progrcm.
8 Q
Now, one other itom,:Ir. Steger.
You were 9
asked if you could croduen a 1978 estimata of the 1979 PJM 10 running rate?
Ij 11 A
That's right.
I was asked that yesterday and 12 I checked with my staff last evening.
The 1979 budget
{}
running rate which was requested was made in late 1978.
13 Those back-up documents have since been destroyed and we do l
14 a
15 not have them.
16 Q
Mr. Steger, you've prepared a document, and i
I apologize for the fact that it has not been typed up but 17 in our efforts to do it quickly, we made copies of the hand-18 19 written document.
It is labeled Response to Public Advo-cate's Data Raquest made at Hearing on August 21, 1981.
20 The response to the request was "What is the effect on the 21 Jersey Central LEAC of basing the pricing of the P3 Salem 22 Purchase on the P.nl estimated running rate rather than the 23 GPU estimated running rato?"
Oid you prepara that response?
i 24 A
I prepared it, yes, 25 l
i G2 Steger - direct 341 1
Q Obtained in this exhibit?
u o
2 A
Yes, I did.
3 MR. KIRST23:
May I have this exhibit I
marked for identification, sir, as Exhibit 4
5 JC-H.l?
6 JUDGE ?_N.RSEALLs If there are no objec-7 tions, it will be so marked.
8 MR. KIRST2'T:
There ara three pages for 9
identification.
Thank you, sir.
l (Whereupon, a three page document, a 10 Response tn Public Advocate's Data Rcquest
.11 made at learing on August 21, 1980 was narked 19
~
0 $.
13 JC-H.1 for identification.)
.v.R..IRSTZWs 2&. Steger is available i
I.
14 a
I for cross-examination.
J 15 1 JUDGE MARSHALL:
Off the record.
16 (Whercupon, there was an off the record 17 discussion.)
18 JUDGE MARSHALL:
Back on the record.
19 20 i CONTINUED CROSS EXAV..INATION DY MR. MAKUL:
21 2~*
Q Good morning, Mr. Steger.
I 23 A
Gced czning.
l 04 -
l l
Q With regard to the running of the PJ'.4 progras,
~
I 25 I
this =odel produced costs of all t.he units in PJM?
i l
i 1.
342 G3 Sttger - croco l
A That's right.
4
()
Q And I imagine one of the inputs, assumotions 2
that has to be made is what the cost of fuel will be at thc30 3
unita, each of those units?
4 A
Yes, that's correct.
5 Q
In the PJI! system,
. sero are companies that 6
are located, I believe, in Pent /1vania, New Jersey, Mary-7 land, Delaware, District of Columbia and portions of northern S
9 A
That's correct.
10 g
Q Did I miss any of them?
i 11 f A
I believe that's all.
12 Q
I wonder if you'can tell me about thoce
(}
units, the oil-fired units, what is the sulfur limitation i
14 on a state by state or area by area basis on the oil that 3
E 15 j
is being burned?
i 16
~
A I know that the sulfur limitations differ 17 from state to stats.
I don't know what they are in any 18 particular place.
19 l
20 21 22 23 ;
24 l
I 6
25
"43" 20 Steger-cross I
o Q
How would you agree that based on your ex-O o
perience that the price of high sulphur oil is many times, 3
in fact almost at all times different than the price of low 4
sulphur oil?
5 A
It has been my experience that that price 6
differential exists.
I Q
How do you know then if you don't know what 8
the sulphur limitations are, where do you get the input data from to ascertain the fuel price at each oil-fired 10 unit?
I h
II A
Each of the PJM units has its base data input I
I by the Company in that it owns it.
If a company' owns a O9 13
{
unit that company puts in all of the base data, including 2
14 i
the current cost of oil on that unit; so I do not need to 15 know the type of oil it burns.
I only need to know that 16 the Company that owns it Save me a price for what they are paying for the oil.
18 Q
Part of the pCP run that was cade with re-19 spect to the effect of conservation and other reductions 9^0 in sales and the effect on fuel costs, assumptions had to 21 be cade as to what time of day or time of week conservation no occurred, and I wonder if you could briefly outline what
~~
23 -
assu=ptions were made in reducing -de level of sal::s from O
94
^
the forecast?
25 !
A Since we did not knew when the sales recuctiora
Steger-cross 344 I
would take place, we made a broad assumption, it was re-()
2 duced equally La each hour of the year.
3 Q
By equally, do you mean the same number of 4
megawatts per hour er that the sales were reduend by the 5
same percenta607 6
A By the same percentags each hour.
7 Q
Mr. Steger, if the PJM running rates were 8
lower than what you used in running the PCP program as an 9
input assumption --
10 A
First of all, we do not input the running I
11 rate.
The running rate is an output from the program.
~
12 Q
If the fuel cost of the various units which 3
control the running rates were lower than what you use for 13 f
14 purposes of running the PCP pro 6 ram, I see that Central a
15 Hudson, at least in the 1981 period, gets dispatched in and
~
s:
~
16 out of the system.
In other words, it is not coming in all 17 the ti=e and I believe you said yesterday that was an economic 18 dispatch reason why the level of sales was increasing; is 19 that correct?
20 A
That's correct.
21 22 23 i
25 h
l 3
Steger-cross
- 345, I
Q You assumed that the prices of fuels were 2
lower at the PJM Generators.
'What would that do in ter=s 3l of the acount of the gigawatt hours that would have to be 4
provided from Central Hudson?
5 A
It woult depend on how the assumption was made.
6 If we get back to the assumptions for jusc a moment, we as-
{
sute that each Corapany's current oil cost of their unit is 7
8 a fixed number and this includes the current cost of Central 9
Hudson t.s a fixed number.
10
'Ihe variation could be cade in changing the I
11 escalation rate from current to future or the variation 12 could be made in changing somebody else's current numbers.
Oi 13 ae wou1d not chan8e somebod7 e1se's current 14 numbers.
We may or may not change escalation rates.
Assum-a j
15 ing we do not change current numbers and changed only escala-i i
16 tion rates, then Central Hudson would re=ain at the sace 17 relative position regardless of escalation rates and would f
18 nost probably be dispatched the same amount.
I 19 Q
So, you're sayin6 that you're playing off 20 Central Hudson against the PJM =curces and if the price of 21 fuel were to go up for PJM or the assumptions were changed 22 for the price of fuel for PJM, that it would be necessary 23 to change the assumption price of fuel for Central Hudson l
O 24 i d7 the se=e
=ount, a=d es e reeu1: tne te1ecce wou1en't 25 change appreciably, if at all.
e
Y i
i SteGer-crocs
- 346, 1
A That 's correct.
/
(/
2
- 12. IdA UL:
Can we Co off the record a i
3 recond?
{
l 4
JUDGE ::ARSIW_.L:
Sure.
(A diccussicc was held off the record.)
5 6
JUDCE MARSHALL:
Back on the record.
7 q
Mr. StcGer, with respect to the way the con-8 servation effect or salas reduction was spread among the
{
9 hours1.041667e-4 days <br />0.0025 hours <br />1.488095e-5 weeks <br />3.4245e-6 months <br />, I take it you did not take it upon yourself to do this 10 but thic is what the scles people -- this is the way daey 1
13 told you to treat this reduction in running the PCP prograu.
12 A
The reduc tion was not involved essentially wit a
f 3
(-)x 13 the sales people.
I had a reouest to run the program with
(_
14 500 gigawatt hours less than system requirements, with no i
5 15 mention as to how to reduce it.
t i
e 16 The casiest way -- the progran uns very limited i
17 on how you could do it.
To do it quickly, and I tean quickly, 1
less than a month or two, the only way to do it is to do eachl 18 l
19 hour2.199074e-4 days <br />0.00528 hours <br />3.141534e-5 weeks <br />7.2295e-6 months <br /> by the saae percentage.
That is an easy way to do the l
20 program.
Anything beyond that would take months and it could 21 not have been gotten for this case.
22 So, I had no choice but to do it this way due l
1 23 to the limitation of the progra=.
(})
24 q
So, you did it this way --
25 A
It was the only way I could do 10.
l l
i
Steger-cross 347.
3 q
It dcean't reflect any -- no assumption en my
(
2 part that that Nas the correct way to do it.
It uas a li=ita-3 tion of the program that on a short time span it 's the only 4
way the programmer could do it.
l 5
Q I understand.
6 IG. IGKUL:
We have no more questions y
for Mr. Steger.
8 JUDGE MARSHALL:
Does the Deputy Attorney 9
General have any questions?
10 MS. BELLO :
We have no muestions.
33 JUDGE MARSHALL:
Okay.
I.
12 Mr. Sahradnik?
rT:
V.4 13 IG. SAHRADCIK:
No questions.
14 JUDGE MARSHALL:
Does the Petitioner i
5 15 have any questions on redirect?
.i 16 MR. KIRSTEN:
We're just talking about 17 that.
Can we go off the record a coment, your 18 Honor?
19 JUDGE MARSHALL:
Yes.
(A discussion was held off the record.)
20 21 22 23 24 l
l l
25 i
I L
A Steger-redi met 340.
1 i
JULGE lM2CittLL:
ile 'll go t;;;c on :ne m
T J
2 record now.
3 Mr. Kirsten?
4 REDIRECT E:G ECIAHOII 5
BY MR. KIRSEli:
6 Q
Mr. Steger, I direct your attention' to I::hibit 7
A.2, Page 4 of 9.
Would you tell ts :r explain, if y:u will.,
8 the difference b9 tween the colucn which shows actual average 9
of PJM running rate with the cverage past prcjacted averages f
10 and if you en, explain uhy thr_rc are differences in ths = cst I
j 11 recent conths of those two averagas?
l
5 A
Yes.
'Ihis was brought up yesterday on the Oj 13 difference between these coluans and I thcught an explanatic v
8 14 g
was deserved.
3 15 Tne earlier conths were slightly below the 2
16 predicted average but not significantly.
The last three 17 months, April, May and June, are significantly les s than the 18 projected average, but on the three conths the PJM systes,,
la which was on what is called a split runnin5 rate, due to 20 transmission licitations between the western and eastern 21 portions of PJM, the ' system could not be dispatched economic ~
22 ally during these months, and the eastern units were running 23 at a higher running rate, considerably higher than the p
24 I numbers shown on these sheets.
V
'S '
~
'lhe western units were shewing an artificially
r Steger-redirec t 349 I
low running rate because the power could not be transmitted 7
2 onc.
3 Due to the PJM rules, it is the western or low 4
running rate which is shown on all reports.
mis gives the 5
false impression that the syste= is running cheaper than had 6
been predicted.
7
'Ihis split running rate was due in large part 8
to the unavailability of the major eastern units, namely, 9
Oyster Creek, Salem, and to some extent Peach Bottom and 10 Hudson during this period.
11 With Oyster Creek now back and Salem-2 expected 12 g
on it shortly, we do expect that the split running rate O ;.
13 problem will occur less often and that the actual running a
8 14
[
rate that is recorded will more nearly approach the running 15 rate that is credicted.
3 16 q
g.mk you, sir.
17 JUDGE MARSHALL:
Any further questions?
18 MR. KIRSTEN:
No.
MR. MAKUL:
I'd like to ask d. questien.
l 20 l
JUDGE MARSHALL:
Yes.
I RECROSS-EXAMINATION 22 BY MR. MAKUL:
'3 9
Q "he split running rate, was there a trans-
,O 04 iV
=1ssion line out of service or --
95
~
A It wasn't a transmission line out of service.
i 1
L
1 l
Steger-recross 350.
1 It's the fact that there is a licited trans. ission fros West 2
to east and with the rsjor castern units out of service, the 3
required transmiscicn for a completa1y economic dispatch en 4
PJM was higher then the system had been designed to carry, 5
and it was a temporary conditicn caused by many of the major 6
eastern units being out of service at one tima.
7 Q
I see.
It's not a conditicn which, I 'celieve 8
ycu said, which is expected to cccur with any degree of 9
regularity?
10 A
'Ihe condition always occurs nt odd hours when 11 conditions are bad.
It occurred very regularly during these 12 months and is not ex?ceted to occur this reg 21arly in the Oi 23 r"*"re-
't "$1
^1"^7" c"' *
- =* ****"*-
14 Q
I take it that the projections then that are i
5 15 r.ade by PJM do not take this possibility of e. split running 3
E 16 rate into account?
17 A
'Ihat 's right.
'Ihe PJM, PCP program which makes 18 this projection does not recognize transcission lines and 19 assures an infinite transnission system.
20 So, it does not recognize the split running 21 rate.
22
}S. MAKUL:
Okay, that's all.
23 JUDGE MARSHALL:
Anything further en
{J}
24 redirect or any further questions?
1 l
25
>3.
KB. STEN:
Noching.
l t
l
~
Steger-cross 351-1
?G. SI2 VIN:
No.
2
- 12. SAHRADNII:
I have a question.
3 CROSS-EXA?CIATION 4
SY 13. SAERADNIK:
5 Q
You had cade, Mr. Steger, reference about the 6
last three conths.
If I'm correct from reading Page 4 of 9, 7
JCA.2, the actual average had been below the forecasted 8
average since July of 1979 on a conth-tc-month basis, has it 9
not?
10 I
11 r
12 13 14 i
f 3
15 1
16 17 18 19 20 21 l
'l 22 i
23 i O 24 1 25 '
f.
i.
352 I1 Steger - recroJ:1' I
A (Continuing)
The differenco I made was that gl die earlier months to a great extent were small differences, i
I one or two mils.
3l l
If we can go back to July of 1979, you had an j
O 4l 5l avirage f re ast f r 40.2 mils and the actual average was 32 nils.
That is an 8.2 mil diffarance.
6 l
A July was a different problem.
July of last 7
year if my me= ry serves me right, was an extremely cold S
month and the cold weather will drive the running rate down.
9 l
That was a different problem than the more recent conths.
10 t Uow, August of 1979 you had a 3.4 differen-Q 11 a
- tial, 12
^
4 i' " " " *" """"""7 3
t O;
13 l y
program can predict.
14 From July 1979 to at least, you have the actual 3
I Q
i 15 l for June of 1980 down here, the cactual average han been i
16 :
i below the forecast?
17,f Yes, it has been somewhat bolcw and last A
18 summer considerably below du2 to the cold weather.
If you l
1cok at the last three months, it was down nearly 10 sils 20 a month which was more than ths accuracy that the prcgram 21 should have and I thought it deserved a separato explanation.
22 MR. SA13ADNIK That's all.
Thank 23 ;
1' you.
O 24 i JUOG3 MARSE.U.1:
Thank you again.
f 25,
l 1
l l
i
. ~. _ -..
i I2~
Rabor 353 1
(sJ 2
testifies as follows:
i' 3 DIRECT ELViINATION i.
'BY MR. KIRSTEN 4
l 5
Q Mr. Raber, have you prepared a testi=cny for 6 Ipurposes of this proceeding?
I 7
A Yes, I have.
S Q
Prefiled testimony?
9 A
Yes.
They are Exhibits JC-400 and JC-401.
I 10 MR. KIRSTEN They have been previously I
11 distributed.
I don't hava an extra copy with e
12 De for the Court Reporter, but I will supply Oi 13 one and substitute this copy which is my own,
)
f 14 if that is permissible, sir?
a 15 ;
JUDGE MARSEALL:
All right.
16 Q
The exhibit which was prepared is marked JC-17 400, is that the testimony entitled " Testimony of Marvin 18 Raber"?
19 A
Yes.
20 Q
If you were asked those queitions today, would 21 your answers be the same?
22 A
Yes, they would, subject to some minor cor-i 23 rections I would like to introduce.
24 MR. KIRSTEN:
Je will get to those cor-l 25 rections in a =c=ent.
For purposes of identi-l
I3 Rabsr - direct 354 l
fication, could we have this marked as JC-4007 1
i JUDGE MARSHALLS If thero is no objec-2 tion, it will be so marked.
3 (Whereupon, tha Testimony of Marvin 4,
Raber was marked JC-400 for identification.)
5 6
Q And annexed tv that document is there another document which is entitled Short Term Sales Forecast Su=marf 7
8 July 19807 A
Yes.
9 0
And does that contain the salos forecast ma-10 terial which was referred to and identified in your testi-e gg t.
many?
p-
^
'a=> ** *
=-
O:
13 l
Q And was that sales forecast prepared by yon 34,
Or under your Supervision?
3 A
es.
16 MR. KIRSTEN:
May I have this document 17 marked as JC-40l?
18 JUDGE MARSHALL:
If there are no objec-19 ons, h will be so m u.ked.
20 (Whereupon, a document entitisd Short 21 Term Sales Forecast S e -y July 1980 was 22 marked JC-401 for identification.)
I Q
Mr. 2aber, do you have any corrections to O
24 i l
make to Ixhibit JC-400, your prspared filed tasti=cny?
I I'
k l
l, I
355 I4 Raber - direct fl Thara ara several minor corrections.
l t'
I A
Yes, I do.
1 y
l
,, l JUDGE MA3SEALL:
Off the record.
i l
~
3l discussion.)
4 JUcGI 257CIS3.U1 Back on the record.
5 6i f
i i
4 l S
9lt J
J 10 11 !
I I
12 I
t 13 4
N a,
14 3
e r
8 15 2
i
+
i 16 i i
17 IS 19 '
4 20 21 1 1
1 I
22 23 ;
l 24 f
25 !
i l
me m-4 vvm-,. - - - ow ----
g
.>wn-m 3-mm-9 w,w..,w.,--y, m
y-
_-p.7p
,,,,m-
,y, yw--m y-.,,mm, wy
-y,s,
,y
-p-,
em-,---m
t l
2I Raber-direc t 356.
l Q
Mr. Raber, do you have any cprrecticns which I
-s 2
ycu would like to make to the pre-filed testimony which has 3
been marked for identification as JC 400?
4 A
Yes, I do.
There are several minor corrections 5
in Exhibit JC-400; Page 4, Ebout the middle of the first 4
6 whole para 6raph, there is a sentence that begins: "The trend 7
determine was projected through 1981."
Th? 1981 should be 8
1982.
9 The following paragraph on the same pa6e also 10 requires a few minor corrections in the first line of that t
h II
[
par'agraph.
I would like to deletc the word "new" so that the 12 j
phrase reads: "The number of residential custo=crs is ex-3 pected to increase by 17 percent," should be changed to d
8 14 l
1.8 percent.
It represents the number -- there is a number f
15 in the word "new" 10,600 new, and I would like to replace i
16 that with 11,400 additional.
I7
' Skipping dae following line, the line after 18 diat begins: "12,800 new," I would like to replace the "new" 19 with the word " additional."
20 Similarly, on the line below, there is a phrasd 21 "10,300 new."
Make that "10,000 additional."
e 22 FR. MAKrJL:
Excuse me.
Is that the
'3 10,300 that is being changed to 10,000 even?
~
/~N o4
(_)
IEE WI2TESS:
Yes.
'5 JUDGE 3%RSHALL:
Just for the record,
~
Y Raber-direct 357.
I the e,arlier correction you made of 12,800, the p/
2 12,800 figure recains the same?
ss 3
THE WITNESS:
Yes, it does.
4 Those are all the changes that I have 5
to JC-400 6
Q The last one representing 10,000 additional 7
residential custo=ers; is that the way it is supposed to 8
reai?
9 A
10,000 additional residential customers; yes.
10 Q
Do you have any corrections to JC-401?
I 11 A
Yes.
I think there are two minor corrections i
12 to JC 401.
Cn Page 3 of 14, the title to the table has a
(])}
13 cpelling errer.
The second line of that title ought to read; f
14 "GUH sales and percent change from previous year."
On Page 15 6 of 14, the sentence at the top of the page was inadvertently i:
16 left incouplete.
It should be completed by inserting the i
l 17 number 12,657 g15auatt hours.
That number is derived from l
18 the tabic below.
19 Those are all 'ths co1Tections I have.
l l
20 q
I j us t have a f e'.f additional items by way of 21 direct tectinony.
l 22 In addition to ;our pre-filed testimony, Mr.
l 23 Raber, the calas forecast pres ented in Exhibit JC-400 and
([ )
24
- C-401 $Lffer fra: ;h 2113s f: recast presented in the l
25 original base f : filing both the 12AC and the base rate cases?
l J
Raber-direct 353.
1 A
Exhibits JC h00 and 401 update the Jersey Central 2
forecast as of July,1969, and therefore supersede the fore-
[
3 casts that were presented in the filing which were prepared 4
earlier.
The update was made to assure consistency between 5
the sales forecast used in the LEAC filing and the base case, 6
since the time period of interest to these cases very closely 7
coincide.
8 The other reason for the update was basically 9
to account for changes in the projection of the perforcance 10 of economy which came about since the last previous forecast 3
11 was prepared.
Those changes indicate that sales tay be signi 12 ficantly below the level that had been predicted in the earli er
()
13 forecast.
Those are reflected in the July update.
14 i
l f
15 l-16 17 l
18 19 20 21 22 23
()
24 25 '
l
33 Rabor-direct 359
,_s i
Q Is the accuracy of the forecast significantly I
\\_J 2
less in the late 1981-82 time frate than in the near term, 3
say 1980-81, early 19817 4
A I don't think it is because there is general 5
concensue that the economy will be on a recovery track by 6
the time frame of late 1981 and it is likely that prediction s
7 of the performance of the economy and therefore forecast of 8
sales will be core accurate for that period of time.
I think 9
that the forecast accuracy in the near term uill depend on 10 predictions of economy at a time when recession is right near 33 the bottom and the near term projections are somewhat un-
'~
certain because of the timing and the exact amount of the 12
/T!
(> $
13 beginning of the recovery, s.
14 I would say that the forecast accuracy further i
d 15 out is probably as good, i
e 16 Q
At Page 2 of your testimony, you state: "The 17 July '34 forecast incorporates the effects of conservation 18 and rec ent p rice inc reas es. "
Page 4, you state: "That the 19 continuation of the conservation trend drive by increases in 20 the price of electricity assucing that future price increases 21 would be comparable in cagnitude of those experienced in the 22 past year are implicitly considered in the forecast."
23 i
'dould you please explain those statements?
/^N l
\\_,/
A Tes.
Well, the historical data and trends that 24 l 25 are used as basis for projecting sales into the forecast
P.aber-direc t 360.
s 1
(
)
period inplicitly include the responses of customers to v
2 changes in the price of electricity.
As I indicated on 3
Page 6 of my testi Ony, this type of trend is captured in 4
the 12-month rollins average procedura, and it implicitly 5
assuces that the electricity prices will trend about the 6
same way through the forecasu period.
7 q
- g. hat about the most recent price trend for 8
Jersey Central, and what impact has thera been perceived, if 9
any, on the Jersey Central sales of those price trends?
10 A
I have no way to separate out an explicit price I
11 trend imphet that we can note the general trend in scoe 12 3 y aggre5 ate fashion, but I have no dat's that would allou ma to 3
13 4
i disaggrevate this into components, one of which might be 8
14 labeled soecifically price impact or price elacticity.
15 In recent years, Jersey Central customers have t
16 experienced modest increases in real terms that is corrected 17 for the effects of inflation in 1976 and 1977; and for the I8 following two years 1978 and 1979, there was actually slight 19 l
decreases in rates.
1 20 Q
In real terrm?
21 A
In real ter=s, yes.
22 Q
Will you explain what you mean by "in real 3
g,7ngn7 o4 A
That is corrected for the impact of inflatien.
l 25 ', The nuchers, the actual, or what I would tern notinal numbers, 1
Rab er-direc t 361.
I are adjusted by the inflation rate for the period of time
,,b 2
that they are in effect.
In other words, if inflation went 3
up by so tany percents in one year, the rate would be cor-4 rected for that.
5 Q
In view of the increases in rates in 1980, 6
should the forecast be adjusted for price elaaticity effects 7
daat are not captured by the historic data rend?
8 A
In principle, I suppose it should be if one 9
believes that there is a direct linkage between price in-10 creases and customer responses to those price increases on a I
11' reasonable short-term basis.
~
12
(_)' !
/~
13 l
4 I
E l
14 s
5 15 16 17 1
18 19 l
20 21 22 23
/m l
(.)
24,
i 25 '
J Raber-direc t 302.
I
('s)
I.
(Centinuing.)
I thinh in general, en a long-
%)
I term basis, as prices go up, custo=er usage is likely to go 3
down, but as I indicated before, I have no quantitative 4
direct linkage between a custo=ar response and a price on a 5
short-ters basis.
We chn observe the total trends.
6 Short-tern elasticity responses are very dif-7 ficult to identify and separate cut and tney're clouded by i
8 a nu=ber of things that are happening out in the world and 9
let =e see if I can give a couple of exacples of these.
The cagnitude of the increase, the rate in-11 i
crease, is obvicurly an icportant paraceter, b.ut how do you characterine the tagnitude of thl: increase?
Ehocid it be O.j 13 j
character 1:cd in nocinal terms ut. adjusted for inflation or
~- '
8 14 in real terns.
3 15 e
1l hat la it that the custorer perceives and re-1 z
16 ' spends to?
Is it the real price increase or the no:inal 17 price increace, er acce conbination of th se, or scie in-18 crease relative to an increase in his income?
Is it the total 19 bill or the unit price?
20 Custc=ers having differant inecce levels will 21 respond differently to price increases.
In the concercial 2~'
and industrial areas, custo=ers who can readily p2ss :n the 23
. cost of electricit7 crite increases to their :ust::ers Niil N-24 j
- respond diff2rently then or =?.izati ns that
- an't.
t 25 ;
i The tiring of a rata increase veuld have scce j
l t
i i
J
Raber-direct 363.
i I
(~)
bearing on customer response.
For example, a rate increase V
2 that's granted in May is followed rather rapidly by the onset 3
of tha sun cr/'ainter rate differential here in Jersey.
Khat 4
is it that the cust=cer responds to?
Is he responding to 5
the price increase or responding to the onset, the normal 6
onset of the higher su==er rates ?
7 By the same token, a price increase that's 8
granted in ' September is followed fairly quickly by the onset 9
of the lower winter rates which tend to counterbalance the 10 impact that the customer sees.
I~
II
[
The magnitude of the elasticity co-efficient 12 for each group which depends on the group or the individual 13 customer's particular circu= stance also comes into play here, 14 and let me see if I can give some examples of what I'm think-j ing of.
15 2
16 Take a residential customer who may or may not 17 have turned his thermostat up.to the point of incipient dis-18 comfort.
If he hasn't already done so, it's very easy for 19 him to do that in response to an increase in his bill.
If
'O he's already done so, if he's already got his thermostat set 21 to' the poinc of incipient discomfort, he may not wish to 22 adjust the thermostats further or, alternatively, it =ay take 23 l
a =uch larger increase in his bill to =cve the dier=cstat l(~/)
I 24 :
l another two or three degrees.
s 95 Cnce these easy steps have been taken, it
~
Ecber-dir ec t 36'&
I r
generally requires, t.n investr.ent cf soce sort :: pr dace in (3) 2l additional conservation type responsa.
3 That, in turn, or a cuttener's willingness to 4
do that sort of thing depend: On the stata of the econony, 5
are they willinG to do this in tines of rccercion.
These 6
are the kinds of things that you have to se't into in order 7
to identify specific discrete elasticity rcr;cnses on a-8 short-term bacis, and we have no real nechanism of doing 9
this.
The data just don't exist.
10 1;
11 12
/^N !
(_>
13 l
4-i i
14 a
d 15 i
1 16 17 18 i
19 l
20 l
l 21 l
22
-/
23 i 1
?~
I
's l s._j 24 ;
i 25 l
2J l Rabcr - direct 365 1
Q Is it possible to quantify prico elasticity i
O impacts by using Jersey Central's long-term forecast method-f 2
1 9Yi 3
A We did so at the request of Rats Counsel in 4
the last case and the more I think about that calculation, 5
the less I think it's applicable to this kind of a situa-i 6
tion.
7 I really don't think that kind of a 8
calculation is applicable.
It was not originally intended 9
to be, I should point that out.
The long-term models which 10 embody a long-term price elasticity nub-model were intended 11 to track trends over a long period of tima.
}
12 Ol rhe data.that the e m ee1s are sase-13 l
{
on go back to the 1960's when prices of electricity were 14 i
declining in real terms, and the situation is very differ-la e
{.
ent today and it is not clear if the customer responses 16 to rising prices.are the same or inversely in a sense, f
g "I
- 'E ****
18 that customers make when prices are declining.
9
- ^*
20 LEAC case abou'c this point and I believe that there was some agreement by Rate Counsel's consultants that in some areas, particularly the industrial area, that the numerical Q
value that one cranks through the model and gets was not I
applicable and I was again at that point e=phasizing that
~
I l
2J 2 Rabs: - direct 366 1
I thought that the residential and ccm=ercial calculations O
2 that had been done were rather conservative.
3 So that I suppeso in principlo, it's i
4 possible to do this, but I'm reluctant to make that kind 5
of an application.
6 MR. KIRSTENs That's all the questions 7
that I have of ILr. Raber.
8 JUDGE !!ARSHALL:
Okay.
9 THE WITNESS:
I have one more thing 10 thLt I'd like to say.
I 11 Q
Okay.
~
i 12 A
I have some informatien concerning one of our Ol 13 indu= trial customers thae I thi=h wou1d de aggrogriate to 1
i:
14 3
5 15 0
I'm sorry, I had a note about that.
16 A
- describe, there has been some publicity 17 on the subject recently and it did como up briefly in one 18 of the discovery meetings.
19 Q
There have been two, as a matter of fact, 20 residential customers
- two industrial custccers at which 21 there have been questions about.
One is Whippany Paper Company and you have some more recent infor=ation en the 22 23 status of that?
i A
Yes, I do.
The ec=pany is in bankruptcy 24 l 25 l proceedings and it's future apparently depends on ei her I
i I
l i
1 l
2j 3 Raber - direct 367 l
a sale of the ccmpany to new principals or the current prin-I O
cipals obtaining some investments of money from outside.
2 h
Whippany Paper has three plants within i
3 there is a our service area whose status is as follows:
4 small plant that was shut down in December, 1979.
The elec-5 tricity usage of the plant is appro:timately eight gigawatt 6
i I'm told this particular plant is somewhat 7
hours per year.
i 8
antiquated and may well never reopen.
The eight gigawatt hour loss, I believa 9
a The plant is adequately captured by our current forecast.
10 i
was shut down six or more months before the forecast was i
11 done and this magnitude of the usage or the magnitude of 2
12 the 1e= 1o=* to tut 9
=* 1 re 111 a=1*e== 11.
1 O;
13 They have a large plant which was shut 14 I
e a
down in June of this year and it's usage is approximately d
15 i
46 gigawatt hours per year and they have a medium-sized i
16 plant which was shut down late July. or early August of this 17 year and it's usage is about 18 gigawatt hours per year.
18 The long-term disposition of the 19 It latter two -plants is uncertain at the present time.
20 I
There' depends on negotiati,ons that may still be going on.
21 was some announcement of this in the press about a Iconth 22 or so ago about other, people who are interested in taking 23 If the take over is successful, the plants could it over.
24 go back in cperation withh a coupla of ::enths, I gather.
25
.-,.-w--
--,,an--,,---..mv,,, - -
a
,-n- - - -, -, -
-n
368 2j 4 Raber - direct If the take over is not successful and the negotiations y
O don't succeed, the delay in returning these two plants to 2
peration may be longer, and I have no way of judging how 3
these are going to go, nor could the Whippany Paper people 4
tell our own customer services people how this was likely to 5
6 90*
The total curtailment for the two larger 7
P ants would be in the order of 64 gigawatt hours per year.
l 8
The forecast implicitly assumed that those two plants ara 9
E""
9' 10 I'm inclined not to propose an adjust-g 12 ment to the forecast under the presumption that operations O!.
are 11ke1r to resume in the not ece dieennt future.
13 Q
The other one that I think there was ques-
{
34 a
tions about Was New Jersey Steel.
f A
Let me update you with regard to New Jersey 16 Steel.
1,,
18 19 20 x
\\ x 21 22 23 24 25 I
e' 3J Raber-direct 363.
1' A
(Continning.)
That p1" ant, if you recall, O
2 thet customs,,s,1 ants we,e shut down virtua11, comp 1ete1, 3
about a year ago and that was discussed to some extent in 4
the last IEAC proceedings.
5 We have contacted New Jersey Steel within the 6
last few days to get an update on their s.tatus.
They may 7
resume operations at a low level -- this is the rolling 8
mil 1, now, not the furnace -- sometime after the first of 9
the year.
10 If they do, the sales might be as high as i
11 g
10 percent of their pre-shutdown 1evel, which is pretty low, 12 and I think that's well within the ' kinds of things that are a
13 j
captured by the forecast.
14 Fu11-scale operations or the resumption of f
15 fu11-scale operations is not certain at the mocent.
They i
16 cay be ab1e to resume operation in late '81 or ear 17 '82 17 This depends on the resolution of a number of questions that 18 bear on the profitability of the plant, and these problems 39 involve negotiations with the labor unions, recruiting and 20 training new crews to operate the plants, and so on, and at 21 this point in time there is no basis that I see for changing 22 the forecast, particularly since their earliest assessment 23 of a return at any substantial level is beyond the periods 24 of interest for the case being discussed in these proceedirgs.
p) 25 Q
Thank you, Mr. Raber.
That's all the questiens
1, Raber-crose 370.
I I have.
()
2 JUDGE IGRSHALL:
- Okay, f
3
!?.. KIRSTSN:
He:s available for cross-4 examination.
5 JUDGE MARSHALL:
Off tne record.
6 (A discussion was held off the record.)
7 JUDGE MARSHALL:
Back on the record.
8 CROSS-EXAIENATION 9
3Y IG. MA'fJL:
10 Q
Good earning, Mr. Raber.
N i.
A Good corning.
~
12 l
Q With regard to the Whippany Paper Company, you
()d.
said they night start operation again in the not too distant l
14 i
i future.
Exactly how distant is not too distance to you?
d 15 A
I have no way of knowing simply because I sus-g 16 pect they won't tell us anything about the negotiations.
I 17 suspect the negotiations are in a rather sensitive stage.
I The newspaper article which appeared about a l
19
'conth ago sugsested that if the take-over were to go through, 20 they could be back in service in three months.
That was a 21 nonth ago, so in theory at least that would bring then back oo within the next two or three conths.
~~
23 Q
That's the most optimistic or pessinistic, de-()
pending on your point of view.
25 A
I guess.
l
371.
Raber-cress 1
And of course the other end of the spectrum Q
could be never.
A As I perceive it, that isn't anybody's intent.
3 4
I daink the intent is to socehow get those plants back.
I 5
don't think they want to go out of business.
6 Q
Uell, it could be considerably lon6er than two 7
months?
8 A
It could be, yes.
9 It could be six months or core, ;erhaps?
Q 10 A
I suppose.
I
.h Q
Now, all the exhibits that have been produced II I
with respect to reductions in the sales forecast produce a g
()
{
reduction in an amount of gigawatt hours per month, but I
14 there's little or no additional specificity with regard to i
tine of day or time of week in which those reductions would 15 16 occur.
Would you agree?
A That's correct.
We have not been forecasting 18 it at that level.
19 And Mr. Steger was apparently, as a result, not Q
20 given any instructions as to how to treat that reduction in sales, and I believe it's a fair characterization to say be-21 22 cause it was very difficult to do it any other way, he assured 1
03 that all the sales and all the hours go down by the same
~
f'T 04
, (_j p erc enta6e.
Did you hear his testify to that?
~
25 l
A I heard his say that, yes.
Raber-cross 372 i
1 4
UCWs I think the record that we've developed 2
over the last couple of days pretty well indicates that de-3 pending on whether or not the conservation occurs in an on-4 Peak period or off-peak period, that the price of displaced 5
electricity can vary significantly, depending on whether or 6
not the incrimental cource was coal-fired or oil-fired.
7 Based on your experience, there's conservation 8
Could you give us any generality as to when that conservation 9
would be expected to occur?
10 A
I would say that there are things going on in 11 the world that produce conservation across the board.
The re i
12 are steps that the Company is taking that would produce con-E
()l 13 servation or load shifting, if you will, that are specifical:.y 14 aimed at the high cost periods of time.
i d
15 Those kinds of activities may not lead to very Ii 16 much of a change in net sales.
Tncy may simply shift the 17 sales from a high-cost period to a lower-cost period.
18 Q
Well, that's load shifting, not conservation 19 in the sense we're addressing it.
Isn't it,a natural reduc-20 tion in gigawatt hours?
21 22 l
23 j 1
24
\\'
25 l
\\
i 1
4J Rabar-cross 373.
I A
'Ihat's right.
Ele 11, let ce speculate.
Indus-O 2
,,1a1 e,1e,,,e,,,eca,, to g, 1,we,,e, hom,,m1y f,,ees,,
3 than they were earlier.
4 I would not characterize that as a conserva-5 tion-induced mechanism.
I think it 's driven by the economy, 6
but nevertheless, much of the sales would be lost during the 7
l daytime, during the afternoon at peak times, and could con-8 ceivably contribute to a reduction there.
9 Cn the other hand, losses in co=mercial sales 10 might well be in off-peak hours.
For instance, stores are II i
closing earlier or air conditioning usage may be less, for 12 some reason.
'Ihat could be either on-peak or off-peak.
On-a peak, in my thinking, is the middle of the afternoon, sort 14 gg, f
15 Q
Mr. Gentieu -- first of all, before we get 16 into that, how broad a period is considered on-peak versus 17 off-peak, and I note that Mr. Gentieu, in talking about the 18 PJM running rate, in some of the assumptions that he was go-19 ing over this morning, noted that about two-thirds of the time the price was representing displaced oil, and one-third l
21 l
of the time displaced coal.
22 ilould that be of any relevance to this de-
'3 termiration of what's an on-peak period or off-peak period?
~
o4 A
It may well be.
I suspect that determina:1cn 05 has a lot to do with how you want to use the results, wLat
~
l l
l
Raber-cross 374 the application is.
Q Essentially, then, could we say if you had a 2
factory that was doing business one shift a day and five day;s a week, and then that factory closed for one reascn or another, 4
that that sales reduction would largely come out of the on-5 Paak period?
6 A
Probably, but by the same token a factory that 7
was perating two shifts, a cu,back would cut off the second 8
O *Al*
9 e see nd sM would run from about, 10 oh, just rough estimates, naybe 4:00 or 5:00 in the after-11 s
noon =sybe till somewhere around midnight; correct?
}
12 A
It seems reasonable.
O:
f Q
And in the scenario where the Company cut back 14 a
from a two-shift-a-day operation to a one-shift-a-day opera-g 15 sj n, the whole second shift isn't fro = the off-peak period, 16 is it?
I_/
e rge e
en ge e
nly would be.
18 l
I'n not sure where you want to take a clear boundary between 39 the off-peck and on-peak period, but I would guess that under 20 nost conditions, the load is dropping off fairly s1 nificantly 6
,, I i
from the peak value by 6:00 or 7:00 o' clock at night.
22 Q
ae you en an eged 6 respd to 23 i
the load cu_ res of the Cocpany throughout the day and with O
I y-the incremen-4 source of fu=1 '- the increcental source of, 25 t
i Raber-cross 375.
[
1 electricity 10 l
()
2 A
I'm not uell versed in thoca as other wit-3 nesses.
I do not uatch the dispatching of individual units 4
and the costs associated with those dispatches particularly l
5 closely.
6 Q
Nsu, in talking about stores, concercial cus-7 tomers that are cutting back, I suess, would it be fair to 8
say that the typical store is open six, caybe seven days a 9
week and the hours of operation might be f rom roughly c:00 10 or 9:00 in the morning to 9: 00 or 10:00 at night?
11 A
There are many stores that probably keep thoso 12 hours1.388889e-4 days <br />0.00333 hours <br />1.984127e-5 weeks <br />4.566e-6 months <br />, yes.
3 3
13 7g j Q
I guess there's a few cupermarkets that stay V;
j 14 open all night, in addition?
a d
15 A
Yes.
16 Q
There's very few stores that open up at 17 caybe a casino or two, bb.t that's not in your service toy, 18 that may open at 9:00 at night, stay open all night and 19 close in the morning.
20 A
I'd be sur. prised if they closed.
21 Q
Now, with respect to the residential usage, 22 when would you expect conservati:n to occur; in tha
~'"'a 23 of the night or during ncr al waking hours?
24 A
Certainly thors wculd be acce during nornal 7'
I 25 j waking hours, if ?,he heating load or air conditioning load I
376.
2?.b er-cros s I
is reduced for one reason or another.
s 2
Q ilhat are potential --
3 A
I could see co=e potential for conservation at 4
night, also.
Q And cctid you describe that?
5 A
For the si=ple reason that that is a logical 6l 7
time to conserve on the things like air conditioning and beating load.
It's easier perhaps to dial your ther=ostat 8
up or down, as the case may be, at.ight while you're at 9
sleep, further in order to consert a =oney, really, than dur-10 ing the day when you're up and about and tight feel the dis-i 11 i
cocfort far greater.
So, I'= not clear on exactly 'dhich way 19
~
n 13 i
(){
that would go.
I 14 i
d 15 I
16 17 I
I 18 19 20 21 22 i
23 s
25 1
~ - - - - -
377 K1 Raber - cross With respect to the electric heating customers 1
Q what proportion are they of your total residential customers?
~
In terms of customers or in terms of usage?
A 4
In terms of customers.
Q The number 10 percent sticks in my mind, but 5
A 6
lat me check'.
I am not loo dng 7
That's a good approximation.
0 8
for an exact figure.
9 A
Okay.
I don't know whether you were hera on Wednes-10 Q
dap but we had a large number of unhappy people, your custo-11
=
8 12 mers.
' O :*
13 I was told, A
i And a lbt of the testimony given by those 14 Q
i customers essentially was that they have cut back, some 15
-i are electric heating customers, and I believe some said 16 on their thermostats as much as 17 that they have cut back I take it that that is a they can because of the price.
I8 Are not as a pretty good example of price elasticity?
19 of the numerous increases that have occurred last, 90 result
~
year, a year and a half, isn't it reasonable to assume 91
~
22 that' there - is limited additional price elasticity for cutting back your thermostat at night and if that was the
- 3 easy place to cut back that it has already been done?
24 I have a great deal of
,m. KIRSTmi 25 l
i 378 2
Raher - cross
\\
confusion with the question.
1 MR. LEUL:
I will rephrase the question.
2 3
Q Price elaaticity, I guess, is a continuing 4
phenomena, correct?
(
5 A
It centinues but not necessarily at a constant 6
rate.
7 Q
And as prices increaso, people do whatever is easiest or least inconvenient to do in terms of cutting 8
9 back should they decide to do so?
10 A
Should they dacide to do so is very important, f
I but the easiest and coat convenient thing is to, under their 11 conditions, is to pay the higher prices.
12 To the extent there might be individuals who 13 Q
O f are not well off, who are having difficulty or great con-14 l
h cern with the electric bills, and the all electric custo-15
,:i 16 mers, isn't it. reasonable to believe if they had taken measures tso far, probably the measures that occur is cut-17 ting back the thermostat at night?
18 i I
That is certainly a logical measure to taka, 19 A
20 yes.
So if there is going to be additional consar-Q 21 vation among this group, it might be cutting back during 22 the day at least to greater proportions than there is addi :
23 l
i yj tional potentials to cut back at night?
~
l A
Thau is pcssible.
I cannot say for sura.
25 l
I
e K3 P.nber - cross 379 1
Q Uith respect to non-heating customers, the 2
non-all electric customers, what kind of appliances do they at nicht i
3 have that run/cutside of pcssibly air-conditioners, what other casa do they have that they would run at night?
4 5
A Dehunidifiers, cbviously their refrigerators 6
run at night.
7 Q
!H ni al lighting 1 cad, perhaps?
8 A
Yes.
9 Q
And I guess to clarify at night, I mean well 10 after midnight?
People don't go to bed with the chickens.
11 A
Those are the major ones that I could think 12 of.
13 0
With respect to that, to the extent that the
]
f 14 balance of the usages during the daytime period, I wonder s
if you can characterize the conservation potential among 5
15 those customers in the dayti=e period versus the nightt Ne 16 17 period?
18 A
There may well be more activities during the 19 day that can either be shifted in the nightti=e period, for example cooking might be shifted to an off-peak period or 20,
air-conditioning could be turned down.
I think there may 21 well be some potential for air-conditioning to be turned 22 23 down at night.
The potential is there in both ti=e periods, l
f, 24 l I
i 25 l Q
Well, air-concitioners don' ner=a-ly run all; i
I
330 K4 Raber - cross That is the seasonal type thing?.
1 year.
O It is a seasonal type thing, yes.
V 2
A But the non-air-conditioning type loads do 3
0 tend to be much more of a year-round nature.
People will 4
5 use their various appliancas in all months?
That's corract except now the electric heating 6
A 7
also have course --
Yes, and we are uLeing about the non-electric 8l Q
9 heating custo=ar.
A
- Yes, 10 l JUDG3 MARSHALL: Off the record.
j 11 Dihereupon, there was an off the record 2
12 3
discussion.)
13
/~}
JUDGZ MARSHALL We will break for 14 lunch now and be baci at 1:15.
la I
(Whereupon, the luncheon recess was 16 tnken.)
17 IS 19 20 j
21 1
22 23 !
24 i i
l i
25 )i l
l l
l 1
i l
9 381.
L Raber-cross l
1 JUDGE MARSHALL:
We 'll go on the record'.
(
2 MR. MAKUL:
Are we continuing the cross-3 examination?
4 JUDGE MARSRALL:
Yes.
5 CROSS-EXAMINATION (CONTINUED) 6 BY MR. MAKUL:
7 Q
Mr. Raber, this morning you centioned that 8
some industrial customers are to some extent shifting pro-duction or use of electricity frpa on-peak to off-peak.
10 A
We were having a somewhat hypothetical dis-3 Il g
cussion.
I g
Q I see.
s 13
(]}
A At least,. that was sy intarpretation of it.
I 14 g
Q You do not have time-of-day rates on your f
15 largest -- for your largest custocers?
i 16 A
I'm not sure that we do or not.
17 Q
I see; okay.
Now, wculd it be fair to briefly l
18 characterize your method for estinating sales to the resi-19 dential sector is to deter =ine a us e-per-custer.er and then 20 a number of customers and then tultiply the two to get the 21 usa 6e for the residential class?
El A
That's correct, except that it's dcne indi-I vidually for the total electric customers and the ncn-tetal "4 !
{}
~
electric custccers.
25 t
1
M Raber-cross 382 1
Q Ncw, in terms of usage per customer, I would
(_N) 2 like to direct your attentien to a response to an information
/
3 request which is marked Exhibit JCE.
4 A
Yes.
5 Q
Page 404 essentially is a summary of the 1980 6
to 1981 projections for residential usage per household?
7 A
Yes, it is, other than the 1980 that includes 8
actuals for as far as they're available.
9 Q
How far does the actual go?
10 A
Well, as it says in the footnote,1980 data 11 includes six nonths of actual weather adjustments.,
12 Q
So they are weather adjusted?
{ 13 A Yes. 14 Q In the forecast, which budgets are they baned i d 15 on? E 16 A I think that's backwards. The budgets are 17 based on a. forecast, not the reverse. This is the July fore-18 cast. This is the 3-plus-9 budget, as adjusted for presenta-19 tion in the LEAC filing. I think the adjustment is shown on 20 Page 3 of 15 of the original filing. 21 Q With respect to these projections, what are the i 22 assumptions cade in terms of change of appliance mix or a 23 replacement of appliances upon ucar-cut? ) 24 A In the short-tcr= methcdology that is not con-(~J R 25 sidered explicitly. What we do is a rolling average of 1
I Raber-c ros s 383. I historical sales datc en a wcatisr adjucted basis.
- Itew,
) that implicitly includes whatever replacement trends have 3 existed in the immediate past, and that is projected for-4 ward into the future, so whatever has been Going on is 5 captured in that sense. 6 Q So therefore, do these figures reflect any l 7 change in either of the number of appliances or replacement 8 of appliences? 9 A Whatever has been going on in the recent past 10 is captured. I I ~ 11 Q In terms of the future, in there any additional 12 g assumptions unchanged? ~ 13 ( ) }. A Assumptions that the recent past trend will I 14 i largely continue unless there is something specific that we d 15 know of that creates a deviation or looks like it will 16 create a deviation in the future that is radically different 17 enough from the past trend to warrant an adjustment in the 18 appliance area. I don't think there is one. 19 Q These numbers on Page.4C4, does that include 20 an impact of price elasticity? A In the sense that I mentioned before of what-l ever the price elasticity impact that is being captured by 23 the rolling average methodology. 24 (} Q The rolling methodology, I believe you described 25 it on Page 3 of Jc-4007
384. aabor-cross 1 A That's co rrect. () 2 Q Could you briefly describe what that means? l 3 Is that the average sales over the cost recent 12 months? 4 A No. In the residential area, as we uere just 5 saying, the rolling average projections are based on numbers 1 6 of customers, and on use per custoccr individually. The 7 rolling average goes back lon6er than 12 months. It goes 8 back several years and the historic data over that period of time, weather adjusted, and these are then fed into the rol1+! 9 10 ing average calculation. Ij 11 Q How many years does that data go back? 12 A Let me check. I think 1975 or thereabouts, i 13 but let te check. n4 v 14 i 5 15 1 16 17 18 19 l 20 21 l 22 23 25 l i
H Raber-c rocs 385. 1 1 A (Ccntinuing.) Probably earlier than that, (]) 2 pretably in year 1970. 3 Q In terms of coming up uith a price elasticity 4 adj us tment, essentially could you briafly describe what is 1 5 the bass period that you're looking at as your base level 6 consumption and how do you 60 from that to a projection of 7 what the consumption will be at a new higher price, in terms 8 of what base do you start from? 9 A I'm confused, i 10 Q Okay. I i 11 A We've done no price elasticity adjustment othe r 12 than what's implicitly captured in the rolling average pro-i 13 cedure. 14 Q The rolling average procedure you essentially 15 what you've been doing essentially, as I underst'and it, is i 2 16 you've been looking at what the consumption has been during 17 rolling 12-month periods? i 18 A Right. 19 Q And you're =aking an assumption of how the l 20 price is gc V.g to -- has changed historically and is going 21 to change? 22 A No. lie singly do the 12-month rolling average 23 procedure and whatever it captures, it captures. There's na 24 discrete cdjustment for that. It's just jzplicitly built 25 into the procedure. i .,,--g -~ n e
386 Raber-c ro s s 1 I Q How many price increases, if you know offhand, OQ 2 have occurred in the last 12 montha and at what month did 3 they start having an Lnpact on customers' bills? 4 A Well, in reverse chronological order, there 5 wcs an increase in Mcy of this year which I presu=e would 6 show up in bills rendered in June, I guess. 7 q Well, that was the dcllar increase per resi-8 dential custocer. 9 A No - 10 0, "ihe increase in the service charge in May. 11 A Yes. Bat wcs the e=ergency grant. 12 i Q 'Ihe interim. ^ 13 A On the present case? Q. 4j 14 g Q Yes. 15 A There was a LEAC adjustment in April of this year and a IEAC adjustment in March of this year, LEAC ad-2 16 I7 justment in September of last year. I8 Q So, essentially there's been three increases, the March, April and May, where we have seen much less than I' 20 a full 12-month effect on consumption on a 12-month rolling 21 average. 22 A hat's true. 23 Wouldn't that tend to -- assucing that there Q pJ are price elasticity effects, would that nc: tend to give a 24 ~ \\ result which might be socewhat diff erent, given that the 25 i
Raber-cross 387. I present level of prices are higher than what existed on a (} 2 rolling 12-conth everage? 3 A In theory, I suppose that's true, but you're 4 assuming that there is a run for one linkage witbJ.n a price 5 increase and some change in censucption, and I'm not -- I 6 don't kncu how to deconstrate that that is in fact the case 7 on a short-term basis. 8 I think on a long-term basis, what you have 9 said is correct. 10 q
- 1ow, over the past year, year-and-a-half, rate s ij 11 have gone up significantly, and I believe one thing you said 12 earlier is that the incone of an individual has something to a
13 do b'.th hou much he's going to conserva, if at all, as a re-i 14 sponse to prices. 15 A I would expect that would be one of the vari-i 16 ables, yes. 17 Q Is it possible that someone would respond to 18 a relatively sr_all increr.se, providing hic income was ade-19 quate, with no conservation? 20 A That's possibic. 21 Q And then if there was another increase, he 22 might still respond with no conservation? 23 A That's possible, i 24 i Q Eut then after the third or fourth increase, [^)~ i 25, it starts getting significant both in terms of price and
y 'l Raber-cross 388. 1 otherwise in which he's been sensitized to cost of electriciuy O 2 othe, tham,ust rece1,1ng the b111, then e can start see1ng 3 a censervation impact occurring for that individual where 4 there has been no response to prices before? 5 A 'Ihat depends on a whole lot of other circum-6 stances. 'Ihis same individual might have received an income 7 increase in rate of pay and maybe he said that offsets it, 8 I like my air conditioner, and will continue to run it. 9 'Ihe response is not guaranteed, is what I'm 10 trying to say. It may happen; it may not happen. We have Ij 11 no way of knowing this or judging this on an accuracy-wise 12
- basis, i
13 j Q Well, overall you think it is a pretty reason-s 14 able generalization that in your service territory that f 15 electric rates have gone up at a much faster rate than dis-i 16 posable income? 17 A Over what period.of time? t 18 Q The last year-and-a-half. ~ 19 A Year-and-a-half? I guess I want to take two 20 exceptions to that. One is, I'm not sure that -- to the ex-21 tent that that's true, I think it's not limited to our ser-l f 22 vice area. I think everybody has seen roughly the same kinds 23 of rate increases, and I think it's been established that 24 Jersey Central doesn't -- , O LJ l 25 Q Everybody has seen a percentage increase the
h l 389 Raber-cross () sate as Jersey Central's customers have. t 2 A Not in the very recent past, but that was be-3 cause Jersey Central's rates were lower before. So, they've 4 gone up more on a percentage basis but even today I think 5 Jersey Central's rates are not higher than Public Service's 6 i rates. 7 Q I'm not asking an absolute comparison of the 8 rates; I'm asking you the rates at which they went up com-9 pared to the rates that disposable income went up. 10 A What I'm groping for is the rates at which 11 1 disposable inco=e is going up, and I d:n't, recall the figures 12 l offhand. O~. - Q I'm sure it hasn't been -- 13 4 l 14 A It's possible it's not been on the same order E 15 as the nominal increases in Jersey Central's rates, so, yeah, j r 16 I think the rates have gono up faster than disposable income. 17 18 19 f 20 l 21 22 23 24 l ( 25
3 Raber-cros s 390 () 1 Q There was a 1930 custcmer energy survey prepared 2 by GPU Service Corporatien dated August 1, 19 30. 3 Are you familiar with this at all? 4 A I am f amiliar with it to a limited extent. 5 Let me characterize that dccument for just a mcment, if I 6 may. 7 This is one particular document that 8 is being issued among, it really wasn't issued until last 9 week despite the date that may be en it. It is just one 10 particular milestone in an ongoing program of customer 11 researgh, that this is a progran that goes on continually l 12 and mest of the information from this program is said en a () 13 more or less continuous basis into the forecasting process, f 14 MR. KIRSTEN: Excuse me. The docu=ent i j d 15 you are referring to, Mr. Makul, I think you I 3 E 16 have it, the witness has it, but I think other 4 17 people may not. We have extra copies avail-l l r 18 able. 19 If you are going. to go into this further, 20 it probably might be a good idea -- MR. MAKUL: I have no intentien to go 21 through it. If the parties would like to have 22 it marked into the record, I have no objecrion, 23 but I was not going to deal with it in terrs O 9.4 i of specific page by page questions, but rather -l - 25 l,
Raber-cross 391 () 1 MR. KIESTEll: I am sorry to interrupt. 2 I thought if you were going to spend some j 3 time on it, it may be helpful if all the parties 4 have it. 5 Q I wanted to ask to the extent that additional 6 knowledge was developed fron the survey, was it incorporated 7 in any way in the sales projection? 8 A I would say because the customer services 9 information is included, put into the forecasting process 10 on an ongoing basis,. it doesn' t necessarily await the publi-l 11 cation of some discrete report such as this ans which car.e 12 out last week. (~) i \\~/ 13 Q There was one section of that survey, there was ) 14 a question about fuel or energy conservation measures which. 15 customers have taken or plan to take. 3 5 16 Now, I see that there are many r.eas'ures 17 in this survey where well under 50 percenc of the people 18 have already taken many steps, and many people are planning 19 on taking the additional steps or taking the steps for the 20 firs t time. 21 How is that taken into account in the 22 12 months rolling average? 23 A Well, take your use per customer trend and you will find it going down rather substantially in 1980 relative. O 24 25 l to 1973-l l .n.- w -r, 4
Racer-cross 392 i (J~') 1' Q Is that really so because going back to JCE, 2! I look at the 1930 versus the 1901 figures and -- 3i A No, the 1981 ficjures ara not all that different, 4l but the 19 80, relative.to the 19 79 figures, are different. 5 ! Q Frcm that figure the expscted sales for 1980 6 for a lite customer -- what does that stand for? 74 A Ncn Total Electric. Sl 0 That kind of customer is expected to use 5,841 9 kilowatt hours in 1980 and 6,834 in 1981. That is cnly a i 10 ! difference of 7 kilowatt hours. Isn' t that a rather modest amount of electrical conservation? 11 ? 12 l A You mean the change from these two years? (hh 13 Q Yes, the change from year to year. 14, A Please note the change frcm 1979 to 1930. i l got That is a good deal larger. I have/them here in my testineny. 5 15 I Use per custo=er in 1979 is 7,004 and 1980 it is 6,341, and i 16 i that is a substantial decrease due to both conservation and 17 18 the state of tha economy. 19 l Conservatien steps that lead you from I 20 ; 1979 to 1980 may not all be contintal for another year. i i' Q I believe you said this 19SO to 1981 figure 21 22 j somehow. iuplicitly captures a price elasticity effect. An i I wrcng? 23 A That's what I said, but I am not under -- do 24 s ( \\ you care to elaborata en the question? Yes, I think that's ,a. i I i
l Raber-cross 393 t I what I said. 2j 0 If.you agree to that, furthermore, if the 3 Co=pany is granted an increase in this proct _eding and, in i 4 addition, the Ccapany's base rate case will be decided some-5 tice early in 1981 and pree".= ably the Company will be back 6 for another I2AC proceeding to go into effect in March, and 7 who knows what after that, isn't there a continuing *aend S 'toward higher prices, and wouldn't we expect to see another 9 reduction in residential usaga as a result of the additicnal 10 price elasticity effect? ij 11 j A If the increases come about in theory, there I 12 ! may well be an additional reduction. If, let's keep in mind I i O-13 i there are forces that act the other way, for instance -- 4 i 14 i E 15 ia 16 i i 17 IS 19 20 I 21 l 22 i I, i 1 23 l i l l 25 i l I I l l l i
= 7 ,1 R2ber - cross 394 You're not referring to the Division of Rate Q Counsel, are you? 2 A No, no, no, I was not. That's not what I had 3 What I had in mind were things like custoner in-in mind. 4 come trends, new appliances having higher efficiency than 5 an applicance that is being replaced, just a tightening per-The elasticity in a technical sonne, of clasticity,
- haps, 7
dcas not necessarily remain constant, if ycu will. The 8 more easy steps you take the more you reduce your usage. 9 It is harder to offect further reducticns. 10 I think cne of the things you cited was more i O 11 That would tend to reduce usage, cfficient appliances. 12 correct? 13 4 A Yes, it wculd. i 14 And I guess one of the assumptiens is that O 15 if someone has more inco=a, he will go out and buy more i* 16 appliances but isn't it also possible if poteone has more income he can replace his old, inefficient tub'o 77 set with 17 18 a brand new color television set which is all solid state 19 and uses less electricity? i 20 Color sets une more electricity than black A 21 and white sets, A brand new color transistorized set uses 22 O 23 i
- ake black and white set?
i s = ore electricity than an old ] Perhaps more than the Md tube black and 24 : (b' l A 25 l
i 'e i[;' Racer - crocs 39s. u o U I white sets. Q Eow about the old tube color acts? 9-3 A Probably one would use less but on the other hand paople might buy refrigarators, for instanco, and tend 4 i. 5 to replaca an existing mods 1 with a larger model that per-l 6 haps has additional features in it. I 7 Q What if they tend to replace --- I know in my i 8 personal circusatancos chora is a space in the kitchen for 9 the refrigerator and a largar one wouldn't fit in thara but j f 10 maybe I am the exception. I i i 11 A In my personal circumstances, my wife is after 12 ce to do just that. () 13 ' Q With refarance to some of the appliances, a 14 refrigerator --- d 15 JUDO.; MARSHALL: Off the record. 16 (Whareupen, there was an off the record a 17 discussion.) 18 JUDGE MA25EALL: Back cn tha record. 19 Q With respect to refrigerators, back in the i 20 fif ties and sixties, wasn't there a big trsnd toward frost 21 free refrigorators? 22 A Yes, thoro was. 23 Q And aren' t the new refrigerators designed to 24 he = ore energy efficient? i 25 A Yes. i i i I ---a n --.,
..:L L:_ r T :^^~ ~ ~ ~ ' ^~ .s P.aber - cross
- 39o, 1
Q Even though they may be slightly larger? 2 A They are designed to be more energy officient 3 but the absciute consumption vill cbviously depend on the 4 siza also so cna can offset a usaga decline due to improved 5 efficiency by putting in a bigger one. 6 Q Well, has there been any study to determina 7 whether the average refrigerator is going to use more elec-8 tricity than the average refrigerator being taken out? 9 A I don't have any specific data right now en 10 that, no. i t 11 Q Are not family sizes generally smaller than \\ 12 they used to be? 13 A That is true, in general, family sizes are 14 daclining. i 0 Which would tend to indicate a smaller refrig-j 15 erator might be adequate? 16 A That is a very subjective question. Perhaps 17 people choosa to do shopping at lower frequency and.there-gg fore store more food. 19 l Q Are air-conditioners wearing out everyday? 20 A I assu=e that they are throughout the fervice-21 territory, yes. 22 Q And in general are the new air-conditioners, 23 do dicy have higher energy afficient ratings than the older: ,,4 I/l l air-c nditioner? j(> 25, 7 i l 1
9 Raber - cross 397 i 1: A They are supposed to. (~~) s-2 Q Would that not tend to indicate that for the 3! l s ame number of BPU's, cooling electricity would be used? 4 i A Yes. 5 ~ Q And, of course, the ability to replace these 6 a ppliances to a great extent depends on income? ~ s A Yes. 8 Q And so it doesn't necessarily follow that 9 more ince=a necessarily means more electricity consumption l i 10 in all' situations? I~ 11 l A I don't know that that follows, no. i j .Q I wonder if you can tell me judgmentally (} 13 from Page 4 of 4 ch JC-E, why you elected or came to the 14 i conclusion that it would not be proper to reduce the usage j par customer other than nominal seven kilowatt hours for E 16 l l the non-total heating customer? What were the counterval-i 17 ~ ing considarations and why did we end up with an'end result 18 of essantially no change? 19 ' A I think it was a feeling that the conserva-00 tion trend would slow down a bit after the sharp decline 'l that we're seeing in 1980 relativo to 1979 coupled with a 22 general improvement in the economy next year and the gen- '3 eral improvement in real and disposable inccme. ~ 24 Q I missad the last part. 1 Agenerali=provementintherealdisposablef () 25 A l I l
398 5 Rab2r - cross i 1 incomo as economy improves. (2) Q Did you make any assumptions as to what is going to happen to electric rates through the balance of 3 4 1980 and into 19817 5 A No. We made no specific assumptions. What happens then, do assumption prices rammin 6 Q 7 inchanged? 8 A No. That's what the trend is captured by, 9 the moving average procedure prevails, 10 Q What evidance do you have that the conserva-3 tion effect from '79 to '80 was it and that there is nothing 11 12 more to conserve? g 2 13 O4 l 14 15 16 17 IS 19 l 20 21 22 23 24 ' () 25 i I
m i i naber-cross 399 () 1i A I think we need to distinguish between conser-l i 2l vation potential and the response that one actually is going 3 to gat. The potential may be there whether there will truly 1 l3' 4 be a response in ter=s of real conservation remaining to be 5 seen. 6 I think the increase in real disposable 1 7 income will counterbalance the general tendoney. People will 8 he in a recovering econo =y r. cod. 9 I think that will stimulate -- not i 10 stimulate, but it will keep the usage relatively constant 11 because of the two offsetting f actors. 12 Q Well, in order to have an increase in real ) 13 l disposable incoce, don't you have to have an increase in i 14 income which more than offsets inflation? 5 15 A Yes. 16 Q And you think that's going to happen? i 17 A That's where our economic forecasts are going, l l 18 that in -- this is 19 81, now? 19 0 Yes. 20 A The whola year of 1981, some recovery thrcugh 21 the early part and toward the end of the year some significant 22 straints in real disposable income. 23 Q Dut if the future trends continue along the lines of the passed trends, particularly those of the last () 24 25 ' 12 months, electricity will becone a larger and larger t i I portion of an individual's budget.
t h Raber-cross 400 r~ ? (_) Il A You're making an assumption that I think is nct i oI~j warranted. i 3l You're making an assumption that the I l 4 trends of the last 12 months are driven purely by this price 5 effect that you'ro trying to quantify in some way, and I 6 think it's driven partly by that, but partly by respenses 7 of customers in all classes to the general state of the 0 economy and that's going to improve toward the end of 1931. 9 0 I know that the Co=pany is asking for some 10 I 70 million or so in this proceeding and the balance pending i 11,.over and above S60 million of interim relief that's been. 12 obtained, and the Company will prcbably be back for another g () 13 fuel clause request in March or February to go into affect l 14 in March. I guess whether that's significiant increases or a f 15 not will depend en what happens. i 16 ! Would it be f air to say that characterica-17 tion of the study is that there's a continuing potential for 4 IS mora conservation? 19 A I think there's a potential, yes. 20 0 But you're maintaining it will not be realized.. 21 A N). I'm saying it's going to be countar-l 22 balanced by other things, that the sales will or the use 23 per customar will stay roughly ccnstant in that interval of i 24, time, and then if you look at the projections beycnd that t 'S we will actually restre the historic trend of going u= l il
Raber-cross 401 (~3 I slightly. 2 Q You're saying that conservation will be offset 3l by somchow by more usage by using appliances an: intensively i 4 by buying more appliances? 5 A Whatever, yes. 6 Q Could you giva Es some specific ena=ples of I 7' which appliances pecple might use = ore intansively or which 8 ones they might buy which they presently do not have? I 9 A Well, air-conditioners, for one, freessrs, 10 additional TV sets, any appliance that you care to nane. l 11 ! Q What is your air-conditioning saturation in 12 l the service tarritory? 13 l 4 A I don't kncu what it is of fhand. I can Icok 14 it up for you, if you like. 5 15 ' Q You think that everyone who ever wanted an i 16 i air-cenditioner has bought cne by nosn 17 A I would doubt it. IS Q Doubt it. Page 4 of 4 is actually broken devn. 19 I was referring to the total figures for the year, but I I l l 20 see it's broken down to a =onth by conth basis and once again 21 I'm looking at the non-total electric. 22 I wonder if you could tell me how the 23 1980 versus 1981 numbers tie into your scenario of ecenceic () 24 recession through the end of 1980, and maybe bottoming out l 25 ; or things starting to impreve in the middle of 19'ol. i L
Raber-cross 402 1 JUDGE MAR 3 HALL: First of all, as a preliminary matter, I would like to ask if 3 the assu=ption in the question matches your 4 past testimony or your belief, that the things 5 will bottom out and begin to get better by 6 mid 1981. THE WITNESS: I'm sorry? 8 JUDGE MARSHALL: Part of his question 9 was the assumption that you had -- that your 10 belief was that things would got better by Il [ nid 19 81. 19 Is that first ycur belief? g O-s 13 I i THE WITNESS: 'Yes. 14 That is consistent with our consultant's t 3 15 ' projections of the Company. 16 JUDGE MARSHALL: Okay. I just wanted 17 to be sure. Thank you. 18 THE WITNESS: May we go off the record 19 for just a moment, please? l 20 guagg gu3 GALL:
- yes, 21 (A discussion was held off the record.)
s 22 23 i O.$ U l ~ 25 !
Rabor - cross 403 2p 1 i 1 Japc3 n;JR5KALL: Sack on the record. 2 A The numbers that you see on Page 4 of 4 ara 4 an interplay between the two offects that I centioned befors, 3 n amely, a contiruing 6f conservation trends to some degree 4 coupled with a counter-balancing trend driven by disposable 5 6 income. The relative impact of these things is 7 perhaps more visible if ycu look at the all electric custo-8 mers where you can see a continuation of conservation par-9 10 ticularly in the heating months. If you icok at January, i February and again in December, there are significant de-j 11 12 creases in the use per custccer and that indicatas a pre-o valling of the conservation trend particularly for that 13 ) i 14 class of customer where the potential is greater. l For the other, for the NTE class, the 5 15 balance seems to be a littic bit different, although take 16 Decenter for instance, Dece:aber 1981 inccmes would be up 17 but yet usage is down a little bit, suggesting the conserva-18 19 tion trend has prevailed there. The numbers fall out that 20 kind of a balance. Under a certain type of appliance, group of 21 Q appliances that are relatively energy intensivo, the TV 22 23 set, the washing =achine, the refrigerator, whatever, air-conditioner, and as those appliances break and pecple O 24 \\.) go out and buy new enes, dcasn't this change the appliance i 25 l
V l 1 I l 'p 2 Raber - cross l 404 l nix continuously in the carvice territory? I) A I'm troubled a little bit with some of your 2 l j words, as appliances brack and are replaced. Q Yes. 4 A That's cna of the things that happens. The other thing that happens includes buying more of certain 1 6 types of appliances, and perhaps not buying more of other l 7 things, and that's what changas the mix of appliances in ad,- dition to just replacement of older appliances with new ones. Q Let's focus on replacanent of appliancos that 10 i break. ~. 11 Is it not true that almost by definition l 12 i as the older one breaks, it's replaced with the new one? /~3 13 \\-) l I g A Generally speaking, I'd say yeah. 14 Q And is it not true that applianco manufacturers 5 15 i today are making appliances that are much more efficient 16 in terms of energy usage than say eight to 10 years ago? 17 A For some appliances, that's true. 18 Q And so as a result, regardless of a price elas-19 ticity effect or whatever, an individual has an appliance 20 that breaks, as long as he has the money or the credit to 21 replace it, there will be an incidental effect of more ef-22 ficient usage? 23 A Eut as you yourself have pointed out, that's i 24, (~') an ongoing trend and that's captured in the foracant. 25 '
'405 2p 3 Raber - cross () 1 Q But it's only been in the last few years 2i though that those appliances have gottes that much r.cra cf-I 3l ficient. Isn't that true? 4 A That's trua and if you look at that trand par 5 use of customer, I think you see that reflacted. The une 3 1 'l 6' per custcmer of the total non-electric class is sort of a l 7 saturating girth which --- S Q When this exhibit was prapared, July 1930 was 9 the forecasted. Do you have a waather adjust =ent of the 10 actual July? 11 A Yes, I do. 12 Q Can you tell na what that is? ( 13 A On a total basis, the weather adjusted actual i J l l 14 l is 1071 gigawatt hours. I 5 15 l Q Do you have it worked out to a usage per custe-E 16 I mer basis? I 17 A Not off-hand but we can got that fairly readily. 18 The number that I quoted you is for the total cenpang and 19 that included co=mercial and industrial and other classifica-20 tions as well. So that was in terms of replacing a forecasted 21 Q l l ? number with an actual number. If we look at Page 3 of 15 of 22 l l l 23 JC-A, I take it that the 1980 July figure is the first column I o4 ' at the top of 1031, that 1071 is the actual nu=her that would ( l 25 i replace it? i l l \\ 1 I
2p 4 Raber - cross 405 {} 1l A I'm s rry, just giva me a moment to find the i 2 page that you refer to. Three of 157 i 3l Q Page 3 of 15 of JC-A. 4 A How, you wish to replace the July number on 5 this table and you read a number of 10917 6 Q Yes. You just gave a figure of 1071 as being 7 tha actual. 8 A Yes. The 1071 would replace tha 1042. There 9 is two columns to the right of the 1091. There has been a 10 downward adjuat=ent, 49 gigawatt hours to adjust the budget. l 11 l number to the July forecast. So that the 1071 replaces ths, + 12l' 1042, I think. () 13 l Q Would you be able to provide us with --- not I i 14 lI today necessarily --- with from Page 4 of 4 the residential l { 15 l kilowatt hours per customer ---you Aave the estimates there i 16 for July of 636 for the non-total elect:'.c, 782 for the all. 17 electric. Would you be able to calculate actual numbers IS based on the more updated figures? 19 A Ycu mean the actual use per customer? 20 Q Yes. l 21 A Yes, we can calculate those. There was a nine plus three budget last Sept f 22 Q 23 e=ber and three plus nine budget which came out about April I 24 l cf this year. I wonder if you would also se aale to provide I 25 i for us or calculate from those budgets the average use per ! l l
,, 5 Raber - cross 407 1 custc=cr for both non-total electric and all electric so we 2 cculd compare those to the actuals that were experienced in f 3j January through July of 1930? t 4 A We can certainly provida that infor=ation. j-5 Q Okay. 6 MR. MAKULs I think that's all. 7 JUDGE MARSIIALL: Okay. Miss 3ello? I 8 MS. BELLO: We have no questions. 9! JUDGE MARS 11ALL: Mr. Sahradnik? I i 10 ' CROSS EXAMINATION 11 BY MR. SAHRADNIX: 12 .i i O Mr. Raber, while I was listening intently O-13 ' when you were discussing about your inability to really j 14 quantify the price elasticity, and in essence what I under-15 j stand you as saying is it'n basically a failure to be able 16 l I to predict the reactions of the pecple, your ratepayers, 17 to increase and decrease? 18 19 l 20 21 22 23 j i '4 ~ O 25 l l I e -e e
1 i 408 aaber-cross l 1 A At any cne point in time for any specific in-n crease, yes. 3 Q Have you had the opportunity to attend any of 4 the hearings in the service areas on this matter? 5 A I have not had the opportunity to do so for l 6 this case, but I have in the past occasionally attended 7 hearings, yes. 8 Q So you are unaware, then, of the reactions of 9 people and, for example, in Ocean County, shich I represent, 10 to this proposed increase and past increases, correct? I 11 A I have been told of the reaction of the people 12 who ware here the other day. I knew that the Company is verf-O. : 13 sensitive to this. 14 I do not think the Company takes this } 15 lightly. I think the Company appreciates the difficulty i 16 that particularly people in low income brackets and senior 17 citizens have with the rate increases and they are not asked 18 for without some measure of concern for them. 19 Q Are you aware, has the information been cen-20 veyed to you what the attempts of these individuals, the 21 people who appeared at the meeting were with respect to 22 conserving electricity and their view as f ar as their intent 23 to do all possible to conserve electricity? iO o4 A I have heard that excressed. I dcn't kncu lV j l ~ o.5 ' i how to quantify that. I i l I
o l 409 I Raber-cross [ 1 s_ Q Are you f aciliar with the makeup of dcean 2 County, the residential mckeup with respect to the percentage 3 I of senior citi= ens? 4 A I personally am not all that familiar. People 5 on my staff are. I gather that there are many senior citizens I i 6 in Ocean County? j Q That's correct. Are you also familiar with e the fact that a lot of people, basically, it is general 9 knowledge, have novod dcun to the area in an attempt to 10 escape the higher prices in north Jersey? 11 j A May I ask you a question? 12 Ara these, particularly the senior citi-g 13 i zens, aware of the Lifeline Benefito End the other benefits 14 that are available to them in the way of mitigating their f 3 15 utility bills? 16 Q No, sir, I don' t knew that I specifically can 17 answer that. I think you would have to perhaps come down to l 18 a hea:Ing and maybe that can be aske'd through the people who some 19 are attending in oceancounty. There have also been/organi=a-20 tions, for example, the People's Utility Fight and the i 21 Wattless Wednesday Movement that are active in C can County. ( 22 Are you aware of then? 23 A I am aware of the existence of these organiza-t 24 tions, yes. {} 25 And the f act that they are advocating perhaps a i i i
= t 410 Raber-cross I with respect tc energy conservation throughout the service aren? ~ 3 .1 So are we. 4 MR. KIRSTEN: I might say in that regard 5 that the questions of rate design, which I 6 think is implied in Counsel's question, the i 1 7 question of time of day pricing, the effect of 8 conservation on rate (bsign, are areas which I 9 think are more within the expertise of Mr. l 10 Carter who has submitted testimeny on rate i j 11 design. 12 He has addressed the question of low ( 13 management programming and the tima of day i ~ j 14 l price experiment and some of the people that f 15 Counsel referred to in Toms River complaints i 16, were with the time of day rate, and that is 17 an area that tir. Carter has specific kncwledge. 18 MR. SAHRADiiIK: I would like to follcw 19 up with some questions, Judge, specifically 20 with the concept of price elasticity and 21 residential users. 22 Q Given the information conveyed to you fren 23 some of the statements made by the people at these hearings l 1 24 and your knowledge of the larger citizen makeup of the O) \\_ 25 co=munity dcwn there, aren't you in a better pcsition to I l l I
Raber-cross 411 () I predict a.2 reaction of the people? It seems to me for 2l Ocean County there is, giving all of the criteria, the move-3 ments to promoto conservation, statements at the public hear-4 ing, don' t you feel that you can realistically expect a 5 conservation greater than that anticipated in the figures 6 which were just revealed? 7 MR. KIRSTE:I: I have to object to the 8 form of the question because the testimony 9 at the hearings was not only that there was 10 conservation, but that there were in many i i ,i instances the inability of some of those j II j people to conserve any more which would in-O 13. j l dicate a lack of any further price elasticity. So that the implication that the desire 5 to conserve, and there is also testimony that 16 that desire to conserve had reached dhe maxi-17 mum point and there was no longer any room 18 for future conservation, so that the implica ' 19 tion of the question in view of the fact that not 9 Mr. Raber was/there and aware of all the 21 testimony that was submitted or the f act 22 that there was such testimony, I think may be 23 i somewhat misleading. ' (~N 24 ~> l 25 l L__
2q 1 Raber - cross 412 [ 1 JUDGE MAESEALL: An chjecticn has been \\ f 2f lod ed to the form of your question. Do youl 5 l 3l want to answar or do you wish to withdraw thel i 4j question? 5 MR. SABRADNIX: Your Ecnor, I don't 6 recall the testi=ony that Mr. Kirsten has 7 stated, but perhaps I can ask it this way. 8 Q There certainly is a potential for more con-9! servation in Ocean County in this service area than you I 10 i would admit, correct? 5 11 l A I think there la a potential for conservation 2 I 12 l everywhere, yes. ,O 13 Q The movements that you are aware of, the de i 14 People's Utility Fight, /.iiattless-ilednaaday Group, these 5 15 3 are sc=ething that have occurred in the recent, let us .i l 16 say, five to six nonths to take on significance, is that 17 correct? 18 A Yes. Let me agree with you that I have been i 1^' aware of them for about that long. 20 Q And to the extent that these efforts are 21 being undertaken in your service area, separate and apart from the Company's own afforts, isn't it realistic to as-f 22 i su=e that there will be a greater degree of conservation j 23 4 i than was originally anticipated by the Ocmpany? 24 25 l A I don'u have any basis to draw that cenclusion I i l l
413 2q 2 naber - cross O for the fo11 oui =e =easoa > 2 One is ocean County is a portion of the 3 Company's servica area and the numbers that I am quoting 4 here are representative of the service area in its entirety. 5 Secondly, it depends on whether the 6 conservation actually takes place and r.ot what the potential 7' is. The potential may be there. It may not be related and 8 as Mr. Kirsten.has pointed out, there have been some dis-9 cussions at least of an inability, or call it inability to 10 conserve further. Half the people in Ocean County have ij 11 taken the easy steps and the next enes are going to be very 12 difficult. 13 Q But Mr. Raber, you don't know that, do you? 14 A No, I don't. That is why I cannot quantify 3 15 this price elasticity effect that you are groping for any i: 16 better than I can. I don't know. 17 Q And certair.ly you are not saying that the po-18 tential for conservation has peaked in Ocean County or any 19 whers else in the servico area? 20 A No, I am not saying that it has peaked. 21 Q Let me ask you, directing you to one other 22 area, inquiry. In the past few days you were volunteered 23 as the expert to update us on the activity of the Company with respect to the use of refusa to generar.e electricity. l 24, !O j 25 l A I rame=ber being so volunteered. i
4 3 3aber = cro:s 414 O 1 Q Could you update us on t. hat? A I will give you the benefit of what knowledge 3 I have. Please understand that this effort is not being 4' conducted through my department and my.knowl' edge of it is 5 not very detailed. 6 Q Would there be someone else more appropriate 7' to give this answer? 8 A Let me say what I was going to say. 9 MR. KIRSTEN: I think that Mr. Bright 10 j made some specific reference to the use of ,i l I. the project, for the'use of refuse as a mattar 12 i of, I think it was in South Amboy, in his 13 1 testimony which was given on Wednesday, I a 14 j believe. f 15 MR. SAHRADNIK That's correct, but I i I6 in pursuing the matter, Mr. Bright stated I7 that Mr. Raber would be able to update us on 18 current activities in his capacity of planning 19 and what have you for the Company and I was 'O wondering if we can get an update? ~ 21 MR. KIRSTEN Go ahead. 22 THE WITNESS: Let me update you. The 23 organization that is interested in building l 24 a pcwer plant, fuel by refuse, is Resource j Recovering Associates. Jersey Central actually I
4 Raber - cross, 415 I i, I has a letter of intent with Rasourco ascevar-l 2 ing Associates to pursue eneray frca them fren 3 such a plan:. It la my undarstanding that 4 i Resource Recovering Associatas has lincd up 5 a refuse straan and contract for this rofuse 6 stream that they are now in the process of l 7 lining up financing for the plant and involving other things such as real astate negotiations l. 8 Theplantinquestionwouldbedasigneld 9 10 l to deliver 100 megawatts to the system. The I 11 construction time for this plant would be 8 12 about three years and there would be at least i } 13 a year involved in wrapping up the financial 14 arrangements and so en coupled with licensing-5 15 activity and that presu=cs a well-expedited 16 licensing effort which the Jersey Central 37 people hope will come abcut. ~ ig The key point for it particularly for 19 the purchase of this proceeding is that plash 20 cannot be on-lino in less than about four years ,1 which means it can have no impact ona way or the other to what in the period of ti=a of l g 23 interest to either of the cases being discussed 1 24 l here. I l O i aa. sasaxcuzz. The=h rou. Thae s el1 i l l
.? i i i 416 2q 5 Raber - cross 1 I have. O 2 JUDGE MARS 11ALL: Por clarification, 3 the accource Recovering Associates, is that 4 the group backed by Cembustion Equipment? 5 TIIE WITNESS: I'm sorry, I don't kncw. t i o 8 9 I 10 2 11 .i 12 3 13 a 1 14 3 15 i I 16 17 18 19 20 21 22 23 i 24 l 1 ' O 25 ! 1 I l t
N 417 Rabor-cross I FURTHER CROSS EXAMINATION 2 DY MR. MAKUL 3l Q I would like to ask a couple of followup ques-4 tions prompted by Mr. Sahradnik's particular questions. t 5 As you are probably aware, there are 6 some electric protest groups in your service territory, and 7 my understanding is that some of them are advocating using 8 as little electricity as possible as sort of a free speech 9 expression of their displeasure, a political statement of 10 their displeasure with Jersey Central Power & Light in their i 11 rates. 12 Would it be f air to say that if, indeed, 13 there is any r art of response by customers in such a way 14 that this is something that goes beyond normal price elas-f 15 ticity? I 16 A You're suggesting a strike, if you will, and 17 suddenly somebody does sotaething? 18 Q A usage strike. 19 A A usage strika. If that were to persist for 20 any period of time, I would say yes, that it might be some-21 thing above and beyond the normal trend. 22 Q And the f.wecast that you make is based on past trends, such a movement is a deviation from past trends 23 and, therefore, would not be captured in the methodology 24 25 I to project sales? i i 3 i
. Raber-crosa i l 410 1 A That is correct. I offhand recall no najor 2' user strike. 3; O !!either do I. I 4' As one more information request, en 5 JCA, page 3 of 15, the second colu=n is the adjustment to the 6 i budget sales, and I am wondering if you could break that dcwn 7j for us in an exhibit or whatever, into the major groups of 8 residential, commercial and industrial. 9l A Yes, I am sure we can do that. I 10 l MR. MAKUL; I think we have another 11 request,but we can deal with you during the i i 12 ; break. ,I i 13 THE WITNESS: I'm not suro I like that, I 14 l you will deal with =e during the break. l 5 15 l MR. MAKUL: I will ask you -- it is an l i 16 involvad thing that I think we'ro asking fer. 17 JUDGE MAIGHALL: Any redirect? IS MR KI3ST3N3 MO-19 JUDGE ' MAPSHALL: Are there any further i i 20 l questions from anybody? 21 (No response.) JUDGE MARSHALL: He will take a 15 22 minute break now. 23 (Whereupen, a recess was taken.) 24 O 25 I I i i
l 419 O 3 coo = :i^nsu^tt: we 11 ee secx o= the record new. The Court Reporter will swear 3 the witness in. 7 4 H. LAWRENCE GOL3 STEIN, called as a witness 5 on behalf of Jersey Central Power & Light Ccmpany, 6l being duly sworn, testified as follcus: I DIEECT EXAMINATION O BY MR. KIRSTEN: i 9 Q Mr. Goldstein, will you pleasa tell us the 10 nature of your position with GPU organi:ation? j II-A I'm ranager of Fossil Fuel Foreccsts and 12 Planning. () 13 0 And are you familiar with the fossil fuel fore-
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casts which were incorporated in the various e:chibits which ? 8 15, wore prepared by Mr. Gentieu for the purpcss of these pro-i I 16 ceedings? 17 A Yes, I am. l 18 Q And are you prepared to support the estimates 19 of forecasts of the costs of oil, gas and coal as set forth 20 in those exhibits? 21 A Yes, I am prepared. 22 MR. KIRST2N: Mr. Goldstein is avail-I 23 able for cross examination 94, 25 i l I i l 1
\\ Goldstein-crcas 420 1 CROSS ZXAllIMATION 2 3Y MR. MA20L: 3 0 Good afternoon, Mr. Goldstein. ?!r. Goldstain, 4 for the clause period, what assurptiens did you make regard-5 ing fuel oil prices, that is to say, the average prica for 6 fuel oil consumed in this proceeding, would that be found 7 'on JCA 3, page 2 of 37 8 A* Can you repeat the exhibit? 9 Q JCA 3, page 2 of 3. 10 A Yes, I am. l 11 The question? 12 Q Yes. The average prices assumed for the 13 various types of fuel oil, I take it it's $40.88 per barral ( ') i 14 for lio. 2 cil. 15 A Correct. t: I 16 Q The price for No. 6 oil, .3 percent sulfur, 17 is 36.777 18 A Correct, for.3 percent sulfur. 19 20 21 22 23 24 l (~j' l 25
q S1 Coldstain - cross 421 t I a (d 1l Q And for one percent 1;o. 6, it is $30.307 N 2l A That's correct. 3l C And that cczas up with a weighcad average 4l price for lio. 6 oil cf 35.24 and a total average oil cost of 5f 37.547 l 6! A That's cerract. 7j Q 1;ow, of course, if you are able to =ake the i 8 gas adjust =ent, these nu=bers cc=c dcwn sonewhat en the 9 basis of given some consu=ption? i l 10 ; A And generation. i I 11 Q And generation. I see you made no express I i 12 I calculation for any six oil higher than cno percent sulfur, f O l 13 l 1 s ehmt co==ec=2 e I i 14 j A That's correct. We do not burn anything above + s 5 15 one percent sulfur fuel oil. t I 16 l Q Lut my cross-exacination of Mr. Steger this t 17 !
- orning, he indicated that the Central Hudson Plant burns f
a high sulfur, I believe it is 2.3 percent sulfur six oil. 18 'I 19 A Central Hudson Plant dcas. 20 Q And in order to calculata an occalation rata, for the cost of that unit, he had to get an oil price es-21 calation frcs socawhere and so he used the oil price escala-o.o. tion that I believe ycu developed. 23 j i A Central 2udson 21 cat is not one of our plants. 94 > i 25 ' It is not a Jersey Castral plant. i i l t i
S2 C-oldstein - croSD 422 ^ 1 Q I realize it is not an Jersey Central plant, ) b ut it does burn fossil fuel and in order to develop this I; 2 Lavalized Energy Adjust =cnt Clausa an acaumption haa to be l 3 =ade as to what the price of this fuel will be at that plant. i 4 I believe Mr. Steger indicated that he used Jersey Central 5
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6 numbers. 1l 7 A rscalation numbers? 8 Q Yes. 9 A That probably is correct. 10 Q That would mean that he was using your escala-tion assumption for six oil, I would imagina, since that 33, 12 plant burns six oil? ~ s Ol 13 ^ 'e
- ^* *= *="a-14 Q
But it is a different grada of six oil? ) A Right, it is a high sulfur grade. 15 s Q Would you expect that a high sulfur grade of i 16 six oil would rica in price at the same rate as the.3 per-17 cent and 1.0 percent? IS A Prior to March, I would have expected that 19 i to occur. What has happened in the marketplace is the 20 high sulfur grade of fuel oil has not escalated as every-21 body expected then to escalate. The fact, of course, is I 22 ( that it has come down. What I have projected in my escala-l 23 tion rate was apprcxi=ataly a $10 a barrel increase in the l O sc., to the exeene thet ccses a= now 11= ming u,, cost. l i l
l d3 Goldstein - cross 423 (} I we could very well arriya at a $10 a barrel increase over 2 the year. 3 Q By a $10 a barrel increase, you are tolling 4 me a $10 per barrel increase in all three types of oil, 5 the No. 2 oil, the low sulfur 6 and one percent? 6 A I would take that back and say from the point 7 in time we are today, from the point in ti=e that we have 8 our budgot, the $10 would hold true for the distillate oil. 9 We have in there about a $4 per barral increase in the cost 10 of the resids and that would be relatively across the board. l 11 That would be to the end of the year. 12 Q To the end of which year? S r'% V 13 A The end of this year. .j 14 Q The end of 1980? i 5 15 A The end of 1980. You want it for the whole LEAC period, is that what you are asking? 16 17 0 Yes. 18 A The cost I would project over the LZAC period 19 for the distillate and the resids are as follcws, and these 20 would be a purchase basia as opposed to a burned basis. 21 The cost of distillate oil I would pr ject over the LEAC period would increase from September 22 23 { through August by $7.23 a barrel. The cost of 3/10ths per-cent sulfur oil would increase by a total ccst of $6.35 a 24 barrel. The cost of one percent sulfur oil would increase ! 25 l l i I
'l .4 Goldstein - cross 424 by $5.20 a barreh., I would suspect that to the best of I 2 my knowledge, I would suspect that you would see the sa:::e i 3 thing for higher grades. 4 5 6 7 8 9 10 11 12 3 Ol v 13 14 5 15 i 16 17 18 19. 20 21 22 23 l I 94. 'S I
Goldstain-cross 425 O Is there any document i'n the submissions made 3 i 2l for this proceeding where we could spotthose increases? h I 3 0 Which one is that? 4 ^ UC 5 6 Q 'fould you give us t koment to find that. A That would be page 4 of 5. 7 8 0 I believe for the purposes of the clause, how-the fuel clause that is taken into account is the fuel 9
- over, clause as burned.
10 I wonder if you can explain how the num-g bers in JC-F, page 4 of 5 which are the as burned, how they 33 relate to page 2 of 3 cf JCA-3 which are the as burned. () 13 l A The purchased ccsts are the costs that we f g predicate our escalation en. They art related to the as la, ej burned costs via inventory adjustments or inventory ta the g extent that we purchase oil, it goes on to the inventory or l,e we have a weighted average cost of the inventory and thst is what they determine as the as burned ccst, so if a station 79 "" ~ * *
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'I l 20 end to lag your purchase cost by one dollar or so, and I l think that we can compare the purchase cost with the burn 22 cost and see this. 23 I For example, ever the test year filing 24 () I have in average cost of 2 oil of 522. 32. Theaverageecstl l l
.l' 426 Goldstein-cross O
=a
dur=ae 1=or2o111=e4osa-rh a1ere=e=c-j; represents inventory lag. ll For the 3/10th percent sulfur fuel oil j 4lI I have an average purchase cost of $37.57, and a burn cost 1 5 of $36.77, a differance of about $1.00. 6 For the 1 percent sulfur fuel oil wa have a purchase cost of $31.52 which we arm forecasting. The 8 burn costs we have are $30.30. 9 Now, these are on a non-adjusted basis. 10 When we adjust for gas it changes a little bit because we have i of 11 [ a change in the =ix/ fuel, so that is the relationship between 19 g the burn cost and the purchase cost. ~ 13 l Q Now, this inventory lag, the time between which I 14 the oil is purchased to the time it actually comes burned off ?j 15 in tarms of, es it is treated, do you use what is called a i 16 ! first in, first out accounting basis? 17 A Wo use a weighted average cost basis which is 18 not first in and it irnot last out. It is not FIFO and it 19 is not LIFO. It is the weighted average cost. Q I wonder if you can explain about what kind of 'I time lag do we have when you are talking about inventory lag,. ~ between the time when you make a purchase at a price and that ~3 i ' l price winds up being reflected through totally in the burned t I 94 ' rate? ~ i '5 l A Cur inventory policy has been abcut 20 days ~ j
Golds tain-cross 427 1 supply for each station for residual fuel oil. For distillate 2 fuel oils which are primarily used in the ccabustien turbines 3 we try and maintain a 50 hour to 100 hour requirement so en I 4 a residual basis the 20 days represents almost a menth so i 5 it might be a month lag, but then on top of that there are 6 all of the inventory adjustment losses in products which aro 7 not acccunted for in the purchase. 8 Q If I might back up a few stops. With respact 9 to Central Hudson, I believe, am I correct, that your final 10 position on that is that the 2.8 sulfur oil that is burned l 11 there would not be expected to escalate in cost at the same 12 rate as the 1 percent or.3 percent sulfur oil? (} 13 A What I am saying here is that to the best of aj 14 my knowledge I would think it would approximate. The absolute f 15 cost increase that we see for one percent sulfur may be $5 i l 15 a barrel, $5.50 a barrel, realizing, of course, that there 17 , are market forces at play here. 18 Q Well, all right, raybe you 'can explain what 19 that means. l 20 In making your forecast, did you ini-21 tially disregard that there were market forces at play? 22 A As I said, I am primarily concentrating en 23 forecasting Jersey Central Power & Light's escalation, 24 j not other escalations, not other fuel escalations. '5 l Let me expcund en what I mean by market i I i t l
I-Goldstein-cross 428 forces at play. l ~ I The current price of 2.3 percent sulfur fuel oil is fairly depressed at this point because there is 4 not a big damand in the New York Harbor. The New York i-5 Harbor is essentially 3/10ths of a percent sulfur fuel oil, 6 so to the extent that there is not a demand, the price is 7 decreasing or 1cwer than what the traditional relationship 8 would nor:nally be. 9 10 i~ 11 12 Ol 13 l 14 16 17 IS 19 20 l 21 22 23 l '4 i 25 i 1 1
429 Goldstein - croso .\\ r1 1 A (Continuing) In New England, which uses high 2 sulfur fuel oil, the prics would be more reflective than 3 that. Now, in terms of dollars --- well, most of our product, 4 most of our residual fuel oil comes from Venezuela or the 5 Caribbean. 6 If we use the official minimum purchased l price of Venezuela, we end up with these differentials, about 7 roughly an $3 barrel diffarance between the. 3 percent sul-8 9 fur and tha 2.8 and roughly about a $4 a barrel difference 10 between the one percent and 2.8 on an accurato basis,. Those are the official prices, I believe you 11 Q 12 stated? '3 ^
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=.e *ae articies ert=e - ze e see to O; apot prices, spot cargos in New York Harbor, the price dif-4 8 14 d 15 ' .forential is essentially the same. 2 1* 16 Q Is not the market for oil to some extent 17, greater than just in one harbor? Isn't it an international 18 supply and demand situation? Yes, it is, but to the extent that.3 percent 19 A s ulfur fuel oil is primarily censumed probably roughly 90 20 hat's where the 91 percent is consumed in New York Harbor, 22 i market is. One percent is a co::modity that's 23 known as national. 2.8 percent is sulfur residual fuel 24 O-oil, a product that's pri=arily sold in New England. I 25 ' v r
~ T2 Goldstoin - cross 430 1 () So, insofar as different grades are 2 I concerned, the marksca ara --- distillate oil la prcduced 3 primarily in the United States. We import very little. I 4 Q But it would be very difficult to have a very 5 high or low price of 2.3 porcont sulfur oil in Mcv York 6 Harbor as compared to New England in that if that ;- 2e so, 7 there would be a pretty lucrative business in buying it in 8 one place and transporting it to another. Is that not 9 correct? 10 A That's very true. So, what you sea posted in 11 New York Harbor - about seven months ago, eight months 12 ago when there was a supply shortage, distillato rather 13 4 ( residual fuel oil, tha 2.8 percent sulfur, carried a price i 14 i tag of $11 below a tenth percent sulfur grade, brt that was 5 15 3 an artificial price again because there is no market for 5 16 that in New York Harbor. 17 If you want to try to buy that, the 18 price would come down to the tradicional spreads like $5 a 19 barrel. + 'O Q Now, with respect to the oils that are burned ~ 'l by other utilities, the reason why I realize that you ~ 2 are only the oil buyer for Jersey Central or oil price pro-23 jector '4 A 011 Forecaster. 95 s ~ Q Oil ?crocaster
T3 Goldstein - cross 431 1 A And Planner, yes. O i Q And Planner, however, in talking to Mr. Steger l 3l he did use your oil assumptions to forecast what the prices l 1 4 of oil would do to the PJM running rate?
- i ll 5
A That is correct. Now, to the extent that there [ l 6 is a couple of plants tatt burn the high sulfur fuel oil, if 7 he applied the ratas that I used for Jersey Central, then 8 he's talking about a 45.70 barrel differential. 9 Q. You're saying that he would have used the 10 same escalation rates that he used but --- t 2 11 A Exactly. 12 Q Which would mean that he essentially I 3 guess a corollary would be that the spread between a high (} 13 14 sulfur six oil and one percent six oil would not be increas-5 15 ing, according to his assunption? ,i 8 16 A That's correct. If you use the escalation that 17 we appliad, you would apply it across the board. To the 18 extent that the absolute price is difforent, then if you apply the percentage to it, you're going to get a change in 19 20 dollars. 21 Q When was your forecast of burned prices made that we see in JC-A-37 22 23 A This represents our three plus nine budget I and I startad praparation of the 3+9 budget probably in i 24 l O-25 i January. l 1 t l
i .0 Goldstein-cross 432 l 1 Q And when was the document completed in the l 2i for:n of these numbers that are en page 2 of 3, if not actually I 3 I written on this page, at least where you had everything I 4 together where it would be a si=ple process to get these num-l l 5 bers? i I 6; In other words, when wera your assump-7 tions frozen? i 8' A The assumptions were frozen, oh, I would say 9 in March. 10 Q In March. What was the status of the =arket l 11 for oil in March as ccmpared to now? ~ i 12 A The prices in March were just starting to i 13 decrease. ,l { 14 Q So, we were essentially - i i 15 A Let me finish that. The prices for oil were i E l starting to decrease for specific grades of oil, primarily 16 l 17 l for the higher sulfur grades. 18 For the distillate oil, prices have 19 never decreased. Prices have, indeed, increased over the 20 last six months. Low sulfur.3 percent tel oil,which is 21 probably the largest grade of fuel that we consume, was 22 maintaining its price. Let's say the prices were not es-23 calating. The higher sulfur grade-like 1 percent ; 24, jur.t were/ starting to come dcwn. There was some price movecent 25 I i i l l
i. t-t Goldstein-cross 433 U h 1 downward. ,I Q Do you knew what's happening to the 2.8 i ~ 3 percent? 4 A No, I don't. I would say that the prices were 5 coming down there also because I kind of -- I know that in 6 April, May, those were the grades, primary grades, that wars 7 cut, decreased by the.mnezuelan government, By Exxon. 8 You know, once the venezuelan government 9 decreases those grades, thosa grades are then decreased by 10 the suppliers, Exxon and all tha other suppliers in New York j 11 Harbor. They're, passed along to the consumer in a decrease. '2 Q I asked Mr. Steger this morning if he knew in 13 the various other oil-fired generating stations that are I4 within the PJM system, if he knew what grades of oil were I i j 15 l burned at those various generating stations. He indicated l I 16 [ he did not, that he just took the prices or startad with the I 17 l' i prices that were shown for those units, 18 A Yeah. i Q Are you aware of what grades of oil are burned 19 20 at the various portions of PJM7 21 A Yes, I am. 22 Q Can you review that for me, please? 23 A For the most part, the New York Harbor, again, 24 Public Service, burns a.3 percent. If we go out to Pennsyli 2 25 vania, we go up to 1 percent. I believe Celmarva, Delaware i i
c I Goldstein-cross 434 i 1 and Maryland burn either a 1 percent ~- I den't knew hcw high O i i 2 it goes. I think it'a 1 percent of.3 percent, and they all i I 3 burn the sa=e grade of distillate. I i 4; Q So, you're saying that no one in PJM is burning t' 5! 2.8 percent? Ili 6 A Routinely, I can't any that I knew of anybody l 7; that is, although you mentioned sc=ebody, the Hudsen plant. l 8l Q That's not in PJM. 9l A Yeah. I 10 Q I take it that GPU is not unique in having an 11 oil price forecasting person at all major utilities, your i counterpart? 12 I 13 A I would say yes. I would say that most of the i 14 ; utilitios do have t y counterpart. i 15 '! O m, as part of our information request, JCA.4, which was the projections of the PJM running rate :sade by 16 l g7 l PJM and -- I'm sorry, JCA.2, not JCA.4. I 33 MR. KIRSTET: A.2? i 19 MR. MAKUL: Yes. i i 20 O I don' t know who these people are on the operating ce=:nittee up at the top there or who ars =enbers of the 21 i production cost task force, but I yould imagine that they received input frca various utilities ofwhat their cost, 23 projected cents of fuel would be in ter=s of coming up with a PJM operating forecast. Does that scund logical? l 3, I ,,,.., - ~ ,__.,,-...n--__
Goldstein-cross 435 i A I don' t think we aver discussed fuel prices. 2' O Never discussed fuel pricss? 3 A I sit in on the fuel situation task force. 4 Q Yes. A And that's censistent with all znember cos::panies 6 of PJM, and I can say that unequivocably we do not discuss 7 prices. 8 9 10 I ~ 11 i 12 i O i 14 l 3 5 15 l-16 17 18 19 l 20 l l l 21 22 23 i 24 l l O i l l i a.
'l '1 Goldstain - cro33 436 l I Q Well, all right. On Page 3 of 9 us have sone j of the assumptions that went to the PJM running rate pro-3f jection? 4 3 page 3 og 97 5 Q Yes, of that JC-A.2, Paga 3 of 9. You have 6 that? I A I'm sorry - 0 MR MAKUL Why don't we go off the 9l record for a second. 10 JUDGE MARSHAIa Off the record. 11 (A discussion was held off the record.) 12 JUDGE MARSHALL: Back on the record. 13 Q Do you nee, oh, about two inches up from the 14 bottom of the text there's a listing of assumptions on fuel f 15 l prices and the assumptions there essentially are that 1980 16 - .the price of the oil products will escalate by 20 percent 17 and 1931 by 15 percent, 18 How do these projections, which aro j 19 used for planning purposes, compars to your projections? 20 ' A 1980, my projection was 30 percent escalation; 21 1981, 20 percent. 22 Q So in total you're projecting a 50 percent l '3 escalation? 24 ' A No. i 25 ' Q I guess you have a ccmpound effect. l l \\ t i
l 437 3t 2 Goldstein - cro?s t 1! A !o. I'm projecting a straight escalation. f ( I s Startin, in December of 1979 I would escalate the oil prices 2l 1 i -y 30 percent. Staring in 1951 I would escalate oil prices 3 i .a percent. 4 m. I 5l Q What causca you --- i j 6l X Let me continue. Consequently, after the 3 plus 9 budget, we icwored our escalation because we had 7 three =onths of actual data in that escalation and so, 8i t therefore, while we initially bach in December indicated 9 i that we would have a $10 incrasse --- the 30 percant trans-10 lates to roughly a $10 incraase in the price of resid and 11. I* l 12 i distillate oils. After the first three =cnths of actuals, (] 13 i = \\s we then escalated the residual fual oils by S4 a barrel. i j 14 So, what we're saying is that cur escalation rate was core 15, i I akin to the 20 percent than the 30 percent. i 16 j7 l Q You're saying after the March =cdification s that you're more in line with the PJM projection for 19807 l 13 I' l 19 ! A Yes. Q But you' re --- 20 a l A For our budget, for our official budget we'ra; 21 nore in line with the PJM escalatica rate for 1950. I an y, at 20 percent for 1981. 23 And what do you knew that PJM doesn't know? O g; () A What do I know that PJM does not know? That o. I
k 3t 3 Goldstein - cross 438 1 is the question? O 2 0 Yes, assuming your's is correct and PJM's 3 is wrong, which I realize we're looking at a crystal ball 4 but obviously that's your belief. I 5 A I think I have more information at my disposal. 2 6 I do not know =y counterparts background. I happened to 7 wc rk for an oil company, I happened to work in refinery 8 o pe rations. I think I have a very >_dequate knowledge of 9l the market situation, the world supply situation, therefore, l 10 I think I can make an intelligent projectica of costs. ij 11 While we're on the subject of wt.at we 12 know and what we don't know, I would like to ;go into the 13 mechanism for my projecting costs. ) 14 Q Fine. Why not now. 5 15 A What I have done and what I have used is a 16 technique which is called the cost pass through approach. i 17 This is a technique that Data Resources has utilized and I 18 believe rest of the other econcmetric. firms utilize that i 19 as well. 20 What it consista of is trying to deter-21 mine the cost increase of crude oil and then taking that 22 value and assigning.it to the products. For example, if the cost of crude oil 23 for 1980 increased by $10 a barrel, then we will say that 24 () the cost of the products would increase by $10 a barrel. 25 l 1
Goldstein-cross 439 1 A (Continuing) To the extent ths.t I have tracked O 2 the last three years, I would like to read my price compari-3 sons. 4 In 1978, the cost of cruda oil, this is 5 the average refiner's cost of crude oil in the United States 6 from January to December of 1973, increased by 87 cents a 7 barrel. 8 At the same teken, the price of 3/10ths 9 percent oil which we buy for Jersey Central increased by 10 $2.49 a barrel. l 11 The price of 1 percent fuel oil increased 12 by $1.00 a barrel. 13 The prica of distillate fuel oil in-O 14 creased by $1.38 a barral, so we wars paying mora than the 5 15 cost of crude oil, just the sole increase in the crude oil 16 that one can say represents the refiner's increase in profit 17 margins. l l 18 In 1979, the difference between January 19 and December of 1979, the crude oil prices increased by 20 $10.52 a barrel. By the sa=a token, the price of 3/10ths 21 percent sulfur fuel oil increased by $49.03. The price of 22 1 percent fuel oil increased by $12.65. The price of 23 distillate increased by $11.76. 24 l For the same period, for 19 80, 1980 l 25 the cost from January through May of 1980, the ecsts have I I i, i
1 4 i Goldstein-cross 440 I 'O increased $2.o4. ,i s ~ The price of distillato oil has increased 3 by $5.04. The prics of low sulfur 3/10ths percent sulfur 4I oil has decreased by $1.52, and the prico of the lower grade 5 of the more sulfur content residual fusi oil, 3.5. 6 The 1 percent sulfur fuol oil decreased by $3.50. The record shows that for every $1.00 of increasa S in crude oil cost, the utilitios, and primarily Jersey Central p 9 l utility as well as all New York Harbor utilites, sines they l l 10 are New York Harbor prices, have paid more than that $1.00. ,i Il j So the mechanisms we used for projecting our cost, this cost 12 l pass through approach, we tried to determine the cost of i 2 O 13
- c. rude oil and we say dollar for dollar that is passed en to 14 the product.
15 Q Essentially, would it be f air to say that this 16 hethod assumes that the refine: and marxeter will make the 17 ' sane margin in terms of cents or dollars per barrel en each IS barrel af oil he sells and so the only thing which is affect-19 ing the market price, then, is the variation in the price 20 of c M e? 21 A In a simplistic manner of explaining it, that 22 is correct. 23 The difference in sulfur centants ara i I 24 ; in excessive refinery operatiens and ecsts, but the record O 25 i shows that what is happening is the rsfiners an not only t l l
F i Goldstein-cross 441 f ~f 1 taking their costs, but also increasing their profit margins., l 3 2i Q In your view, is oil markating a ecmpetitive 3 business? I 4 A Yes, I would say that oil, sines there is no i i 5 government action against the oil companies, I would say that 6 oil marketing is competitive, in that sense. 7 Q Is oil refining a competitive business in that 8 sense? 9 A Again, I would say to tha extent I really do 10 not know the costs that each refiner has, I am told that it ?. 11 is competitive. 12 Q Do you know what refiner utilization is at 3 13 present compared to a year ago or two yearn ago? i I 14 ! A Yes, a year ago it was running at a record rate, 15 I think above 93 percent. i 16 Currently, I believe refinery utili=ation 17 is 73 percent.which is a record Icw. 18 Q Would you accept, subject to check, that in 19 ! yesterday's New York Times it stated that refinery utilization l 20 ' at present is under 70 percent, I believs it was 69.9 percent? 21 A I would believe that. ,l '.2 Q Under such circumstances where refinery utili=a-l 23, tion was lower, would it be fair to say when refinery utilisa-24 l tion is high that thers is some indication that it is a O 2S l seller market and where refinery utilization is low, it means i
r i Goldstein-cress 442 j O i that rec,1e have s,are ce, acier ane s4 mgs e=, geeting =c=e 2 co=petitive, and that is becc=ing more like a buyer's i3' markat for refining, for obtaining refining services? 4i A I thir.k in the United States' refineries, i 5 l traditionally, refineries maximize gasoline products and 6 distillate products. 7l Refineries do not produce excessive S:i quantities of fuel oil. Refineries have traditionally =ada 9 their money en pass through products. 10 Up until =any years ago, refineries j i 1 i 11 regarded refining organizations as a loss operation. That i 12 ' has all changed. Certainly there has been a decrease in O. 13 the censu=ption of gasolins. Cartainly our stocks currently 4 e' i i 14 ; of distillata oil are quite high. They are above the levels i 15 that - well, let me retract that state =ent. I 16 The distillata levels are within the ~ 17 i no=nal range that the Depart =ent -of Energy has set as a I i IS ! target for what we need in C::teber. Rafineries are back dcwn ! i l 19 j on their refining runs because the tankage is limited. l 4 i i 20 In other werds, they have an excess 1 i i capacity and an excess of products right now. There is no i 21 ! l 22 ' question about that. 23 However, their costs are ccatinually 1 3 24 ] going up and at this point in ti=e I have net seen any ) i 25 Icworing of the refinery gats prica for gascline. I have l i i i i i
k l Goldstain-cross 443 I seen lower prices of gas at the stations which indicate to me that the dealers are decreasing their margin. Their 3 margin was increased about a year ago or a year and a half 4 ago where they were allowed to earn double or triple what 5 they are previously earning. What they are doing stimulates 6 the market to cut back~.- 7 8 9 10 2 11 12 i 13 I 14 5 15 16 17 2 18 19 20 21 ' 22 23 25 i i t i i .,, - ~ ~.... -...., -.,,
2n 1 Goldstein - cross 444 l l 1 Q You have road nothing in the newspapers about () I 2 major oil companies dropping their wholesale price of gaso-l 3 line? f 4 A I read that spot market prices for gasoline j 5 is coming down in the Gulf Coast. I have not road anything j 6 at this point to inlicate that there has been a drastic 7 changa in the :efinery gate price in this area. 8 Q Is the refinery gate price the same thing, 9 like if you read in the newspapers about Taxaco 1cwering 10 their price of gasoline? 11 A Yes, but Texaco --- you are picking an unusual 12 situation. Companies, for examplo, like British Petroleum, a i /^h \\_/ 13 BP, has access to North Slope crude. Morth Slope crude was i priced at a very, very low price relative to the world mar-14 15 ket pricos. BP had a competitivo advantage of about three s cents a gallon of gasoline, 5 cents a gallon of gasoline; 16 DBO, if you remesbar a couple of months ago forced BP to 17 raise their price and by the sa=c token, Texaco has all 18 tne disadvantages of high pricos and to stay co=petitive 19 they have to take a reduction in their refinery price, their 20 refinery gate price. 21 If there was a reduction in the dealer margin Q 22 then that would force the refinery gate price --- 23 l I have not seca any data' that would indicate 94 : A ~ 25 l a significant decressa in the refinery gate price. i I
2u 2 Goldstein - cross 445 i I () 1 Q You havo read nothing in any newspapers or 2l trade publications to indicate that the major oil ccmpanies i t 3j are lowering their price of gasoline? i 4 A I have read Platts. We get Platts Service. I j i 5 read it every day. I know what the market is. I know what I i 6l you're saying. Again, I say that I have not seen any de-7 I terioration of refinery gate price. 8 Q With respect to the cost pass through approach, 9 that assumes that the market conditions are such that the 10 ; refiners or dealers, the distributors =ay be able to main-l ta'i:', its profit margin on each unit of barrel, each barrel r 11 l-12 l that they handle? Isn't that the bottom assunption which 1-13 this whole thing rests upon? i: J A Let me go over this an illustrate a point. l 14, 15 l The price of crude oil frcs January to our current May went i i 16 l up $3.04. The price of distillate oil went up $5.04. That l l i 17 ! to me means that there is a S2 increase in refiners or dealers' l IS profits, right? 19 i Q I'm asking you. You didn't answer the question. l 20 l What I'm asking is, is the whole basis of this approach, that a refiner or a marketer is able to maintain its profit mar-21 gin? 4 n.o. A Again, my answer is that for every $1 increase 23 l in the cost of crude oil, the cost =arket approach assumes ,4 () I i a $1 increase in products but it is not there. The prcduct 25 l
J 446 j 2u 3 Goldstein - cross market has been more significant so that in every roll back ~ I (} the price will not bring us down to the cost market approach 2l of a dollar for a dollar. What I am saying is that the dol-3 lar increase in crude oil price has translated to a $1.50, 4 a $1.60 increase in product prica. What you are telling 5 ne is that now, we will see a 50 cent decrease from the cost 6 of that product. I agree that night very well be but the 7
- oint is that we will still see a dollar for dollar increase 8
in the cost of that jroduct. 9 Q It would appear to me, sir, that as sales are 10 dropping off, the volume consumed of oil drops off and I l 33 think you would acknowledge that that is indeed happening, 12 correct? () 13 A correct. 14 That dealers would find either individually Q f 15 i or in an aggregate, their volume of sales are going down? 16 A Their volume of sales are going down. The 77 refinery costs are going up. 7g 19 20 21 22 23 04 ~ (~T U 25, i i l \\
[ t 5< .f 447 Goldstain-cross 1 Q Which, under nor=al economic theory, would =can e that in order to try to maintain or expand their overall level i ~ of profits that they might take a smaller margin so as to get. l 3 4 a larger market share, albeit of a dwindling market? 5 A Let re rephrase the question to you and pose 6 j this answer. 7 Q I don't answer the questiona. I ask the questions. 8 j A I will rephrase the answer this way. 9ll OPEC, the traditional supply service 10 curve at CPEC is new a backward binding curve, backward 1. j II, binding supply curve. I', OPEC is cutting their prcducts and 13 raising their price. i l l I4 l Q I am not talking about OPEC supplies. I am l { 15 l talking about people who are marketing in this country and 16 refining in this country. 17 A But, you cannot sort the cost of crude oil i IS ' from the cost of products, and that is my contenticn. h Q I am asking you about your cost pass through 19 20 approach where you taka the inputgica of crude, be it frem 21 OPEC or whcever,, as an input into the system and then you are ~ 22 addingon a pass through. I 23 I am asking you a question focusing en i 24 the pass through, not en the cost of cruds. O 25 ! A The ecst increase -- l i
I Goldstein-cross 448 MR. KIPSTEN: I as sorry. I don't know I 1 if there is a question pending. I have not l 3 I heard -- 4 Q I guess the question pending is that given that } s sales are dwindling and that before, for example, the refiner.y 5 i 6 capacity was over 93 percent indicating that there was very ,I i 7 much spare capacity around so people would not be in a position, ll 8 refiners would not be in a position to want to try to expand .i ! i their market shara now with refinery utilization at 70 9 t : 10 percent that refiners do have spare capacity and efforts to i i maintain market position, maintain profits, would try to Il 12 expand market spares by perhaps taking a smaller margin? 13 I think the refiners are doing exactly what A I4 the OPEC nations are doing. They are using a backbending f 15 f supply curve. 16 Refiner utilization has decreased, less products are being made. Therefore, the demand, if it is 17 18 maintained at that level, will socn sop up the excess 19 i capacity. 20 Traditionally, the market, the demand 21 for heating oil, the demand for dis,tillate is in the winter-- 22 time, not in the springtime or sum =ertime. We are approach-23 ing the wintertime. That is when demand picks up. 24 Demand will pick up from average of 25 ' about 2 million barrels a day to as, much as 5 millien barrels l
i Golds tein-cross 449 I a day during the wintertime so demand is cartainly going to 2 pick up. 3 0 So you are telling me that this is a normal 4 expected seasonal demand? 5 A That la what the market is all about. That is 6 what the petroleum market is all about. It is a seasonal 7 demand. 8 Q And inventories are higher even compared to 9 the normal seasonal expected variations? ? 10 A I agree with your question, and to the extent 11 that the refineries are cutting back products, that is,to 2 l 12 i dry up surplus and create an enrironment for continued cost O- : 13 pass throughs. That is why refinery capacity is down. 14 0 Now, we are in a situation where the refinery ? 15 utill ation is dcwn, the tanks are quite full -- i 16 l A Tanks are only full for ene product. The tanks i 17 are full for distillate oil. Residual oil has decreased and 18 is en the lower end of the DOE level at this point., Crude 19 oil tanks are very full. 20 Q Residual oil is a product which you get a fixed l 21 percentage from every barrel of any particular crude that you l 22 buy? 23 : A Residual oil is a function cf crude. There are O 24 l o::: o==ae ta e sive ro==== rie1e oz =e ia= 1 a otae== 25 l that give you less. l l
450 l Goldstein-cross 0 1 Traditionally, in the US, our residual 2 fuel oils have amounted to about 20 percent of the barrel. 3 Q I understand thoro is a lot of gas displacement 4 programs that the faderal government is encouraging and 5 administering to back oil out of the utility. 6 Would it be correct in assuming that 7 most of the oil that is being backed out is residual? 8 A -Se program was initially set up to back out 9 distillate oil. It is now being used to displace icw sulfur, t 10 int.ermediate sulfur on the east coast. 11 .i 12 O! 13 4 es*i 14 5 15 ,i 16 17 IS 19 20 21 \\ 22 23 24 ( 25 l 1
l .1 Goldstein - cros3 451 O Do you know if Public Servica is displacing 2 oil with gas? 3 A Public Service is displacing oil with gas. 4 Q Are there other utilities in that area that 5 is displacing oil with gas? 6 A Jersey Central Power and Light is displacing i 7 oil. 8 Q It seems all these things combined would re-9 duce the demand for No. 6 oil? 10 A There is a reduction in demand.
- However, s
given the fact that gas availability is not adequate in 11 the wintertime, there is a demand for residual fuel oil. 12 C:) 13 Q But the end effect is, is it not, is that j I utilities who are very large users, very large parts of i 14, the market for six oil have been through construction of 15 nuclear plants and gas for oil displacement and so on and 2: 15 so forth, are,they reducing their usage of six oil? 17 18 A The usage of six oil has fallen off by about 19 eight percent, 10 percent. Not everybody can displace residual fuel oil with gas. One has.to be able to burn 20 l natural gas in their boilers. Not every utility has that 21 capacity and not every utility wants to engage in convert-22 ing their boiler to a gaseous fuel that might not be 23, i i available in a year's time. 24 l I Q So you are telling =a then that despite the 25 t i I
.l 4u 2 Goldstein - cross 452 (' I fact that about 20 percent of every oil that comes into re-2 finerios comes out as a residual oil and the fact that 3 utilitica are burning less of that oil, all of these things 4 are totally irrelevant and the price of residual oil is 5 going to keep getting bumped higher and higher as the price 6 of crude oil goes up? 7 MR. KIRSTEN: I object to tnat. That S is not what the testimony says. No where 9 does he say it is irrelevant. His characteri-10 zation of relevant seems to disagree with Mr. 3 11 Makul's characteri=ation of why it is role-' h 12 vant. No where has he said it is irrelevant. (:) 13 4 MR. MAKUL: I asked several questic43 14 about the cost pass through approach and the i i 15 fact that the volumes being sold were rcduced and I believe Hr. Goldstein's response was .3 17 that the supply and demand curve is somewhat IS bending backwards and that the spara capacity 19 might, not that he used the word irrelevant, 20 but that it is not really a factor and they 21 are going to dry up these supplies to maintain 22 that price. 23 MR. KIRSTEN: I disagree with you. () 24 He said that the reason that the utilization 25 is because they are doing exactly the same l i
i 4u 3 coldstein - cross 453 O 1 thing OPEC is doing, reducing supplies to 2 maintain a high price so it is relevant to 3 prove that notwithstanding the reduction usage, 4 the price will still go up. That is relevant. 5 MR. MAKUL I guess you misheard me, 6 Mr. Kirsten, because what I said was that Mr. I 7 Goldstein's position was that a change in I 8 usage is irrelevant to a change in prico be-I l e 9 cause --- 10 MR. KIRSTEN: It is not relevant. It 11 is relevant in the opposite direction. 12 MR MAKUL Perhaps the witness can 13 clarify it. The less that is used, the higher j aj 14 the price will be. Is that the new supply 15 and demand law of economics we are operating =. t: 16 with? 17 MR. KIRSTEN: The less the supply, the 18 higher the price will be. 19 MR. MAKUL: And the reason why the 20 supply is drying up --- 21 MR. KIRSTEN Eccause there is less demand so they reduce the supply to maintain 22 23 a high price. () M2. MAKUL And that is so even thoughl 24 25 22 percent of every barrel comes out as .i o l
4u 4 l Goldstein - cross 434 i O i residual? 2 MR. SAHRADNIK: I object because I think 3 Mr. Kirsten is getting in a position as to 4 testifying without having being sworn under 5 cath. 6 MR. KIRSTEN: Because the way the ques-7 tion is phrased is argumentative. 8 M GE MARSHALL: Off the record. 9 (Whereupon, there was an off the record 10 discussion.) ?. 11 .I 12 13 m' l 14 2 5 15 l l 16 i 17 \\ 18 19 20 21 22 23 O 24 ! 25 ! l
l Goldstein-cross 455 1 JUDGE MARSHALL, Back on the record. 2' j Do you still have an unanswered ques-3 tion or was it resolved in the break? MR. MAKUL: I didn't have any questions i 5 ! answered during the break. 6l JUDGE MARSHALLS Okay. 7 The other Court Reporter isn't here 8 to read it back, so why. don't you restate 9 your question. However, when you restata it, before Mr. Goldsteln answers, just wait a 11 second or two to see if Mr. Kirsten is going 1 i l to object. If so, let him state his objec-13 tion. ai 14 i You can answer, but do not speak at 15 the same time. I 16 Q Do you agree with the general statement,then, I that regardless of how much excess capacity there may be in 18 the refining industry and regardless of how little oil may 19 besold through marketers, that that will never reduce their 'O margin in the form of a pass through in terms of their -- 21 a margin on each barrel handled? 22 JUDGE MARSHALL: Excuse me. Could 23 l the Court Rsporter read back that question? .O 24 ! xR 8xxut-z'11 r se
- 1*-
I 25 { Q Are you saying in the clause pass through l l
l Goldstein-cross 456 O ij approach ehee the refiner, ehe merketer, w111 a1 ways eake the l 2l saca markup on each barrel of oil regard 1ess of how slack I i 3 the demand may be for the product? 4 A What I am saying is that the refiner wil1 cover 5 his costs of crude oi1 in refining costs. 6 He may back off on his margin a little 7 bit. 8 What I have done is try to illustrate 9 that the refiners' margins have increased over the past 10 three years. To the extent that they have increased more i-11 than the cost of his crude oil, he can back off so=ewhat. 3* I 12 Q But the time period from 1978 through '79, Oi 13 was that not a period of very rapid escalations in the world-ij 14 l wide prico of oil? f 15 l A Well, 1978 was not. Average crude costs went i 16 ! up on1y 87 cents through the whole year. 17 g 19797 18, A 1979, yes, it was, but if we dwell en 1973 as i 19 j a basis here, the refiners' margins more than doubled. I 20 i Q Would you agree that in the 1979 period that 21 perhaps cumand at that time was artificially stimulated by 22 something called panic buying? 23 A There was c definite shortage of oil in 1979. 24 The Iranian situation developed back in '73 and it was a 25 ! backout of rough 1y two million barre 1s of oil in the market-l i ~
--.- _ k } Goldstein-cross 457 O e1 ace. I wou1dn't sav that it was vanic surine. I wou1d say it was necessity buying. 3 Q What was refiner utili=ation a year ago? I I A Pretty close to 90 cdd percent, I believe. 5 Q And it's now 70 percent? 6 I A 70 percent. O If there was a shortage of oil, where did they l get all the oil to refine to get 93 percent utili=ation? 9 A A lot of it came out of their stocks. l 10 Q And inventories were getting icwor? i ,i II { A Inventories -- in 1979, the winter of 1979, I2 g there was a panic to build up inve:itories of distillate oil l in this country and -- I I i ' i I4 l Q It was a panic condition? l t j 15 A I wouldn't call it a panic, but there was a i 16 lot of incentive to build up inventoriesbecause the inventory 17 l targets were way below what the DOE had set as an official 18 goal and this is the winter of 1978/1979. 19 Q As a result of this, this panic, which was 20 your word, I'll just call it a dete== Lined effort to build up 21 inventories of heating oil, refinery utilization was high? 22 A Refinery utilization was high. 23 We tsported a large amount of distillate. 24 p Also, refinery utilization was high because of gasoldne U 25 l prcduction which was also being-produced. We were maxi tising i
i Goldstein-cross 458 I () I distillato, but also producing censiderable a cunt of gaso-2 line. 3 Q We had to get these products, it was felt, in case of a cutoff of supplies and the refineries were sitting 4 I 5 very pretty with respect to the fact that it was a nu=ber one 6, top priority national program, to get that oil refined in 7 the for= of distilled products? 8 .MR. KIRSTEN: I object to the characteri-9 zation of " sitting pretty". I don't know what i 10 that means. ) 11 MR. fiAKUL: They were able to have a i 12 93 percent utilization. ( 13 JUDGE MARSHALL: Could you read back 14 the original question? i i 15 (The Court Raporter read back the followingi 16 17 Question: We had to get those products, 18 it was felt, in case of a cutoff of supplies 19 and the refineries were sitting very pretty 20 with respect to the fact that it was a number 21 one top priority national program, to get that R. 22 oil refined in the form of distilled products?) 23 24 l C-)- I 25
459 2v 1 [ Goldstein - cross I JUDGE MARSHALL: And the objection was? MR. KIRSTCT: The for:2 of the question. 3 I don't know what the charactori=ation " sitting 4 pretty" is and I don't understand what the ques-5 tion is. 6l liR. MAKULs Dy sitting pretty I meant that they were able to refine a lot of products, 8 get and maintain a profit margin and they made 9 a lot of zaoney. 10 JUDGE MARSHALL: With that definition II of " sitting pretty", does the witness under-i j I2 stand the question? y LO l THE WITNESS: I don't. I'd like it 13 I4 l read back. 15 JUDGE MARSHALLS Okay. Could you read 2 a 16 it back apain? 17 (The Cour,t Reporter read back the fol-18 lowing: " Question: We had to get those products, it -was felt, in. case of a cut off 19 20 of supplies and the refineries were sitting very pretty with respect to the fact that it 21 \\ was a No. 1 top priority national program, 22 23 l to get that' oil refined in the form of dis-24 tilled products?") 25 f MR. MAKUL: I was asking his to f i l i
1: 460 Goldstein - cross 2v 2 ; I ccm=ent. oI I really have to object MR. KIRSTEN: 3 to the form.sf this examination, sir. This 4 is not a matter of commenting and then cen-5 versation. I can't see how you can pass on 6l the relevance of a question when there's no 7 question. 8 MR. MAKUL I think the question then 9l is -- I was asking a question, as I recall, j. I 10 l Mr. Kirsten, and you objected and broke the 11 ' question. j 12 BY MR. MAKUL g O 13 i How does that compare to the present business l Q i e l 14 l environment that the refiners find themselves in? 15 l MR. KIRSTEN: I object to the form of I i l 16 l the question as irrelevant. I 17 l MR. MAKUL: It is not irrelevant. 18 MR. KIRSTEN: What's the relevance? I 19 MR. MAKUL: The relevance is he's using { 20 a cost pass through approach pursuant to the i same number of cents or dollars per barrel 21 regardless of market conditions and he's 22 23l. citing figures to justify that of 1979 as to f what the pass throughs were and the point - 24 25 ' that I'= trying to make is that the business I
i 2v 3 Goldstein - cross 461 1 environment that the refiners are in today 2 is substantial 3y different than the business 3 environment that the refiners were in in 1979. 4 MR. KIRSTEN: It seems a lot simpler 5 if you asked him that question, is the environ-6, ment different and if so in what way and what 7 impact did that have on the pricing and we can 8 follow tlie line of questioning. I cannot fol-9 low the line of questioning and I think it's l 10 irrelevant and immaterial the way you posed t 11 ' it. 12 JUDGE MARSHALL: It may have been some-13 ) what ungrammatical in certain respects, but it 14 does have a certain relevancy. So, I'll deny 5 15 the objection. 16 THE WITNESS: Can I have the question 17 read back? 18 (The Court Reportar read back 'he fol-t 19 lowing: " Question: How does that compare to 20 the present business environment that the 21 refiners find thenselves in?") A The present busiress environment for the re-22 23 finers caniba3 characterized as follows: The refiner's ac-t quisition cost of crude oil has increased. That cost has (O 24 .) 25 : to be passed along, therefore, the refinery has cut down on l l l e
l t ! <4 Goldstein - cross 462 i l O i a utili=ation, the refinery has cut down on capacity, and 2l they're now down to a utilization factor of 73 percent or 3l 70 percent. i The major point is that refinery costs 4 5 have indeed increased in tor =s of acquisition of crude oil. 6 If one buys a barrel of oil at $35 a barrel and he makes 7 all gasoline and he sells it for.83 cents, he's not going 8 to stay in business very long because that 83 cents is not 9 enough to cover that barrel of oil. Q Mr. Goldstein, you're twisting things around. 10 .. i I'm not suggesting 33, i MR. KIRSTEN: I object to the co~ ant. 12 MR. MAKUL I am not suggesting that. 13 : l j. 34 l MR. KIRSTEM: I object to the con:nent. i I Y"
- 8 5
15 JUDGE MARSHALL Okay. An objection 16 : i has been made that your co==ent be stricken. 37 i""~ 18 tion. 39 "I* 20 Q The scenario you posed where the cost of the raw material was a dollar and the products sold for :less j than a dollar, that was not an example where it was a reduc-t tion of the cost pass through, rather, you went to a more i extreme example where the cost pass through became instead .=
2v 5, Goldstein - cross 463 I I of adding on the cost, the individual is losing money, and 2 that's not the question I posed, Mr. Goldstei% l 3 The question I posed is that if a 4 product costs a dollar or if the raw material costs a dollar 5 and the refiner is making a margin of 10 cents, the and 6 product price of a dollar 10, that would it not be possible 7 theoretically that in times of low demand and sevare over-8 capacity, that the refiner might reduce his margin to seme-9 thing less than 10 cents in that theoretical example? 10 A Would you say three cents? Is that the ques-11 l tion you're posing to me? Ij 4 12 Q The question I'm posing to you is if that as 5 13 opposed to that he might reduce his margin to 10 cents? l j 14 l I 15 i e 16 17 18 19 20 21 22 23 1 25 ' i
l Goldstein-cross 464 I 1l A I'm not arguing that point wi th you. My 7s(-) 2i comment here is if the refiners' cost is a dollar and he, 3 in good times, charges $1.10, in bad ti=en he might charge 4 $1.05, but that is not the point. 5 The point is that his costs in bad tLT.es 6 is going up. His costs have increased another dollar, he's 7 going to charge $2.00 now to recover that cost. 8 Sure, his margin will be lower, but 9 he's not go.sg to sell that product. at $1.80. The cost 10 pass through approach says that for every dollar increase 11 in the cost of his doing business, the cost of his crude 12 oil as a major cost, that is going to be passed on, in terms E. 13 of a price. {} 14 I'm not arguing margins. All I'm saying l* is historically when there has be.en an increase in the price s 15 16 of crude, the refiners and the distributors have seen fit to 17 raise their margins. All I am saying is a cost pass through 18 19 basis is that, and when conditions are tight, the cost of 20 doing business -- the increased cost of doing business is 21 going to be passed en. i My contention is essentially that the 22 cost of crude oil is increasing. There he no denying that 23 i g4 j the cost of crude oil has increased and we can submit offi-cial documentatica to show that the co.st of crude oil -- 25 l 1
Goldstein-cross 465 I refiner acquisition costs of fuel oil has increased as crude 2 oil has increased. 3 Q I have no dispute with that. .4 A-And to the extent that cost has increased, that 5 will be passed along in terms of product. 6 Q But that will be passed through, but the 7 appmach that you used to come up with a product price assumes 8 that the margin remains constant? 9 A No. I have not said that at all. In my cost 10 pass through approach, I have increased the cost of the f Il product by the price of crude oil. I say if crude oil went 12 up $10 a barrel, that's what I would expect to see in terms 13 l of cost of the product. 14 Q So, the implicit assumption is, then, that 15 since there re..s no correction made the other way for margin, 16 that the margin would remain unchanged. Is that correct? 17 A Whatever the margin is, the margin can come i 18 down, but the cost is still going to go up whenever the cost 19 of crude oil is. 20 Q The only questica is that because crude oil 21 goes up 10 cents, the margin ccmes down by 1 cent and the [ 22 theoretical example in that case is the end price of the 23 product goes up by 9 cents. Would that be right? I 24 l 14R. KIRSTEIT: I object to this. This T i l 25 l 1s argumentative. We have gene on with the 1
{ f, Goldstein-crocs 466 l 1 sa=e question for at least an hour. Mr. i 2 Makul happens to be absolutely wrong. The 1 3 witness has said so and he is not satisfied ~ 4 with that answar and he 's continued to say, j 5 but isn't it so, but isn't it so, but isn't 6 it so. 7 The margins happen to go up as the 8 amount of units sold go down. 9 Now, Mr. Makul doesn't want to believe 10 that fact. as stated by this witness and if he [ 11 asks the question 20 times, he's going to get 12 the same answer, and I object to the repeti-13 : tion. j 14 JUDGE MARSHALL: An objection has been i i 15 made on the outstanding question on the grounds 3i 16 of it is unduly repetitious. 17 Mr. Makul? 18 MR. MAKUL I've asked the witness to 19 comment upon the effect of the fact that we 20 are in,as has been reported, an oil glut, and 21 to what extent that might have an effect on 22 margins as opposed to margins that may has a l ( 23 l occurred in historical periods. l 24 i What Mr. Kirsten states is what the i 25 witness stated which is based on data that I i l l l l
i l' Goldstein-cross 467 1! occurred in the past year 3, in the past years i 2 i that were cited, 1978, 1979, ele early part of f 3; i 1980. I 4I I If the witness can enlighton us about i 5I this, my memory was there was no oil glut and 6 the essential questicn is that because of the j 7 market condition, the worldwide supply of oil, S the fact that consumption is widely reported 9 to be down, that is it not possible that since 10 j the prica paid for oil represents a ccdbination 11 r of the cost of the crude and the margins of j 12 - i. the varicus people who handle and refine that 1 13 i j j crude, is it not pcsaible that the ncn-cruds 4 14 l oil ecmponents of the overall cost of oil are i 5 I 15 l dropping. E 16 l MR. KIRS"21!: You want to testify to 17 that? I'll crcss exanine you on it, Mr. Makul. I 18 l MR. MAKUL: I an asking -- f 19 MR. KIRSTEN: The witness has said you i 20 ars wrong. You may not like that answer, but I og if you want to get on the stand and testify, ~ o, I think I can prove that you're wrong. '3 JUDGE MARSHALL: Well, there was an i 24 outstanding question and then during the course i '5 of the respcuse to Mr. Kirsten's cbjectica youf I i i il
I l Goldstein-cross
- 468, Il stated another question.
oI ~l Was your earlier question withdraun 3 and that put in its place or was that merely 4 + a rhetorical question you made during your 5 response? 6 Mit. MAKUL: I think this would probably 7 be best handled in a brief later. We'll move 8 on to another area. 9 JUDGE MARSHALL: Does that mean you're withdrawing those two questions? 11 MR. MAKUL:
- Yes, j
JUDGE MARSHALL: Okay. 13 Q Hr. Goldstein, with. respect to the projections, = f 14 i I see them escalating.*on a month by month basis to get to 5 15 your final figures. This is on JC-A.3, page 2 of 3. I 16 Now,- we have budget figures there start-17 ing in September and going through next August. Ycu were 18 asked to provide an exhibit during discovery and, unfortunately, 19 I don't thiik there's a number on it, but we asked you to 20 compare the actual cost of oil burned in July of 1980 to I the previous budget, no It's a handwritten copy, maybe if I show 03 it to you - do you recognize that? 24 l JUDGE MARSHALL: Off the reccrd. oS ] (A discussion was held off the record.)
l 6 Goldstein-cross 469 I l I JUDG2 MARSB14L: Back on the record. I oi ~l There's been an off the record discus-3l sien. The parties have stated during the l course of the day that it looks like there 4 ( 5 may be minimal cross examination on Tuesday. 6 In light of that, Mr. Sahradnik has I asked, and I feel it pessibly would be for the benefit of all parties cencerned and for 9 competent treatment of his memorandum on the 10 question of a further hearing date in Menmouth, 11 i for this memorandum to be submitted on Wednesday 12 rather than en Monday as originally requested. 5 3 i 13 l Agreed? I4 MR. SAHRADNIX: Thank you, Judge. I i 15 I appreciate that. I l 16 JUDGE MARSHALL: Okay. New locks liks II a good time to break. 18 Are:there any further matters before 19 we break right now? 20 (No response.) 21 JUDGE MARSHALL: We'll break ncv. 22 We'll resume Monday morning at 9 :C0 o' clock. 23 Thank you for attending. 24 ! (HEARING ADJOURNED TO MCNDAY, AUGUST l l
- 25l, 25, 19 80, ETARK, N3W JERSEY, 9:00 A.M.)
i i l t l l
~ f I 470 EXHIBITS 1 2 Number Descriuticn Pace 3 JC-II.1 Three page document, a Response to Public Advocate's Data Request made at Hearing on August 21, 1980 341 4 5 JC-400 Testimony of !!arvin Rabar. 354 ~ 6 'JC-401 Short Ters Sala's Forecast Su= mary July 1980. 354 i 7 8 1 9 10 11 8 INDEX TO WITNESSES 13 3 13 l NAME DIRECT CROSS REDIR. RECROSS _ I LAWRENCE P. GENTIEU f 34 f. 15 I ROBERT STECER l. g 8' 17 BY: ML MAKUL 341 349 gg BY: M. SMWNIX 351 19 20 BY MR. KIRSTEN 353 ,, I BY: MR. MAKUL 370 417 ~~ 3 BY: MR. SAHRADNIK 407 24 H. LAWRENCE GOLDSTEIN l 1 S I i. BY MR. KIRSTEN 419 i l BY: MR. MAKUL 420 1 \\ /}}