ML19338C031

Intervenors,Other than Dow Chemical Co,Response to Util Late Filed & Renewed Motions to Strike Portions of Direct & Rebuttal Testimony of Rj Timm Re Alleged Legal Conclusions on Suspension Hearing.Motion Should Be Denied.Response Encl

ML19338C031
Person / Time
Site:	Midland
Issue date:	06/27/1977
From:	Cherry M CHERRY, M.M./CHERRY, FLYNN & KANTER
To:	Atomic Safety and Licensing Board Panel
Shared Package
ML19338C032	List: ML19338C031 ML19338C034 ML19338C035 ML19338C037 ML19338C040
References
NUDOCS 8007310592
Download: ML19338C031 (17)

Text

-_

W'N

_(

3 e

~

Q

(, "[

UNITED STATES OF AMERICA.

f gi3Y."

p NUCLEAR REGULATORY COMMISSION k

'Before the Atomic: Safety and, Licensing' Board

.G Z

p

'd.6

) [w~

3 D

In the' Matter of:

).

Q, %. s yf

).

CONSUMERS; POWER _~ COMPANY

)

Docket Nos. 50-329

)'

50-330 (Midland Plant,' Units iland 2) )

g

-INTERVENORS' RESPONSE.TO:

(1) LATE-FILED

. AND - (2) ? RENEWED MOTIONS zOF CONSUMERS POWER '

COMPANY:TO STRIKE PORTIONS OF DIRECT AND. REBUTTAL TESTIMONY OF-DR. RICHARD J. TIMM Intervenors other than Dow Chemical Company, by their attorneys, submit this-response to:

(1) theJrenewed motion of Consumers Power. Company; (" Consumers") to strike certain portions of~the written testimony of Intervenors'; witness Dr. Richard J.

~

Timm, Land- (2) Consumers'. late-filed motion to strike certain iportions of.Dr..Timm's Rebuttal l Affidavit.

The' Staff, in an Answer dated-June'22,t1977, has supported both motions; we respond-

~

herein to'the Staff. position as.well.'

.The testimony in' question,-most of.which had previously been admitted-~andl cross-examined at length,_ concerns alleged

'"legalfconclusions" pertaining to the issues'b'efore the Board in

~

Jthe suspension; hearings and'the full remanded hearings on the l merits,Gand refere'nces by<Dr.JTimm to Consumers' admissions in.

I ifour other areas:' Consumers'lfinancial' difficulties; consumers' Lserious and ongoing dispute with'Dow Chemical Companyi Consumers'

.' improper inclusion)in ihs demand-projections'of:nottyet consummated

-;salesJtolcertain-municipalities.and cooperatives; and Consumers'-

= admissions that.its projected-derating of0 Palisades because:.of

.l

.c m

~G.

steam tubeJproble'ms is not a likely occurrence._ We deal first with'the'latter category of; objections by Consumers.

~I.

DR. TIMM PROPERLY REFERRED TO FACTS.PLACED'IN THE RECORD BY.

~ CONSUMERS,;DOW AND THE-STAFF.

-Consumers objects to Dr. Timm's discussion of the four q

factual subjects noted above on the ground that Dr. Timm is not an " expert" on those subjects;'the Staff adds the claim that he

~

'is:' arguing" con those issues.

Both accusations.riss the point.

Dr. Timm did-not either. analyze.or argue in his testimony whether-it is true or not-true that Consumers has financial problems, that a-Dow dispute exists, tha,t Consumers is not contractually bound to serve the cooperatives and municipalities, or that an actual derating of Palisades isLunlikely.

It was Consumers' and'the-Staff's~own-self-styled " experts," not Dr.-Timm, who i

established those facts.- All Dr. Timm did was to assume that-Consumers' and the Staff's' witnesses hid' told the truth.

Even

.without a. point-by-point analysis of the record, that becomes amply clear when we reflect that if Dr. Timm had not testified

.at all, the' facts'in the-four. areas of which Consumers complains would remain exactly as Dr. Timm stated them to be.

In other words,' Consumers' attack issmisdirected. -However uncomfortable the facts are frcid Consuers ' ' point of view, it cannot make them m

vanish by quarreling ~ with>Dr. Timm.

The record shows--and Con-

.sumers'does not. claim otherwise--that Dr. Timm merely reported

>with perfectLaccuracy what Consumers' witnesses had already established beyond, cavil.

For example:-

K

-2

q

m:

_~g

-(( t 9

A. -

Consumers' -Financial Difficulties.

It:is~ absurd for Consumers to contend'that-its financial problems arise from Dr. Timm's imagination, or that his testi-mony that financial problems exist is.anything other than an

~

acceptance 1of the. conclusions reached, not by.Dr. Timm, but by-Consumers and the' Staff.

Consumers'itself admits (at page 4.

of its January 12,'1977-Further Answers to Interrogatories) that in October 1974 it told Dow that it'was unable to finance its construction progran and therefore was obliged to cut back construction on the Midland project.

Consumers itself admits (Midland Intervenors' Exhibit 59--Consumers' own September 9, 1976 Stock Prospectus--at p. 18) :

"The [1974] decision to cancel the $1.4 billion [Quanicassee]~ project was based

.upon the then prevailing market cLaditions for utility. securities, the Company's inadequate earnings, and the need for raising capital for.Other construction projects...."

The record indisputedly shows that both Mr. Temple (Tr. 2505) and Mr. Oreffice--a former Financial'Vice President of Dow--(Tr.-

2709-2712) have: characterized Consumers' difficulties in 1974 as "a disastrous turn-of events financially," and have expressed i

grave concern regarding' Cons'mers' ability to finance construction.

u offthe~ Midland. project.

The. record shows that-the Staff's witness Arnold Meltz, SeniorcFinanbial Planner for the Commission, himself-testified dnat Consumers is unlikely to.be able to finance the Midla$d! project:unless a combination of substantial rate increases and sales ~of securities'is achieved in the near. future, and has

-concluded:that,3although Consumers' financial goals vis-a-vis-the

' Midland projectfappear " attainable," "whether (they] will be

[_

--3--

r_

y attained ~is'not scmething'one can answer with any degree of

_ certainty.". Melt:: Testimony (fol. Tr. 5065), pp. 5, 7.'*

Finally, the record-shows that Consumers itself has advised Dow that Con-3 sumers will need an additional $100.to $400 million (which 'it has' demanded from Dow'en an interest-free basis) for continued

~

. construction of Midland--demands which Mr. Oreffice' considers

-. e

"- extortion" and which both he and Mr. Temple agree will not be 1

accepted by Dow.

Tr.-242.7-2430,_2710-11, 2723-24.

In short,' Dr.

s<

L Timm did.not invent Consumers' fi-:.ncial difficulties, nor 'does his testimony concerning ' hem require any " expertise" other than the ability to read a transcript.

Dr. Timm merely took Consumers, the Staff, and Dow at their word concerning Consumers' financial situation-

'Moreover,. Consumers had made current. admissions of its in-ability to finance the Midland plant.

Thus, in Midland Intervenors' Exhibit 29 (a memorandum to file from R. C. Youngdahl of Consumers

.1976), Mr. Youngdahl records his Power. Company dated' September 14,

• Consumers'-'1976 Annual _ Report (Midland Intervenors' Exhibit 57),

a document wherein any company tries to-paint 'he most-faverable

~

t possible picture, notes at the very_beginning (pp. 1-2) that -

Consumers? rates are " inadequate" for financing purposeg, that its-preferred stock and. bond credit ratings are " low," that~"it has been necessary'to issue common' stock at about three-fourths 3

of booktvalue," that it will;need hefty rate. increases to achieve

" adequate earnings, and stock performance," and that "[i]n 1974,

with deeply depressed earnings and'a' slowed down econcmy (else-

-where described as.the period when "the-pinch became.the crunch".],

it was nece,ssary.to' reduce the' work force by approximately 900 employeescand effect' severe reductions in the construction program."

Enough.said.

E -

I er 1

e e

-e-n.

er

/~7v 4

. meeting'with. Joe Temple.~of Dow and Consumers' continuing consterna-tion that Dow might violate tie contract and even if Dow did not

. violate the contract,.the existing. terms would'not permit Consumers

~

to sell powe'r to cooperatives which has impact on its ability'to

~

finance the plant.

Said Youngdahl about that meeting:

" Temple indicated he recognized that we had a valid, signed' contract but in their (Dow's]

,~,

opinion provisions of_.that contract had been violated.

I. pointed out to. Temple the seri-ousness of.this cosition as it~ relates to' the hearing 'and hur (Consumers ']. ability to finance the. project by sales to the coopera-tives unless the contract was revised."

B.

The Dow-Consumers ~ Dispute.

It is equally' astonishing that Consumers questions Dr.

Ti=m's recognition of the.. existence of.a dispute between Dow.and r

Consumers.. Again, the-evidence concerning-the dispute comes not frem Dr. Timm, -but from Consumers and Dow themselves.

That the 4

4 li::

2

r*

,a 2

-dispute is sharp indeed is'not open to question:

one of Dow's

' senior counselLhas described' Consumers' present position as

'" pretty damn close to blackmail,"E the President of Dow U.S. A.

has 5

characterized Consumers' negotiating position as " extortion" (Midland IntervenorsExhibitL25; Tr. 2723-24), and'bonsumers' i

. Board Chairman.was. accurately quoted by the Wall' Street-Journal on_ March. 24, 1977 as suggesting that Dow's! testimony at these hearings-" breached"'its " obligation to support the plant."*

It requires no. " expertise" to realize that such language.is not E

used by parties who are happy,with each other.

In addition, Mr.

Temple has. testified that Dow feels that Consumers has. lied to it, i-

'that the relationship.between Consumers and Dow (frankly described-I as " adversary" by.Dow's counsel) has deteriorated-with increasing speed'since 1974,-so that the parties are now further-apart than they have'ever been-before, that Dow has.no confidence whatever inLConsumers -(a point also emphasized by Mr. Oreffice), and that Dow considers a suit against ConsumersLfor breach of contract to be "a. realistic' option."

Tr. 407-09, 2288-90, 2299-2301, 2311-2312, l-2322, 2432, 2707,,. 2730..So strained is the Consumers-Dow relation-ship,~in_ fact, that'as the-Board knows Dow has consistently refused

(

• See Consumers' revised answer to Interrogatory No. 1, and' Appendix A hereto.

It. bears amphasis that even Consumers' chief official realizes how damning'Dow's evidence is;to Consumers' argument that this Board should authorize continuedtconstruction--just~as

tha

same ' official realized, before the ' hearings began, that if

'Dow told;the truth Consumers'would be in a "high-risk situation"

~

-(Midland Intervenors'i xhibit 64, p. 1).

E.

S.

'I

f&;

L--

r-y 4

^

-inLtheseJhearings'even to. agree thatLit has a binding contract

y

.with Consumers, gTr.-939-40.

Again,:no expertise is required to'recognizefthose acts, andlno one' claims that Dr..Timm has not reportedLthem accurately.

.C.

.The2 Cooperatives and Municipalities.

Just-as with-the preceding?two areas of testimony, Dr.-

Timm's statements concerning wh' ether Consumers has~a. legal obliga-

~

~

tion to-serve cooperatives and municipalities are not based on-

, any- " expert" judgment by him They are.merely adoptions of-the statement of Consumers' witness. (Mr. Heins) =on that subject:

"Q..

This isn't a firm commitment at this point?

A.

There -is no contract signed, ~ that is correct. "

}

,Tr.

1666; see also Tr. 1784

("Q.

-Do you have any obligation to

' sell Holland'-or. Lansing electricity. from the Midland generating a

4 fa.iility if it ever gets constructed?

A.

I don't know."),

l

("'.

What'if Midland is delayed?

Are.you obligated to l

.1787-88 Q

- sell 272 megawatts to these. groups fromisome o'ther source?

A.

As

{;

I: understand, we have no contractual obligation to do this.... ").

-See also p. -1 of Mr. Heins bound rebuttal testimony, noting that

Consumers'does;not include in forecasting other interconnected

(

. loads;it is not required-to: serve..If any.further. support for 4

'Dr.iTimm',s: statement:that the muni/ coop load is not. Consumers

4:

firm obligation'.an'--hence shouldinot be included

in projections, d

T..

4 it is found in thel fact-- that. the Staff took the very same approach.

'Feld;Testimonyj(fol.5Tr. 4375), p. 5.

I l

A r

+

t e

i

-ev e

K ++

x i.-

"D.

Palisades Derating.

Consumers'^ argument.on-:the "PalisadesLderating" question is again-builtion an irrelevant sort of expertise.

Here as

'elsewhere,;Dr. Timm.didE ot independently. determine.what the n

condition-of.the Palisades-steam tubes is, nor did he base'any

~

3 independenticonclusions'on the condition.of the. steam tubes.

Rather,che sinply notedJthezfact that Consumers has sought an

[

.uprating of. Palisades and has not considered possible derating important enough to merit mention.in the pertinent Environmental-l LImpact' Statement and adopted:

(a) the Staff position that "we assume. Palisades will=not'be out during-the 1981-82-period"'(Feld.

Testimony,.fol. Tr. 4375, p. 5); and (b) 'the testimony of Con-I sumers':own Mr. Heins, who described Palisades derating as only a " possibility," admitted-that it is equally possible that no,

~

derating'will occur and'that Palisades is not now losing any capacity, and idmitted that (i) further steam tube. deterioration may not-happen at all and (ii) in any event'fu'rther deterioration i

1 appears to be' repairable without a loss:of-Palisades-capacity.

Tr. 1670-71, J 1833. *

.In short, Dr.iTimm does not need to be a financial, business' contract, or steam tube " expert" in drder to support his 5 testimony.

Such " conclusions" as he states in'those areas are

-simply accurate' reporting-~of conclusions already in the-record r

(and,Lasenoted-above, generally shared by the Staff).

That suffices

~

1 to demonstrate theLutter' frivolity ofLConsumers' motion.

It is

[

> worth: pcinting..out, - however,.that the' uncontradicted record shows l

H s*LOn: June'17,11977,:.the.NRC' approved Amendment 28 to: Palisades' H

L

license.- In"the-safety evaluation to-that Amendment ~at p.

2,

-thetStaff concludes;that there are.no problems withisteam generator, Lttses.

H t-,

s m.-_,_

_.,_I

~g

+

1' 9

that Dr. Timm M ~an expert, fully qualified-by experience as well as on-the-jobitraining within the meaning of-Rule'702 of the Federal. Rules ofLEvidence, as to the matters concerning which he

-testified. 'In addition to his qualifications as a mechanical engineer, for the better part of a decade, Dr. Timm has been, on a full-time,' day-t'o-day basis, a regulator of public utilities.

~

As he testified both on direct (Timm Testimony, pp. 1-2, 6-10) and c

on redirect (Tr. 6081-89), as.a staff member and senior officer of Wisconsin and Oregon regulatory agencies Dr. Timm has reviewed more than 300 utility applications.for administrative relief of multiple varieties, has developed considerable expertise in the context of environmental analysis, and on a constant, day-to-day basis has been called upon to make judgments based on data pre-sented to him concerning whether a given utility project should

-(or in terms of the abilities of the sponsoring utility, can) go. forward.

Dr. Timm's experties, then, es in precisely the 4reas in which-he testified.

Consider, for example, the " financial" issue.

Dr. Timm is:not a C.P.A.--but so far as we know, neither is any member of the Board.* -Nevertheless, the Board in this proceeding--like Dr. Timm throughout his lengthy service with state utility commissions--must make' a judgment concerning whether, on the basis of.the financial information provided, Consumers is zlikely to be. able to' finance construction of the Midland ' plant.

'It may-require some; form.of " expertise" to draw the conclusion

~

-that Consumers: dropped the Quanicassee project for financial

-reasons, or that it shut down Midland construction for financial

• Nor is1the Staff'sl financial expert,'Mr. Meltz.

61 mh

.. ~.

y

}.a L

r

.x 7;.

7.,

}

Lreasons~,jorithatiiticut back its:-system maintenance program'for:

' (lack ;o'f, funds, -or:. that it1 has : ha'd;" inadequate earnings" to meet

~

A L

I

!theLneeds1of:its construction ~ program-~in the 'recent past, or-g j'-

that'its'present financialicondition: rests on the'somewhatLric'kety h

foun'dation'. of nhopes for rate increases ;(which it has not.gotten

~

in the past). and1 hopes' for 2 stock - sales 1 ("the amounts and types

.of1which have not yet~-b'een. determined")...' Midland Intervenors'

,c Exhibit;57 Meltz - Testimony L. (fol. Tr. 5065), p. - 5.

. But once'those conclusions,are derived--as.they have been'in this proceeding,..

~

by :theE Staff and by Consumers.itself---the task of applying those conclusions'to the problem at hand is precisely what a regulator.

like Dr. Timm does.

In other words, Consumers' entire. argument is beside:.the I

point.- One may.need tofknow something about: steam tubes in order

.to : conclude that Palisades has - (or does not have) a steam tube problem.- oneLdoes not, however, need to be an expert on steam.

L

-tubes in orderMto conclude that Mr. Heins: meant what he said in

~ his own testimony.. The " expertise" involved 1,ies in applying

'the; testimony, not in. preparing it.to begin with.

On the basis Lof hisiadmittedlygextensive experience in the-field of utility _

regulation, LDr. :Timm. ' concluded tthat:- (for instance). since Consumers

?had-already. testified that it has no legal-obligation to' serve:

~

Lthe municipalities andEcooperativ'es, those demands ought not to' be' included in "iss ; load.. forecast--and ' Dr.. Timm was perf ectly ' right,

~

f as1both fthe Shaff and Mr. EHeins' rebuttalt testimony (see p. 6 supra)

agreed.f--The same applies-to

each of the'other areas challenged-

_g.

y 4

..j

~

byfConsumers.: :To.belsure,7 Consumers-may not-like many o'f the,

~

.thingssits own witnesses have saidlon cross-examination in.this

proceeding. ~ Butiit.cannot denyf.the.. statements,.and its attempt toLattack Dr.-Timm's perfectly accurate.-reporting is: frivolous..

lit:is. noteworthy that-Consumers.has not questioned i

Lthe depth or adequacyLof"Dr. Timm's experience in utility regula-

-tion. - ; As we.have shown,. it nis that kind - of expertise which is.

. relevant here--the' ability to take-facts admittedly 7true,'and base upon them al determination.as to whether a utility. forecast-or proposal is.. properly supported.

That is:all Dr. Timm.has'done; that :is what.-he 'is manifestly. qualified to do;' and it is in no sense

~

4~

.either ' independently questioning- (as: Consumers seems to.suggest) j.

or' arguing about - (as the Staff would have 'it) the underlying facts.

[

To the contrary, Dr.:Timm has ad' opted.the' statements of-Consumers' 4-

_own witnesses cencerning the underlying-facts on which his analysis

~

~is based--and neither Consumers nor the Staff contehds'otherwise.

Theirl real quarrel, then, lies: with those ' witnesses, not with

{'

Dr. Timm.

II..

v DR. TIMM-HAS-NOT. DRAWN

, IMPERMISSIBLE " LEGAL CONCLUIONS"i IN HIS TESTIMOT*.

iBoth in:it's renewed mouion'to strike portions of Dr. Timm's directs. testimony;and'in its motion to strike portions of his re-

)buttalltestimony,: Censumers claims.-(with the Staff's. support) that Dr. Timm'has; improperly. trodden she. forbidden ground of legal:

cargument. :Once'_again~? Consumers ha's missed the. point.

That-is so

+

for?two reasons.

?

p w

r,

-,.,~,.-N.----

O-

7- ;

First.- :The great bulk _of the statementsichallenged'by.

Consumers are not " legal ~ conclusions" oat all',.but merely accurate r,catements-of fact ~concerning;the. conclusion reached by the

' Commission or~the Court:of Appeals; thusp Consumers has again con-fused Dr..TUmn's. accurate reporting of-a given datum (which

~

requires no expertise) with the kinds 1of qualifications required to argueLabout'and arrive'at-the' datum'itself.'

That'is true of o

LDr. Timm's testimony concerning what the' Court of Appeals and the Commission did.before this hearing began (Tinn Testimony, pp. 12-13),

what factual issues'have been tendered to the Board by the parties (Id., 18,'19, 34', 42), what. the Court of Appeals said about " sunk cc3ts" (Timm. Rebuttal Affidavit, 136),cand-what the Commission'did-about the fuel cycleJissue (Timm Testimony, pp. 81-82).

We need not belabor the= point by repeating everything we said in Part I.-

We simply point outithat it applies here as well.- No one,-including Dr. Timm,. suggests that-his't. timony is independent evidence of (for example) whether or not sunk costs" can be considered.in.this proceeding.

Rather, his. testimony is in --- r.ded to point out that, given-the undisputed fact that the Court of Appeals barred considera-

-tion'of " sunk costs" (Aeschliman v.,NRC, 547 F.2d-622, 632 n. 20 (D.C. Cir. _1976) )-,. it :is~ improper for. Mr. --Brzezinski to neverthe-iless include 1them"in his discussion.of: alternatives.- Similarly,

.Dr. Timm's-testimony is not independent evidence of whether fuel-cycle' issues can oricannot be a'nalyzed here,rbut rather simply shows.that :givenMthe undisputed fact that-the ' Commission removed that issue from these hearings,*,no detailed analysis of-it has in fact

• That is, until thefAppeall Board's order of May 4,11977 in ALAB-396.

L

Offcourse, that-ruling po~stdatescDr. Timm's testimony by_~3. months.

.y oy

k

l lbeen made.

2Here'as with the statements analyzed in Part I, n'o one

~ questions.-the accuracy of Dr. Timm's' reporting.

Here as~in Part I, Consumersf. misdirected attack'on Dr. Timm merely reflects its

~ dislike for the pertinent rulings of the Courtiof' Appeals, the Commission,'and this. Board.

Dr. Timm has done no more than refer-to'those rulings as! background for.h'is analysis, which is perfectly.

~

3 1

- proper and in no way col.stitutes'" expert' legal' testimony."

-Second.. Consumers' remaining ' attack is levelled at Dr.

Timm's conclusionithat:

(i) continued construction tends to foreclose reasonable alternatives to the Midland project, (ii)

~

unless construction is halted full censideration of.those alterna-tives-in the remanded hearings on the merits may become impossible, and (iii) since Consumers has not made a -factual showing that suspension will injure its ability to serve its customers, the first two factors indicate that construction should be suspended.. Timm Testimony,.pp. 87-88; Tinn Rebuttal Affidavit, 143.

Those, however,;are not " legal conclusions."*

At most, they are statem.ent's about the " ultimate facts in issue" and per-

-fectly proper:under Rule 704 of the' Federal Rules of Evidence.

As

- previously~ noted' (seeL pp.. 7-9,.

supra), Dr. Timm has spent the betteripart'of.the;1ast decade in arriving at regulatory-type i,

conclusions given1(i) the underlying. facts'and (ii) the applicable standard',7as to the "ultimateifact in issue"- Q.e_.,

is this or that'

• lEven if-the first'two. statements.were." legal" in. nature,.they Are no more;than accurate. reportage.

See: Consumers Power' Company

-(Midland Plant, Units 1L& 2),

LAB-395, 5 NRC (April 29,.1977),

,4 JSliplOpinionfat(13-14..

(

. - J., '

~.

f t

w n.

.,w.

m we

'm

>r

c.,

A utility application properly supported)..That is neither more nor less than what the NRC Staff has been doing _ throughout these i

-hearings, Land we willjnot burden the-Board by-repeating our showing

-in Part'I'that Dr.-Timm is eminently _ qualified to deal with such

. matters.

Justias'he'has not^ created'the underlying lacts, so also h'as not purported to invent any legal standards in this case.

he.

1 He has.. simply arrived atDa conclusionLas to the ultimate-fact.

~

,c That is no less proper than (for example) a:-doctor's testimony that the defendant in a malpractice case-did not meet the requisite standard of-care.

The doctor does not invent the facts or devise the standard; he simply applies what he is told about the standard i

.to what..he is told about the facts.

His testimony may be called testimonyJabout the " ultimate fact," but it certainly is not a " legal-' conclusion."- Dr. Timm's testimony falls in exactly the q

l 1same category.; No doubt Consumers disap ees with Dr. Timm.

But

~

its remedy is tc show (if.it can).that he is wrong--not to try'to prevent the Boardjfrem considering;any testimony which disagrees

.with Consumersihosition.

That Consumers has so consistently opted:for the latter' tactic, sin fact, suggests forcefully that-1 it is:well aware of its inability to pursue the former.

i l

}

CONCLUSION.

1

~

.For the : reasons stated -herein,,Intervenors (other than 7-;Dow;:Chemicalicompany) respectfully submit that Consumers Power 4-

.. j.

37

- o E

s ",

...~.

j

_ __t s.

Company's motions to1 strike: portions of the direct and rebuttal

~ testimony?df Dr. Richard:J. Timm should be denied.

Respectfully submitted, l.

• l Y

{ {l Dated:

June ~27, 1977 OnW o he Attorneys ror tervenors Other JanDowChemical mpany MYRON M.

CHERRY.

One IBM Plaza-

' Suite 4501

Chicago,LIll'inois 60'611 (312)' 565-1177 4

4 l

i

(

l s.

r,q~~l

, ~.,

1~

t

- s

~~ ~~

~.~

e o

y t

t n

p p

b M

N i

i L

lj

[

[

N i

[

0

}

[

L r

V i

^

t

_ a,,,

r. a.-

L. A t.,!) t' -) ~v J t

n s o

[

/

,I.

[ !t c

0 I

-TU.l:RSDAY, MARCH W.1977 s

.r e n

m

., - n s

,u n

~m,ew w;L. y

.w, Nuclear Fallout Utility-Plant Delays In Michigan Spur Rift Neither company is anxious to pubuciae Dow is in a tight spot, too. The nuclear the smte. but =, u,h tesemony and ecc.

plant was su,,osed to anew Dow to sc,a, uments gathered at current federal Nuclear its own antiquated fossil-tuel fac;11 ties cur-With Ma'or Customer a =~r a====**="""'"-

7" a-r t* "id*4 *=ic=>==-

l plex.'But the latest constructio views with key execu".ives, details are start-

-Ing to emerge. The result is a rare, unvar-forcing Dow to spend la'ge surns to nurse its r

Dow Chemical Mulls Ending cished gumpse of a giant business deal going

old plants alorg and is pushing the chemical

,ou,_, t.o, co,po,auens becommg m.

Pact; Consumers Power-creasingly antagonistic. yet locked into a.

company pe o u,1y ciose to i m _a3soluteiy the last year Dow figures its own power ontuu so iarge that wn2tever they do coutd practs enn 3e sateiy run at a:1. By t3en. Dow significantly u*!ect the future operations of has to have a new power source, even if it Talks of a Huge Lawsuit hoth.

must spend severai nunered mi:iion dotlars It's a struggle that spawns discussions of to build its own. "We've got a lot of tough such bizarre topics as " rathole" money and questions and some very damn expensive Key Item: ' Drop Dead' Date "erop dead" dates. on one hand oo* ct:2-an=-er=."==r= o. 3. w1:tia==. Dow's finan-cials darkly compare some of Consumers cial vice president.

Power's actions to attempted " blackmail" Things weren't always thua. % ten the By JOHN R. EMSHw!Ilf.R '

l and " extortion." On the other, Coraumers I proposed plant was first announced in 1W, str// Reporter o/ Tns WAu.SrnasvJoensas.

.' Power officials talk of suing Dow for i both companies thought it was "a splendid MIDLAND, Mich.-On a barren stretch f hundreds of mintons of dollars and chide the I concept." Mr. Aymond recalls. Dow was of land near here loom unfmishs4 twin silos chemical maker for seeking concessions I particularly enthusiastic. It envisioned a of a Consumers Power Co. nuclest power now on a commitment signed yests ago.

ready supply of cheap nuclear power and plant. Someday, it is planned, the giant con-

"The worst thing is the uncertatoty of staam providing the basts for revitalizing its cr;tistruerates w!H be able to produce 1,381,*

1 what wtH happen," laments Paul Oret!!ce, "home" plant here-v,here the company be '

000 kilowatts, enough to power a et'ty of one

! ' president of Dow Chemical U.S. A.,

the.

gan in 18W For years, the Midland complex miluon people.

~

company's giant domesuc division. He pro.

had been losing ground to other Dow plants

' About 408, of that energy, however, is fesses a " loss of confidence" in the utility (and presumably to rival companies) in slnted to travel only a few hundred yards to and says Dow is looking at a range of op.

anas onerbg cheapw energy, th) Midland works of Dow Chemical Co.

tions-including pu111=g out.

Pattent at First Thre, the electricity and steam would be Consumers Power otacials aren't happy,

$o f r some time after the announce -

used to run Dow's sprawlbg chemical. male-either, "It's been trustrating for me; nobody ment. Dow was tolerant of delays and prob-ing complex, which narns out some 8700 mt!.

Hkes to be called inadequate in his job."

lems. By the time Consumers Power had 11oD a year of products ranging from aspirin complains A. H. Aymond, the utility's chair-run a gant!et of opposttion from environ-t3 weed killers. That has been the plan ever g man and eniet executive. He says he's lust mentalists and of complex and changing fed.

sine) 1M7, when Consumers Power and Dow as upset about the construction delayz and

eral regulanons and finally obtahed its gov.

trumpeted what seemed to be the perfect cost overruns as Mr. Oreface 1s, but argues 4 ernment construction permit. it was 1972-marriage of industrial need and nuclear-that they aren't the ut'lity's fault. So. he five years after the project had beert techno!ngy - the first commerctal atomic '

says, Dow's criticism of Consumers Power launched.

~ wer plant to be tailored by a utility to the "isn't fair, accurate or warranted."

bewis cf a specine industrial customer.

However. in January 1M4 Dow stin had But 10 years later, the plant, ortgtnaHy Big Mone Involved mug me in me concept to sign supposed to be operating three years ago, la At sta e is far more than anybody's Please Turn to Pspe 23, Colums J cigst years behind schedule and now isn't pesce of mind or pride, or even the fate of stated for completion before 1932. Environ, an ammus experiment in har mc hnentalists have fought it; federal permits Consumns Pown alnady has bW about $450 million in the project and says it hava come with agonizing slowness, and for a time Consumers Power even ran short of

' 1-.nMs to anish % e a wm h as a money for it. Meanwtule, its projected cost prime custome, because me facMy also is has spiraled to 31.67 biH1on from $350 mil-J supposed to conNe 2 de uWs sh wide power network. But without Dow,s par-Hon ortgmally.

,i And there's anot.her problem: a growtEg ucipadon, genrnment regulators may not APPENDIX A itft between the occHtappy couple. Dow*

considu me plant's curnnt h jusuhd.

fed up witn delays and cost escalations, has.

and they might order expensive modifica-beta thinking of backing out; some of its ex-Cons. nee con symme possMy ht ecuttees have recommerwied it. In reply, the entire project mignt have ' to be Consumers Power has been exerting ever-f scrubbed.

stronger,, essure io boid onto its disgtsm-tied customer ~ ;

NucLearFa_6ut: Power-FiantFight !==_ t--""-m

^

3 Told of the review. Consumers Power SPop.

ws*

c~w an-Utu...tv Custome~r

~~ ~*-^

t int ut 3+ptember. Dow offtetais a4y. Con.

• c 1' 2 t

A 3

aumers Power Chairman Aymond teld Dow 8

that if the impendmg hearings resulted in Contmed From First Pepe suspension of the project, it could cost the

~

specific steam and electricity purchase con Dova pressure had little impac4. ne [

utility hundreds of militons of doutes. He tracts with Consumers Power to supplemen:

company soon learned that C.mst mers warned that if Dow ignored its contractual obligation to support the project in thir hear.

ths initial general agreement. In retrospect, Power was planning another two-year ee:4y,

+

Daw seems remarkably generous to Con.

to 1382. which would raise costs 50re above ings a :d the plant were suspended or killed.

sumirs Power in certain aspects of these the then. projected $940 million. Meanwhi:,,

Consumers Power would sue for up to taco million in damag63.

contracts; specifically. it didn't obtain any Mr. Youngdahl bluntly informed Str. Tem.

iror. clad language allowing it to pull out if pie that "it stretches the concept of 'best et.

Docents show that a Dow attomey th2 plant weren't ready by a certain date

• ortsi too far.to aasert that Consumers viewed warnir.gs of a lawsuit as " pretty s

The chemical maker was " banking on Con Power Co. is required to bankrupt itself on damn close to blacicnail." But a few days sum rs' ability," ruefully Mcalls one Do Dow's behalf."

later. Dow executives decided, at least for a official Dow spent nearly a year researching its while, to continue officially supporting the But 1M4 turned out to be a terrible yea alternatives. Then, in a late-1M5 letter to project. Later, Mr. Oreffico conceded that ;

i.

frr the utuity industry in general and Cor Mr. Youngdahl, Mr. Temple said Dow had Mr. Aymond's comments carried great ;

• • i ht.

sumcrs Power in particular. Costs soared

" junked" its hope of giving its Midland com.

t earnings plummeted, and money far bis plex s cost advantage through nuclect-gen.

Mr. Aymond says,. however, that he.

projects like the Midland plant dried up.

ersted steam and now risked "the Icss of never intended his remarks last September That year. Consumers Power canceled plans market position to chemical industry com.

na a crest. "I just informed them we would

, for another, $1.4 billion nuclear facuity, and pectors whose utlity suppliers are more re-exercise our rights," he says. Comparing his to nilp raise money for exisung projects re.

sponstre to their needs." He declared that remarks to blackma.1 is " unjustified " he sorted to such tactes as the sale and lasse.

Dow's confidence in Consumers Sower had adds.

bacx of some nuclear fuel usets.,

" dropped *.o an extremely low leve:

• Never.

Though Cow has continued to officially i

Dow soon got a troubling first. hand look theless, rather than aght in court, he pro.

support the project in the hearings. Its j

j r<t those money woes, rnd apparency began posed negotiations. Consumers Power doubts have been ccasistently drawn out by j

, to wor y about its co.nmitments. In mid.;.

agreed tc. talk.

the persistent questioning of Mr. Cherry, the i

1M4, the utility stazted to push Dow :o buy Various Demands antinuclear attornay. For example. Mr. Or.

at Itast 550 inillion and perhaps $110 million As bargaining began, neither side lacked effice recently testified that at one negotiat.

of a special class of Consumers Power stock demands. Confidential memos note that ing session this year, Cortsu ners Power cf.

to h:1p finance ths Midhnd plant. However, Dow, predictably, pressed for a arm dead.

fered to gtve Dow its " drop dead" cate but ths proposal failed: Carl A. Gerstacker, Ilne. It warned that another two year delay attached a list of conditions, including a W,0 th;n Dow's chairman, wrote in an internal would ;ut it in " grave and extreme circum.

million interest free Investment by Dow in mImo that while he wanted the plant fin.

stances" because its existing power plants the project. That, Mr. Oreffice said, " sounds 9

simply couldn't operate past im. It also like extortion."

ished, he opposed pouring Dow money into

]

It. "I am afrakt they'll wsnt Dow to rescue sought some MO million in what it termed Dow Commitment Wanted thtm in a larger and larger way" In the fu.

" rathole'! money from the utility-what Dow Mr. Aymond calls that comment "'.m.

turt he added. "I shudder at the thought" figured ;t would cost to keep its old power l warranted." He explains that Consumers By late tW4, communications between plants running until 1952.

Power wants the investment so that Dow the companies turned icy. Joseph Temple.

Consumers Power asked Dow, among will be "more committed," adding. "Now Jr., head of Dow's Mich'gan division and other things, to assume responsibility for the a!I Dow is doing is bemoaning the delays."

chief liaison with the ut:I:ty, demanded from steam generating portion of the nuclear Mr. Aymond also is bothered by some of the Russell Youngdahl, Consumers Power ex#

plant to ease the ffnanent burden. Dow re.

thlags Dow has said at the hearings. "Dow scutive vice president, a firm date after fused.

has a contractual obligation to support the which Dow could pull out if the plant nen, last July, a new crisis triggered a plant, and I think there is a very real ques.

weren't completed (later known as the contimdng chain of events that ultimately tion whetter they haven't s1 ready breached "dmp dead" date). Mr. Tempte's letter com.

may largely determine the pr+ ject's fate.

that in the hearing." he says. If construction plains of "an inability cn the part of Con.

Acting on a challenge to the Midland project is suspended by regulators now, he hints sumers Power to performits obligations" and f11ed by Myron Cherry, a Chicago attorney that the utility might sue Dow for breach of wams that if Dow didn't receive new assur.

and nuclear power critic representing a Io.

contract even if it doesn't pull out, ances that the plant would be operating by cal citirens group, the U.S. Court cf Appeals Dow has done some sword-ratt!!ng, too. It the 1980 target date then estimated, Dow in the Distrtet of Columbia ordered federal disclosed in the hearings that it is consider.

would consider it a " repudiation" of the con.

regulators to review certain environmental ing suing Consumers Power for more than and economie issues. Technically, the Nu.

$100 million for breach of contract relatedt tract.

s Regulatory-Commission hearings the plant delays.

' clear No Absolute tw,m.

going on in Chicago are aimed only at deter. l Meanwhile, the Supreme Court recently The demand was partly bluff, for later in-temal memorandums at Dow indicate that mining whether work should be halted pend.

agreed to review the appeals court decisica 15 own executives doubted whether the com.

ing that fu21 review. But that decision is crit.

that spawned the hearings. Although that pany could unilaterally pull out of its con.

Ical, because another delay not only would decision tan't expected for about a year, trnet. Moreover, Mr. Youngdahl didn't bite.

Jack up the plant's cost again but also might

, Consumers Power has asked the Nuclear Hi replied by quoting chapter and verse cause Dow to pull out.

Regulatory Commission to helt the hearings from the contract, which, he said, confirms Re cot =t ru!!ng hit Dow like a bomb.

pending the high court review. The NRC that there isn't any. absolute-deadline for shell. In what he calls his **most ditScuit de.

hasn't ruled on the request.

startup of the facility. He told Mr. Temple cision" ar Dow, Mr. Temple, !n a letterto Mr.

No one knows how the conciet will turn that Conszners Power was doing its best, Oreff!ce. the Dow U.S.A. president, con.

out. Mr. Aymond predicts that Dow will but that its financing tr%bles weren't of its cluded that in light of the rulit.g and the

stick with the project, if only because its twu making.

chance of new delays, the nuclear project

, other options **aren't very good," and that In response, Mr. Temple sharply' chal.1 would probahiy be "dtsadvantageous" to the compv.ies can agree on a revised con-lenged that ansertion. Alluding to Consum.

D w. He recommended a revtew of whether tract.- Dow's Mrs Oreffice is willing to re-l ers Power's problem plagted record "over Dow stauld back out. Mr. Oreff!ce agreed, sume negotiations, but doesn't seem opti-i th3 last four or five years " he drew a dis.

' mist!c. He notes that the latest barraimng forces such as government interrention and AO

- o g

posidons, put forh early this year, wm tinctiort between delays caused by-outside "further apart than ever " Yet he adds that by the utility's "tasPtlity to generate capt.

some kind of re,, sol,unon is essencal. "as gy 4

,l a

~***"'8P******

~

taL" He sIso compla;ned that while the Mid.

land project was being delayed, other Con.

sumers Power _ construcf.a projects were D(SYR5dT ' JOURNAL Thursd y;3karch 24,1977 25i

-