ML19344E138
| ML19344E138 | |
| Person / Time | |
|---|---|
| Site: | Three Mile Island  |
| Issue date: | 08/04/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML19344E137 | List: |
| References | |
| P-80070235, NUDOCS 8008270206 | |
| Download: ML19344E138 (120) | |
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,j W I COr1MONWEALTH OF PENNSYLVANIA O PUBLIC UTILITY COMMISSION I
3 ----------------------x l
4 Metropolitan Edison Company Petition for : Docket No. j extraordinary rate relief. :
5 : P-80070235 Hearings. :
6 :
______________________x 7 Pages 1 through 112 8 Hearing Room No. 3 North Office Building ;
9l ! Harrisburg, Pennsylvania 10 ! Monday, August 4, 1980 ;
- i t '
11 4 Met, pursuant to notice, at 10:17 a.m.
~s 12 ,
) BEFORE: ,
(' -) 13 !
i j JOSEPH P. MATUSCHAK, 3 minis-rative Law Judge i i 14 APPEARANCES :
15 SAMUEL B. RUSSELL, Esquire e l '
ALAN M. SLETZER, Esquire 16 W. EDWIN OGDEN, Esquire Ryan, Russell & McConaghy 17 530 Penn Station Center P. O. Box 699 18 Reading, Pennsylvania 19603 (For Metropolitan Edison Company) 19 STEVEN A. McCLAREN, Esquire 20 BODHAM R. PANKIW, Esquire EDWARD MUNCE, Esquire 21 G-19, North Office Building P. O. Box 3265 22 l Harrisburg, Pennsylvania 17120 (For the Public Utility Commission)
! j
- 'l MAURICE A. FRATER, Esquire 4
P. O. Box 1166 I Harrisburg, Pennsylvania 17108
-l (For St. Regis Paper Company) 8008270 {Of COMMONWEALTH REPORTING COMPANY 17171 761 7150
2 L .- l i
00 1
i 1 APPEARANCES: (Cont'd)
?j DAVID M. BARASCH, Esquire CRAIG R. BURGRAFF, Esquire ;
3 WALTER W. COHEN, Esquire I i 1425 Strawberry Square l 4 Harrisburg, Pennsylvania 17108 (For the Consumer Advocate) 5 3
6 7 I i
8 !
9 10 ,
11 1
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13 14 ,
15 I 10 .
17 18 19 20 21 22 23 !
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i COMMONWCALTH REPORTING COMPANY (717' 761-7150 l
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(_, j 1 C_ O_ N_ T_ E_ N T S_
2 EXAMINATION 3 WITNESSES DIRECT CROSS REDIRECT RECROSS 4 FRED D. HAFER 19 41 50 50 5 DAVID L. HUFF 53 -- -- --
6 FRED D. HAFER(Recall) --
! (By Mr. McClaren) --
65 -- --
7y (By Mr. Burgraf f) --
77 -- --
i' (By Mr. Barasch) --
79 -- --
8l .
}, (Witnesses continued on page 3-a) 3'l -
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' i 10
_E _X _h _I _B _I T _S 3 3 l' !
NUMBER FOR IDENTIFICATION IN EVIEESCE T 12
(^I'
- / Metropolitan Edison's 13 i
!. Statement A, Exhibits A-1 19 --
I4 through A-3, S tatement B, 1 Exhibits B-1 through B 10 9 , I 15 Statement C, Exhibits C-1 through C-32, Statement D, ,
I 6
Exhibit D-1, Statement E, Exhibits E-1 through E-22, i i
17 E-14a, Statement F, Exhibits l F-1 through F-21, 16a, 17a, j' g
18a, 19a, Statement G, !
I8 [ Exhibits G-1 through G-21, Statement N, Exhibits H-1, i
, ' l Statement 3[, Exhibits 45-1 ,
through ][-27 -
ll '
I Exhibit E-21-1 72 --
21 { u f-~s 23 ,
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25 ;
1 COMMONWEALTH REPORTING COMPANY (7171 761-7150 ,
1 l
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i 2 WITNESSES (Continued) : D'. RECT CROSS _ REDIRECT RECROSS '
3 EUGENE F. CARTER (By Mr. Ogden). 80 -- -- --
83 -- -- l 4 (By Mr. McClaren) --
(By Mr. Frater) --
84 -- --
j 5 (By Mr. Barasch) --
93 -- -
t 6 EDMUND NEWTON, JR.
(By Mr. Russell) 97 -- -- --
7 (By Mr. McClaren) --
108 -- --
(By Mr. Barasch) --
112 -- --
I 8l ,
9 10 11
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13 14 15 16 17 i
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COMMONWEALTH REPORTING COMPANY #7171 761 7150
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2 JUDGE MATUSCHAK: On the record.
3I This is the tine and place set for the hearing on 4 the petition of Metropolitan Edison Company for extraordinary 5 rate relief, filed at P-0070235, in connection with the rate 6 filing at Docket number R-30051196.
7 Mr. Russell, do you have a preliminary statement to 8 make? It's your petition.
9 MR. RUSSELL: IfYourHonorplease, Met-Edhasfiled{
10 this petition and the evidence in support of it is contained, i
11 in part, inthedocumentaryevidencewhichwewillshortlyaskj f')
'-j 12 l
to be marked for identification. 3 13 I That will be supplemented by the oral testimony of
,14 five witnesses, four of whom are available today. The fifth is witnesses, Mr. Graham, is not able to be here today, but would i
16 be able to be here first thing tomorrow morning.
17 Now, those witnesses are Mr. F. D. Hafer, Mr. D. L. 1 l
1 18 Huff,'Mr. E. F. Carter, Mr. E. Newton, Jr. and, tomorrow morn- l l
19 ing, J. G. Graham.
20 We would propose to mark the total documentary 21 evidence submitted on behalf of the filing _and the petition 22 at one time and, for purposes of this hearing, I'll direct thel') I !
23 attention of the witnesses to those portions of such evidence 1 r- l C}'
24 as relate to this petition. i l
25 JUDGE MATUSCHAK: Any statement by other counsel?
COMMONWEALTH REPORTING COMPANY (717) 761-7150 I
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MR. McCLAREN: Your Honor, the Trial Staff has no 1
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2 statement at this time, i 3 JUDGE 11ATUSCHAK: Does the Consumer Advocate have 4 any statement? ,
5 MR. BURGRAFF: Thank you, Your Honor.
6 Perhaps, just to' set the record straight, I would I
7 note that the Consumer Advocate's Office received a copy of j 8 the company's petition and request for a rate increase on July, 9 29. ;
i 10 This past Friday afternoon, August 1st, we filed a 11 complaint and public statement in this docket.
12 We also, at the same. time, filed a letter with
)
13 Your Honor -- which I hope all the parties also received --
1 14 requesting a delay in the proposed hearing dates, due to the i I
~15 fact that, on that short notice, we are totally unable to pro-t 16 ceed with any cr oss-examination of any company witness on the 17 petition.
18 I'll leave it at that until such time you want to 19 take up the hearing schedule, specifically. ,
20 JUDGE MATUSCHAK: Well, let's proceed, to hear what 21 the co.apany has, and we'll let you renew your motion at a later 22 time -
23 MR. BURGRAFF: All right.
.) 24 JUDGE MATUSCHAK: -- to see where we're going.
25 MR. BURGRAFF: Yes, Your Honor.
t COMMONWEALTH REPoRTINC, COMPANY (7171 761 7150
6 JUDGE MATUSCHAK: Mr. Russell, do you have any
[v) 1 2 testimony to offer?
3 MR. FRATER: Your Honor, if I may --
4 JUDGE _MATUSCHAK: Excuse me.
5 MR. FRATER: -- my name is Maurice Frater. I repre-6 sent St. Regis Pa'per Company, a customer of Met-Ed.
7 Despite written request to the~ Commission, I was.
8 not given notice of this proceeding this morning, and only 9 found out about it because I was in the building for other 10 reasons this morning, and that is the reason for my presence.
11 I believe the Commission does have a responsibility ,
12 to notify continually active parties in these proceedings,
^}
y 13 such proceedings.
14 I. only received a copy of the petition this morning, 15 Your Honor. t 16 JUDGE MATUSCHAK: Have you filed a complaint?
17 MR. FRATER: No, I have not filed a complaint. I 18 have filed a letter requesting notice of these meetings, how-19 ever, these hearings.
20 JUDGE MATUSCHAK: Well, I might state for the record 21 that although the Consumer Advocate has not filed a complaint 22 in this matter, either, that when I checked and found that 1
23 that was so, that the Consumer Advocate was not notified, in
) 24 view of the fact that the Consumer Advocate has been delegated n
25 by the Legislature to represent the consumer interests in rate COMMONWEAt.TH REPORTING COMPANY (7171 761 7150
7l l
1 i
i proceedings, IdirectedthattheConsumerAdvocatebenotifig; 2 of this hearing, and then it was up to the Consumer Advocate 3 to determine whether or not they wanted to participate or not. t 4 JUDGE MATUSCHAK: Would you proceed, Mr. Russell?
5 MR. McCLAREN: Your Honor, before you proceed --
l 6 MR. MATUSCHAK: Yes, sir?
7 MR. McCLAREN: -- is it your intent to go forward 8 now with hearing, rather than to consider any further pre-9 hearing matters?
10 The reason for asking, I assum.ed that there would l l
11 be at least some opportunity for pre-hearing discussion, and j 12 the tone of your comments seem to suggest that you're develo
] 13 an evidentuary record.
6 14 JUDGE MATUSCHAK: Let's go of f the record for a 15 minute, i
16 (Discussion off the record.)
17 JUDGE MATUSCHAK: On the record.
18 MR. BURGRAFF: Your Honor, I have in my hand a copy 19 of a motion to dismiss Met-Ed's petition for extraordinary 20 rate relief, with an attached appendix A, which consists of a 21 statement of policy of the Public Utility Commission, dated 22 October 26, 1978, which concerns the Commission's views of the 23 appropriate documents to support extraordinary rate relief
) 24 petitions.
9 I 25 A review of our petition, I believe, will indicate t
COMMONWEALTH REPoRTI 4G COMPANY (7171 701 7150
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( I that, in our opinion, the company's filing does not comport 2 with the commission's statement of policy, and for that 3 reason and, particularly, in conjunction with the time limita-4 tions we're operating under, or perhaps operating under, we 5 further request for an extension of time before we proceed 6 with cross-examination, since we don' t havei the appropriate 7 materials this morning.
l 8 I'll give this to all parties present. l 9 JUDGE MATUSCHAK: Have you had a chance to review I
10 the motion? !
i 11 MR. RUSSELL: No. This is the first I have seen it,l J^'; 12 Your Honor. !
l
- 3 JUDGE MATUSCHAK: Let's take a five-minute recess ,
I 14 and give Mr. Russell a chance to review the motion. ;
15 (Whereupon, a short recess was taken.) -
16 JUDGE MATUSCHAK: On the record. l l
17 If Your Honor please, we've reviewed MR. RUSSELL:
18 the motion of the Consumer Advocate to dismiss the petition 19 for extraordinary rate relief, which we just received a few 20 minutes ago.
21 I would submit that the documentary evidence attached 22 to the petition and incorporated therein, by reference, covers 23
(- the great bulk of the items referred to in the Commission's I
) 24 statement of policy that was attached to the motion to dismiss ,
25 In addition, it is the intention of Met-Ed to COMMONWEALTH REPORTING COMPANY (7171 761 711
1 9{.
1 incorporate, by reference, intotheevidenceinthisproceedjgg l
2 ing the annual reports, the quarterly reports and monthly r I
3 reports as filed by it with this Commission,. into this record.
4 It is our position that that would cover the over-5 wheim.ag portion of the data referred to in the Commission's l 6
statement of policy and, to the extent there are any fly specsj 7 that remain, they would be covered by evidence to be submitted i
8 tomor.>w morning.
9 JUDGE MATUSCHAK: Mr. Barasch?
10 MR. BARASCH: Your Honor, with the proposed hearing .
11 l schedule as it is, and with the previous 1f mentioned fact that; I
12 we only received notice la[st , Friday of the hearings schedule 13 today and tomorrow, if we were to proceed in that fashion and .i 14 suppose to analyze the materials that have been submitted by ,
15 the company, along with various documents which are now men-16 tiened as being incorporated by reference, it would be impos- ;
17 sible for us to cross-examine, and, certainly, be impossible i
18 for us to present any evidence we might wish to present in 1
18 these proceedings.
20 I believe that the filing is deficient, in that it i
21 does not contain the documents and supporting material which i
22 the Public Utility Commission has said is information minimally i
23 '
necessary to support a finding, any finding, on extraordinary
() 24 rate relief petition.
25 I If, in fact, we were in possession of the information-COMMONWEALTH REPORTING COMPANY (7171 761 7150 u
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) 1 required by the Public Utility Commission, and had adequate tim 2
l 2 to review that, perhaps we would be able to proceed, but in j 3 the present situation, we stand on our motion that the filing 4 is in error.
5 MR. McCLAREN: Your Honor, if I may comment on-behali 6 of the Staf f, in this short opportunity we've had to review the 7 motion is entirely inadequate.
I' 8 The motion raises a serious matter, and I would 9 suggest to Your Honor that an appropriate period for considera-10 tion would be 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br />; that the parties have an opportunity ,
11 to file with Your Honor tomorrow morning a written response to' I
12 gg the motion, and that you could then rule on it, if it's your 13 wish, later in the day, tomorrow. '
I 14 JUDGE MATUSCHAK: I think your suggestion is well !
15 I taken. ;
i 16 In addition to that, we have made some preliminary j 1 i 17 investigation of this statement of policy ourselves, prelim- .
l 18 inarily to this hearing.
19 I would like the Commission's Staff to advise us, 1
20 tomorrow morning, whether this statement of policy has been {
21 publi.she.d in the Fennsylvania Bulletin, as required in order i l
22 to make effective any rules of the Commission. l l
23 We'll defer ruling on it until tomorrow morning.
) 24 ; MR. McCLAREN: Your Honor, may I further suggest a 25 tentative hearing schedule, at least for purposes of COMMONWEALTH REPORTING COMPANY (7171 761-7150
11l l
I discussion, so that it will be before the p.trties and Your 2 Honor?
u 3l JUDGE MATUSCHAK: All right. i 4 MR. McCLAREN: I think the statutory requirements 5 imposed on us by this kind of proceeding are extremely diffi-6 cult to deal with.
7 A variance of a few days could make a great deal of 8 difference in the quality and completeness of presentation to 9 Your Honor, to make your work easier, to make a better presen-i 10 tation to the Commission. !
I t
11 JUDGE MATUSCHAK: But, you know, you're playing 12 ; with the constraints we have.
I !
13 i MR. McCLAREN: I am.
I4 JUDGE MATUSCHAK: The Act provides for 30 days from 15 the time of filing, which would make the deadline of the 16 Commission's response to the petition on August 28th. ,
l l 17 Well, I'd like to propose a schedule MR. McCLAREN:
18 that will allow the Commission to meet that time deadline, :
I I9 Your Honor.
20 Well, what are your suggestions?
JUDGE MATUSCHAK:
MR. McCLAREN: All right. I would propose that you l
22 have hearings scheduled for today and tomorrow, that we use .
'3 i
whatever time we can today for hearing -- although I think
-) 24 there's really not been adequate time for any hearing today --
'5
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I at least on the part of the Staff -- that we have until COMMONWEALTH REPORTING COMPANY (7171 761 7150 h i
12l
, I tomorrow morning to respond to this motion and for any further-2 argument Your Honor may wish, and to use tomorrow for whatever 3 additional hearing that can be taken advantage of.
4 I would suggest, further,. that two days of hearing 5 be scheduled for next week, which would be Monday and Tuesday, 6 the 11th and 12th, to conclude the record, with briefs of the 7 parties-to be filed by Friday the 15th; that Your Honor would 8 issue a recommended decision by Thursday the 21st, withexcep-l i
9 tions filed on Monday the 25th, and that the Ca-mission could to l take up the matter on August --
1 11 JUDGE MATUSCEAK: Would you back up a minute?
12 MR. McCLAREN: Yes..
13 JUDGE MATUSCHAK: Would you back up and start again, ,
1 14 please? I l
15 MR. McCLAREN: Essentially, to begin with, we'll !
16 take advantage of wha tever we can of these hearings that's l l
17 scheduled today and tomorrow --
18 JUDGE MATUSCHAK: All right.
19 MR. McCLAREN: -- responding to the motion tomor- ,
20 row --
21 JUDGE MATUSCHAK: Very well. .
22 -- that you schedule two additional MR. McCLAREN: l i
(" 93
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days of hearing for next week, Monday and Tuesday.
1 l
JUDGE MATUSCHAK: All right.
5 MR. McCLAREN: I think that gives us the minimum COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
13' I time we need to analyze this filing and other issues, and to 2 be prepared to cross-examine any company witnesses, or to pre-3 sent any of our own testimony. .
4 JUDGE MATUSCHAK: You want to give me three days to 5 file a --
6 MR. McCLAREN: No --
7 JUDGE MATUSCHAK: -- oh, you want a brief by the h
8" ;5th?
9 MR. McCLAREN: File briefs by the 15th --
l 10 JUDGE MATUSCHAK: And how -- ;
i 11 MR. McCLAREN: -- which would give vou over the week i
12 end and until the following Thursday to get your recommended i 13 I decision out.
I 14 ! JUDGE MATUSCHAK: And how an I going to get the 15 brief from you to me over the weciand?
16 MR. McCLAREN: Well, I'm anticipating that we would 17 provide some way to -- before the closa of the day, if you 18 could be here at the Commission, perhaps, so that we can make 19 sure that you have, in hand, on the 15th, the briefs of the 20 parties.
21 JUDGE MATUSCHAK: All right.
E 22 4 MR. McCLAREN: Then you would have until the 21st, 23 I which would be a Thursday, to issue your recommendation deci-24 sion, and that that should also be in the hands of the parties II as " that day, and we would have until the following Monday, the COMMONWEAL'/H REPORTING COMPANY (7171 761 7150
l 14l 1 25 th, to file exceptions, which would give the Commission 2 three days to examine your recommended decision and exceptions
-3 to the parties,. and they could act in public meeting on the 1
4 28th.
5 JUDGE MATUSCHAK: Other counsel have any response to 6 that?
7 MR. BARASCH: Your Honor, depending upon indulgences I
8 of the company, two days of hearing, scheduled Monday and ,
t 9 Tuesday, might be sufficient to give us an opportunity to pre-i !
10 pare, but I suspect we would need to get access to information l !
11 immediately in the upcoming days, and perhaps have our con- l l
/^; 12 sultants get down to the company's headquarters, sit down and '
(.] 13 get access to the material we need.
14 JUDGE MATUSCHAK: Mr. Russell?
l'
'15 MR. RUSSELL: There's never been any difficulty in !
l IG the past with respect to that; I see no reason why there 17 should be any difficulty now.
18 JUDGE MATUSCHAK: Mr. Russell, if any of the parties 19 required additional information, that is not submitted today 20 or tomorrow, how soon could you -- if they made requests for 21 that information, how soon would they get it? !
22 MR. RUSSELL: I guess it would be, quite obviously, 23 a function of the magnitude -- !
(']
L / l
-) ,4 JUDGE MATUSCHAK: Yes.
25 MR. RUSSELL: -- of the requests? f i
COMMONWEALTH REPORTING COMPANY (7171 761-7150 f
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y ,
1 JUDGE MATUSCHAK: Yen -- well, we realize that.
/
2 MR. RUSSELL: But, I'd say, either on an informal 3 basis -- .
4 JUDGE MATUSCHAK: I mean, assuming --
5 MR. RUSSELL: -- certainly, on an informal basis, 6 it can be made -- l l
7 JUDGE MATUSCHAK: -- the informa tion is there -- l 8 MR. RUSSELL: Okay.
9 JUDGE MATUSCHAK: -- but it just has to be trans-10 mitted? '
l 11 l MR.. RUSSELL: I'd say, we certainly are more than 12 happy to give them as expedited response as we can possibly
) 13 do so.
i 14 On the informal level, if they just want to get a ,
l I 15 l particular number, or explanation of this or that, there's no
. e' 16 pr,blem in having them call informally and having them be 17 supplied with it.
18 JUDGE MATUSCHAK: Well, I would suggest to all l
19 counsel that if there's any information you need, there's'no --
l 20 as I see it, there's no objection to your dea.'ing directly I
l:
21 l' with the company and asking for whatever you need.
l l !
22 '.t MR. RUSSELL: Right. I i .
I 23 i JUDGE MATUSCHAK: This is an expedited procedure, I '4 and we ' re not going to go and have the ordinary interrogatory i
25 requirements of that kind. '
COMMONWEALTH REPORTING COMP / Y, (7171 761 7150
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1 If you need some information immedi'ately, I would 2 suggest that you contact Mr. Russell or someone in the company 3 and endeavor to get that information as promptly as possible.
4 MR. BARASCH: Yes.
5 JUDGE MATUSCHAK: In the event that the hearing is 6 closed on the 12th, will the parties be able to have 'arief s 7 directed to me, by Express Delivery, on Friday?
I MR. BARASCH:
8 Yes, Your Honor.
9 MR. RUSSELL: Received by you on Friday? ;
10 JUDGE MATUSCHAK: Express Delivery, so that I would l 11 get it no later than Saturday. -
I
/~N 12 MR. RUSSELL: Well.--
~I l 13 JUDGE MATUSCHAK: I want it in Uniontown. I wouldn't 14 want it up here. ;
e 13 1 MR. RUSSELL: No -- I say is there Express Delivery .
i 16 on Saturdays?
17 JUDGE MATUSCHAK: Well, now --
18 MR. RUSSELL: I'm not sure. Sometimes there are 19 quirks and gaps in their deliveries.
20 MR..BARASCH: Generally there is, but it's a ques-21 tion as to what towns.
r 22 MR. RUSSELL: Yes.
23
(--} JUDGE MATUSCHAK: Well, I get mail on Saturdays.
\J) 24 MR. RUSSELL: Well --
25 JUDGE MATUSCHAK: Now, whether the Express Delivery COMMONWEALTH REPORTING COMPANY- 17171 761-7150
4 17l i
I 1 operates on Saturdays, I'm not so sure. g 2 Well, let's leave it this way:
3 We'll check on the Express Delivery and, in any ;
4 event, I want to have it in by Friday or Saturday, by some 5 means.
6 Does the Consumer Advoc' ate, under those conditions, !
7 feel that they would have sufficient time '.o --
t 8 MR. BARASCH: Well --
i 9i JUDGE MATUSCHAK: Do you have sufficient time, then, i
10 ! to prepare your -- you have to understand, we're all under ,
t i II ' restraint, in this matter; there's just so many days, 30 --
12 there's only 30 days before --
'i 13 MR. BARASCH: Assuming we get the minimum informa-14 tion necessary, Your Honor, that will be sufficient time for i
6 15 us.
16 JUDGE MATUSCHAK: I've tried to get an expression 17 from the Commission as to the last possible date that the 18 Commission would want my recommended decision, and I haven't 19 got any final expression from the Commission.
20 As I understand it, the last day of submission for 91 i
~ ; the meeting on August the 28th is on August the 19th, I '
l i
on believe, but I'm quite confident that, in view of the situation, t
23 l we can get a Commission approval to submit it even after tha
~) 24 date.
i l 25 l I'm not worried about that feature of it, but until ,
i.
COMMONWEALTH REPORTING COMPANY (7171 761-7150
18 1 I have that date, I have to, more or less, work it backwards, 26 to see where I stand on it.
3 MR. BARASCH: Yes.
4 JUDGE MATUSCHAK: So we'll take this under advise-5 ment until I get a little more information from the Commission .
6 I think your suggestion has some merit -- and i'm ,
7, not going to try to push anybody into -- even though it's in 8 expedited form -- and I might say, parenthetically, you're-9 messing my vacation up -- but in a case of this kind, I want i
L 10 as full a development and as expedited development as we can !
11 get, in fairness to all the parties.
/~~^ 12 You may proceed, Mr. Russell.
!d /
i i
13 MR. RUSSELL: If Your Honor please, I've handed to .
t 14 the Reporter and to yourself and to the counsel a list of 15 Met-Ed documents to be marked for identification.
16 JUDGE MATUSCHAK: Very well. j i
17 MR. RUSSELL: I would like to make one correction l 18 to that.
19 We would limit the "B" series of exhibits to B-1 20 through B-109.
21 Now, I might mention the reason for eliminating i
I 22 B-110 for identification. !
23 All right.
c; JUDGE MATUSCHAK:
> ; I
'-') ,4 MR. RUSS2LL: B-110, which was filed with the filing, 25 he.d attached to it copies of all the Form 12's for a period of; COMMONWEALTH REPORTING COMPAN'Y (717) 76'.7150 i
i 19; 1 years heretofore.
j 2 Now, it would not appear to be particularly produc-3 tive to attach those as exhibits. Copies will be made avail-4 able for inspection and copying, and in the event anybody would 5 like to see them. ,
e So we would ihnit the "B" series to B-1 through 7 B-109. .
8 JUDGE MATUSCHAK: Very well.
9 MR. RUSSELL: So, with that correction, I'd ask that i
10 the documents listed on the statement I've handed the Reporter 11 and distributed, be marked for identification. i 12 JUDGE MATUSCHAK: Very well.
)
13 (Whereupon, the documents were carked as Statement A, Exhibits l' through 3, Statement .
14 B, Exhibits 1 through 119, Statement C' ,
Exhibits 1 through 32.,-Statement D, Exhibit.1, 15 Statement E, Exhi-bits 'l through 22, 14a,"
Statement F, Exhibits 1 through 21, 16,17a, 18a, 16 19a, Statement G, Exhibits 1 through 21, State-ment H, Exhibit 1, S tatement H , Exhibits 1 -27;)
17 MR. RUSSELL: Met-Ed calls Mr. F. D. Hafer. !
18 Whereupon, .
19 FRED D. HAFER 20 having been duly sworn, testified as follows:
21 DIRECT EXAMINATION t
22 : BY MR. RUSSELL:
23 Will you state your name and address, please? '
Q
-)- 24 A Yes. My name is Fred D. Hafer. My business address' 25 is 100 Interpace Parkway, Parsippany, New Jersey, 07054.
COMMONWEALTH REPORTING COMPANY (7171 761-7150
20l; By whom are you employed and in what capacity?
() 1 Q I am currently employed by GPU Service Corporation, t 2 A
, 3 a wholly-owned subsidiary of General Public Utilities Corpora-4 tion, which is the parent of Metropolitan Edison Company, the 5 Petitioner in this proceeding, as well as Pennsylvania Electric 6 Company and Jersey Central Power and Light Company, in the 7 State of New Jersey. .
I a My position is Vice President Responsible for Rate-9 Case Management; and, in that capacity, I and my staff are to responsible for the preparation and filing and conduct of all 11 the rate proceedings of the GPU subsidiary company before this, 12 body, as well as the New Jersey Board of Public Utility, the O.
v 13 New York State Public Service Commission and'the Federal i 14 Energy Regulatory Commission.
15 Prior to my holding this position, I was with General 16 Public Utilities Corporation, for approximately nine years, as 17 their treasurer.
18 I also served as Treasurer of GPU Service Corpora-19 tion, from the date of its incorporation until 1979.
i 20 I'm also a member of the Board of Directors of 21 Metropolitan Edison Company, of Penelec and of Jersey Central.
i l 22 Q Do you have before you a ~ copy of the document which
~
23 has been marked for identification as Met-Ed Statement A, wit ,
I
(~3
) 24 Appendices A, B and C attached to that?
25 A Yes, I do.
COMMONWEAL.TH REPORTING COMP ANY (717n 7617150
I 21 j
1 Q' " 'If I were to ask you today the same questions as g f
2, appear in that statement, would your answers be the same as 3, 'those contained therein?
l 4 A Yes, they would. .
5 Q Met-Ed's present tariff, which is Tariff 44, which 6 is the subject of this filing, has been marked for identifi-I 7 cation as Met-Ed Exhibit A-1. ,
t 8 A Yes.
9 Q Are you sponsoring that exhibit?
10 A Yes, I am.
11 Q Do you have before you a copy of a document which ,
12 has been marked for identification as Exhibit B-l?
(
13 A Yes, I do.
14 Q Are you sponsoring Part 1 of Exhibit B-l?
15 A Yes, I am.
l 16 Q And of what does that consist? I 17 A 'Part l of Exhibit B-1 is the executive summary pre- l I
18 pared by Met-Ed, setting forth the reasons for and certain of l l
i 19 ; the major components of the tariff filing for base rate i
20 increase, as well as this petition for extraordinary rate >
l 21 , relief.
I i 22 Q Do you propose, in your testimony today, to support l
i 23 l certain portions of the Met-Ed petition for extraordinary rat
'I 24 ; relief? .
25 A Yes, I do. I c
COMMONWEALTH REPORTING COMPANY t7171 701 7150 l
.~ . . _ . _._- _ _ .
, ,_ 22!
' () 1 Q Are you familiar with that petition?
2 A Yes, I am.
3 Q It has been marked for identification 'as Met-Ed 4 Exhibit A-3.
5 A Yes.
6 Q Are there any typographical errors or other errors !
7 that you'd like to point out at this time?
,8 A Yes. On Page 3, Paragraph 10, the very first word, 9 " Presumably," has been misspelled. ;
10 On Page 4, Paragraph 17, the second-to-last line 11 in that paragraph refers to data which was included as Exhibit
(~ 12 E-1. The word "was," about halfway across, following the word u-},
13 "which," should be stricken, and I believe the exhibit designa4 14 tion is Exhibit E-21, not E-1.
15 JUDGE MATUSCHAK: Which page is that, again?
i 16 THE WITNESS: That's Page 4, Your Honor --
f 17 JUDGE MATUSCHAK: All right.
18 THE WITNESS: -- Paragraph 17, second-to-last line.
l 19 JUDGE MATUSCHAK: That should be Exhibit E-21?
20 THE WITNESS: Exhibit E-21, yes, sir.
21 JUDGE MATUSCHAK: All right.
22 THE WITNESS: And five words before that, the word 23 "was" should be deleted.
1 24 JUDGE MATUSCHAK: Very well.
25 BY MR. RUSSELL: !
l l COMMONWEALTH REPORTING COMPANY (7171 761 7150 j
1 1
23 t 1 Q Couldyoubrieflyreviewandsummarizetheportiongg 2 of the petition that you are supporting in your testimony?
3 A Yes. I am basically supporting, specifically, l 4 Paragraphs 1 through 10, which address themselves to certain 5 background information of the company and the statutory basic 6 for the petition, as well as the Commission's decision in the 7 prior docket handed down May 23, which we believe is relevant 8 in consideration of this petition.
9 I'm also sponsoring Paragraphs 11 through 22, which 10 basically address themselves to financial criteria, the various 11 financial results of the company and the relevant financial I
i
( 12 ratios and financial problems which Met-Ed faces and will facg
) M7 13 in the immediate future. !
I 14 I'm also supporting Paragraphs 36 through 4 5, which 15 address themselves to the return realized and the return l 1G required, and the return last allowed, among other things, on 17 Met-Ed's common equity investment, as very relevant to these 18 proceedings.
19 The intervening paragraphs that I have just skipped 20 over, Saragraphs 23 through 35, basically address themselves 21 l to operating characteristics and operations of the company.
l
- 2 They are going to be testified to by, I believe, Mr. Newton, 23 when he appears.
) 24 I might point out that the next paragraph after 45, l
25 Paragraph 46, represents an undertaking by the company that, t h
CoMMONWEAt.TH REPORTING COMPANY (7171 761 7150 ,
. . 24
'I
~
([ although we are completely confident that the Commission, in 2 any final determination, will find that the ultimate rate 3 increase should be even in excess of the $35 million of interim 4 rate relief requested, in the event the Commission deems that 5 the rate relief was excessive, at the level of $35 million, 6 Met-Ed is committing to waive any and all objections to a pro-7 vision . deemed appropriate to order any refunds of an 8 excess amount, including refunds, with interest, if necessary.
I i
3 The balance, Paragraph 47, of the petition, which isc !
10 the last paragraph, is going to be supported by Mr. Carter.
11 I might say that while there are a number of these
()
, ~ t 12 areas which I am supporting and can testify to, there will be, l
'~)
13 from time to time, certain detailed analyses, detail support, l 14 which may be required, and we may have to rely on certain 15 other of the witnesses that are appearing here, to assist me 16 with that.
l I7 Q Mr. Hafer, could you describe the circumstances l 18 that should obtain for a public utility to enjoy financial 19 stability?
20 A Yes. First of all, a public utility -- certainly, 21 in this State, and anyplace that I know of -- has a legal:an-l 2 ~'
date to provide electric service to any and all of those who e's 23
/ ; require it.
) 24 To that extent, an electric utility, by its very :
95
~
economic characteristics, must have access to the capital
, COMMONWEALTH REPORTDM5R (d(600F9AMW #9971 760 9050 1
25 I market.
2 There is no electric utility, of which I'm aware --
3 certainly, no major electric utility.in this nation -- which 4 is able to operate on a normal c.. going basis without having 5 to avail itself of external capital -- that is, capital in 6 excess of what's provided through the revenues collected from 7 customers.
8 Met-Ed is certainly no exception to that.
9 ! In order to be financially viable, it's an ongoing to matter. In order to be financially stable, a company must, i
11 therefore, have sufficient revenues to pay for its ongoing i
12 operating expenses, must have suf ficient earnings to support e h 13 the access to the capital market, must be ruled by the capital!
14 market, with sufficient -- as having sufficient financial ,
15 integrity, so as to be able to lure prospective invesments in 16 the purchasing, similar to company security, and must also 17 have acce'ss to short-term credit, in adequate amounts, so as 18 to provide for any unforeseen developments.
19 Q What level of returns on its common equity has l
20 Met-Ed realized in recent period? !
i 21 A well __ !
22 Q For example, 12 months ended mid-1980, for example.
l 23 A My recollection is that the realized rate of return
') 24 ; on Met-Ed's total common equity investment for the 12 months O ,
I 25 ended June 1980 is slightly less than one half of one percent.
COMMONWEALTH REPORTING COMPANY (7171 761-7150
26
( ,
1 'Q What was Met-Ed's debenture indenture interest
[
2 coverage for the 12 months ' ended June 30, 1980?
3 A Met-Ed's debenture-indenture interest coverage test 4 was 1.45 times for the 12 months ended June 1980.
5 Q Was that test before or after income taxes?
l 6 A That test is before income taxes. It is currently 7 the most restrictive legal test that Met-Ed has to meet before 8 it can issue any additional securities -- which is why we used 9 it here as the measure for Met-Ed's financial status today.
10 The basic rule is that that coverage ratio must be 11 two times, as a bare minimum, after the issuance of any new
('s
\-/
12 indebtedness, long-term indebtedness, or Met-Ed would be. .
i 13 legally barred from issuing such long-term debt. '
I 14 One exception to that is long-term debt which is 13 t issued specifically to meet a maturing issue which had been ^
16 previously issued and outstanding.
17 Q And is that a limitation applied to additional debt, 18 as opposed to refunding existing debts?
19 A Yes, it is.
I 20 JUDGE MATUSCHAK: Is that the banker's rule, or is i i
21 that the company's?
22 TIIE WITNESS: No, sir. That's a provision which is 23 7- included in the company's indenture, issued in connection with i
L-I its ou tstanding debentures. l j
25 I JUDGE MATUSCHAK: All right. j i
COMMONWEALTH REPORTING COMPANY 17171 761 7150 l
27 I BY MR. RUSSELL: gg 2 Q As of June 30, 1980, what was Met-Ed's preferred 3 stock coverage ratio?
4 A Met-Ed's preferred stock coverage ratio as of that 5 point in time was 1.04 times.
6 I might add that that preferred stock ratio is 7 calculated on an after-tax basis.
8 Q And --
I 9' A Similar to the indenture coverage test which applies 10 to long-term debt, the preferred stock test is a legal require-11 ment included in the charter provisions which_ were adopted
, 12 when Met-Ed issued its first series of preferred stock. It w 13 adopted, also, to be consistent with the Securities and 14 Exchange Commission's statement of policy issued with regard 15 to preferred stock, in the 1960's, I believe.
16 The basic requirement is that that coverage ratio --
17 which, again, is an af ter-tax coverage ratio, in this case --
18 must be 1.5 times, minimum, after the issuance of any new 19 preferred stock, or such issuance would be legally precluded.
20 The prepared stock ratio takes the earnings after 21 tax, but relates those earnings to all annual interest require-22 ments in both long- and short-term debts, as well as annual 23 g dividend requirements on outstanding preferred stock.
24 The debenture indenture coverage test takes earnings 25 before income taxes and relates them only to the annualized COMMONWEALTH REPORTING COMPANY (717 761 7150 a
. . 28 (j 1 interest requirements on outstanding long-term debts.
2 O Well, as of Lae 12 months ended June 30, 1980, then, 3 did Met-Ed have 'any capability to issue any additional long-4 term debt?
5 A Met-Ed had no legal capability, much less any prac-6 tical capability -- that is, there are two concerns; one is 7 whether they could legally issue any additional funded debt l
8 or preferred stock by the terms of their char.ter and their ,
9 debenture indentures.
10 The answer to that is, no. l e
11 ; The second one is a very practical consideration of l l !
12 even if the legal standards _ uld be met, are there, at this
'~'t i 13 time , investors out there who have expressed a willingness to 14 purchase such securities.
I 15 The answer to that is also negative, at the present '
l 16 time. l 17 0 With respect to its legal ability to issue additional 18 preferred stock, what was its status as of June 30, 1980?
19 A It was also legally barred from issuing any addi- !
l 1 20 tional preferred stock.
21 Q Can you describe the recent history in the payments ; ,
l i
22 of dividends on Met-Ed's common stock? ;
i
')
23 A Yes. I might say that to perhaps look at the returni 24 l l realized on the total comm6n equity invesdnents, Met-Ed has ; ,
- l 25 no publicly outstanding common stock. All of the common stock i
COMMONWEALTH REPORTING COMPANY (7171 7C1 -7150
I 29 1
I o f Me t-Ed , just as the conmon stock of Penelec and Jersey ()
2' Central, is held by the parent company, GPU, and GPU, in turn, 3 issues its common stock in the market and utilizes those funds 4 received along with retained earnings, to invest in the sub-5 sidiary operating companies such as Met-Ed.
1 6 Met-Ed's return realized on its c, mon equity investI 7 ment for the 12 months ended June 1980, as 1 ndicated earlier, was something less than one half of one perct.c. ,
8l 1 9 Met-Ed's return realized for the first six months i
10 of this year -- that is, the second half of that 12-month l i
11 period , was, in fact, a minus percentage, a minus si: -tenths 12 of one percent.
13 Met-Ed hasn' t paid a dividend on its common stock 14 equity investment since February 1979. l l
15 Now, with the earning levels they are, I think it :
! I 16 should be almost evident that they have no immediate prospect j 17 of being able to return to the more normal practice of paying 18 tax dividends on common stock investments.
19 If Met-Ed has no present capability to issue any Q
20 long-term debt and no present capability to issue any addition-i 21 al shares of preferred stock, what sources of capital, ifany,!
l 22 are presently available for Met-Ed?
23 There are only two sources of capital which are
- A
! l
,4 lj currently available to Met-Ed.
One is the funds available A
,S 15
!; through operations - that is, the funds which are derived i
CoMMoNWCALTH REPORTING COMPANY (7171 761-7150
30 G t
- I from revenues from customers, af ter paying the ongoing operatir.g 2 expenses.
- 3. The second, and the only external source of funds 4 available to Met-Ed at the present time, are the funds avail-5 able from the revolving credit agreement -- which we shorten 6 and call RCA' -- which Met-Ed and its affiliated companies 7 within the GPU system entered into immediately following the i
I 8 accident at TMI. '
i I
9 Met-Ed's total credit under that revolving credit 10 agreement is $105 million at the present time.
11 As of July 23rd, Met-Ed had S88 million of those !
7- 12 loans taken down, leaving them with only a' bout S17 million of !
-) 13 l credit available under the revolving credit agreement. ;
i 14 The revolving credit agreement is made up of a l l
15 consortium of some 45 banks, which represented, also, the only!
l 16 way that Met-Ed and its affiliates could obtain any signifi- !
17 cant amount of bank credit immediately following the TMI acci-18 dent. i 19 We show on Page 6 of the executive summary, a chart 20 which graphically portrays the dilemma which Met-Ed -- I!
21 Q Pardon me -- are you referring to Part 1 of Exhibit 22 B-1?
l 23 Yes, I am.
,cs A l s ,v 24 Q All right.
l 25 A On Page 6 of Part 1 of Exhibit B-1, there is a graph, COMMONWEALTH REPORTING COMPANY (717n 761-7150 f
ll il 31 !
p . .'
l I which indicates the $105 million lhuit under the RCA and, alqgg 2 the outstanding and projected outstanding short-term debt of i
3{ Met-Ed, with the $35 million of anticipated rate relief from 4 this petition, and the balance forthcoming May 1, 1981 -- that 5 is, the additional S45 million to make up the full request.
6i The amount of outstanding short-term debt is shown I
7! as a solid line.
8; The dashed line on that chart indicates the projecte 1 I 9I level of short-term debt.
I 10 ' If Met-Ed receives no additional rate relief, either 11 ; from this extraordinary petition or from the tariff filing for 1
12 ! base rate relief, it indicates that in early 1981, Mat-Ed's -
I g 13 i outstanding short-term debt would go over the credit limit' l 1
1 14 agreement, absent any unforeseen developments which could occuq -
n .
15 between now and then, and, presumably, make it go over prior !
18 16 to that date.
l 17 You indicate that there is a present limit of $105 Q
la million.
i 19 l .
A Right.
20 l Q Is that precisely that? Is tha t a limit of the .
l l 21 ; available short-term credit,available at this time to Met-Ed? !
22 A Yes, it is.
it 23 4 A maximum limit?
Q
) 24 " A Yes.
25 ll Q If the request for extraordinary rate relief is not !
!i COMMONWEALTH REPORTING COMPANY s7171 761-7150
32l
~N 1 granted, are you suggesting, in the chart to which you have (O
2 just referred, on Page 6 of Part 1, Exhibit B-1, that Met-Ed 3 could proceed, notwithstanding, and make borrowings in excess
- 4 of the $105 million limit shown on that chart?
5 A No, sir, not at all. That's merely a calculation, 6 for informational purposes, as to'what the unfettered, if you 7 will, outstanding short-term debt balance would become in the 8 absence of additional revenue. i
- 9 It wasn't to indicate that Met-Ed has, certainly, anp to legal rights, much less any practicability, to borrow short-11 term debt in excess of the S105 million, at this time or at I
rs 12 any time in the immediately foreseeable future. l (s) i l 13 I might add that there are very express provisions l i
14 within the revolving credit agreement, which gives the banks 15 adequate opportunity to refuse to loan Met-E. any additional 16 monies even about the current level of $88 million, provisions 17 which refer to adverse development and incdequate regulatory 18 response, and the like, which are, in large measure, subject 19 to the discretion of the 45-bank consortium.
20 Q Well, staying with that same chart, the dashed line 21 showing short-term debt without any rate relief --
22 A Yes, sir.
23 -- does that reflect the level of additional capital
- 0 i
N/) 94 that Met-Ed would require at those respective times shown on ,
I 25 !,
the chart? '
i'
, COMMONWEALTH REPORTING COMPANY (7171 761 7150 n {
i . 33 i
1 A It reflects the levels of additional capital that lh 2 Met-Ed would require at those respective time frames, at the 3 somewhat stripped-down ' level of operations which we are 4 apparently operating at, yes.
5 0 Well, if the requested extraordinary rate relief is 6 not granted and Met-Ed is, in fact,- limited to $105 million of 7 short-term credit, wl'at means are available to Met-Ed to live 8 within the dollars tr at are available?
i ,
9 A The only -- Met-Ed has already -- as I indicated in 10 my previous answer, and as has been testified in the number of f
11 proceedings that have gone forth since the accident, Met-Ed !
12 has already substantially cut back on its level of empicyment(l 13 its level of operations and maintenance, as well as its level !
14 of construction, to a point where we are running at a very a
l 15 thin level of operations today. l l
16 If there is no additional rate relief forthcoming :
17 and, therefore, Met-Ed faces the prospect of exhausting all 18 external funds in the very near future, there's no question .
19 about it, that we will have to take further steps, further 20 steps which I think will adversely effect both the quality and j og quantity of service.
i 22 I can't identify those steps -- and, quite frankly, i
1 23 I hope that we're never in a position of having to identify
) a4 them, with any definitive -- certainly, they would involve l
.5 f urther reductions in the level of operating and maintenance CWN%'NWaALTH REPORTING COMP ANY 4717 761-7150
I 34
) I activity and, perhaps, further layoff of employees of the ccm-2 pany.
3 They would also involve a very close look at the 4 level of ongoing capital expenditures for existing stations, 5 expenditures which are necessary either to meet legal require-6 ments or emission standards, and the like, or expenditures 7 which are necessary as capital improvements and additions on 8 existing stations, in order to continue to have them operating f 9 0 What level of return on equity ic reflected in the 10 $35 million-extraordinary rate relief request?
11 A The level of return on equity which was atilized in 12 calculating the $33 million amount was that level last allowed.
x-) :
13 by the Pennsylvania Public Utility Commiss on in a rate pro-14 ceeding involving Met-Ed, which was 13.38 percent, that was l l
15 allowed in an order that was handed down in March of 1979, ,
t 16 but for rates which the company was never allowed to collect, 17 because it was subsequently rescinded by the Commission.
18 Since that thne, of course, there have been other 38 decisions by this Commission for other utilities in the 20 Commonwealth, the moct recent of which, that I know of for any 91 l major utility, is Philadelphia Electric Company, which was ;
l 22 l allowed a return on equity, something almost 100 basic points 23 in excess of that level - of course, Philadelphia Electric is l l
~') 24 not the proud owner of Three-Mile Island, i
'S-Q Well, the order you referred to in March of 1979, COMMONWEALTH REPORTING COMPANY (717) 761 7150
I I 35 1 wa s that the ord e.r a t R. I . D . 626? - -
gg i
2 '
A Yes, it was.
3 0 Ari in that order, what inclusion or exclusion was 4 there with respect to either Unit I or II at Three-Mile Island 5 station?
6 A In R.I.D. 626, both Three-B e Island Units Number I 7 and Number 2 were included.
8 All of --
Q 9 A In our capital --
i 10 0 -- the capital and operating costs of both L:iits 11 were included?
12 A Yes, the Lilk of Met-Ed's portion of the capital, i
13 Met-Ed being - 50 percent owner of both units.
i 14 !
Q As -- ,
15 A The bulk of the capital and operating expenses of 16 both units were included, yes.
I Q As of the present time, what is the status with 18 respect to base rates of the capital and operating costs of I8 Met-Ed's share of Three-Mile I and II?
O A At the present time, as a result of the most recent i!
21 I order, the May 23rd order, of this Commission, involving i Met-Ed, none of the ownership or operating costs are included i
23 I in Met-Ed's current base rates.
/ 24 O i i
I The investment in Units Number I and II was excluded i from rate base, and the operating costs associated with those i
COMMCNWEALTH REPORTING COMPANY (7171 761-7150 ,
I
_ _ . _ _ . . . .s _ _ __ __
tt i o .
36l 1 units were excluded from operating income..
2 Q And who presently bears those costs?
3 A The common stockholder, which is GPU, and then, in 4 turn, the public investors which have purchased GPU stock are 5 currently bearing all of the costs, not only the lack of returrt 6 on common equity investment, but the return required to service 7 both the debt and preferred stock, as well as the ongoing 8 operating expenses, j 9
Q Mr. Hafer, I direct your attention to Page 8 of 10 i Part 1 of Exhibit B-1. !
i 11 ! (Witness perusing documents.) {
() 12 THE WITNESS: Yes.
13 BY MR. RUSSELL: ,
i 14 0 Could you explain what is represented on that chart,!
15 please? !l 16 A Yes. That chart which f.s identified as Chart Number 17 2 shows the interest coverage ratio, for the purpose of 18 issuance of additional long-term debt.
l 19 The interest coverage ratio provided for in Met-Ed's 20 debenture indenture, that I spoke to earlier, that chart indi-21 cates that Met-Ed is currently well below the minimum coverage 22 for any new issuance -- which I've shown on here, by a dashed ,
f 23 I line, as being the two times coverage test required after the i 24 issuance of any new securities.
25 And even with the emergency rate relief, in total, 1
f COMMONWEALTH REPORTING COMPANY 4717) 761-7150
r 37 i
I that we have requested, effective September 1, 1980, and, gg I !
2 f urther, assuming that the balance of the rate case rate 3 relief, approximately $40. million, is effective May 1, 1981, 4 Met-Ed's interest coverage ratio will still only get to the 5 point where it can issue some modest amount of additional 6 funded indebtedness by the end of 1981. That amount is calculd 7 ated to be approximately $20 million of additional bonds, at l 8 an assumed interest rate of 13 percent.
3 This points out something which is important to keep '
l 10 in mind, and that is that while the allowance of rate relief ;
11 may go a long way to instill investor confidence in the com-12 pany, the allowance itself does nothing to help the financin
)
13 capability of a ccmpany. It's only the realization of those 14 -i revenues over some period of time; and, therefore, an oppor-4 15 tunity for them to be collected and reflected in the company's 16 financial statement, is only the realization of those addi- ,
17 tional earnings which provide financing capability.
Is This chart, I think, graphically p.ortrays that, l l
19 because you can see that even though the additional rates are 20 forthcoming, under this assumption, very early -- September 1,l i
21 1980, very early, in this graphic portrayal -- and an addi-l 22 tional amount in May 1981. i 23 It still takes until the end'of 1981 for Met-Ed to 24 have any meaningful amount of issuance capability -- and $20 Ol !
25 million is a very small issue, even for a company like Met-Ed.
COMMONWEALTH REPORTING COMPANY (717i 761 7150 ,
? I e - 38 l
1 l
, 1 x- 1 If the rate relief is forthcoming at some later l
2 date than those assumed dates, or in amounts less than those , i I .
1 3 assumed, that fir.ancing capability will be pushed off into 1 1
4 1982.
l 5 MR. RUSSELL: I believe that's all we have of Mr.
I 6 Hafer at this time. I 1
1 7 JUDGE MATUSCHAK: Before we get to the cross- l 1
3 examination, Mr. McClaren, in addition, I'd like to have you report to us tomorrow as to what circulation, if any, wat made 9l 10 of the statement of policy of the Commission and, specifically, I i
- 11 l whether Met-Ed, in this case, has been issued a copy cf that ;
(g_. ) 12 I statement of policy.
13 MR. McCLAREN: We'll provide you with whatever infor- I 14 l mation we're able to find as to how it was treated by the 15 Commission -- *
' l IG JUDGE MATUSCHAK: Very well.
i 17 MR. McCLAREN: -- and we'll'give you our statement asl 18 to why we think it is effective.
19 JUDGE MATUSCHAK: All right. .
il 20 And while I'm at it, Mr. Frater, aside from the ~l
\ l 21 , obligation to give you notice, at this time, as a non-party i l 22 l to this proceeding, you had indicated that you had made a .l f II 23 I request to be notified when the hearing was made, and I think,' l 1
) ai l as a matter of common courtesy, if nothing else, you were I i
25 entitled to have a notice of this hearing; and, on behalf of I CO M MO N W E A L,TH REPORTING COMP A NY <7175 761 7150
i! I
, ,39 i
I i
I the Commission, I want to apologize, and I'll see that you llli' 2I will be put on the service list hereafter.
i 3 MR. FRATER: Thank you, Your lionor.
4 JUDGE MATUSCHAK: Thank you. i 5 At this time, let's take a 10-minute recess.
I 6' (Whereupon, a short recess was taken.) 1 7 JUDGE MATUSCHAK: Let's go back on the record.
I I 8' Mr. McClaren?
~
9 MR. McCLAREN: Your Ho nor, the Staff is r.ot prepared, i
10 l at this time, to cross-examine Mr. Hafer; we would like to 11 reserve some thne tomorrow to cross-examine him. '
(
12 JUDGE MATUSCHAK: All right. ggg 13 L MR. McCLAREN: We do not expect our questicning to 14 be lengthy, but the additional time will enable us to keep our 15 I questions to a minimum.
16 JUDGE MATUSCHAK: Does the Consumer Advocate have any i
I cross-examination of this. witness, at this time?
I6 MR. BURGRAFF: Your Honor, due to the time con-19 - straints, the Consumer Advocate is unable and, therefore, l
20 wou3i not engage in technical examination of Mr. Hafer; however, 91 I do have two questions, cf a general nature, which arose out !
22 l .of his direct, that I would like to pose to the Witness.
i I
'31
~
JUDGE MATUSCHAK: Very well.
) '4
~
. CROSS-EXAMINATION l
'5 BY MR. BURGRAFF:
CoMMONWCALTH REPORTING COMPANY 47 A 761-7150
-~
. ~. __ - ._-
40
> 4 1 1 Q Mr. Hafer, this morning you made reference to some
-7' 3 2 returns on average common equities and coverage ratios based i
3 on a 12-month period ended June 1980; is that correct? ;
I 4 A Yes.
i 5 Q Would I correct in assuming, Mr. Hafer, that the '
G company does have June'actuals, or actuals through June?
7 A Certainly, we have most of the data sufficient to !
8 calculate coverage ratios and return on equity, and type of 8 thing, yes.
10 I think, basically, the financial data, the actual i
11 data, is available, if not in total --
(_j 12 Q I'm sorry -- I missed the end of the answer?
I 13 A Yes, I think, basically, it is.
14 I Q All right.
15 A I don't know if there are any remaining accounts 16 that aren' t c6mple.tely closed; specifically, in plan accounts, 17 and things, but --
f 18 Q Now, Mr. Haf er, what was the reason the Metropolitan '
18 Edison Company decided tc file this base ra'te increase request, 20 along with its intended petition, in late July of 1980 -- July, 21 29, to be exact?
22 A Well, Met-Ed tried to file its request for rate e*
23
( ) relief as soon as we possibly could, but the filing require-2f ments in Pennsylvania are so onerous that it takes an enormous 25 amount of time just to comply, to assemble all the data that's wrnm arranrm cnupmv ,,,,1 ,a .,,=n
ll i
41j
! I t
I 1 required. ggg 2 We have a March 31, 1980, actual test year and a !
3 March 31, 1981, future test year included in the filing. '
4 There is a requirement that the filing be mada within 5 120 days af ter the close of the actual period, as I recall, 6 so, there was a requirement that the filing be made prior to 1
il the end of July or the first of August.
l 8 We would have preferred to be able to have made this t l
9l filing on May 24th, quite frankly, but it just physicclly I
10 wasn't possible. :
I Isn't it correct, Mr. Hafer, that in the second -- !
11 Q 12 what we'll call the second TMI proceeding, at Docke I-79040 ,
13 ll that you at that time offered testimony and exhibits that, in l
14 l essence, showed Metropolitan Edison Company's need for base 15 ' rate increases in November, as I recall it?
16 A A need for base rate increases in November?
17 Q Well, you testimony was presented in November, as I ,
i 18 recall, as to a need of base rate --
l.
19 .i A l ' ell , I --
1 20 Q -- relief by Metropolitan Edison Company.
i 21 A --presentedvarioustestimonythroughoutthecoursel 22 ! of those proceedings, including testimony which went to the
~
l 23 l heart of the financial problems f aced by Met-Ed and projected 1
24 j to be faced by Met-Ed, yes.
! i 25ho I think it was the position of various other parties lI I
g COMMONWEALTH REPORTING COMPANY 47176 761-7150
. . 42 !
() I to that proceeding, that the Commission didn't have an adequat 2 record before it on which to base base rate relief. i i
l 3 Q Well, be that as it mcy, that was one of your con-4 siderations in your testimony, the need for base rate relief; 5 is that correct?
6 A Yes.
7 MR. BURGRAFF: That's all we have at this time for 8 Mr. Hafer.
9 JUDGE MATUSCHAK: Mr. Hafer, when was the last rate 10 relief granted by the Commisnion?
11 THE WITNESS: For Met-Ed?
12 JUDGE MATUSCHAK: Yes.
[
13 THE WITNESS: The last rate relief that I would con '
4 14 sider to be a normal -- a more normal full rate proceeding was I
15 ' the order that was handed down by the Commission in March 1979, 16 but which was never allowed to go into ef fect. It was for 17 approximately $49 million of additional base rate relief, and 18 that was Docket Number R-78068626. i I.
19 JUDGE MATUSCHAK: And was that base rate relief 20 cancelled -- l 21 THE WITNESS: Yes --
22 JUDGE MATUSCHAK: -- or withdrawn?
23
} THE WITNESS: -- it was. It was for approximately
'{^/!
w.
24
$49 million, and it was handed down on March - well, adopted 25 March 22nd.
COMMONWEALTH REPORT!NG COMPANY (91_76 761 7150
y I -
43-!
i . .
I l
i 1 The accident at TMI took place some six or ceven ggg 2 days subsequent thereto and, before the company could actually I
i 3 put those rates into effect, the Commission effectively 4 rescinded that order -- at least in the dollar amount -- by l 5 ordering the exclusion of TMI Unit Number II from base rate.
6 It was an approximately equivalent amount of revenue.
I 7 As briefly as you can, will you JUDGE MATUSCHAK:
8 tell us whether the present financial condition of Met-Ed is 9
I due to some sudden event or circumstances, or just what has to been the cause of this present financial difficulty?
11 THE WITNESS: Well, certainly, the accident at Three 12 Mile Island has influenced and played a large role in the i
13 financial condition of Met-Ed and of all of the GPU system 14 , companies, in some degree, as opposed to the whole utility ;
15 industry, at least those that have nuclear plants, but one of 16 the large problems tha t has been going on, and which has been l II overshadowed by the considerations related to the accident, 18 has been that while we have had to focus on the energy costs, I8 the replacement power costs, and the interchange costs, et
'O t cetera, to replace TMI energy -- and we have had long and pro-l I
21 tracted arguments in proceedings about issues such as f ault and n, j restart proceedings, and so on -- the cost of doing business,
~~
j
- 3 the normal part of Met-Ed's business, has continued to go for-i
- ,4 ward.
25 Inflation has continued to affect this company, and COMMONWEALTH REPORTING COMPANY (717n 761-7160
44 il .
t the need to keep adding facilities, distribution poles and ;
(c\}
2 transformers, et cetera, has continued to go forward, the cam-3 pany has contined to serve, and the costs attendant with that i
4 service has continued to go up.
I 5 Because of the press of other matters, and the sheer ;
6 magnitude of those matters, as well as the emotionalism, to !
i 7 some degree, I guess, tha t helps draw attention to it, we just'
- a. haven't had an opportunity to focus on all of the other under-9 l lying cost data and financial criteria which are affecting the i
company.
10 11 So the problem arising as a result of the accident I
12 l was significant, financially. It was also significant because
(~}
) t 13 it took so much of everyone's time, the Commissicn's time, as 14 well as most everyone you see at the Counsel Table today and, 1
15 indeed, those of us with the company, and while that was I l
16 happening, while we were trying to put out the fire, if you 17 will, or at least get control of it, the costs associated with!
18 the other parts of our business continued to go on, the need 'l Il 19 to serve was there, and met, and the costs associated with l 20 inflation and interest rates, and what-not, continued to rise.'
21 And that's what we're addressing in this petition, because --
22 JUDGE MATUSCHAK: But the Commission did give the 23 company some relief of its energy costs and purchased power, j
(~]/
24 ;
didn' t it?
25 THE WITNESS: The Commission gave the company COMMONWEALTH REPORTING COMPANY (717t =76 b7150
i 1
45l' I
l I substantial relief in its energy cost rate for purchased pow 2
I yes -- and that was helpful, because it stemmed this huge out ! '
l 3 flow of dollars, cash dollars, that we were experiencing.
4 What -- why we had to focus on the energy costs -- -
5f because the amounts were just so large, compared to anything 6felse, and by its nature, so volatile and subject to outside I !
7, forces -- the Commission allowed the company substantial I
S! increases so that the energy cost recovery rate today is just 4
9' about equal to the cost of purchasing that energy.
10 ; In addition to that, the Commission allowed us to i
11 i begin to amortize, over the next 18 months, the build-up of
~
12 accumulated deferred energy -- that is, that pot of I.O.U.'s I l l
13 that built up while the energy cost rate was less than the actual cost we were incurring.
14 j I
15 So, from a cash basis, the Commission has gone a I
16 long ways to help the company in its cash problems, and it has.
17 also taken a large step in getting the company back to a point !
18 where its energy cost rate to customers is about equal to the 38 energy cost being incurred.
20 l' However, that doesn't address either the earnings 91 j problem -- that is,the additional monies necessary to serve as
~
i 22 l capital -- since the dollar revenue for energy cost is offset,
'3 totally, by a dollar of expense, there is, by definition, i'
nothing left for earnings -- and there was nothing intended to 24 l i
,s ;
be, in that kind of an order, but the earnings requirement has i
l CoMMoNWCALTH REPORTING COMPANY 4717) 761-7150 l
II o . s 46 i
I continued to go on.
t i
2 Likewise, those proceedings addressed only energy l
3j costs, interchange, purchased power and coal, not payroll, -
i 4 other operating and maintenance expenses.
5 JUDGE MATUSCHAK: What is your interest rate on 6l short-term debt? Is it a fixed interest rate, or is it a 7 floating rate?
i 8 THE WITNESS: The interest on short-term debt is 9i a floating rate, which varies with prime rate, and it's --
10 it also varies as a percentage adder in the revolving credit 11 agreement.
/~ 12 : There are three different stages, depending on the
-1 l 13 ', level of outstanding short-term debt -- and I can't recall the 1
14 exact percentage right now, but it's something like 108 per-15 ' cent, or 109 percent, of prevailing prime rate. ,
16 JUDGE MATUSCHAK: So there has been a reduction in 17 interest rates in the recent past? -
18 THE WITNESS: There has been, yes.
i 19 And your computation is based on JUDGE MATUSCHAK:
20 higher, larger interest rates, or would your requirements in 21 this proceeding be lessened by the fact that the interest rates >
'2*
have since dropped?
23 THE WITNESS: The actual calculation in this pro-
)
24 ceeding, I'd have to check; I don't recall the exact interest 25 rate that we used.
COMMONWEALTH REPORTING CCMPANY a7171 761 7150
47
. o .
I i
i '
1 JUDGE MATUSCHAK: Well --
I 2 THE WITNESS: If there were a substantial drop --
3 and I'm thinking now in terms of drops down to 8 percent or 4 9 percent, that we had seen a couple of years back -- I think,'
1 5 then, it might represent a basis for a recalculation of the l 6 return, yes.
7 On the other hand, a swing of 1 percent, or so, in l 8 the interest rate on short-term debt -- unless there is a 9;I clear and generally accepted understanding that rates are 10 , coning down, swings or, you know, magnitudes of a couple per- '
l i
11 ' cent, in the area of prime rate --
12 JUDGE MATUSCHAK: Well, now, if vou --
)
13 l.
THE WITNESS: -- are not cc mon.
h l
JUDGE MATUSCHAK:
14 If you had based it on 18 percent, ,
t 15 20 percent interest, and, say, now the rate is 10, 11, 12, I
16 it would make a substantial difference.
i I
17 THE WIT' NESS: Sure --
l i
18 JUDGE MATUSCHAK: Yes. t 19 THE WITNESS: -- certainly, if it was that big a 20 difference, yes, but, by the same token, if we now saw the rate 21 going from the 12 that's assumed, down to 6, if there were a 22 ' feeling that that was in the immediate of fing, yes, a recal-23 culation would produce a difference. .
) 24 But swinging from 12 to 11 to 13 is almost anybody'O s 25 call.
COMMONWEALTH REPORTING COMPANY 4717n 761-7150 !
l t l 48, l
l
- i 1 ,, JUDGE MATUSCHAK: What is the amount of construction '
er p 2 the company is engaged in at the present time? !
3: THE WITNESS: If you'll excuse me for a second, if l
4 I may, I'll gi s t it. i .
Il 5 JUDGE MATUSCHAK: Yes.
6 (Witness perusing documents.)
7 THE WITNESS: Your Honor, the most readily available j
! 1 11 8l source that I have for Met-Ed's construction comes from Page ;
! 1 9 13 of I2. Graham's testimony, which has been distributed but 10 hasn't been sworn to as yet, but it indicates there that for i I li t the year -- for the balance of the year 1980, from July through l
\ l
( ';
~
12 December, the last six months, Met-Ed will have construction
') l 13 and refinancing requirements -- that is, issues, small isrues, D
14 f that are coming due, that have to be paid off -- of some $40 l
15 l million. l l
j 16 For ..e year 1981, Met-Ed will have requirements of , i
! l 17 about $65 million.
l 13 By the way, in that same period of time, while Met-Ed l I9 l had $40 million of requirements for construction and refinanc ;
i 20 ing, the internal sources will provide for only about $17 I
21 million, leaving it with a net requirement of about $23 million t!
22 " for construction.
23
, Comparable information for 1981 indicates that of q
24 h the $65 million required, about $10 million would be provided ll 25 ! internally and about $55 million, then, would remain as net ,
COMMONWEALTH REPORTING COMPANY (7171 761 7150
il 49 I
i construction in excess of internal cash generation.
I 2 JUDGE MATUSCHAK: Those construction costs are 3 committed, in firm, or can they be varied? l 4 THE WITNESS: Well -- l 6
5 JUDGE MATUSCHAK: As to the ability of the company LI 6 to continue at that rate?
I 7 THE WITNESS: They are a combination of both, but I
a these construction costs, as I recall, are really at the point 9 J where they are, largely, construction items such as distribu-10 tion and transmission-related expenditures required to serve 11 n customers, as opposed to any -- to serve current customers, 12 as opposed to any long-range construc-ion, generation constr 13 tion. ,
JUDGE MATUSCHAK: That's wha t I want to know. Do 14 l - i 15 I you have, in the construction costs, any long-range generation i
16 I costs?
4 17 THE WITNESS: There arc, as I recall, almost none.
i 18 JUDGE MATUSCHAK: Could you furnish us with the 30 . cheapest requirements that you have ratio figures on in this i 20 proceeding? !
l 21 THE WITNESS: Yes. We have assumed -- on the revolv-
- - l 22 h ing credit agreement, we have assumed an interest rate of 13 ;
d 93 percent.
a ,z Thank you.
JUDGE MATUSCHAK:
23 Anything further by any counsel?
[
COMMONWEALTH REPORTING COMPANY r7171 761-7150
l 50'
) 1 ME. BURGRAFF: No, Your Honor.
2 MR. RUSSELL: May I just pursue one question? ,
1 3 JUDGE MATUSCHAK: Yes.
4 REDIRECT EXAMINATION f 5 BY MR. RUSSELL: l 6I Q With respect to the interest rate assumed, is that !
7 a 13 percent prime rate, or a 13 percent rate under the credit; 6 agreement?
9 A It's a 13 percent prime rate.
10 MR. RUSSELL: All right.
i 11 MR. BARASCH: Your Honor, just a follow-up?
^
( ') 12 JUDGE MATUSCHAK: Yes.
q 13 RECROSS-EXAMINATION 14 BY MR. BARASCH:
15 Based upon a 13 percent prime rate, what does that !
Q IG become under the revolving credit agreement terms?
17 A well --
18 Q You're paying some premium above the prime? -
l 19 A Yes. It has step premium level -- and I'll refer i
20 to the calculation, if you'--
21 All right.
Q 22 (Witness perusing documents.)
23 Let me stand corrected on an answer
(~ THE WITNESS:
3 ,4
, that I gave to Mr. Russell.
25 The 13 percent that we assumed was a 13 percent ;
COMMONWEALTH REPORTING COMPANY (717i 761 7150
I 51,l I, ,
l i i I
I gross rate, including any bump-ups, or premiums, would be g) i 2 included.
l 3I I can't find it at the present time, but included 4 in that informidable document that represents revolving credit 5 agreement, there is a schedule, which I can refer you to a 6 little bit later, I think, that sets forth the premium paid, f
- 7. 8 percent. The premium is not too great, actually; it's just :
i S in that area of about 8 or 9 percent -- 5 to 10 percent, I 3 p think, which is really not too big, you know, as these types l
10 of loans go.
i 11 l We didn't use the short-term debt -- intermediate 12 term debt, if you want to call it thar -- outstanding under 13 i the revolving credit agreement in developing the rate of return t
14 i requirement for the full cake -- that is, the 10.61 percent ,
l 15 I overall rate of return that we're requesting was not based on -
i 16 any assumption for the loans under the revolving credit agree -
17 ment.
18 We used the permanent capital, the bonds, debentures, 19 preferred Stock, and then an allowance for common equity invest-20 ment; so it wouldn't effect that determination of the allowed j 21 return, in any final determination.
22 However, the interest charges associated with the .
23 !
revolving credit agreement are indeed an integral part of ou 24 cash flow problems and, to that extent, they effect both the I i
i 25 projected earnings and income of the company, as well as the !
i l
COMMONWEALTH REPORTING COMPANY (7171 761-7150 I
i i
' 52' t
()
1 outstanding borrowing, because to the. extent that the tax role
- .is higher, because of higher interest rates, we, in turn, havel 3 to borrow those funds.
4 JUDGE MATUSCHAK: You're not basing this petition.
5 on the ground that the company could not meet the rate of 6 return that was allowed by the' Commission in the last rate !
7 case, are you?
8! THE WITNESS: Oh, man, we' re not -- we' re not even I
9l Close to that -- no, it is not for that --
i 10 l JUDGE MATUSCHAK: I mean, that itself would not be --
11 that itself, you wouldn't consider as a necessity for an extra-12 i ordinary rate relief, would you?
t
(~')
j l
! 13 j THE WITNESS: Not by the standards that the Commis- -
l 14 sion seems to have been following, yes. ,
15 I might consider it myself as a measure, but --
16 JUDGE MATUSCHAK: I mean, that -- any company could 17 come in on that basis, probably, if they' re not making exactly 18 what's. the rate of return that was allowed by the Commission.
19 THE WITNESS: Yes. Some --
20 JUDGE MATUSCHAK: Tb" rate cf the Commission is not ,
l 21 guaranteed --
}
}
22 THE WITNESS: That's right. j 23 JUDGE MATUSCH4K: It's an opportunity to attain
(~} l
\/ j l 24 that.
25 THE WITNESS: That's right.
_ _ _ _ _ . . _ _ _ _ _ _ _ _ _ _ _ . _ CoMM@NiW@ ASTH REPSRTOG06 @@ C43G9S7 (P0Fi SG30-90Eti)
- 1 53 l,
I 1 JUDGE MATUSCHAK: All right.
lll 2.! THE WITNESS: Some jurisdictions allow make-whole ,
3 type of adjustments, but this Commission has not been following i
4 that practice in its most recent orders.
i 5 JUDGE MATUSCHAK: Anything further of this Witness? i GI (No response.)
7 JUDGE MATUSCHAK: That's all, with the understanding' 8 that Counsel of the Commission's Staff reserved the right to 9 cross-examine you.
I THE WITNESS: Yes, sir.
10h]
11 JUDGE MATUSCHAK: You should be available tcrorrow. !
12 THE WITNESS: Yes. g 13 ' . JUDGE MATUSCHAK: Very well.
14 li (Whereupon, the Witness was excused.)
15 MR. RUSSELL: Mr. Huff?
IG Whereupon, 17 D;.VID L. HUFF 18 having been duly sworn, testified as follows: i 19 DIRECT EXAMINATION l
20 BY MR. RUSSELL: l t
i 21 !
Q Would you state your name and address, please? f l i 22 l A My name is David L. Huff. I reside at 23 Scenic I
e* '
- 1 Drive, Denver, Pennsylvania.
) -
94 l Q By whom are you employed and in what capacity?
'S I'm employed by Metropolitan Edison Company as an A
COMMONWEALTH REPORTING COMPANY (7171 761 7150
(
. . I 54 i
() 1 Assistant Comptroller. i 2! Q Have you before you a document which has been marked:
I 3 '
for identification as Med-Ed Statement B, with Appendix A !
4 thereto? i 5 A Yes,-I do. !
6 Q Was that prepared by you or under your supervision? i i
7 A That was prepared by me.
3 Q If I were to ask you today the same questions appear-1 i
9! ing in that statement, sculd your answers be the same as those l
10 contained therein?
i 11 ' A Yes. I do have one correction, which is very minor.
12 1 Q All right.
(]
l ;
13 i A On Page 12, the first answer, I reflect a reference I
14
,t to Adjustment Number "ll. "
That should be Adjustment Number 15 ! "12."
'i '
I 16 '
That's all that I have found, as far as any minor 1 1
"' corrections or major corrections, l
18 Q And do you have before you documents which have been i
19 marked for identification as B-1 -- well, first of all, that 1
1 20 document itself, were Parts 2 through 12 of that document p '-
i.l '
o 21 1 pared by you or under your supervision?
22 h A Yes, for the most part, Parts 2 through Parts 12 were 1
23 prepared under my supervision.
(-w 24 There was, of course, in a filing of this magnitude, 25 l several other witnesses who did provide information to me; those COMMONWEALTH REPORTING COMPANY (7171 761-7150
a e 55
.i i i I have been identified, as to what parts they did provide, and lgg i
2 they will support testimony in that regard.
i 3 il Q Are those witnesses identified in your Statement B 4 and in the various portions of Exhibit B-l? ,
5 A Y.s, they are.
G l! Q And were Exhibits B-2 through B-109 prepared by you !
i 7 or under your supervision?
8 A Yes, they were.
9l Q Directing your attention to Exhibit B-1, Part 9, 10 l Page 1 --
I '
11 ; (Witness perusing documents.)
i 12 '., THE WITNESS: Yes.
) l 13 , BY MR. RUSSELL:
i 14 I Q Is this the income statement that relates to the 15 : historical test year data submitted by Met-Ed?
16 A Yes.
17 Can you identify what rates of return, overall, Q l 18 and on equity that were achieved by Met-Ed during that 12-19 l month historical period?
20 A May I have just one second?
21 What period did you ask for, Mr.
JUDGE MATUSCHAK:
I I
22 Russell? .i l
23 l MR. RUSSELL: It's the 12 months ended March 31, I
' 24 1 1980. !
25 j' JUDGE MATUSCHAK: Thank you. il
[
l .
COMMONWEALTH REPORTING COMPANY s717) 761 7150
l I 56 x- 1 (Witness perusing documents.) ,
2 THE WITNESS: If one were to take Column 1, the i
3 S69,755,000 for the 12 months ended March 31, 1980, and divided I
i by the $1,083,018,000, that shows up on Part 3, which is the 5 measure of the value for the same comparable period, the 6l ovsrall rate of return would be 6.44 percent.
I 7 Utilization the capitalization under Part 3, which 8 is Page 17, subs titu ting the 6.44 for the calculated 10.49 9 ' percent, one would then get a return on common equity effec-10 tive rate or weighted cost rate of 1.48, which, when divided 11 by 35.66 percent, would indicate a 4.15 percent return on g '
'_ common equity.
1 33 BY MR. RUSSELL:
14 ' I direct your attention to Paragraph 15 of the Q
15 petition for extraordinary rate relief.
16 (Witness perusing documents.)
I Yes, sir.
THE WITNESS:
18 BY MR. RUSSELL: ,
19 Was that calculation of a negative 0.6 percent Q
20 h average common equity investment for the six months -- return .
'l
~
on average common equity investment for the six months ended 22 June 30, 1980, calculated under your supervision? ;
a3 i
A Yes, it was.
t
'i 24 i Q I direct your attention to Paragraph 44 of the peti-
.5 tion for extraordinary rate relief, which is Met-Ed Exhibit
< nv em ,e.u m nennm c -n.4p wv ,,,, ,n,-,sn
e 1 57 l- e a 1 A-3. ggg 2 (Witness perusing documents.)
I 3! THE WITNESS: Yes.
e i
4 BY MR. RUSSELL: l 5 Q Reference is made to a level of $35 million rate 6 relief if one contemplates only a 13.38 percent equity return.
7 A Yes.
i I 8l Q Did you calculate the $35 million level of requestedj i
9; rate relief?
10 A Yes, I did.
l Q Turning to Appendix F of the petition --
11 l 12 A Yes.
13 ' Q -- did you prepare that appendix?
i 14 ' A Yes, I did.
15 Could you explain, briefly, what is represented on j Q 16 that Appendix F?
17 A The calculation is predicated upon the normalized !
18 measures of value and income statements as of March 31, 1981, 19l' which is the future test year.
I 20 l The first line, looking at Part 2, of $728 million, i
21 i includes TMI-I but does not include TMI-2.
"2' From that, we excluded the measures of value asso-23 ! ciated with TMI-1, such that the $567 million represents ;
24 normalized measures of value excluding THI-I and II.
O !
.P i I
In the computation of the revenue requirement, b
i g CoMMoNWE ALTH REPORTING COMP ANY (7171 761 7150
a a a 58l 4
(')
ss ,
because of the lower revenue that we have calculated, the l, l
2
$35 million, there is an effect on working capital which raises 3 working capital, due to the fact that in our working capital 4 computation, there is a negative effect on Federal Income Tax, 5
butwhenonereducesthereturnandreducestherentalrequire!
6 ment, then the cash working capital rises slightly -- and 7 that's what the $829,000 is.
3 Now, there --
9 Q Well, just hold it there a second, to see rhat we l-10 understand that point.
11 A Okay.
i
'~s 12 ! Q Are you saying that when the revent.as with respect
- .i l l 13 1 to a lesser rate base are thereby reduced, there is a lesser I
14 amount of Federal Income Taxes, or income taxes? )
15 A Yes, sir. -
16 Q And with a lesser amount of income taxes, there's a 17 lesser lag in the payment of those taxes? !
18 ,, A Yes, sir.
. I 15 Q And that lesser lag, therefore, in the cash working t
20 [ capital calculation leads to a greater cash working capital [l
!l l 21 e requirement?
22 A That's correct.
!i 23 ) I'm sorry -- go ahead.
(-)
\_/,
Q All right.
l
' 24 .jj A This is the -- the combination of these two gives i'
25 me adjusted measure of value, excluding TMI-I and II, of $568 ;
P. , .
f k e
59 I
I I million. g 2N The overall rate of return of 9.83 percent is i.
3I calculated on Page 2 of 3, Appendix F, and that is taking the !
l 4I future test year computation that is in the filing, Part 2, 5 and substituting the 13.38 percent in place of the 15.5 per- l 6l cent that's in that particular part; and, therefore, I derive ! i l
at a 9.83 percent.
8I Now, what this represents is the current capitaliza-8' tion, or the second capitalization of March 31, 1981, and the l
10 l expected cost of debt and preferred stock, and the effect of i 11
.the 13.38 on the common equity at that time.
I 12 The multiplication of that 9.83 times the measures I3 of value, adjusted measures of value, indicates that an overall i
"l return of $55 million is used.
15 In Part 8 of the filings, we have indicated that I6 they are already normalized at $39,578,000, and that removing 1*l TMI-I, that the normalized return exclusive of TMI-I would be j i
18
$38,470,000; therefore, I need $17,354,000 to bring the ,
19 normalized return up to including an allowef rate of return i
20 llof 13.38 percent on common equity.
4 21 The revenue factor of 2.03137 is the growth that 22 return up to the revenue requirements, representing the State 23 1 Income Taxes, Federal Income Taxes and the 2 percent gross I a j receipts tax. !
l 15 That is the calculation used to arrive at the i
COMMONWEALTH REPORTING COMP ANY 47171 7G 1 -7
- 50
. . 60 li i
1 S35,273,000 revenue requirement.
I 1.
2 MR. RUSSELL: I believe that's all we have of Mr.
I 3i Huff at this time.
l i
4 JUDGE MATUSCHAK: Do we have any cross-examination? !
5 MR. McCLAREN: Your Honor, again I would s like to I
6 reserve cross until tomorrow. l i i I
7l JUDGE MATUSCHAK: Does the Consumer Advocate have l' l
8j any cross at this time?
8 1 J l 9l' MR. BURGRAFF: No, Your Honor. Due to the time 1
10 constraints, we have no technical cre ss-examination at this l 11 l time. ,
l I-ex 12 1 JUDGE MATUSCHAK: Mr. Frater?
I I i' 13 l MR. FRATER: No, I have none.
14 JUDGE MATUSCHAK: Would this he a g;od time to recess 15 ) for lunch?
l l
16 l MR. McCLAREN: Your Honor, just before we break, I'dl 17 like to provide you and the other parties with some documenta-18 tion with respect to that policy decision of the Commission 39 - on filing for extraordinary rate relief.
I l I !
'O
~
- JUDGE MATUSCHAK: Very well.
'l l MR. McMCLAREN: We were able to obtain from the ;
I i 22 Commission files, the minutes of the public meeting of October i l 23 '
26th, 1 9 '/ 8 , a secretarial memorandum directing service of the
.)
'4 ', policy statement, and a receipted copy showing that Met-Ed
~
' i 25 did, in fact, receive the policy statement. i li _ #6T/JWYWYR/AM
61-62 e
11,
- . s I
i i N
l!
Iq To the extent.
- hat there are further matters that g
- i 2 'i ll you've requested, we will provide those tomorrow. !
JUDGE MATUSCHAK: Very well.
3h 4 What time would Counsel want to come back?
5 MR. RUSSELL: 1:30.
6, JUDGE MATUSCHAK: 1:30? l t
TI i
MR. McCLAREN: Yes. I 8l. JUDGE MATUSCHAK: Okay, let's recess until 1:30.
I 9 (Whereupon, at 12:20 p.m., a lunchecn recess was i
10 l. taken.)
I 11 ' l l'
13 14 15 ;
6 l
16
, 17 !
18 l
19 i f
I 20 2
21 22 23 .
24 O '
I 25 CCMMONWEALTH REPORTING COMPANY 87171 761 7150
k1 '
. . 63 ,
I r~x
(_) 1 AFTERNOON SESSION 4
I 2- (1:30 p.m.)!
3 JUDGE tiATUSCHAK: Are we ready to proceed? l 4 Before~ew proceed in the regular order, having 5 recsived from Commission Staff a copy.of some papers indicating that Met-Ed was served with a copy of the Commission's stateren t 6l 7 of policy on November 7, 1973, I'd like to ask Commission i
a, counsel whether at the time of filing or prior to the filing or !
9 immediately after the filing counsel was furnished the state-10 ment of policy that's referred to.
9 I MR. RUSSELL: I'm sorry, I thought you were 11 l
(')
q 12 directing your question to Ccmmission counsel.
13 JUDGE MATUSCHAK: I'm directing the cuestion to you 14 , whether at the time of the filing or immediately after the is filing counsel was furnished a copy of -- ,
t 16 MR. RUSSELL: Of this statement of policy? I This 17 filing?
18 JUDGE MATUSCHAK: Yes.- '
19 MR. RUSSELL: No. I got a copy this morni:ig 20 attached to the Consumer Advocate's motion. ;
21 JUDGE MATUSCHAK: I understand that, but I'm asking, 22 whether at the time of the filing or immediately after the
(~x 23 filing anybody from the Commission Staff or from the Commission
(!
.I 24 you received a copy of the statement of~ policy.
25 MR. RUSSELL: Delivered one to me as counsel?
L_ COMMONWEALTH REPORTING COMPANY (7171 7@1 71 Q@ l
il k2 4
64 1
JUDGE MATUSCHAK: Yes.
2l MR. RUSSELL: No.
3 JUDGE MATUSCHAK: Let me ask one other question, 4 Mr. Russell. Could you inform us,lin addition to the 5
information furnished us by Commission counsel, could you 6' informushowmuchtimeitwouldtaketosubmittheadditionall i
7 information that is referred to in the statement of policy in '
3 the form in which it is requested?
9{ MR. RUSSELL: That's being worked cn presently, l
l and we would anticipate that the bulk if not all of it will be 10 l '
it I supplied tomorrow morning. '
12 JUDGE MATUSCHAK: All th* informatiCn?
13 MR. RUSSELL: The bull, if not all of it, tonorro 14 morning.
15 JUDGE MATUSCHAK: In the form that it's requested?l IG MR. RUSSELL: As indicated in the statement of !
i 17 policy. The great bulk of the data is available from accumentsl I
I 18 already on file with the Commission, but the prec_se form that i
19 ,is stated in the statement of policy is what's being worked up!
I 20 now. i i
21 JUDGE fiATUSCHAK: You would knc e better how to -
22 ; segregate that information than we would. !
I 'i 23 l
MR. RUSSELL: Surely. l 1 24 JUDGE MATUSCHAK: Very well, you may proceed. O, i
25 MR. RUSSELL: We will recall Mr. Hafer, of whom.I I
COMMONWEALTH REPORTING COMPANY (7171 761 7150
k3 '
l l
l
(~' 1 believe there is now some cross-examination available.
x-2 iWhereupon, ,
1 3 FRED D. HAFER ,
i i 4
'having previously been duly sworn, testified further as follows!:
5 MR. MC CLAREN: Your Honor, Staff will have some l l
6l questions for Mr. Hafer now, in order to avoid the necessity of' l l
7 asking him to return specifically for us tomorrow. We would i 1
8 like to reserve the right to call him later if we are able to s establish hearings next week.
10 JUDGE MATUSCHAK: Let's go off the record for a l 11 moment and discuss that feature of it.
12 (Discussion off the record.) j l
13 JUDGE MATUSCHAK: Back on the record.
14 CROSS-EXAMINATIOS I
15 i BY MR. MC CLAREN: l l .
1G G Mr. Hafer, if you'd focus for a noment on the ;
i 17 period between the time when the Commission. issued its May 23 18 order of this year and now, or the tine when you filed the 19 petition for extraordinary rate relief, have there been any 20 material changes in the company's financial condition or its 21 ability to raise finances since that order? !
i i
22 A. No. There's been a continuing deterioration of I
fs 23 earnir gs, but there hasn't been any material event that I can !
(
w -) 24 think of at the present time.
25 G Po that other than the passage of time which has j l.
I COMMONWEALTH REPORTING COMPANY (717* 761-7150 1
l' 66 -
k4 I
continued to bring about normal changes in the company's I
O 2l condition, the situation is essentially the same as it was when!
l 3l the Commission issued its May 23 order?
4 MR. RUSSELL: Was the term " normal" used in there?
5 I'm sorry.
6 MR. MC CLAREN: If the reporter would read the 7j question back.
I sl (Whereupon, the pending question was read back.) I i
MR. RUSSELL: I'm not cbjecting. I just wanted to 9l
\,
make sure that was the term used. !
10 l l
11 THE WITNESS: I think basically the answer to your 12 : question is yes, although the May 23 crder itself struck out a
'1 ( largs. k la; portion of the company's revenues which had prior to that l
l ,
14 - time been available for earnings on capit:1.- So, yes.the i 15 passage of time has seen this deterioration continue. The 16 entrance of the May 23 order accelerated the deterioration, if 17 you will, because it took away some of the revenues which had 18 been available for earnings on capital.
19 I
BY MR. MC CLAREN: i 20 G You've testified with respect to the level of !
i 21 ! short term borrowings under the revelving credit agreement, and.
I 22 ; reference has been made to chart one on page six, I believe, of 23 part one of Exhibit B-1. Are you responsible for any under- !
) 24 l lying data in the filing numbers which would support that chai . ,
I 25 i A No. Actually, the detail of that would be the l i i, i COMMONWEALTH REPORTING COMPANY (7176 761-7150
k5 . 67 responsibility of Mr. Graham.
/}~
Can you identify for now where we would find that I
., ;i G
I detail?
3!
A I don't think that the underlying detail is l
i, included in Mr. Graham's filed exhibits. l 5
t MR. MC CLAREN: Does counsel agree with the answer i 6
of the witness? l 7
MR. RUSSELL: Yes. As a matter of fact, I had 8
i requested Mr. Graham's office to provide a table showing the gl g precise dollar amount per month, and that will be here, to my ,
knowledge, with Mr. Graham tomorrow morning. :
i g BY MR. MC CLAREN:
w )I G I think my question went to whether there is the 33 34 specific numbers month by month backing up that chart. I's thad 15 available in the material that has been filed?
A It is not available in the material that has been 16 37 filed to date. The supporting data month by month is being 18 assembled right now, and will be available, I understand, when jg lMr. Graham shows up in the morning. He is the witness 20 responsible for supporting that detail.
i 21 G Mr. Hafer, I assume you're aware that the company f i
i 22 has filed with the Commission a request to approve a revision i
to the revolving credit agreement?
(^3 23 l
(_)
) 24 A Yes.
25 G Can you outline briefly what changes would take l
COMMONWEALTH REPORTING C@MPANY e717 Wy tl .71 McD
k6 i 4 68 l i i i place in the revolving credit agreement if that's approved by ,
2 the Commission? I l
3l A I can, I think, pretty well from memory. There wag 4 a request that the number of banks required to change the r~ ;
5 amount of credit available, either upward or downward to the s: companies, which is currently 100 percent or all of the 45 i i
7' banks in the revolving credit agreement, be modified so : hat a banks representing 85 percent of the credit can give such-l' .
0; approval.
I L
la That's a change which, for practical purposes, is l
11 j necessary. I don't think it is a substantive enange to the i i 12 I agreement, but it avoids the necessity of having to seek out 13 ., the consent of the very small country banks, many of which l 14 can't take any action absent board of directors' authorization, 15 t and board of directors frequently don't meet more than once a i
16 month.
17 So, that was a change to get over that practical 18 problem. There was a second change which related to a change 19 in the administrative fees which the banks receive. Initially,i 20 ! th ey had, based on their estimate of costs, agreed to a fee of 21 one hundred thousand dollars per year in total for the whole 22 revolving credit agreement.
23 Now, based on the amount of activity that's been
) 24 involved in administering this agreement and trying to hold i 25 together and appearing before regulatory bodies, et cetera, COMMONWEALTH REPORTING COMPANY (7171 761-7150 t
.- i
- - 69 k7
(~'; 1l their costs have exceeded their original estimate. They're
$l
- asking to have those fees increased to two hundred and fifty li 30 thousand dollars a year, effective I believe it's June 1 of a
I 4 this year. l 5 Another change is that there's a provision in the 6j agreement which in referring to certain conditions where the 1
7l bank can exercise judgment or not extend any additional creditj 8l says that there must be -- one of the conditions which must be1 l i 9 met by the company is that there be sufficient revenue to cover I
10 ! the ongoing operating expenses.and so on. i I
i 11 I The banks have asked that that be modified to say,'
I :
12 l revenues and earnings. I don't know that that is necessarily l
(^)3 k- I 13 ;, a substantive change, because I think under other provisions !
14I ils the benks have the opportunity to decline advancing additional , I 15 i funds. But nevertheless, it's one that they fcund to be significant. '
16 l I l
17 And they did it for a very express purpose. The j 18 May 23 orders of Met-Ed and Pennelec are what prompted it, and l; I l
19 what happened was, while the Commission in one phase of that I B
20 iO order allcwed the revenues to remain the same, by ordering that l
. I 21 the revenues be redirected, if you will, taken away from f.,
I I 22 revenues for an allowance of TMI and be called revenues for j
,,- 23 1 recovery of fuel costs, it meant that there was a substantial i i
!s )
-) 24 ; reduction in earnings because the fuel cost revenues are now l
25 ll offset by an exact entry under the current energy expense 6
l i
l, ' l COMMONWEALTH REPORTING COMPANY (7171 761-7150 i
7'O kB ,
I t
I account.
2 It meant that there was a reduction in earnings, 3 even though revenues stayed the same. I don't think the banks 4 were really aware that that type of thing could be done or 5 anticipated, and this is *. heir reaction to that, although as'I 6 said, it's my feeling that they had plenty of protective 7 covenenants in the agreement as it then stood. !
8 My recollection is that those are the three l 9 principal areas that they want modified.
10 0 Is there a change in the amount of short term debt '
l 11 that could be borrcwed from the group of banks? j i
12 A. There is a change.in the amount which is proposed 13 be available-to Jersey Central. Jersey Central is currently ,
14 , 139 million, and I think they're proposing going to 160. I 15 don't recall offhand -- I know there is no change in the amount 16 of credit which will be available to Met-Ed, and I can't recall 17 whether they are proposing to change the aggregate or not.
I 18 G Is there a change in the cost of the debt?
19 A. No, sir. The interest rate formula stays the same. ;
f 20 I might say if I can for a second Mr. McClaren that the interest 21 rate in this revolving credit agreement is, based on my '
22 experience with it, a very good one. While this system was in 23 pretty tough straits and needed credit very badly, the banks
) 24 no means took advantage of that situaticn in trying to exact j 25 any exorbitant interest rates.
1 COMMONWEAL.TH REPORTING COMPANY (7171 761-7150 ;
k9 11 71 f
i l
(j II In fact, if you compare the interest rate paid on j 2! these loans to the interest cost, the effective interest cost
!I 30 on just our normal, typical kind of arrangements,s arrangements t
4 that other companies might have with 20 percent compensating i 5 balances, the cost of money is actually cheaper under this l 6 ;' revolving credit agreement. i 7 G I wasn't suggesting that it wasn't. .
i 8 A No, as I say, for editorial comment, I thought it Dfwassignificant.
1 10 f G You in fact have made a filing to change that i
11 revolving credit agreement. It's a central part cf your i
(~) 12 current financial condition, and what I wanted to determine is N._ q' 13 what changes if any it might make in the presentatien you have 14 made as to the amount cf short term debt available to you, with 15 or without rate relief.
16 MR. MC CLAREN: I assume -- perhaps I should ask 17 counsel this -- that when Mr. Graham appears, he will be j 18 prepared to indicate what if any changes it would make in the i
10 underlying data, if that revision is approved.
20 MR. RUSSELL: Yes. As a matter of fact, if it 21 would be helpful, I've just had delivered to me a few minutes 22 ago to be put in as an exhibit in this case copies of that 23 petition, and if there's no objection, I'll have it marked for l
(-}
l ) 24 identification and make it available to the parties and Your 25 I hand the reporter three copies of an exhibit which j Honor.
COMMONWCALTH REPORTING COMPANY 17171 761 7150
kl0 l 72 ,
1 I ask to have marked for identification as Met-Ed Exhibit O W
e l
2 E-21-1. .
3 (Whereupon, the document was I marked Met-Ed Exhibit E-21-1 l
4 for identification.)
l 5 MR. MC CLAREN: Is that all, Mr. Russcil?
I 6 MR. RUSSELL: Yes. ;
1 7 BY MR. MC CLAREN: l 8 G Mr. Hafer, if the company is given no extraordinary!
9 rate relief, will it be able to issue any permanent fincncing 10 before the end of this proceeding, before the rates would ,
11 otherwise go into effect?
12 A. No, sir.
g 13 G If the company is given emergency or extraordinary 14 rate relief, say as much as the company has asked for, will if 15 be able to issue permanant financing between now and the time 16 l when your tetal rate increase would otherwise go into effect? :
17 A Assuming that that is at the end of the full 18 statutory suspension period? l 19 Yes. l R
20 A No. i 21 G So, whether the Commission grants or doesn't grant '
22 the extraordinary rate relief will have no effect on your !
23 - ability to issue permanent financing within that time period?
) 24 A I don't think that's a fair statement.
Theamountl 25 of rate relief requested in the extracrdinary petition is not l
l COMMONWEALTH REPORTING COMPANY (7171 761-7150 ;
l i
- 73 l kil' l
,. l
) 1 sufficiently great to provide financing ability within the i i 1 seven month suspension period. However, it will be enough to 2 *l 1
1 l
3' allow an improvement in earnings, a buildup, if you will, of l i
4 interest coverage so that sometime after the end of the suspen , l
! l 5 sion period, we would have realized earnings sufficient to :
h l
6 allow us to do a modest amount of financing. ll l
7l; And that's the 20 million dollars in late 1981. j 1
' 1 8l But, this morning when I was discussing that, I tried to make j 9[ it clear that it doesn't matter how much additional revenue is ,
I l 10 l allowed in the Commission's rate order.
It's the realization ;
11 !' of that revenue in ooerations that provides financing O 12 capabilities.
% )1 '
13 So, it's required that the revenues start coming in!
! I 14 at some point and build up, because it's a cumulative type of I 15 thing.
l 16 G Your chart two which appears on page eight, part l 17 one of Exhibit B-1 purports to illustrate when you could issue I
18 this modest amount of debt financing if you receive both l
19 emergency and final rate relief. What would that chart look )
t i
20 like if you did not receive emergenef rate relief but you did ;
i i 21 receive the full final rate relief? When would you be able to , '
22 issue that same form of financing?
I 23 A (T I'd have to do the calculation. It would be >
') I ;
) 24 '
sometime in 1932.
I l 25 Could you provide that for us? l 0
l l 1 i
, COMMONWEALTH REPORTING COMPANY #7171 7CM 7 t Gro) .
7,4 k12 ,
1 A Yes. That wouldn't help out, however,theprobleggg I
2 that appears on chart number one.
I 3 G But just focusing on that, for now. In the :
I.
4 statutory language which sets forth the conditions for the- {
5 grant of extraordinary rate relief, one of the conditions is 6 i it is such relief as is immediately necessary to avoid l
7l substantially reducing employment. If the Commission does not I
sj grant the company extraordinary rate relief, what employment j 9 will be reduced by the company?
10 A I can't give you a direct answer to that. Met-Ed 11 i is already at a lower level of employment than we have been in ,
12 , the last ten years as a result of cutbacks and laycffs. Abser'
/
13 q! f rom extraordinary rate relief, we won't be able to live within!
14 the existing credit limit and we will have to cut back further 15 J on all levels of operations, including employees.
e 16 However, we have not set forth a schedule or plan l i
17 which would indicate which employees or how..many. But it is !
18 clear that we would have to take any and all actions that we ,
19 can to avoid spending money, and that by necessity will mean 20 ,! cutbacks in the level of employment, I'm afraid. '
21 g Can we have from the company -- either from you, l
22 ,Mr. Hafer, or Mr. Russell, perhaps from another witness, a more 23 ! specific statement as to when such cutbacks would be antici-l
, ) 24 pated and of what nature they would be if this rate relief is ,
I i
25 l not granted? '
l COMMONWEALTH REPORTING COMPANY i717i 761 7150 l
- I 75 kl3*
i I) v 1 MR. RUSSELL: We have Mr. Newton here who will be 2 available as a witness this afternoon, and before I put him on 3 the stand I can check with him to see if he has that data l 1 4 available.
5 BY MR. MC CLAFEN:
6 G Mr. Hafer, the statute also sets out as a condition j 7 for the grant of this relief that it's such relief as is I 8
immediatelynecessarytoavoidreductionsinnormalmaintenancej 9 programs. If the company is not granted extraordinary rate 10 relief, what normal maintenance programs will be reduced and l l
11 at what time? ,
I.
/~N 12 A I think that's another question.which I believe l
~) !
13 Mr. Newton is going to be able to address, because it's ' \
14 l
basically transmission and distributien operation and j t
15 maintenance expenses that is cut out. Everything else such as 16 the construction program has already been cut just about as 17 low as we can get it.
18 MR. MC CLAREN: That's all the questions we have 19
- at this time for Mr. Hafer.
20 JUDGE MATUSCHAK: One of the elements is that the 21 company will continue to provide normal service to its' customers.
22 How would this normal service be affected if the extraordinary 23 r~x
?
rate relief was not granted?
1 24 THE WITNESS: To the extent that Met-Ed has already' 25 cut back significantly.on its level of T and D expenditures, i
COMMONWEALTH REPORTING COMPANY (717) 761-7150 l
I 76 .
kl4 -
l i
I 1 O and M expenditures and its number of employees but has been 2 able to date to continue to render safe and adequate service.
l, 3! JUDGE MATUSCHAK: Could it continue to render 4 adequate service, absent extraordinary rate relief?
5 THE WITNESS: I don't think so, Decause it's my ;
6 testimony that absent extraordinary rate relief, the company l 7 will have to cut back even further. Again, I can't tell you 8 specifically, and I'm not sure whether Mr. Newten's in a ,
t 9
i position to prioritize them, although he may be, 10 But the areas that we.would have to cut back would li 11 be the areas of o and M, perhaps on new customer hookups.
l 12 There is no question that the. reliability of service will 13 deteriorate as a result of that.
i 14 It's almost a " Catch-22" kind of thing, because the; 15 Commission on the one hand wants to see hard fact that service l 16 is deteriorating, and yet we're fighting to axoid having it 17 deteriorate. And secondly, they want to hear about exactly is what it is you're going to cut out and not do, and yet when it 19 .is presented, it often is interpreted as some kind of a threat,
\ l l 20 i that if we doh!.t get this type of rate relief we are going to 21 fire X number of people. And it is not like that. >
22 It's a situation that we certainly don't want to 23 see ourselves get into, because we think our level of operati
-) 24i l is now cut down to a point where it's perilously close already 8 I
25 Where we would cut at subjecting us to some severe outages. ,
i COMMONWEALTH REPORTING COMPANY (7171 761-7150 l
~ k15 i!
. . 77-
{
i I
3 even further, I don't know, although as I say, maybe- Mr. Newton a could.
l
! l 31 JUDGE MATUSCHAK: Would you say that there was a j l i 4- likelihood that it could be jeopardized, that the normal, j t
5 adequate service could be jeopardized if rate relief were not 6 granted?
4
- THE WITNESS
- I think it's almost assured'--
8 JUDGE MATUSCHAK: I mean, extraordinary relief.
- 9. THE CTSS : Yes.
l 10 l JUDGE MATUSCHAK: Anything further? .
11
. MR. BURGRAFF: One question, if we could, Your 12 Honor, in conjunction'with the cross-examinatien by l'.r.Me:Claren, y
13 BY MR. BURGRAFF: !
i 14 G In referencing _the appendices attached to the i 15 petition for extraordinary' rate relief, Mr. Hafer, do either 16 you or Mr. Newton have a breakout of the reduction of employees 17 and the reductlon in actual dollar expenses in various areas, j
~
l 18 post accident -- not from the year 1971, but from post accident',
19 , post TMI-2 accident forward?
20 l A. I am not sure that I understand the question. ;
21 g Well, in essense, all we're asking for is, do you 22 have a quantification of the cuts that have been made in i i
-i 23 different areas since the accident?
O 1 '24 MR. RUSSELL: Mr. Newton,'I think,-would be able to 6
25 respond in terms of the' employee situation, for example, or !
i i
COMMONWEALTH REPORTING COMPANY (7176 7G17150 I
kl6 Il 7,8 , ,
I providetheinformationifhedoesn't.haveitat.hisfingertig 2j right now. ,
i '
3j MR. BURGRAFF: Would he also have the expense i 4 information, or would we need that from someone else?
5 THE WITNESS: That information has been provided 6i in previous dockets, and it has been provided to the board at .
7 our annual review meeting. So, even if it isn't present in the 8l room right now, it is generally available.
e,! MR. BURGRAFF: All right. We have copies of that.
10 We can check that initially and go from there.
11 THE WITNESS: Specifically, just to help reference 12 it, I'think there was an appearance by "et-Ed and Pennelec on 13 September 21, 1979, and in fact I think-the bocklet that was 14 distributed at that time was presented in the last rate case i
as Exhibit F-1 by Mr. Decamp. That had a section which dealt 15 l 16 il with reduction in 0 and M expenditures and various other t l
17 categories as a result of our efforts to conserve cash. That'sle i
la one place that comes to mind. '
19 BY MR. BURGRAFF: i 20 G We could also go to the last annual review? l 21 A. I think the same type of data was also presented ini l
22 the last annual review, yes. ;
23 MR. BARASCH: Can we have one more moment, Your j ,
j 24 Honor?
25 (Pause.)
I COMMONWEALTH REPORTING COMPANY 17176 761-7150 l l
kl78 79
! i q
w> 1 MR. BARASCH: If I could, Your Honor, I'd like to .
2 pursue one or two questions with Mr. Hafer.
I i
3; .
JUDGE MATUSCHAK: Very well. I 4l BY MR. BARASCH: ,
5 g Would you turn your attention to paragraph 33 of l 6 Exhibit A-3? It's on page seven, I believe. Is that one of ,
7 the paragraphs that you are sponsoring?
i .
8' A No. Actually, I sponsored everything prior to S
i 26 and from 36 on. And that middle section, which really deals 10 ' more with the operations and O and M parts of the business are 11 going to be sponsored by other witnesses. And I tb4=k it's
() /
12 + Mr. Newton, specifically, who is going to address it. I keep 13 using his name. I hope I'm not --
I I4 MR. OCDEN: Mr. Newton will address that.
15
- MR. BARASCH: 'I have no questions of' the witness ,
d
- 16 !i Your Honor.
l I
JUDGE MATUSCHAK: As I understand it, counsel will * ,
18 not have any cross-examination of Mr. Hafer tomorrow, is that I 1
I8 ; correct?
q ! ,
20 E MR. MC CLAREN: That's correct. -
i I
MR. BARASCH: We won't be prepared to proceed j '
l l l
~~
tomorrow, j c 93 (x)
JUDGE MATUSCHAK: Very well. You are excused. l t 24 i (Whereupon, the witness was excused.)
9
~5 l MR. OGDEN: Call Mr. Carter. ,
l ceramrammusa cuerAempo corareA'MV (79 7B 76 9 -21F@
$18 I 80 . [
l I Whereupon, 2 EUGENE F. CARTER l 1
3 having been duly sworn, testified further as followst l 4 DIRECT EXAMINATION i
5 BY MR. OGDEN:
6 G Would you state your full name and address for the l 7l record, please?
l I
ap A My name is Eugene F. Carter. My business address i
~
d 9 is Post Office Box: 1018, Reading, Pennsylvania , area' code 19603.
10 ) O. By whom are employed and in what capacity?' l 11 A I'm employed by GPU Service Corporation as '
12 i assistant vice president of rates.
13 , G Mr. Carter, there has been marked for identifica-l 14 lll tion in this proceeding Met-Ed Statement C. I show yett a copy i
15 t of that, and ask you if that was prepared by you or under your 16 j supervision. ,
l 17 A It was.
l 18 G If I were to ask you the same questions'_today as i
19 are Contained in that statement, would your answers be the !
l !
20 same?
21 A Yes, they would.
I 22 % I am correct, am I not, that there's an Appendix A l li 23 attached to that statement which outlines your educational and
) 24 ; professional qualifications?
O e .
8-25 A That'is correct.
COMMONWEALTH REPORTING COMPANY (7171 761-7150
< v .
- I k19 ' I G Mr. Carter, there has also been marked for (6_)
1 2 u!l identification in this proceeding Met-Ed Exhibits C-1 through , s
! I 3 C-32. Were tho e several exhibits prepared by you or under your supervision?
4 l
5 A Yes, they were.
i 6 G Mr. Carter, directing your attention for a moment 7 to the petition for extraordinary rate relief which has been 8 marked Exhibit A-3, first would you indicate for the record !
9 i what has been the average annual rate of grov.th in the nurber I
i 10 j of Met-Ed customers?
11 A Yes. On page six, numbered paragraph 26 of that I 12 exhibit, it makes reference to the fact that custoners grow at
, I :
la the rate of approximately five tnousand per year. And since I t 14 have been. associated with Met-Ed aver the years, that growth 15 l rate of approximately two percent annually has heen the IG experience of Metropolitan Edison.
17 G Mr. Carter, I direct your attention to paragraph 18 47 of the petition. Could you briefly explain that proposal, i
19 what your thoughts are concerning any alternctives to that?
20 A Yes. Paragraph 47 is one proposal made by the -
l 21 company in its petition for recovering the 35 million dollars f 22 .of extraordinary rate relief'. And the methodology is very !
L ;
g3 23 straightforward. It was developed by dividing the 25 million l L,)
.)'
. 24' dollars by the normalized test year megawatt hours contained 25 in Exhibit C-1 and obtaining the mill per kilowatt hour across j COMMONWCALTH REPORTING COMPANY q7171 TKi%71 E@ !
K20 i 82 .
I theboardsurchargeof4.401 mills,excludinganytaxesthatll i
2 might be recoverable in addition to this amount.
3 The amount that would actually be recovered on an 4 annual basis for that test year.fromrthe' retail customers wouldiI 5 be 97 and one-half percent of the total, or approximately 6 34.1 millien dollars. The impact of an across the board type 7 mill per kilowatt hour surcharge as to the various customer t
I a classes set forth in the table included in that paragraph, ;.
9 overall the total retail castomers would experience a 7.7 i i 10 percent increase, and it varies slightly upwards and downwards !
11 depending upon the class of service.
l 12 HealsorealizethattheCommissioncayprescribeggg
} ;
13 some other methodology for recovering this surcharge, but 1
14 there are some advantages to the mill per kilowatt hour basis. -
15 One of the most readily apparent things, it is an item that 16 could be shown as an itemized line item on customer bills.
17 It could be very easily accounted for in terms of 18 segregating receipts of revenues from customers between base 19
^ rates, energy clause, deferred fuel surcharge, surcharge for ,
l 20
' extraordinary rate relief and so forth. 1 21 MR. OGDEN: That's all we have for Mr. Carter at 22 this point in time.
l 23 JUDGE MATUSCHAK: Mr. McClaren, do you have any i
) 24 cross-examination.of this witness? I 25 l
COMMONWEALTH REPORTING COMPANY (717) 701-7150 l
. . - - - - ~ . . . . . - . - . ._ _ _ . - -
. 83 k21
() 1 CROSS-EXAMINATION ,
2l BY MR. MC CLAREN: l il !
3 % Mr. Carter, what other alternatives did you consi- '
i' 4 der to what is proposed here by way of applying the increase l 5 for extraordinary rate relief?
6 A Well, the other alternatives one could consider, ,
7 which we discussed prior to suggesting what is contained in ;
i aj paragraph 47 of the exhibit, you could have a percentage j s surcharge across the board, which again would allow for easy ;
10 tracking of the revenues that one would receive on the various ! ,
11 rate schedules..
i 12 You could actually design a set of rate schedules 13 that would produce the dollars and obviously, in this situation l
14 ifyouweretogothroughtheratedesignonthatrateschedulej 15 b y rate schedule basis, you'd have the question as to whether Is you want to dt,any restructuring of rates or not.
i 17 Well, we have approved rate structure changes in - l .
l 18 the R-626 docket that were accepted but never billed to 19 customers. I've asked my staff at this point to begin to look , !
I l 20 at that type of a rate structure, in distributing the 35 l- l l 21 million dollars across those rates. But, it's a fairly lengthy, 22 process to go through and evaluate the impact. !
i
-23 .One of my chief concerns would be withithe 35 l ly 24 million increase as to whether'there.might not end up being l
?
25 some customers experiencing rate decreases.
l I
COMMONWEALTH REPORTING COMPANY 87171 761-7150
k22 I 84 ,
i 1 And, my past experience in a s'ituation where 99 2 and nine-tenths percent of the customers would receive an 3 increase and one-tenth of one percent receives a decrease' l
4 suggests that to do such a thing, you must be very careful, i 5 because every customer asks the same question: "Am Iiin that 6 one-tenth of one percent that receives the decrease?"
7 So, we have only begun to look at some of the 8, alternatives, albeit not knowing at this point in what manner l
[
~
8i the Commission might prescribe the amount to be recovered.
i 10 G Are there other alternatives that you're presently 11 studying that you will propose later in this proceeding? l 12 A. No.
We're only proposing at this point the mill g 13 lper kilowatt hour surcharge. _As to some other manner, we would i
14 be obviously at the mercy of the Commission.
15
, MR. MC CLAREN: That's all the questions we have 1.
i 16'at thir time.
I7 JUDGE MATUSCHAK: Consumer Advocate?
18 ,
MR. BARASCH': We laave no questions at this time.
I8 MR. FRATER: Your Honor, I'd like to ask a couple on
~
i questions. i l
JUDGE MATUSCHAK: Mr. Frater? -
21 l{
2 l
DY MR. FRATER:
'3
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G Iir. Carter, is it correct that Metropolitan Edicor I
l in the period since the TMI-2 accident, has had a rubstantial 5
increase in its energy cost rate?
lt i l COMMONWEALTH REPORTING COMPANY 17175 761-7150 I t &l A l
i
k23 "
85 1
(wJ
)- 1 A Yes, sir.
i 2
G And has that substantial increase in the energy !
3 cost rate bnposed significant cost expenses upon your large 4 industrial customers -- expenses to them, not expenses to the 5 company?
6' A If you mean as a percentage increase, yes.
l 7j G Will you agree with me that at least one of your t I i 8
customers, as a result of the increase in the energy cost rate,i 8' has experienced increases in excess of 60 percent of the total 10 ) cost of their electricity bill?
I s
11 g I would accept that, subject to check.
1
(') I2 G And were those energy cost rate increases made on a;
'ud ~
l 33 I per kwh basis? ,
I4 A To the extent that -- yes, they were, totheextent!
i 15
, ,that we've been dealing with energy expenses, fuel costs, i
18 [ interchange purchase power and so forth. I believe that each I7 time the levelized energy adjustment factor has been changed, 18 it's been a change to reflect a fuel expense either incurred or; l
I8 I to be incurred by the company. '
i i 90 I '
- ; G And is it correct that the ir. crease or method of !
21 2 collecting the increase that you're proposing in this proceed-I
,,i ing is the same as has been nsed in the increases which are
'3 being applied through the energy cost rate? -
( !
l xf ,4 A That's correct.
25 G So that, our experience has shown that the CoMMONWEAt.TH REPORTING COMPANY s717) 761-7150
86 k24 >
t llI 1l application of the energy cost rate has imposed disproportion-
- I ately higher increases upon large industrial customers as OI 3 compared to all customers or as compared to small customers.
4 Couldn't we conclude in this proceeding that your reconnendatio,n 5 will have the same type of impact, not necessarily in the same 6 range?
I 7 A I'm not certain that we have proven that it's l 1
a1 proven disproportionate increases, but it's true that this i
9 . increase would have a greater percentage increase on the large 10 ' general service customers as opposed to street lighting I
11 lgcustomers.
I So, if we look at the table at the bottom of page 12 G J
13 ten of the petition, which represents that the general service 14 increase 1:111 be approximately 8.3 percent, that is not ,
is. representative of, say, the increase that would be imposed upon
- l '
16 'the company's largest ten or the company's largest 50 17 customers, is it?
l l
. 18 A No. That's the composite class of general service.,
4 19 G And that composite class of general service 20 l' includes everything from a very large steel mill to c com and
- 21 pop grocery store or a sole practitioner dentist's office, is 22 that correct?
23 A That's correct.
) 24 ; G Would you characterize the reasons which give ris 25 to the company's need for a general rate increase and this l COMMONWEAt.TH REPORTING COMPANY 1717i 761-7150 ,
.87 i k25*
( 1 Petition? l 2 I A I believe Mr. Hafer has described the reasons for 3 .the need for this specific extraordinary rate relief. l 4 G Well, without tying you down too closely to 5 specifics, I'd like to explore it generally. As I interpret 6I Mr. Hafer's testimony, he seems to be indicating that the com- i 7 pany has a need for additional revenues in order to maintain an ai adequate cash flow. Will you accept that characterization?
l l 9 A I think it's more than just cash ficw, Mr. Frater.
I believe it goes to the matter of earnings as opposed to cash I 10 11 fl0W- l 12 G I will accept that additional characterizatien.
x / ,
13 Now, are increased operating costs one of the reasons for the
- 14 need for additional revenues.and additional loans? !
15 A Yes.
is G Is there any study presented in this proceeding i
17 which shows a high correlation between the increase in costs 18 and the kwh sale's?.
19 A It's rather early to get into the cost of service .
I 20 exhibits, but one of the requirements of the regulations is !
l 21 , that we should furnish, based on present rates, the returns by i
22 ( various classes of service. And my Exhibit C-3 on page 21,and 23 the numbers are shown on page 22, would indicate that at the i 24 moment, the company is experiencing a 5.436 percent rate of 25 return on its business.
i COMMONWEALTH REPORTING COMPANY (717) 761-7150 i
e k26 88
' e .
t .
I6
. Certain rate classes are substantially -- not h
2 d substantially -- significantly below that system return. One
/
3 h of those classes of service happens to be the rate TP which 4 .
4l contains the very largest customers in Met-Ed's system. So, ifl I
5 I were looking at -- if I were wanting to dlg into it from that l
I anglc, I believe I could find some support for putting a larger 6j 7 increase on the larger customers through the extraordinary l a;1 methodology.
9h G And from a general ratemaking perspective, how 4
to would you apply that increase, on a kwh basis or en a demand or customer charge basis?
11 l 12 L It could be applied all on demand, equally on
./
13 l l
demand or energy, any number of ways, Mr. Frater. h 14 g If it is applied on a kwh basis, will the company's!
15 ! revenues be stabilized or subject to distortion?
i 16 A. I guess I don't quite follow your question.
17 G Am I correct in saying that you cite the cost of 18 service study as authority for the proposition that the TP l i 19 ( class of customers or the large class of industrial customer i
20 would appear to have an obligation to provide additional 21 revenues to the company above the need for a general rate I
22 ! increase? Is that correct? ;
23 i A I cited that as one of the reasons, ye's.
1 J 24 Q Now, if you obtain those additional revenues, and i
25 if they were obtained from the kwh element of your rates, the l l
COMMONWEALTH REPORTING COMPANY (7171 761-7150 l
- 27 , . 89
() 1 energy element of yc'ir rates, and if the consumption decreased, 2 would you have obtained the additional revenues you believe 3 necessary from that class?
2 4 A With those qualifications, the answer is no.
5 G And if the increase were obtained from a demand 6 charge or a customer charge, and the consumption of kwh also 7 decreased, would the revenues have been preserved for the i
8 company,.the additional revenues? ,
l l
9 A We're assuming only kilcwatt-hours. decreased? i j
10 0 Yes. l l I
11 A Then, had all the increase been imposed en !
12
(~1 customer and demand charaes, -there would be no erosion in
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'w/ j I3 earnings experienced by the c0=pany.
I l
I4 G Have you made any studies or orovided an" material!
s i 1
13 in this record which supports the appropriateness of your !
is paragraph 47 recommendation, specifically?
17 A I have not made any specific studies, Mr. Frater.
18 I have only the background of the work that we've been doing 19 in rate case to rate case, plus the .tnowledge of what's in "O
Exhibit C-3. I guess I could also cite some other factors that 21 are of concern to us -- the plight of the needy.
22 Without going into any great depths, for instance,
'3
( ',
we have this Spring applied for 180.million. dollar rate.
'~
') 94
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increase in the state of New Jersey for Met-Ed's sister
'5
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company, Jersey Central. We asked for 60 million dollars COMMONWEALTH REPORTING COMPANY 17176 761 7150 i
- 28 4
- i 1 interim.
We asked that that all be recovered from the generag 2
service customers in New Jersey.
I 3
After a few days of proceedings and so forth, we 4 ended up receiving the 60 million interim relief, and allocats-5 ing a small portion -- as I recall, less than 10 million 6 dollars -- to the residential customers, and recovered the 7
balance from the industrial and commerciaA accounts.
l 8
We mentioned, one of our reasons for making that -
8{ suggestion was, we've heard a lot to do about, how can you get 10 Uncle Sam to share a little bit in the cost of TMI'. And one of t 11 the ways to do that is to recover or impose increases in such a; 12 way that they reduce the tax liability of customers, since I3 residential customers do not have tax deductions for_the cost ,
i 14 of electricity, i 15 We made that proposal in the state of New Jersey, s i 16 which was essentially carried through. We recognize that what 17 we're doing in the state of Pennsylvania is in no way bound by 18 the' state of New Jersey, but we have gone through this logic, 19 tand concluded that it might be appropriate to impose a little 20 l heavier burden, if you will, on the general service class of l
21 customers as opposed to residential. ;
2~
0 The process of paying for purchased power that 2 results from tne TMI accident has already had that effect of
) "A
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imposing a slightly higher burden on the general service class-i
~5 or the larger users. It's not limited to the general service l
l COMMONWEALTH REPORTING COMPANY 17171 761 7150 1
29 < . 91 I class; it applies to the largest user, isn't that correct? V.n 2 A Well, the burden of increasing the energy clause 3 factor from where it had been prior to TMI -- somewhere down 4 around three mills -- to where it is today, 26 mills has been 5 a fairly good burden on all classes, some more heavily impacted 6 than others, obviously. 7 g 17111 you agree with me that the dollar impact has 8 been a greater burden on the larger users in all classes? 8 j A As a percentage of the total dollar impact, based to onkilowatthours,ornumberofcustomers,ordemand,orwhat?l 11 G As a percentage of the total cost of elec .ricity. , 12 A As a percentage of the total cost of electricity? 33 g To the customer. 14 A I would generally concur with that. i 15 g Now, can I return you to my question that you took 16 off on so beautifully? What specific studies have you 17 conducted -- well, let.me phrase it another way. You haven't l la conducted any specific studies to support the appropriateness IU of your# paragraph 47 recommendation, have you?
'O
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A I already referenced Met-Ed Exhibit C-3, page 21 21 and 22. 22 g But paragraph 47 doesn't tie itself to that in any 23 direct way, does it?
~/ 24 A Well, I believe in support of the petition, all of 25 the material that the company has filed in some way has direct COMMONWEAt.TH REPORTING COMPANY (717) 761-7150
k30 g2 , I I I 1 impact on that petition. ggg 2 g well, we ll agree with that. e But we can't see an 3I exhibit or series of exhibits that relate the cost of service 4 study specifically to the recommendation conthined in 5 paragraph 47, can we? 6 A Not specifically, no. I 7 Now, what studies have you made of the tax G l 8: liabilities of your customers? i 9' A None. t 10 l G So, you made a series of assumptions about tax ! 11 i liabilities and tax deductibility of electric expense about 12 your customers without making any studies about that, have yo i 13 : A I made no specific studies. i I4 G Now, is it Metropolitan Edison's policy to seek to i 15 i impose the costs' flowing from the TMI accident indirectly upon I s 16 ' the federal government, in order to draw the federal govern- .
< l I
17 ment's attention to the need for financial relief or assistance.? i 18 A No. I 1 19 G Well, then, I don't understand your recitation of
'O
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considering the tax impacts of electric expense and encouraging. I
'I
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the federal government to provide assistance. Isn'tthatwhatf 2 ~' you said? o3
~
A No, I don't believe I said I was encouraging the !
) 24 federal government to provide assistance.
j j 1
-h
$$ l 0 What was your statement with respect to the federal l 1
COMMONWEALTH REPORTING COMPANY 17171 761 7150 l
31 ' ' () I government? 2l A I believe this is one way of having the federal l 3l government help to share some of those costs. ; 4 G So, Metropolitan Edison has decided that the 5 federal government should share some of the costs of the 1 6 Three Mile Island accident and their method of implementing 7 that decision is to impose disproprotionate increases upon the 8 i classes of customers who seem to be able to reduce their tax i* ! 9 [ liability by the cost of electricity, is that correct? i 10 A Can I have that lengthy questien read back, please?g 11 (Whereupon, the pending question was read back.) 12 THE WITNESS: Without quibbling with the words tha$ {}
)
13 are used, I believe the answer is simelv ves. , 14 MR. FRATER: Nothing further at this time, Your { l
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15 Honor. i 16 MR. BARASCH: If I could, Your Honor, I'd like to 17 ask a few questions of Mr. Carter. 18 JUDGE MATUSCHAK: Very well. BY MR. BARASCH: 19[ 20 First of all, Mr. Carter, when yoc were asked to 0 21 answer a question with the phrase " disproportionate" in it, do ; i 22 you understand that word to mean greater than average, or are ) 23 (~S you putting any qualitative meanings into the word "dispropor-l L-)] 24 {l tionate"? t' 5 A Well, I believe in the context of the question at COMMONWEALTH REPORTING COMPANY (7171 761-7150
94 32 0 6 1 the time, I would use it as greater than average. 2 .J G Thank you. And if I could follow along the lines l 3 of Mr. Frater's question, if we were to look at the overall 4 increase of this i.emporary surcharge upon the residential 5 class, again looking at page ten, A-3, there it shows the 6l residential class getting an overall interim increase of 6.9 7 percent. Would the allocation of that increase within the l 8 residential class also vary the same way the general services I i 9; class varies -- that is, with larger residential custcmers i 10 getting a greater than 6.9 increase, and smaller residential 1 11 customers getting something less than the class increase? ; 7 12 A Yes. i 13 g Mr. 'arter, if we were to look at the manner in I 14 which you propose to allocate the 76 million dollar base rate i is increase that you've requested in thi,s case, is the company ; 16 proposing to allocate those additional annual revenues on the l 17 basis of per kwh solely? I8 No, A. to ' O Could you in a very brief fashion describe how you 20 propose to allocate the overall increase, the final order 21 awarded in this case? 22 First of all, in the residential class, we're A. l 23 proposing to recover about 80 percent of our perceived cost of;
') 24 what we call the customer cost. ,
25 ! O Through the customer charge? ! COMMONWEALTH REPORTING COMPANY (7171 761-7150 1
1 i
, 6 95 -
I 33 lli rs l il i i 1 l
\ <,' II A Through.the customer charge, yes. And then, the j 2 remaining cost cost.would be recovered on a flat mill per ! ,
l 3 kilowatt hour basis. In the general service classes, we're i 4 proposing first of all to reduce the number of rate schedules 5 .andhaveservicebyvoltagelevels,whichisaconceptthatwad e, accepted by the Commission at R-626, with most of the increase 7 ' being placed on the demand component and instituting separate I a customer charges in all rate classifications, with the 8{ modification for the primary transmission voltage schedules . 10 that in lieu of hours use demand blockings, thatwewouldmakef 11 those rates, or convert them, if you will, over to 100 percent I\ 12 (_) time of use rate by simply having an en-peak and off-peak
) 13 energy charge, the rates presently being about 75 percent i
14 time dependent. , 15 One c6uld go through the Exhibit C-4 and see the IG percentage impact on any one of those rate schedules t- any of 17 the rate structure changes.
. 18 G But to summarize it, Mr. Carter, would it be fair t
19 . to characterize your rate design proposals in the base rate i' 20 case as being one in which, in terms of the company's views of 21 cost distribution, increased revenues would be allocated i
- 2. I considering all three factors -- demand, energy and customer r~n 23
() components? A That's correct, and we assume that that would cc.ne ! 25 about as a resulv of a rather lengthy investigation and l ("OMMONWE A(.,TH RE AQRTING COMP A NY '7175 7Q f -717Q I
I 96 DX I o , i numerous hearings anC discovery and so forth.
/ s 2l G Do you have any understanding how the company i
I 3i would handle the difference -- assuming that the company were 4 awarded an extraordinary rate request in this proceeding -- 5 how the company would handle the difference between the amount 6l of money awarded under the per kwh millage charge awarded here 7 and the ultimate amount finally awarded af ter the entire cost a of service issue has been litigated in this case , how any 9 differences WGuld be handled? i 10 i A I would aasume for instance that if the mill per i kilowatt hour surcharge were made effective September 1 of thie 11 l
- ( 12 year, that it would remain into effect until--let us assume 1 t 13 that final rates became effective May 1, 1961. At that time',
!. I 14 you would cease the surcharge, and as a matter of fact, cease ;
i i I 15 application of all rates and charges;in the then-prevailing l l 10 tariff and begin to bill customers from that point forward on 17 the new tariff. 1 18 G And so from the date of the final tariff, 10 certainly the rates would reflect whatever the company views ; 20 to be the appropriate assignment of cost between customer 21
, demand and energy?
22 A It would be, I guess, the composite end result of 23 allparticipantstotheproceedingandtheCommission'sdecilh
.) 24 sion, based on that evidence.
25 That's all the questions I have, MR. BARASCH: COMMONWEALTH REPORTING COMPANY (7171 761-7150
35 97 (v i 1 Your Honor. 2
, JUDGE MATUSCHAK: Anything further of this 3
witnees? 4 MR. OGDEN: Could we have just a second, Your 5 Honor? 6 JUDGE MATUSCHAK: Yeu. I 7 ll (Pause.) ll i 8 MR. OGDEN: That's all we have at this time. h JUDGE MATUSCHAK: Very well, the witness is 10 excused.
"! (Whereupon, the witness was excused.)
et (), 12 l JUDGE MATUSCHAK: Let's take a ten minute recess. 13
- (Whereupon, a recess was taken.)
l JUDGE MATUSCHAK: Are you ready? 15 1 ;
- MR. RUSSELL: Mr. Newton. i b
16 i j Whereupon, 17 EDMUND NEWTON, JR. 18 { having been duly sworn, testified assfollows: 19 DIRECT EXAMINATION I 20
- BY MR. RUSSELL:
1 21 !
; G Give your name and address, please.
I 22 i y A My name is Edmund Newton, Jr. My address is Box
- 23 '
( ,) 1018, Reading, Pennsylvania.
)
24 ! O By whom are you employed and in what capacity? 25 A I'm. employed by PGU Service Corporation as vice 1 COMMONWEALTH REPORTING COMPANY (7175 761-7150
06 98 1 president, system operations. g 2l G Do you have before you a copy marked for l l 3 identification as Met-Ed Statement F', with Appendix A thereto? 4 A Yes, I do. 5 0 Was that prepared by you? 6 A It was prepared by me or under my supervision. G If you were asked today the same questions that . I
- 8. appeaf on that statement, would your answers be the same as I
9' those contained therein? 10 A They would be. 11 0 Do you have before you hxhibits which have been ( 12 marked for identification- as Met-Ed Exhibits F-1 through F-21 13 i and F-16-A, 17-A, 18-A and 19-A? 14 A Yes, I do . I i 15 , G Were they prepared by you or under your supervision? 16 A Exhibits.F-5 through F-21 including 16-A, 17-A, i 17 18-A and 19-A were prepared by me or under my supervision. 18 Exhibits 1, 2, 3 and 4 are contracts which I am submitting and 19 'i sponsoring, and will testify as to their import. 20 0 Were Appendices B, C, D and E to the Met-Ed 21 ' petition for extraordinary rate relief prepared by you or under 22 your supervision? 23 A Yes, sir, they were. I 24 G Could you describe briefly the present level of ! l 25 Met-Ed's maintenance programs? , COMMONWEALTH REPORTING COMPANY (717e 761-7150 l _
r-99 !Q , . 1 A Well, the present level of Met-Ed's maintenance 2 programs is one of very austere level, identified very clearly 3 I would think in Appendix C and Appendix D.
~
4 Is this Appendix C and D to Met-Ed's petition? 0 3 A That's correct, yes. The actual maintenance 6 expenses are shown in exhibits to my main testimony. 7 i 0 Could you describe briefly what's represented.on 8 Appendix C and D to the Met-Ed petition? 8 l A Well, Appendix C is the total actual transmission ! I I8 expenses for the years 1970 through 1979, and for the twelve
'I months ending 3-31-80. By the way, cn Appendix C, I find there 12 was a mistake made in drafting, so that the horizontal scale I '
was slipped. l 14 The last point on the scale is right above 1979. 15 That should be the 3-31-80 period, and.the. entire scale slid I8 to the left so that 1970 is at the vertical axis. 17 0 Will you..be submitting a corrected appendix? 18 A Yes, I will. The actual expenses for those years 19 are shown, and then also to give added perspective and to 20 clarify what is shown there, we have indexed the actual 21 expenses and put them in terms of the constant 1970 dollars,
~~
I using Bureau of Labor statistics, hourly wage rates for 23 O transportation and utility workers. 24 That shows that in 1970, we were at a level of 25 transmission expense -- that's operation and maintenance -- of COMMONWEALTH REPORTING COMPANY (7176 761-7150
38 100 I a i i i approximately three million dollars. And at the end of the gg
- historic test year 3-31-80, the twelve months ending then, we 3 were just below four million dollars. But in terms of actual 4 level of effort, we are down on the constant 1970 dollar level s below two million.
6 So that, we are at a very austere level of I transmission expenses. Appendix D shows identically the same 8 type of data for distribution, where we started at an actual , 9 dollar level in 1970 of about eight million, and at the end of 10 . the test year for approximately a 14 million dollar level. I 11 But in terms of absolute effort, we are considerabl below the ( 12 1970 dollar level. g I w 13 And this is in the face 'of the f act that we have i i 14 been adding transmission facilities and customers throughout 15 the entire pericd. So, we are spending a' lesser amount of l 16 dollars on the operation and maintenance of this system. At 17 the same time, the system is growing. 18 So that also demonstrates quite clearly that we are i 19 - at a less than optimum level of distribution and transmission 20 expenses. l I 21 g could you identify briefly what's represented on i 22 Appendix B to the Met-Ed petition? ! 23 A Appendix B shows the total transmission and 24 O distribution employees. These are the employees who are l 25 largely exerting the effort that's shown on the transmission COMMONWEALTH REPORTING COMPANY (717 761 7150
39 101
. . i i and distribution expenses in Appendix C and D. Starting in (v3 2 1970, we were at a level of employees almost 1,500 T and D !
3: employees -- 1,480, I think it was. I 4 We are now down to a level of something like 950 5 as of the end of June of T and D's. To give some perspedtive, 6 we showed the normal level, which is an arbitrary normal -- 7 nothing more here than the average of the '70 to '73 period a which we regarded as representative. 9 And that average is 1,470. We're now down to 950.' 10 The reason for looking at that '70 through '73 as a rather 11 typical period is that '73 was when we had the first oil 12 embargo where the first heavy crunch ca=e, and we.had very 13 strong cutbacks in the T and D crea in '74 and '75. 14 And instead of being able to build back up any-15 where near that normal level, we have continued to drop back 1G through attrition, inability to replace men who have retir.ed, i 17 so that we're now down at this very austere level of 9'50-odd.- 18 If you were to go back prior to 1970, Mr. Newton, G 19 would you find any different pattern than is portrayed in this 20 period covering approximately the last ten years? 21 Well, the level of employees would have built up A. 22 slowly over that preceding period to about the '70 to '73 L ; 23 level, but it would have been any major swing during that
) 24 !
period that I'm aware of. , 25 g Can you explain what's represented on Appendix E I g COMMONWEALTH REPORTING COMP ANY (7171 761 7150
i 1G2 , l 30 j 1 to the Met-Ed petition? llh 2 A Appendix E is virtually the same information that j i 3 is shown on Appendix B, except this is total employees of 4 Met-Ed, excluding those employees at TMI. So, it is the T and 5 D plus the coal generation group, plus A and G, and all of the 6' other people working for Met-Ed, and there the same pattern l 7 exists. , 8 The average for the period ' 70 thorugh ' 73 was 1 8fabout2,700 employees. The major cutback took place in '74, i 10 ! and then it has continued except in the one year, 1978. It l I II l continued to diminish. '78 was, of course, pre-TMI accident. ! ( 12 4 Do the '79 and subsequent data reflect'the effecq 13 ' of the TMI accident? . l l 14 A To a large part, the increase of austerity measures 15 l put into effect -- we were unable to cut back job effort, and i 16 also were unable to fill in jobs that were vacated by attrition'. I I G I believe Mr. Carter has testified earlier this i is afternoon to an average of approximately 5,000 net growth in j 19 Met-Ed .ustomers per year over the last ten years or there-P 20 i ' abouts. Could you tell us what the total number of new i 21 j customers per year for Met-Ed runs? l
~~ 1 A I don't have the history over the past ten years, l 23 1!
- j so I can't give you a number for the average. But in Exhibi
-) 24 F-16 which I identified earlier, page two, we show a number of customers actually connected in 1979 of 7,800. In 1980, we
.i f
COMMONWEALTH REPORTING COMPANY e717e 761-7150
01 103 l i i budgeted for 7,300 -- these are new customers; virtually all ('L )> 2 of them are distribution -- I mean, residential customers. ! I i 3 But the. difference between this number of 7,803 actually - 4 connected, and the number Mr. Carter referred to, 5,000, the ,
~
5 net figure reflects the people that have vacated homes that , 6 have been burned, torndownandsoforthornewconversions--l t 7 added a wing to a house and added more lead so that we had to a put in a new connection. 9 So, it is considerably mere sizeable than the net to number Mr. Carter referred to. 11 O What is the approximate cost cf connecting a new 12 customer, Mr. Newton? (~]j x-13 A We estimate that approxirately 1,500 dellars per 14 customer is the bare bones cost, and that's reflected in our 15 1980 capital budget. 16 JUDGE MATUSCHAK: Is that the average, or is that i 17 the residential customer, or is that the general average' 18 THE WITNESS: That's the general average. And . l. 19 - that represents only the cost of the meter, the service, the 20 transformer that may have been put in to serve that customer-- 21 only the bare bones cost of connecting it up to the existing 22 distribution system. It doesn't reflect any line extensions, 23 any reinforcement of the system itself that really is necessary
,.cq t/) 24 to do it. But that gets reflected in other budget figures.
25 COMMONWEALTH REPORTING COMPANY (7171 761 7150
b2 , 104 i A i l! )
,! l f 1 BY MR. RUSSELL:
1 2L Q Do you have any figure as to what theaveragecostf 3 I is if you were to include line extensions as well as the 4l service drop, transformer, meter, et cetera? 5 A I have no feel of that per customer at this time. , Gj The only thing I can say is that we have approximately 12 7 l. million dollars involved in the bare bones new customer costs ; i I 8l and approximately 22 million in the total distribution D investment. So, the other 10 million would probably reflect to l all other reinforcements that we would expect to make during 11 that, period. i I 12 I G Mr. Newton, if the requested rate relief is not
) i granted immediately as requested by Met-Ed, what impact if any G
13l 14 would that have on the employment of persons by Met-Ed? 15 ' A. Well, we have no question that if we don't get 16 ! some rate relief immediately, the T and D employees would i 17 We had a total continue to diminish due to attrition. I i
' i 18 attrition of about 60 people between June '79 and June 1980 in 19 Met-Ed's T and D area. ',
i 20 Some of those were undoubtedly due to the early
'l
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! retirement program that we put in and the incentives to get n,
employees to retire early, which would be a once-and-dene
~~
il
'30
- a thing. But I would believe that at least 40 employees would ;
') 24 represent the average attrition. These are employees who I
i
,5
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retire or are forced to quit because of disability. i lg COMMONWEALTH REPORTING COMPANY #717e 761 7150 ,
43 , , { 105 l
;l (j 1 And we are not replacing anybody at the moment.
2' There's a total freezo on new hires. So, I'would assume the ' l 3 :l minimum would be the loss of another 40 employees in the T and 4 D area. 5 In what period?
, O 6 That would be in the next twelve months, between i
A. l I 7 now and the April '81 date for the end of the statutory period,' s approximately half of those between now and December of this 9] year. i 10 And I think you've described the impact en T and 0 11 l D, which is transmission and distribution employees, is that 1 12 l right?' v) 13 A. That's right. I4 G What would be the effect of the absence of 15 immediate rate relief on the overall level of Met-Ed's G employment? I A. That unquestionably would decrease -- slightly 18 more, I mean it would be a slightly larger figure in total 19 than in T and D. There would be about another 20 employees in
'O
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the balance of the company. So, instead of 40, it would be 60J 21 0 Turning to normal maintenance, Mr. Newton, if the ; I, j
, , requested extraordinary rate relief is not granted immediately '
ti i 23 ' i
'^', i as requested, .what e f fect if any would that have on the normal ; I ' ./ l maintenance programs of Met-Ed? ,
i A. Well, the normal maintenance programs would COMMONWEALTH REPORTING CCMPANY 47171 761 7150 l
Li 4 106 . l I unquestionably continue to suffer, and depending on the g 2 g circumstances and what access we had to cash for all of the l f 3l needs, they would continue to be reduced. One o f the major l 4 maintenance programs we have in the entire T and D program, j 5 for example, is the tre-trimming program. And we're already at an all-time low for the i af 7 company, cpanning a period back 35 years, at least. We're at . 8 the lowest, now, effort expended in the tree-trimming area in L 9l that entire period. 10 ; So that, that can hardly be cut any more, but there 11 i. are other areas that we would be forced to cut back in. So 12 l that,
, i the end result of the cut in the tree-tri . ming program,e I
la the continued decrease, loss cf manpcwer in that area and all I 14l lIthe other maintenance areas would have an inevitable effect of I 15 i, degrading the service below the level we a::e now. 11 la And we're already at a level that is not ideal. 17 Excluding the storms that we've had -- and we 've had two i 18 abnormally severe storms in the last two months -- but even 19 !: excluding those, we have already in the first six months of 20 l 1980 experienced interruptions almost at the level we got in 21 the entire year of 1979, which in turn was much greater than 22 , we had in 1978. I 1. 23 " So, things have been tailing off slightly over
) .,4
~ l that entire period, and we are right about where we were at 25 the'end of last year. And that, as I say, does not include the CoMMCNWE ALTH REPORTING COMF ANY t7176 761 7150
45 , . 107 () I storms wh'ch i were traumatic in themselves. 2 G I'm not quite clear whether you responded to the r 3' question fully, Mr. Newton. The question was, what effect if i . 4l any would the failure to get immediate; rate relief as l 3[requestedhaveuponnormalmaintenance? 6 ,, A And I said that it would further reduce the -- I 7 Present level? G I' 8 A Yes, present level -- which is already inadequate, 8 ;l is the point I attempted to make. IO l 0 If the requested rate relief is not granted t 33 immediately as sought in the petition, what effect if any I2 { 13 would that have upon the normal services that Met-Ed wishes to provide to its customers? I4 A You mean, the normal service, the provision of IS - kilowatt hours? I6 G The provision of normal service to its customers. I A The provision of normal service would continue to 4 18 deteriorate. It would not be as good as the present level. e i 10 '1 I'm talking now in terms of reliability. The number of 11 b
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nol interruptions would increase, and so forth. 21 h What effect if any would it have upon Met-Ed's g G a ability to hook up new customers? l! 3 3 '-
~ /~N A There's no doubt that if we do not get some rate
(_)) 24 i relief, there is going to be a shortage of total cash to do all
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of the things we must do. I can't predict precisely where 1 l COMMONWEALTH REPORTING COMPANY (717' 761-7150 i
6 108 we'll have to cut back, but if we cut back across the board, gg 1l 2 there's no question that there will be an inability on our 3 Part to connect up all the new customers who want service. I 4 We will have to prioritize that effort. 5 0 What type of work if any beyond merely hooking up i 6'! new customers does your T and D program have to carry out to I h 7' maintain normal service to all customers? 8 A Well, we have to continue to increase the 9 ;l capacity of the total T and D system, the transmission; the i transformation substations have to be reinforced, replaced; to l 11Inewlinesadded; the same thing done throughout the distribu-I r 12 ! tion system, right down to the, level of the individual servic I 1 13 h to customers. 14 So, that effort has suffered throughout the last is , couple of years of austerity. And we have not done all we 6 16 ordinarily would. We have not dr e a the normal reinforcement. 17 MR. RUSSELL: I believe that's all we have of 18 Mr. Newton at this time. 19 ., JUDGE MATUSCHAK: Commission Staff? E 20 ;l CROSS-EXAMINATION , 21 BY MR. MC CLAREN: N 22 , O Mr. Newton, counsel asked you if the company did 23 ' not receive extraordinary rate relief, what reductions would b i .,
- 4 I take place in employees, and I believe you said, you would 25 expect attrition in transmission and distribution employees of COMMONWEALTH REPORTING COMPANY #717e 7617f 50
7
'47 t
t . l 109 r~w () I approximately 40 over the next twelve months, is that correct? 2 A That's correct. 3 g If you receiv_ extraordinary rate relief, in this 4 respect, how would the company operate differently? 5 A It's impossible to predict precisely.all of the 6 " demands that are going to be presented for the utilization of l l 7l that amount of increased revenue. I would hope that we would 8: be able to get our share of it. We in the T and D area will 9 certainly make as aggressive a plea for maintaining at least d 10 the present level -- so we will not have that attriticn. 11 But it's a matter of decision by the heard of 12 exactly how the increased revenues will be distributed among ( )i 13 all the competing demands. I4 I take it from your answer that it's entirely 0 15 possible that if the company gets extraordinary rate relief, I6 that you will still have the expected attrition of 40 employees 17 without employees to replace them. I A That's possible. I like to think that it won't 19 9 happen that way, but it's possible. ;
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oo F
~j G In Exhibit A-3, which is the company's petition for 21 extraordinary rate relief, you're responsible for Appendix B, , ;
e 22 1 [ are you not, which shows the total transmission and distribu-('T Itionemployees? N/! 24 'i'
;4 A Yes, sir. ;
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'5 I I G Do the numbers that underly that chart include l c
l t 4 COMMONWEAL.TH REPoRTINGR @@MPANY (7971 TM-31 -7190
48 5l 110 { t e 3 construction employees?
;, A. Yes; to the extent that we were using our own ,
3 lstaffforconstructionwork,itisinthere. 4 % Did the company have a significant construction , 5 Program in the years just prior to bringing Three Mile Island l ' l Unit Number One into service in approximately 1974? 6l ! 7 ! A. We had a significant construction program, but it j 8.lwasanormalone--that.is, there was no real jump in here 3 to reflect anything related to TMI scecifically. We had scme to ,' 500 KV line construction that was constructed in that area, i 11 but that was all done by contract labcr. So, that doesn't
, 12 i show up as the level of effort by these empicyees.
I 13 , I So this, as I say, would hree been a ncrmal h 14 complement of men. 15 ; G Isn't it your testimony that the company has not let had a normal complement of transmission and distribution 4 17 l employees since 19737 i t
)
18 A That's correct. I 19 % If I were to just roughly just gauge this chart in '
! i 20 4 the years 1974 to 1980, it would appear that 1977-78, slightly I
21 o in excess of a thousand employees is roughly the average of l 22 that period. Does that appear approximately correct? 23 A. I think that's correct, from visual averaging. 24 !l 0 From that average to the present, the date you li i. 25 [ have, May 31, 1980, appro::imately how many fewer employees do COMMONWEALTH REPORTING COMPANY (717' 761-7150
r' 49 o 111 h l' l. O i l veu have now than the averaee et that verica2 i 2 ll A Approximately 60. I 3 i. G In your Appendices C and D, where you show actual 4 and constant dollar expenses for transmission in Appendix C I 5 5 and distribution expense in Appendix D, if you were to draw.a i 6 line in that graph showing what you consider to be the i , 7 ' appropriate -- or perhaps your word was optimum -- dollar I! 8!. expense, where would the Jine appear? What shape would it 8 i take? 30 A. If you look at Appendix D, which is the more , 11,li critical one, the distributien one, I wculd say that the 1 12 optimum level at a minimum should be at the 1973 index level. , 13N That probably should be higher, but just as a guess, as an 14 estimate, I would say that that should be -- 35 g g Well, would the chart show a heri: ontal line as 16 I the appropriate number of dollars? 17 A. To put it in terms of actual 1980 level of - la . expenditures, it would be about a multiplier of one and a' half: l 19 l times the constant. L The constant dollars should be at the '73 no :I.
' li level, the index-dollars.
Putting that in terms of the 1980
,1 l
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0l dollars, it should be about at least one and a half times
~~ ; approximately nine million.
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Q. So, it should be approximately one and a half times
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~ . jl nine million? ,
25 A. Just a moment. l j COMMONWEALTH REPORTING COMPANY 1717 7til-7150
0
,, 112 b
1 *. (Witness perusing documents.), ili THE WITNESS: One point six would be the multiplier, e 3 so that- approximately the level for 1980 of 16 million l : 4 dollars would be the minimum optimum -- optimum level that we ; i 5l should be at, in actual dollars. ! I 6 MR. MC CLAREN: We have no further questions at 7 l this time, Your Honor. l 8' JUDGE MATUSCHAK: Consumer Advocate? h 9 BY MR. BARASCH: 10 1 G Thank you, Your Honor. I just have a few cuestions I 11 at the moment. Mr. Sewten, would ycu quan-ify -+ perhaps you i 12 did and I missed it -- the actual transmission and distribution 13 H reductions that have been made bv Met-Ed since the accident, lh
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14 ' exactly where the cuts have been made and how substantial in 15 i, dollar terms they have been? 16h A In dollar terms, they appear in one of my exhibits, 17 F-16. Do you have a copy of that, sir? 18 Unfortunately, no. G 39 JUDGE MATUSCHAK: Do you have your copy in front l I I 20 C of you? li 91 0 I could read the
- li THE WITNESS: I have my copy.
H
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- i: numbers.
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#1 j JUCCE MATUSCHAK: Well, read the numbers.
'I 94 The total T and D expenses that we THE WITNESS:
'S bud.;eted in early 1979 before the accident, pre-accident numbers COMMONWEALTH REPORTING COMPANY #7175 761-7150
51
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.. o k 113 I
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I rx ( ) 1l were 22,600,000. After the accident, we reduced those to .
, i 2" 18 million, eight. That was a post-accident budget. This is j l'
f l 3 for 1979, now. 4l 0 This is the 1979 T and D budget? I 5 A That's correct. 4 69 g And in 1979, you actually ended up spending what 7" in T and D? 8l A Eighteen million dollars. So, we reduced from our ( 9 l original budget about four million and six. I One of the reasons d 10i that we were not able to reduce more than that, of course, we t 11 'i. had at the time of the instituticn of the susterity measures at (~] 12 l least three months already committed.
'4 -
l 13 L And then, a lot cf these prc;ects and these 14 [i expenditures are ones that you can't turn off immediately. I i 15l,onceyousettheminmotion, they have to be carried through 1 l I i i 16 I to the end. So, we were able to achieve a reduction of about i l 17 four million six from our original' budget. ! I8 G That's versus the original 1979 budget? {l I9 A Yes, versus the original 1979 budget. Il' "O'
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Also earlier, you indicated I believe that over the i O oj
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] last ten years or so that Met-Ed has added substantially in o .,
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! terms of miles of transmission and distribution lines and yet 93
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(~') the number of employees has gone down, is that correct? , q b 24 l' A That's correct. i . G What portion or that reduction of the number of COMMONWEALTH REPORTING COMPANY 87176 761-7150
23 ! 114 4 . h H I]employeespertransmissionmilewouldyoucharacterizeas lll 2j being a function of greater efficiency on the part of the i! 9 3" company in their operation, and what portion is a result of 4 ll austerity programs over the last ten years? I 5 A I really haven't looked at those numbers to be 6 able to give you even a guess. I
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' !I Should I draw an inference from your statements so G
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8 far that, all things being equal, we should have expected no 9
, efficiencies in employee productivity since 1970?
't 10 We definitely would have a-hieved A Not at all.
II efficiencies, as indeed we have. Fossibly I might clarify whac i
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( Iearliersaidinconnectionwiththenormallevelcfexployeggg 13 !!
" shown on Appendix B te the petitien, the norral level of 14
!l 1,470. We have indeed achieved certain efficiencies, so that 15 if were to try to determine what a nor:a1 level of employees t
IG 1' as of now would be, it would be less than the 1,470. I Now, whether it would be 1,370 or 1,350 I can't 18 exactly tell you. It would be somewhat below the 1,470, but 19 y still well above the level we're at now. So, there would i o no
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indeed have been efficiencies achieved by more use of il 21 mechanized equipment, smaller crews, things which we're working 9, t -
". t! hard to achieve and have achieved.
23 3 But to say how much of this total decrease in
) 24 i j employees or decrease in expense per custcmer is due to 25 improved efficiencies, I can't say. But if you take them all COMMONWEALTH REPORTING COMPANY e717, 761 7150
53 r ,s .
. l 115
() I together, I must say it looks like we have worked wonders in 2, terms of improving efficiency, but it's a totally misicading 1 3 Yi pi cture. 4 4' Mr. Newton -- 5l A Could I continue with one part of my answer? We 6 ; have talked about the 1979 budget figures. I didn't get to i 7 go into the 1980 figures. i 8j % I was just about to ask you about that. Do you i 9 g have the original 1980 budget figures and then what you've 10 been doing? Il 11 p A Yes, I do. Continuing en page rwc, Ei:hibit 16, {} ' 12 our original 1980 budget for T and D was 21,300,000. That was 13 d somewhat above the revised budget for '79, but belcw cur I. 14 original budget for '79. Now, we're operating under a revised 15 So, in budget, a very austere budget of about 19,700,000. i 16 1980, from the original budget, we have cut about a million 17 six out of orr T and D budget.
"1 G Your present bud,'t, though, is running ahead of li I9 l' last year's T and D budget, correct? ,
-l. 1 20 ' A Slightly above the revised budget.
og i
-y G Now, the original budget, I presume, was prepared on
~~
around October or November of 1979, correct? That's correct, yes. ("}
' 'i n'h A.
.y l! G Do you know what assumptions were made at the t.
'S time of the preparation of the original 1980 budget as to how !
3 COMMONWEALTH REPORTING COMPANY 7176 761 7150
h4 i 4
. 116.8.a l l il i:
1]thecompanywasgoingtohavesufficientrevenuestosupportlll
- l 2 21,200,000 dollars worth of T and D expense?
o 3j A I don't have those assumptions with me. They are 4 4 q all reflected in the budget documents which Mr. Huff may have.' i 5j MR. RUSSELL: Mr. Graham will be here in the l l r 6l morning. He is the one who will be the primary witness with 7i! respect to the budget. 8i i BY PR. BARASCH: I.I 9 Perhaps I may be gcing over something you already G
,1 l
10 l; covered, and if so, I'm sorry. Was it your testincny that the l 11 company has no definite plan for hcw the 25 millicn fcllars c l' 12 l( that you're requesting in extraordinary rate rel;ef wculd ggg i 13 ' actually be spent? n A. Yes. I have no knowledge of any such plan. I 14!. ll
.i l 15" would be amazed if we had one. It just isn't the kind of i
M I thing that you can do. 1 I'
; MR. BARASCH: Maybe I should direct the question at 18 l.counsel. Mr. Russell, do you know whether or not another '
39 witness would be in a position to give any different answer to F il l 20 j that question? t 91 MR. RUSSELL: Well, you might address it to o, Mr. Graham who is the treasurer of the GPU Service Corporation, t
'3
- ; who is the financial planning witness as well as the budget
'i
,l'[ witness in this proceeding.
He'll be here tomorrow morning. I! 25 !' l. l: COMMONWEALTH REPORTING COMPANY 717 761-7150
55 ' l' ge . m d 117 , I l , [)
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1 BY MR. BARASCH: 1 Jl G Mr. Newton, earlier uhen I was cross-examining 1 i 3 [ Mr. Hafer, I think it was indicated that you would be the i e 4' sponsor of the' statements contained in paragraph 33 of Met-Ed j 5 Exhibit A-3, is that correct? 61 A Let me just refer to paragraph 33. 7! (Witness perusing documents.) 8 THE WITNESS: Yes, that's right. l 3 y BY MR. BARASCH: 1 . I to ;; G In that paragraph, if I understand what you're - 11 saying, you. suggesting that a pcrtion cf -he funds frcs the f 12 i extraordinary rate relief petition wculd he necessary for the., {] 13 j quote, " restoration of already substantially reduced employmen: 14 to normal levels so as to enable Met-Ed to continue to provide i 15 h normal service to its customers," end quote, -j i 16 Are you saying today that in fact there is no I 17 I assurance.that the additional monies granted in the extra-18 ordinary rate relief petition would in fact go to replace i 10" attrited work forces or to hire additional employees or such 3 0 lf other activities that would restore your already substantially ; n : og d i reduced employment force? n 22 A Ihavenoabsoluteassurancethatanyofthatmeneh 93
- . would be utilized that way. I have every reason to expect that
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p a portion of it would be, but we have no idea at this' point , t 25 what the competing needs will be, given that point. This is , , , COMMONWEALTH REPORTING COMPANY (717e 761-7150 ;
36 1 118. 44 I the type of decision that the board of directors must render ggg 2I after the presentation of all the needs by the varicus 3i functional recuirements. And I certainly will press as hard as i. 4 4 I can to get a substantial portion of that in the T and D area.' 1 i 5 0 Thank you. Following along the same lines, ! 6j Mr. Newton, are you testifying that the company has no '
>! l 7 l' definite program to restore reductions in the T and D ,
8! maintenance expense that you've described, if they are awarded 9 i the 35 million dollar rate increase on an er.tracrdinary basis? 10 j, (No. response.) d 11] BY MR. BARASCH: 12 4 Would your answer be similar tc what ycu ;st ga la i me on employees? l 14 A Exactly, yes, sir. If I might cualify that Il 15 ,' answer, there is one profound need from cur viewpoint in T and i e IG l D and doesn' t reflect itself in our employee count, and that i 17 is in the tree-trimming area, which is almost entirely done by
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18 I contract labor. And that is the first thing we would restore ! 4 19 p if we can get any funds to do it. And that will not impact is O *h our employee level. l 21/ . G Now, when you say, "if you get any funds to do it," 22 are you referring to an order from the conmission of the 35 23 v million dollars, or are you talking about an internal budget
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) 24 decision within Metropolitan Edison Company? ,
25d A. It would have to be an internal budgeting decision, [ COMMONWEALTH REPORTING COMPANY <717' 761 -7150
r '57 j= . , . q!. - 119 (^T once we have gotten the total allocation for the 35 million. ; v4 3 2 I would presume, as I said before, and have every reason to 3 I expect that we would get a share of that, and a fair share of ' it. 3 l 5 MR. BARASCH: I have no further questions at this time, but I might next week. j 6l i JUDGE MATUSCHAK: 7I Mr. Frater? i 8l> MR. FRATER: No questions, Your Honor. l 9 JUDGE MATUSCHAK: Any recarect? 10 ; MR. RUSSELL: Nothing at this time. I 11 j JUDGE MATUSCHAK: You are excused. j (Whereupon, the witness was excused.)
^) 12 l v) 13 JUDGE MATUSCHAK: Anything further? 1 i
141 MR. RUSSELL: We will have Mr. Graham here in the li 1 15 morning. 16 l JUDGE MATUSCHAK: You have nothing further to ; 17 I present today? l 18 , MR. RUSSELL: Not today, no. l it . Il i 19 JUDGE MATUSCHAK: Is there anything further by 20 any counsel at this time? . i 21 (No response.) 22 . JUDGE MATUSCHAK: If not, we will adjourn until f s, 23]tomorrowmorninguntilteno' clock. (_.) j !
) (Whereupon, at 3:40 p.m., the hearing was adjourned,
. 24 ]
e 25 [ to reconvene at 10:00 a.m. on Tuesday, August 5, 1980.) 3 i L m COMMONWEALTH REPORTING COMPANY s7171 761-7150 I
7 120 ,, d l r I i
; 1I C E_ R_ T I F I_ C_ A T_ E_
2el I hereby certify, as the Stenographic Reporter, i l I , 3 l, that the foregoing proceedings were taken stenographically by 4 me and thereafter reduced to typewriting by me or under my , 5 direction; and that this transcript is a true and accurat? 6 record to the best of my ability. I 7 COMMONWEALTH REPORTING COMPANY, INC.
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