ML19344E139
| ML19344E139 | |
| Person / Time | |
|---|---|
| Site: | Three Mile Island  |
| Issue date: | 08/05/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML19344E137 | List: |
| References | |
| P-80070235, NUDOCS 8008270207 | |
| Download: ML19344E139 (78) | |
Text
__ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _____ ___ ___________
- : 93 121 1r4 4(~N L. I p"+-
1 COMMONWEALTH OF PENNSYLVANIA
.] ~
2 PUBLIC UTILITY COMMISSION !
3 - ----_--_-_-----------x
'4 Metropolitan Edison Company Petition for : Docket No.
I extraordinary rate relief. :
5 : P-80070235 Hearings. :
T 6
_- _ _ _-_ - _ _ _ - _ - _ __ - _ _ _ -x 7
, Pages 121 through 198. Hearing Room No. 3 1 8 North Office Building l Harrisburg, Pennsylvania l 9 ~
Tuesday, August 5, 1980 f 10 Met, pursuant to adjournment, at 10:05 a.m.
11 .
BEFORE:
[) l' I
\
') /
13 JOSEPH P. MATUSCHAK, Adminstrative Law Judge APPEARANCES:
14
?
4 SAMUEL B. RUSSELL, Esquire
- 15 ALAN M. SELTZER, Esquire W. EDWIN OGDEN, Esquire l 16 Ryan, Russell & McConaghy 530 Penn Square Center 17 P.O. Box 699 Reading, Pennsylvania 19603 18 (For Metropolitan Edison Company) i 19 STEVEN A. MC CLAREN, Esquire BODHAM R. PANKIW, Esquire 20 EDWARD MUNCE, Esquire G-19, North Office Building 21 P.O. Box 3265 Harrisburg, Pennsylvania 17120 ,
I 22 (For the Public Utility Commission) t 23 MAURICE A. FRATER, Esquire llggg P.O. Box 1166 Harrisburg, Pennsylvania 17108
) 24 (For St. Regis Paper Company) l 25
'b 8008270 1 0 9 COMMONWEALTH EPORTING COMPANY (717) 761 7150
121-A Ir45 y
1 APPEARANCES (Continued): g 2
DAVID M. BARASCH, Esquire CRAIG R. BURGRAFF, Esquire 3 1425 Strawberry Square Harrisburg, Pennsylvania 17108 4 (For the Consumer Advocate) 5 6
7 8
9 10 11
( 12
)
13 14 15 16 t
17 18 19 20 21 Ia i i 22 i
l 23 l
3 24 25
- . @@MMONWEALTH REPCRTING COMP ANY 47171 761 7150
122 Ir46 l
l 1 _C _O _N T E _N _T _S DIRECT CROSS REDIRECT RECROSS 2 WITNESSES _
3 Laura Berger 124 --
4 William C. Spears ,
126 --
l 5 John G. Graham l
6 By Mr. Russell 134 --
i i
7 By Mr. McClaren -- 154 --
8 By Mr. Pankiw -- 162 --
)
9 By Mr. Burgraff 166 10 Donald L. Huff 193 --
11
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n 12
) 13
_E _X _H _I B_ _I T _S FOR IDENTIFICATION IN EVIDENCE _
NUMBER-14 Metropolitan Edison's 15 l B-lll through B-ll6 193 --
16 i
17
" Response of the Commission Trial Staff to Consumer la Advocate's Motion to Dismiss" filed with transcript.
19 I
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1 21 l
5 22 l
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24
- 25
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-- -e=^emn r numauv__;y t yx5r%52Suaa
d_ t 123 1rl 1
P,R,C,C E.,E,D_ 1 N_ G_ S_
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JUDGE MATUSCHAK: This is the time and place set 2
3 for the further hearing on the petition of Metropolitan Edison 4 Company for extraordinary rate relief, filed at P-80070235, 5
in connection with the. general rate increase requested at 6 Docket Number R-800511196.
7 Is counsel ready to proceed?
8 MR. RUSSELL: Yes, we are.
9 JUDGE MATUSCEAK: I understand th'at before we 10 proceed with a couple of witnesses, I understand that some 11 public parties are here.
(, 12 Do the parties wish to make any statement in rega
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13 to this matter? Do you have a spokesman?
MS. BERGER: Yes, Your Honor. I am Laura Berger.
14 I am a private citizen in York County. I am a ratepayer.
15 16 of Met-Ed.
17 We have a handful of people here, which is all that 18 we could get together because of the short notice of having 19 learned the hard way that this hearing,has been going on for 20 a few days.regarding an immediate request of a 535 million 21 rate in'rease.
c i 22 We are here to tell you that we are not happy with 23 the manner in which this has been done.
) 24 JUDGE MATUSCHAK: Just a moment. Would you cc.'s e 25 up here and make a statement for your delegation?
1:. -
WC b d .' =
COMMONWEALTH REPORTING COMPANY (7171 761-7150
124 1r2 1 'Whereupon, 2 LAURA BERGER 3 having been duly sworn, testified as follows:
l 4 THE WITNESS: I am Laura Berger. l 5
JUDGE MATUSCHAK:_ What is your residence? l C THE WITNESS: 2975 Broxton Lane,..?ork..
' - 7 JUDGE MATUSCHAK: Are you a customer of Metropolitan i
8 Edison?
9 THE WITNESS : Yes, I am.
10 JUDGE MATUSCHAK: And I understand from the previous 11 statement that you made before that you are representi: , a l
12 number of other consumers of, Metropolitan Edison Company in (m)) 13 this hearing. I i
14 THE WITNESS: I am technically representing them.
15 JUDGE MATUSCHAK: As a spokesperson for-them?
16 THE WITNESS: Yes, sir.
17 JUDGE MATUSCHAK: Very well. Do you wish to make [
t 18 a statement?
19 DIRECT TESTIMONY 20 THE UITNESS: We learned of these hearings late 21 last night, and the people that had learned of these hearings 22 were very mucn upset because they were not properly informed.
23 They were not given time to be a part of these hearings to ggg aj 24 voice their opinion regarding this immediate request for 25 $35 million; and we would like to see the hearings postponed
.l
~
LTH REPORTING COMPANY (7171 761-7150
12' l
1r3 l
l l
until the ratepayers in York County can get themselves ggg l
} 1 2 together and be part of the witness and part of the procedures 3 that you have here today.
4 JUDGE MATUSCHAK: We had intended to conclude the 5 hearings today, but at the request of counsel it appears 6 that we will have additional hearings on August 11 and 12.
7 THE WITNESS: Might I ask a question? Since these 1
8 hearings affect ratepayers that receive service from Met Ed, 9 l ow can you conclude hearings without hearing the entire --
10 s1.eaking to the entire scope of 'eople involved?
11 JUDGE MATUSCHAK:
That is a physical impossibility 12 to contact each and every customer of Met Ed to find an 13 expression.
14 It is up to the consumers to take some initiative 15 in this matter.
16 THE WITNESS: We can't 4.f we don't know that the 17 hearings are going on, and we were totally unaware that the is hearings had been going on since Thursday.
Since Thursday?
19 JUDGE MATUSCHAK:
20 THE WITNESS : Or Friday.
21 ' JUDGE MATUSCHAK:
No; they started yesterday. This
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22 is the second day.
23 THE WITNESS: 7 am sorry; I stand corrected.
s, You may advise your people for O
24 JUDGE MATUSCHAK:
25 whom you are spokesman that we will have additional hearings
- l'.
% - -:-- - OfE02RC3WGALTH REPORTING COMPANY (7171 761 7150
126 1r4 1 on the lith and 12th.
I will be glad to do so. Thank you.
2 THE WITNESS:
3 (Witness excused.)
-JUDGE MATUSCHAK:
Is there anyone else from the 4
4 5 public consumer group who would like to make a statement?
MR. SPEARS: I would like to say a few words, Your 6
7 Honor.
8 Whereupon, s
WILLIAM C. SPEARS 10 having been duly sworn, testified as follows:
JUDGE MATUSCHAK: What is your name, sir?
11 THE WITNESS: William C. Spears.
/)
(, .. 12 b JUDGE MATUSCHAK: What is your address?
13 THE WITNESS: 825 Lake Drive, Mt. Wolf, Pennsylvaniai 14 15 17347.
16 JUDGE MATUSCHAK: Are you a customer of Metropolitan 17 Edison Company?
THE WITNESS: Yes, sir.
18 19 JUDGE MATUSCHAK: Do you wish to make a statement in 20 this matter?
21 THE WITNESS: Yes, sir.
22 JUDGE MATUSCHAK: You may make your statement.
f
'23 DIRECT TESTIMONY h
) 24 THE WITNESS: I would just like to know if it is into York 25 at all possible to have these meetings brought Y
.Q O
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- f*nMMONWF At TH
127 Ir5 I
p roper so that many more of our people could attend.
as I did,
) Many of them heard of this last night, 2
but there are and since I am retired I am able to get out; 3
many others who have to go to work and just,can't get away.
4 If it could be brought into a court in York, many 3 ,
more could attend and voice their opinions.
6 JUDGE MATUSCHAK:
As either a customer or a 7
do you wish to make a statement a
spokesman for other customres,
- l 3
in regard to this?
You understand that the hearing at the present 10 lief time is merely on the petition for extraordinary rate re 11
('
12 of $35 raillion? The actual rate increase is for $76.5 million.
13 You understand that?
Yes, sir.
THE WITNESS: .
14 And the petition for the full JUDGE MATUSCHAK:
I 15 that will take place over some la amount for the rate increase, 17 bit of time, several months.
This hearing is on' the petition :for a $35 million 18 Do you wish to express any opinion 19 immediate rate increase.
hs to that, as to the merits of that petition?
20 of course, THE WITNESS:
Well, in the first place, 21 l
22 we were not notified, as we have already mentioned.
f I might say this; that we intend JUDGE MATUSCHAK:
23 l so if you k 24 to have further hearings on August 11 and 12,
') you 25 your associates are interested in making a presentation,
'c ' "*%GM TM .;EPoRTING COMP ANY (7171 761-7150
.~ ,
128 1r6 1
may do it at that time.
I understand that, sir. As I 2 THE WITNESS:
3 mentioned earlier, I am very much afraid that a good many in.
4 of them could not come all of the way into the Capito x
5 order to attend with one thing and another; possibly some of 6 the young mothers.
JUDGE MATUSCHAK:
You may get together and have 7
a someone act as your spokesman and make a presentation for 9' your group.
THE WITNESS : Very well, sir.
10 JUDGE MATUSCHAK: We will see what else can be 11 12 done.
THE WITNESS: Thank you, sir.
13 j
!l 14 (Witness excused.)
JUDGE MATUSCHAK:
Mr. Russell, do you have 15 16 additional testimony?
[
t 17 MR. RUSSELL: Yes. Met Ed calls Mr. Graham.
f .
l 11 JUDGE MATUSCHAK:
Before we get to that, Mr.
18 19 McClaren, do you have a report on the matters that we q
k requested you to investigate yesterday?
20 Yes, Your Honor. We have prepared 21 MR. MC CLAREN:
22 a written response to the Consumer Advocate's motion to 23 dismiss the petition, and in it we have attempted to address
.) 24 the questions that you asked.
25 I have made copies available to counsel for the EALTH REPORTIZMP ANY __ at 71761-7150
129 _
Ir7 .
I will provide a copy 4 g company and the Consumer Advocate.
} 1 2 to Your Honor.
Would you like me to..make copies available to the l
'3 reporter as well? Will that be necessary, Your Honor?
4 JUDGE MATUSCHAK:
That might be a good idea.
5 MR. MC CLAREN:
Additionally, Your Honor, we would 6
7 request, if possible, that you determine today what sort of 8 schedule you would like to complete.
JUDGE MATUSCHAK:
Yes, we would.
9 10 MR. MC CLAREN: I think one of the reasons we are 11 asking that is because we-are anticipating presenting a
(- 12 witness on behalf of the staff; and we need to be able to h
) 13 anticipate what sort of schedule we will have to meet.
JUDGE MATUSCHAK:
Will you provide the reporter 1 14 15 with a copy of the statements so that she may include them 16 in the record?
i MR. MC CLAREN:
The reporter has three copies.
17 JUDGE MATUSCHAK: Very well.
18 19 MR. MC CLAREN: I might also request too that at 20 some convenient time this morning we have a short recess for 21 the purpose of the staff explaining some of the procedures 22 to::the members of the public here.
'3 I think it is difficult at times to understand
) 24 what we are doing and why this procedure is on such an 25 expedited basis.
'Q
~ -- " = "a' e OGU@0 STING COMPANY (717b 761-7150
I 130 1r8 I) v So I am simply asking the indulgence of Your Honor 1
i.
Perhaps the 2 for a short break at mid-morning sometime.
3 Consumer Advocate would like to join me in that. .
' JUDGE MATUSCHAK: Very well. Having received the 4 .
5 response of the Commission staff in relation to the Consumer 6 Advocate's motion to dismiss, I make the following ruling:
Section 1308 (e) of the Public Utility Code provides l
7 8 a vehicle for extraordinary rate relief under the conditions l
9 and limitations therein contained.
.0 That section also contains the following language: l 11 "The Commission shall, within 30 days ~from the date of the i
/S -Tiling of a peti-tion .for . extraordinary. rate- relie,f, and after l 12
\' .) 13 hearing for the purpose of cross-examination the testimony ;
l
- 14 and exhibits of the public utility,, and.the presentation of 15 such other evidentiary testimony as the Commission by rule s.
16 my prescribe, by order setting forth i'ts reasons. therefor,'
v 17 grant or deny in whole or in part the extraordinary rate relie c
1
'k 18 requested."
19 It appears that the Commission, by its statement
[
20 adopted October 26, 1978 and entered on :'7" ember 6, 1978 21 at Docket Number M-78100089, adopted afstatement of policy' relative to requirements for a peti'ti'on[ seeking extraordinary 22 x
23 rate relief under this section.
In that statement of policy, the Commission declared l
) 24 for extraordig s
25 - it is.its policy that a11' prospective petitions 3:
C4f4XPANY (7170761 7150
131 Ir9 1
rate relief under Sections 1308(e) should have appended to
}
2 them certain data and information of a kind and in a form 3 therein indicated.
The Commission, at the time it adopted said l 4
5 statement of policy,' directed the Secretary to provide copies I
l 6 of the statement to all jurisdictional utilities and to
(
l l
7 others.
l At our request, Commission staff ascertained that 8
I o such statement of policy was, in fact, served upon Metro-1978, 10 politan Edison Company on November 7, 11 The Consumer Advocate has filed a motion that 12 Metropolitan Edison Company's petition for extraordinary 13 rate relief be dismissed for lack of presentation in the 14 petition of the minimal information of the kind and form--
15 required by the Commission's statement of policy.
It is obvious,.-- and the company admits that the '
16 17 petition itself did not strictly comply with the requirements 18 of said statement of P.olicy - -but the company avers that 19 substantially all of the said information is either contained .
20 in the petition or the data filed by it in the rate procee'dingi 21 at R-80051196.
22 The Commission, .in its said statement of policy, 23 indicates that it was intended to be incorporated as a part Section 53.1 et seq., as
) 24 and as a rule under 52 PA Code, 25 filing regulations ,,information . furn'ished for filing of rate c EOMMONWEALTH REPORTING COMPANY (7171 768-7150
- - = ---- - -
b 132 1r10 1
changes, extraordinary rate relief.
Such regulation does not appear to have been 2
3 included in the published rules at 52 PA Code, 53.1 and 4
does not appear to have been published in the " Pennsylvania 5 Bulletin." -
1 Pennsylvania Code 31.13 provides that orders of 6
7 an agency promulgating regulations shall be effective upon-a publication in the " Pennsylvania Bulletin" unless otherwise 9 Specifically provided in the order.
10 It appears that daid statement of policy was never 11 advertised in the " Pennsylvania Bulletin." While we cannot f
12 considersaidstatementofpolichas.givinga.rulemakingof.ec o
d" s s .
I
) 23
.so as to invalidate the petition, neither will we disregard 14 the Commission's expression efor the need of the Commission
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1 15 for the minimal information of the kind and the form therein e
!' 16 Provided.
17 We b'ill direct Metropolitan Edison Company to 18 promptly supplement its petition in accordance with such 19 policy requirements.
20 Inasmuch as we are providing additional hearings 21 in this matter, the denial of the motion to dismiss will not 22 prejudice any party, and the submission of additional informa-23 tion of the kind and in the form stated in the policy will 24 satisfy the purposes of the requirement both as to the parties
_)
25 and as to the C'mmission.
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__ COMMONWEALTH REPORTING COMPANY (7171 761-7150
e .
U 133 Irll It 'will serve no useful purpose to delay this 1
) l 2
matter by dismissing the petition and requiring a reformed ,
3 petition to be filed.
Accordingly, the petition of the Consumer Advocate 4
s is dismissed. _The petition of Metropolitan Edison Company 6 is hereby denied.
7 The company is directed, however, to supplement 8
its petition with additional information as stated in the h in 9
Statement of policy in the nature and in the form t ere 10 stated as promptly as possible.
MR. RUSSELL:
I might mention for the information 11
(~ 12 of Your Honor and the parties that in conformity with the O
> 13 undertaking we had yesterday, we would contemplate this 14 morning through Mr. Huf f and, in part, through Mr. Graham to 15 cover, I think, virtually everything contained in that 16 statement of policy in documentary or oral form.
i JUDGE MATUSCHAK:
By "promptly," I mean within the 17 18 next several days so the parties may have the benefit of 19 that before the next hearing.
MR. RUSSELL:
We intend to do it this morning.
20 You may proceed.
21 JUDGE MATUSCHAK:
MR. RUSSELL: Mr. Graham?
22 23 Whereupon, 9
24 JOHN G. GRAHAM
't) having been duly, sworn, testified as follows:
( 25 R[4
o 134 1r12 .
I' DIRECT EXAMINATION 2 BY MR. RUSSELL:
3 Q State your name and address, please.
4 A Jchn G. Graham, G-r-a-h-a-m, 100 Interpace Parkway, 5 Parsipanny.
Mr.
6 Q By whom are you employed and in what capacity, 7 Graham?
3 A I am Treasurer of General Public Utilities s Corporation and Vice-President and Treasurer of GPU Service l
10 Corporation. l l 11 Q Do you have before you a document that has been i
l 12 marked for identification as Met Edl Statement E? !
) A I do.
13 14 0 If you were to give testimony today with respect the testimony be the 1 15 to the same subject matter, would. .
same as that contained in Statement E?
16 s
17 A It would.
l l
18 Q Do you have before you exhibits which have been 19 marked for identification as Met Ed Exhibit E-1 through E-22 20 inclusive and E-21-l?
21 A Yes, sir.
22 Q Are you sponsoring those several documentary items?
23 A I am.
I direct your attention to Exhibit E-21. Could
) 24 Q 25 you identify that briefly, please?
-r_
.e die -
~~ RoPTKdB9M26ATiD0 C]@{P@CGTING COMP ANY (7171 761-7150
135 Br13 A Mr. Russell, a few of the exhibits are left out of the packhge that I have. 4g
} 1 That is the revolving' 2 - I have that exhibit now.
3 credit. agreement that was entered into between a consortium.
4 of banks , General..Public. . Utilities ,. . and'..the operatin'g '
s subsidiaries.of General Public Utilities.
6 Q Can you identify Exhibit E-21-1?
7 A Exhibit E-21-1 is a copy of a petition to amend 8 the Securities Certificate, which Securities Certificate f
1 9 was issued to allow us to enter into that revolving credit
~
to agreement.
l l 11 This pertains to some changes proposed to be made
(~ 12 in the revolving credit agreement at this time. h 13 0 Can you identify the change or changes proposed 14 to the credit agreement referred to in Exhibit E-21-1 insofar
.15 as they are applicable to Met Ed?
16 A Yes, sir. There are three. The first is that the 17 revolving credit agreement, as originally constructed, only 18 allowed a change in the sub-limits for the various operating 19 companies and for GPU by a vote of-100 percent of the parti-20 cipating banks. That was true both to' increase the sub-limit 21 and to reduce the sub-limit.
22 '
After discussions with the banks, we have agreed
. 23 with them that that is an unfortunate way to construct thelh
'y 24 relationship because it is unwieldy and a potential source of 25 instability to require that each of the 45 banks vote on ev
.c ggCC25)Q9tW@8&>TH REPoRTlNG COMPANY ]71717617150
136 1rl4 such changes.
3 We have therefore agreed that changes for the 2
future should be made by what is defined in the revolving 3
and what that credit agreement as the super majority banks, 4
means is 85 percent of the banks voting by dollar commitment.
5 The second change that is made is that there is a 6
provision in the revolving credit agreement which reads in 7
substance that the banks may refuse to make an advance 3
i 9 on the loans in the event that the banks find the revenues !
allowed to the companies to be insufficient to ensure their 10 11 ongoing financial stability. .
The banks want that changed to read, "Their
() 12
) 13 revenues or their earnings." They are concerned about what 14 has happened to Metropolitan Edison Company in that the (j
15 revenues as' a result of the last order are sufficient to i 16 provide enough cash for the near term for Met Ed to keep l l
' l 17 going, but their earnings are so poor as to preclude any l
\
l 18 access to permanent capital markets.
S The banks, of course, feel that in order to be 19 20 Paid ultimately, Metropolitan Edison Company and the other 21 operating utilities will have to have access to permanent 22 capital markets.
Therefore, they want to make explicit that it is 23 l
both revenues and earnings that must be sufficient to ensure
.) 24 25 ongoing financial viability.
NM[%6TH REPORTING COMPANY (7171 761 7150
.. c 137 1rl5
- r. Finally, as a result of experience and having
}
1 there was an 2
worked with this agreement for a year now, s
3 agent's fee of $100,000 per year for the two banks which 4
administer the agreement.
is insufficient We have agreed with them that that 5
6 to reflect the amount of time and effort that they have had 7
to put into this, and we have agreed to increase that fee to $250,000 a year.
In the case of ' Met- Ed, they will pay a
9 one-fourth of that.
10 0 I direct your attention to paragraph 45 of the 11 Met-Ed petition for extraordinary rate relief.
(
12 A Yes, sir; I have that before me.
containe,.
)
13 Q Can you state whether or not the averment 14 in that paragraph is correcr, Mr. Graham?
15 A It is, and, if you would like, I can go back and 16 explain that in more detail.
I also All right. Then in connection with that, s
17 0 I Would 18 direct your attention to Appendix A to the petition.
19 you include that in any explanation, a reference ro that in 20 any explanation you may give?
21 A Yes, sir. Appendix A is a plot of the short-term 22 debt requirements, capital requirements of Metropolitan i
' 23 Edison Company both with and without rate relief and as 24 against the $105 million limit which now exists under the
.)
25 revolving credit agreement.
\ (7171 761-7150 MMON/fR/3LTH REPORTING COMP ANY
138
-16 .
If I may go back a few months in time, in April 1
of this year the banks wrote us a letter which, as it is 2
3 continuing to be pertinent, limited Metropolitan Edison 4
Company to $105 million of credit under the revolving credit 5 . agreement.
If I may interrupt for just a second, Mr. Graham, l 6 Q l 7
is that bank letter among the documents which you have a identified?
And I direct your attention specifically to r
9' Evhibit E-18.
10 A Yes, that is Exhibit E-18.
f 11 Q You may proceed. l l
r~x k_,) 12 A If I might just say that it is stated in Exhibit
) 13 E-18, the bank letter of April 9, that it is "the expectation 14 of the banks" that Metropolitan Edison Company would not l
15 borrow more than $105 million.
16 It was stated in terms of expectations because 17 of the problem that I identibled as to the requirement for I 18 a 100 percent vote, and that is exactly the problem that the 19 amendment would deal with.
for 20 That $105 million expectation or sub-limit 21 Met Ed was restated in an additional letter from the banks, I
22 a letter of May 15, which is attached as Exhibit E-19, 23 believe.
llh In addition to reaffirming the $105 million sub-
.) 24 25 limit in paragraph 4 of that letter, which is quoted in my
139 1rl7 testimony, the banks made clear that even the $105 million 3
may not continue to be available to Metropolitan Edison into the future.
3 there If we could refer to page 17 of Statement E, 4
are three paragraphs in the letter which are pertinent in 5
s egard, and they are quoted at the bottom of page 17.
6 Paragraph 1 says that the results of the rate c.
7 orders are such that the banks would not give favorable 3
is the g
consideration to increasing the $292 million that limit applicable to the entire system, and they made specific 10 reference to the ongoing financial viability of Metropolitan 11
(
Edison Company in that decision.
Second, they said that they would not require 13 additional collateral for any of the borrowers other than 4
3 14 s 15 Metropolitan Edison Company,as to which company they were f
reserving decision.
l 16 r Third -- and this is, I believe, the most important 17 i .
paragraph from my perspective in this p'roceeding -- they It forth in the 19 Said that we could not exceed the amount set the $105 millio n 20 prior letter -- that is the April 9th letter, 21
-- and, in addition, they said that they may consider reducing availability further so as to match the reduction 22 in the deferred energy account of Metropolitan Edison Company.
23 q,
IfyourecallthedecisionoftheCommissioninllh
) 3 25 May, by allowing amortization of deferred energy costs over l l
(7?71 761 7150 COMMONWEALTH REPORTING COMP ANY l
140 1r1B y
1 18 months and by having Metropolitan Edb.'n Company essentiall 2
become current on energy costs, that means that by the end 3
of 1981 the deferred energy balance should have gone to zero.
4 The banks' expect that their loans would be paid Unfortunately 5
down essentially an the same kind of a schedule.
s 6 our capital needs to support all of the other activities 7
of Metropolitan Edison Company are such that while the 8 deferred energy balance will go to Zero, the bank loans will 9
essentially stay even with some ups and downs along the wayt 10 so that the banks see the asset that they thought that they were funding as being gone, but the loan still being there.
11 12 The reason for that is because Metropolitan Edison x/
) Company today is in a loss position so that the banks are 13 14 being asked to fund into a loss and to make up the capital loss, and also 15 requirements necessary because Of that its ongoing 16 because the other activities of the company, the 17 maintenance program, its ongoing construction program, 18 dollars necessary to ensure the safe cleanup of Three Mile r
The only place we can 19 Island, require the use of money.
[
20 get that money is from the banks. [
21 So if we then refer to Appendix A attached to the l 22 petition, what happens is that if there is no rate relief you can see that next spring our capital requirements go up lll 23 24 substantially. That is because the State taxes become due
.)
25 next April, and the dollars required to make that payment O
Y (7171 76!-7150
e .
e 141 Ir19 O 1 cause that upswing in the dotted line. I
} We would exceed the $105 million at that point 2
3 ne>.t spring; but then if you go to paragraph 4 in Exhibit 19, 4
I can't with any degree of confidence know that the 5-revolving credit limit line of $105 million will stay there 6
during that period.
7 The indication that I bave from the banks and in fact, that 8
which is reflected in their letters is that, 9
line would not stay even if there is not some interim 10 relief to show the fact that Met Ed will have at least the 11 beginnings of the kind of viability that would permit it 12 to go to the capital market. O
) 13 Q What is the present level of Met Ed's outstandingw 14 short-term debt as of today?
15 A I believe it is $83 million.
16 Q Is that figure so indicated in the Securities .
17 Certificate petition, which is E-21-1?
18 A Yes, sir.
Q Mr. Graham, who provided the initiative for the 19 which i 20 proposed amendment number 4 to the credit agrement, 21 is reflected in Exhibit E-21-l?
22 A The initiative with respect to the change to
[
23 allow increases and decreases in the credit limit by fewer than 100 percent of the banks was jointly pursued by the lh
{: ) 24 25 banks and by GPU and its subsidiaries.
.g (7171 761 -715C COMMONWEALTH REPORTING COMPANY
s ' .
142 1r20 We felt that it was important to remove that source 1
J and, if I may, 2
of instability from the credit agreement, 3
many people will have read in the newspapers in the last 4
couple of weeks about the three or four Danks that held out 5
at the end in putting together the Chrysler loan.
It was exactly that kind of a problem that we --
6 7
meaning both the companies and the banks -- wanted to avoid 8
for the future, so that was pursued jointly.
9 With respect to the increase in the administrative 10 fee to the agent banks, it was quite obvious to us and has 11 been quite obvious to us from, say, the first of the year r that those banks were not being fairly and adequately com-(_N 12
)) 13 pensated for the very, very extensive time that they were 14 putting in in administering the agreement. I 15 With respect to the addition of the words "or 16 earnings" to the times when the banks ccsid refuse to 17 make advances or could call the loans, that was a matter that )
18 the banks fel't they had to pursue in order to be able to I r
l 19 demonstrate to all of the other banks participating in the [
j 20 agreement that they were protecting their interests and 21 avoiding the repetition of the kind of problem that arose 22 in the spring when the Commission's order allowed a very extensive increase in our cash flow, but at the same time lll, 23 24 caused the company to go into a loss position in the case of
)
25 Met -Ed.
l -
t O_M_M_O_NWE_ALWS REPORTING COMPANY (7171 761-7150
t 143 ,
ir21 1
Q I direct your attention to paragraph 16 of Met Ed'sl }
}
2 petition.e 3
A Which petition, Mr. Russell?
Q Petition for extraordinary rate relief.
4 A Yes, sir.
5 Q Was that data. represented in that averment.
~
A 6 7
prepared by you or under your supervision? _
8 A It was.
9 Q Could you describe briefly what is represented to on Met Ed Exhibit E-20?
A Exhibit E-20 is the write-ups from Moody's Investors 11 Services with respect to the ratings of the securities issued
)
12 h
23 by the three operating companies in the GPU system.
These were issued in March of this year and reflect 14 i
! 15 the fact that both Metropolitan Edison Company and Pennsyl-16 vania Electric Company are rated as being non-investment 17 grade securities.
l 18 That has a very substantial impact upon the \
marketability 'of long-term securities by Metropolitan'. Edison
- l. 19 ,
k 20 Company.
Does that 21 Q I direct your attention to Exhibit E-22.
Ed's debenture indenture, first 22 contain the excerpts from Met 23 mortgage bond indenture and charter, which cover, among 24 other things, the interest coverage and preferred coverage I
25 tests?
- y. '
RTING COMPANY 17171 761-7150
e '
144 1r22 A Yes, sir. If I might state, in the case of 1
Metropolitan Edison Company the basic requirement for 2
3 selling debt is that coverage be two times. I This year Metropolitan Edison Company will have 4
In other words , it will 5
coverage of just about one times.
It will not earn 6
just about earn its interest requirements.
7 its preferred stock dividends this year, and we will have 8
to pay those out of returned earnings. .
9 Q Again, I direct your attention to Appendix A to With 10 the Met Ed petition for extraordinary rate relief.
11 that as a background framework, could you state what Met Ed fk--)s 12 will be faced with if its request for extraordinary rate
) relief is denied?
13 14 A If I could refer to both Appendix A and to page 13 15 of my testimony, Appendix A is essentially the result of 16 the figures that are shown on page 13 of my testimony.
17 Appendix A is the balances of short-term debt that 18 would be seen with and without rate relief as a result of i
g 19 the total needs forfunds of Metropolitan Edison Company.
20 On page 13, I have categorized the three major 21 areas that we see in the operation of the company at this 22 time.
23 The first such category is requirements for funds k
24 for deferred energy.
As I believe the Commission well knows,
)
25 up until the May order, the need for funds to support deferred l
- 17) 761 7150
145 a
Ir23 I
energy expense, the replacement power coct, was a very, very
.).
2 significant source of -- or need for funds by Met Ed.
3 On page 13, you can see that now exactly the 4
opposite is true; that from the end of - :or the last six 5
months of this year through the end of 1980 Met.Ed will Next 6
generate $35 million of funds from deferred energy.
7 year Met Ed will generate $50 million of funds from deferred 8 energy.
9 The total of those two, S85 million, is just about to what Met Ed's deferred energy balance was at the end of June of this year. That shows the 18-month recovery of the 11 .
k 12 deferred energy expense as ordered by the Commission.
13 So in the first category, we see Met-Ed as a compa l 14 that is gaining cash by billing its customers for replacement 15 power and fuel costs which it incurred in the last year and 16 one-half.
17 The second category is the need for funds to Here it 18 support the cleanup effort at Three Mile Island.
19 is the expenditures by the company less the insurance proceeds i
20 that we anticipate.
21 We e.xpect that in the next 18 months Metropolitan 22 Edison Company will need a total of about $25 million for 23 that effort. That is the $8 million in the last half of this
.}
24 year and the $17 million next year.
25 Neither of those two categories, deferred energy or
t 146 1r24 ,
g]
L' the cleanup, would be impacted by the Commission's action I
3 2
on this petition in the sense that tne costs and the proceeds, 3
such as the insurance, are fixed.
4 The third category, however, is the need for funds
- 5 to support construction and refinancings.less alleof the 6
internal sources that are available from the company.
7 The internal sources are things like depreciation, 8
deferred taxes and earnings to the extent that they are 9 cash earnings rather than AFC.
10 In the case of Metropolitan Edison Company, you 11 can see that the rest of this year it needs approximately
('d' 12
$40 million' to support its construction program and its l ) 13 refinancings ofm' aturing securities, br t it will only have 14
$17 million of internal sources with which to pay that 15 $40 million. .
,. 26 So. that construction is a user of funds to the 17 extent of $23 million this year. Next yedr, if there is 18 no rate relief, it is e user of funds to the extent of 19 $55 million.
20 In the case of this year, the $35 million of that first category, 21 recovery of deferred energy expense, 22 is enough.so that'the short-term debt does not go up very 2'3 much, and, in fact, between the first of July and the end
$4 millio 24 of the year it actually goes down by a small amount,
.)
25 But next year you can see that the total of what
*-* u-u mrunnTING__ COMP A_N
8 0 t 147 1r25 3
we need for construction, what we need for the cleanup effor 2
greatly exceeds that deferred energy recovery, and we would 3
have to borrow S22 million in order for the company to 4
support its capital needs.
That borrowing would have to come from the banks, 5
6 and that is why we would end up with a much higher borrowing 7
under the revolving credit agreement that is shown on Exhibit 8 A.
9 If, on the other hand, we obtain rate relief, Iv I we would actually have a small reduction in our borrowings, 11 and that is what is shown on Exhibit A as the. black line 12 declining somewhat.
k
) 13 In the event that we did not receive the emergency I
14 rate relief, something on page 13 would have to give.
! 15 think there are three areas where we could make changes in .
16 the near term in the next 18 months that are reflected on t
17 page 13.
18 One of those is that we would have to reduce I
19 construction further. I think the Commission knows that one -
20 of the things that we have done since the accident is to r particularly 21 very extensively reduce our construction program, 22 that of Metropolitan Edison Company.
23 Of the construction dollars that are shown there.
(
} 24 in the 18-month period, approximately S18 million or so is 25 associated, for instance, with connecting new customers.
-- __ COMMONWEAL.TH REPORTING COMPANY (717) 761-7150
148 1r26 1
One of the things that would have to give is 2 construction, including potentially the effect upon service 3 of slowing down the connection of new customers and also 4 the removal of the dollars for reinforcement of the trans-5 mission and distribution system, which would begin to have 6 an impact upon customers when there are high lemands for 7 electricity or when there are storms or that kind of thing.
8 The second area where we would have to make a 9 change is the rate of expenditure of dollars for the cleanup 10 of Three Mile Island.
11 We are anxious to proceed as expeditiously as n
12 we can. The General Accounting O'ffice and Senator Hart's v
(s))
I 1
13 Committe have encouraged that we move along sith that as 14 rapidly as possible to avoid any uncontrolled release.
We would hate to have to cut dollars out of that 15 1 16 which would slow down that process. We believe it to be 17 in everyone's interest to get that over with as fast as 18 possible.
19 The third area is one that is buried in the line :
One of the places that uses 20 called " net internal sources."
21 money and therefore reduces the internal sources is the 22 dollars that are being spent to maintain the electric system.
Again, we have very substantially reduced our llll 23 24 level of maintenance, the number of employees who are working
)
25 at maintenance since the accident, but we would have to make 7150
149 1r27 even further reductions there and go further below what we 4g I
)
2 ought to be doing in the area of maintenance if we do not 3 have the funds available to do that work.
4 So I think what would happen is that we would I
5 see a reduction in the limit of credit available to us.
6 can't really predict at this point exactly when that would 7 begin or how swiftly the banks would insist upon a reduction 8
in their loans to Metropolitan Edison Company, and we would 9 have to trim construction even further, maintenance even 10 further, and the cleanup of Three Mile Island to try to 11 match the credit that would be made available to Met Ed by i
12 the banks. O
> Mr. Graham, I am not quite clear as to when or 13 0 14 by what amount, if any, the lbmit under the revolving credit 15 agreement would vary if the request for emergency rate Could 16 relief or extraordinary rate relief were not granted.
furthel?
1 17 you perhaps develop that a little bit 18 A The reason why I have to be ambiguous about it faced and 19 is because it is a situation that we have not yet I 20 the banks have not yet faced.
l 21 It is clear that they will not permit the level 22 of borrowings to keep going up or even remain constant if the 23 the asset that they believe that they were funding, k
")
24 deferred energy account, goes away. !
25 On some basis, they will reduce the level of
\ RTING COMPANY (7171 761 7150 )
150 Ir28 1
availability to essentially match the decline in that asset. l I
2 Now I can't say that I believe that they would take the thing 3 down to zero.
4 At the day of the accident, Metropolitan Edison 5 had short-term borrowings outstanding to the banks in the ;
1 as I recall, of $25 million or $30 million. f 6 amount, l 7
I would hope that they would at least (11ow that 8
kind of level eve'n if there were no deferred energy balance.
9 We have not had specific discussions with them, and I think )
10 that how they would react would be a furction of what 11 the Commission might say in any order denying emergency
/;
rate relief and what they see as to the ongoing rate case,
(_{ 12 b
23 and also I believe what they see as to the TMI-l restart 14 proceedings.
)5 I can't, however, give you or the Commission a 16 firm number or a firm starting date or a firm rate of decline, l 17 but paragraph 4 of that May 15 letter makes it very clear 18 that that is exact'-y what the banks intend to do and can 19 be expected to do and will do. l 20 Q Mr. Graham, item 4 of subsection A of the Commission.I ,
- 21 statement of policy asks that the Commission be informed 22 as to what future financing plans, if there are any available, a utility has for the next two years.
[ 23 if
) 24 Can you identify what specific financing plans, 25 any, Met Ed has for the next two years?
-fflMMOMWEALTH RCW6ENTNG COMPANY (7171 761 7150
151 3r29 A With respect to long-term debt, Met Ed has no
} 1 I nave had conversa-2 j.. financing plans for the next two years.
' tions with our investment banking agents. I also have had 3
some conversations with potential private placement investors, 4
5 and there simply is no market for a long-term Met Ed security.
6 My belief is from those conversations that it 7
will require both a rate increase to reflect the effect of 8
inflation upon the operations of Met Ed and the attrition 9' associated with that-and an allowance for equity that will Also it will require 10 reflect the. higher risks of the company.
11 the retur1 c.6 TMI-1 to service.
So I don't have any plans for Met -Ed to be able
- k. 12 Ah although toward W
) to do a financing in the next two years, s 13 14 the end of that time, if TMI-l is operating, it may be 15 possible to see our way clear to do some kind of financing.
With respect to short-term securities, the 16 in 17 revolving credit agreement ma'ures, comes to an end, 18 October of 1981, and that is only about 15 months from now.
19 It will be necessary for us soon to be able to ?
20 demonstrate to the banks why they should renew the agreement 21 and begin to discuss with them the terms upon which the f
That comes along very 22 agreement ought to be structured.
23 quickly, and it is something that the treatment of Met- Ed by the Commission in the next year or so will have a h
I h 24 i
25 tremendous impact upon in terms of both the availability of I' ?.
L- -- " . . . _ , _ _ _ . .
COMMONWEALTH REPORTING COMPANY (7171 761 7150
152 Ir30 credit and the price of that credit.
1 2 O Item 7 of subsection A of the Commission statement a
of policy that I made mention to asks to have the utility 4 supply any near-term -- that is within the next 12 months --
5 projected expenditures that are-expected to abnormally affect 6
cash balances or financial stability. Can you respond to 7 that request?
8 A There are two areas that I would look at in that regard, PErhaps three. One is that, as I pointed out, the 9
10 company has to make substantial expenditures in excess of the
- 11 related insurance recoveries to do the cleanup 4..o at Three I 12 Mile Island.
( )) 13 The second is that our people are now becoming A
I 14 quite concerned about the potential for a coal strike.
coal strike would have two impacts upon Met Ed. The first 15 16 one is that we have to build up the coal inventories at
{
17 Titus Station and Portland Station, and the fuel people l
1 Il believe that we should be doing that this summer. I think 18 l
!]
19 that is about a $6 million item.
20 The necond half of the coal strike story, however, I 21 would be that, as you know, the whole GPU system is purchasing I
22 very extensive amounts of coal-derived energy from the west l ggg 23 and from~the north.
,) 24 If the fuel did not continue to be available to 25 those stations or if they believed ~that they had .to reserve oNWEAl.TH REPORTING COMPANY (717) 761 7150
153 1r31
( that I
their inventory levels to serve their own customers,
)
2 energy could well go away, and we would then have to rely 3 upon interchange, and the cost to Met Ed and the working 4
capital required for those purchases could be very; very 5 extensive.
The third area is that when we.are running this 6
y close to the line on our available credit, we simply don't 8
have anything there to deal with the kinds of problems that 9 come up in any kind of a complex business just from day to 10 day. I think an extensive storm is a very good example of 11 that. The strike that Penelec is experiencing right now
(' 12 is another good example of that, that that kind of thing kh 13 happens, and when it happens you simply have to have some
- 4 margin of your available credit to be able to deal with those 15 problems.
16 Our difficulty with Met Ed is simply that we don't have any running room. We have no margin to deal with that-17 l
j
- 18 kind of a problem.
19 MR. RUSSELL: That is all we have of Mr. Graham 20 ; at this time.
Does the staff have any cross-21 JUDGE MATUSCHAK:
22 examination at this time?
MR. MC CLAREN: Yes, Your Honor.
23
(
. -) 24 25 t
COMMONWEALTH REPORTING COMPANY (7171 7851-7150
4 154 1r32 n
CROSS-EXAMINATION 1
2 BY MR. MC CLAREN:
Q Mr. Graham, I understand that you are the Treasurer 3
4 of GPU Corporation; is that correct?
A Yes, sir.
5 Q Have the GPU companies made any definite plans s
7 for what cutbacks they would make in expenditures if emergency I a or extraordinary rate relief is not granted?
There are not definite plans. It is clear that 9 A to the levels of expenditures that are anticipated on page 13 11 in my exhibits and which therefore are on Appendix A could
() 12 not, in my judgment, be made.
) 13 In '.ty judgment , the expenditures would come from 14 three areas:
Met Ed's construction, Met -Ed's maintenance 15 an'd the speed of the cleanup effort at Three Mile Island.
16 The exact composition and the timing of those 17 changes is not something that I would have at this time.
t Have the GPU companies made definite plans for 18 Q 19 the expenditures of the additional revenues that would come i
20 to Met Ed if extraordinary rate relief is granted? ,
A Yes, sir. If we received emergency rate relief, 21 22 it would, in my judgment, make it possible for us to accomplish the spending levels that are set forth at page 13 lll 23
,) 24 in my testimony, and perhaps to have the funds available 25 to deal with some of the maintenance that we should be doing.
l muuoNWEALTILREEWfDiPONB COMP ANY (717) 761-7150
g 155 Ir33 !
l 1
Whether those funds could be made available I gg y ,
2 believe would depend upon things like the coal strike situatioE 3 that I discussed.
4 0 You began your answer with "yes" to.the question Are there definite plans 5 if there were definite plans.
6 for the expenditure of those funds set forth in the material 7 that has been filed as part of this petition?
8 A Yes, sir. The spending levels set forth on page D 13 of my testimony is what we would do if we received 10 emergency rate relief.
11 In my judgment, we would not be able to do that l
- b. 12 without emergency rate relief.
(E)
) 13 0 What is the basic source of the spending levels 14 that appear on page 13 of your statement, particularly, Mr.
15 Graham, for the year 19817 16 A It is a run of our financial models that reflects 17 the inputs from all of the various operating parts of the is company and reflects their judgments based upon the circum-19 stances as we saw them in the late spring of this year.
20 Q What does that mean? Is that your budget for 1981?
21 A No, sir. The budget for 1981 is something that in 22 will be developed in October or November of this year, 23 that time frame, and finalized around the first of the year.
(
24 Rather than a budget, because that implies an 25 official kind of authorizacion for spending that is given to ,
1
I 156 1r34 m
(s/ 3 the operating people, I view what we_do during the year as
)
a view or a forecast based upon what people see coming up 2
3 in moving toward the budgeting process at the end of the year.
0 When I originally asked the question, "Have the 4
5 GPU companies made definite plans," I meant to imply some more or less official act; whether there is a formal budget 6
7 prepared or if there is some consensus of the officers.
as Treasurer, 8
Is your answer to me then that you, 3
have in mind what you would do with the money, or did you mean something more specific, something which other officers to ji in the corporation may have decided?
What is set forth on page 13 reflects the consensus
(,)
' A 12
) of the officers of the companies as to what we believe should 13 14 be done given the constraints on the availability of funds is that we knew existed.
With all of that input and looking at the whole 16 thing as Treasurer, in my judgment, we could not accomplish 17 la it without extraordinary rate relief.
19 We simply will not have the credit available to I,
do what is set forth for Met Ed on page 13. We will have 20 el to cut somewhere.
O 22 It is a process that one has to look at what
23 the operating people would like to do and see how much that i i'
~'
costs, and then see how much funds are available and go back
.) 24 and it kind of 25 and see what has to give on the other side, COMMONWEet.SdX) REPORTING COMPANY (7171 761 7150
..~ .
157 1r35 1
. g goes back and forth, a.
The formal, official budget, the thing that is 3
done at the end of the year, goes through that process and 4
hones the thing down to a point that you then say to the operating people: okay, this is what you have to spend.
3 6
At this time of the year, that is not exactly
' what we were trying to do. We were trying to get a look at 9
s the system,, reflecting the rate orders and seeing where we s were given the ratemaking that we experienced in the spring.
10 With all of that, in my judgment, we do not have 11 the credit resources available to do what is set forth on l
page 13 without some kind of. emergency relief for Met Ed.
fk. 12 k
13 Q Does this filing contain supporting data which 14 wil_ show us how you derive the summary figures on page 13 15 of your testimony?
16 A Could I have a second to confer with Mr. Carroll?
17 (Witness confers with Mr. Carroll.)
la Mr. McClaren, the Monthly Sources and Applications i
19 of Funds exhibit that provide the detail behind Appendix A
' 20 are being typed now and will be available probably before 21 noontime.
l I have a handwritten copy here and would be I 22 i
I 23 pleased to give it to you. Whatever detail behind those Jll>
) 24 exhibits you would need, we will certainly be happy to mak 25 available upon request.
71 761 7150
4 158 1r36 Q
Is that the supporting detail behind the figures 1
2 contained on page 13 of your testimony?
A Yes. There may be some minor variations between 3
4 Appendix A and page 13, but I think that is just a question V
5 of the time in which the exhibits were done.
a O I would appreciate then if you would consider -- it 7
may well' satisfy it -- but if you would consider a request a
of the staff to have that supporting data so that we may 9i know how you derived the figures contained on that page; for instance, to be able to check such a thing as Witness 10 11 Newton testified to yesterday, that he anticipated that there 7-( ,/ 12 would be an attrition of 40 transmission-distribution
) Is that an assumption that you have made, or have employees.
13 14 you made additional assumptions as to whether you could hire 15 such people?
l 16 It is that kind of review we would like to be 17 able to make bf those numbers.
I 18 A We can make something like that available.
19 should say that the data that is given to me as to the need 20 for funds does not include things like numbers of people in i
.i 21 it, but the operating people would have that kind of detail i
22 behind those figuros. I think we can make tha*. available.
j
!'o Q Fine. I have some additional questions with a <
23 l respect to the schedule on page 13 of your testimony, but I
,) 24 25 will defer that until the supporting data is made available, O
J oRTING Ef 'MP
159 1r37 1
and perhaps that will answer the questions. l I
)
2 Mr. Graham, did you testify in direct that you had Is that 3 no debt financing plans for the next two years?
4 correct?
5 A That is true in the sense that there is no financing That is not 6
that would produce additional funds for Met-Ed.
7 something that is a plan in the sense of that is what we 8
want to do, but rather it is a plan reflecting the realities 9 of the marketplace given the rate orders that we have received .
10 Q I think you stated at least two of the reasons for 11 your practical assessment of your ability to go to the debt financing market; that there would be a need for rate i
)
12 relief and a return of TMI to service; is that correct?
13 14 A I think I said TMI to service and to rate base.
16 0 Would the consequence of that assessment of your 16 ability to obtain debt financing over the next'two years mean i 17 that at least in practical terms that you would have to J
18 continue the revolving credit agreement for that same period?
i 19 A Continue the revolving credit agreement or some l
20 i replacement for it, yes, sir.
l t 21 Q When does th, revolving credit agreement have to 22 be renewed?
f
'i 23 A October, 1981.
f' Is it your testimony, Mr. Graham, that at least
, ,I 24 Q 25 during the period cf this rate proceeding until such date as COMMONWEALTH REPORTING COMPANY (7171 761 7150
160 1r38 1' the suspension period would be up and the Commission would 2
have to make a final determination that your only source 3
of external capital is through the revolving credit agreement?
4 A You are referring to Metropolitan Edison Con.pany?
5 0 Yes.
6 A Yes, that is correct.
7 Q Is that statement true under the conditions that a
the Commission grant the company extraordinary rate relief?
9 A It is probably true, Mr. McClaren, even if to extraordinary rate relief is granted. You will recall that 11 we -- the term I have used is " warehoused" $13 million of That was a maturing (nj) 12 Met Ed bonds with the banks last winter.
13 issue that we gave to the banks as additional security.
14 Those bonds could be refinanced without cov.erage if there were a mar'ket for them. Met Ed put into service 15 i and that j 16 last November a cooling tower at its Titus plant, I
I think it is u 17 project qualifies for a tax-exempt financing; h f
18 about $12 million.
d 19 I have been searching very hard to try to find ,
I think it 20 a place to market that $12 million of bonds. i 21 very unlikely even with rate relief that I could do that 22 until TMI-l is buck in service and rate base.
23 But if we got this interim order, I would again g
I think it is
)
24 try to find a purchaser for'those securities.
i I 25 very strongly in everyone's interest to try to get some i (7171 761-7150
-- ._ COMMONWEALTH REPORTING COMP ANY
161 1r39 .
_.g long-term money into Metropolitan Edison Company.
)
1 to the Q
2 Q Mr. Graham, you testified with respect Would 3
proposed changes in the revolving credit agreement.
4 you characterize those changes as.more favorable to the GPU 5
companies or specifically to Met-Ed or less favorable?
Let me take them individually, Mr. McClaren. The 6
A 7
one that allows a change with fewer than 100 percent of the 8
banks I think is very much in our interest.
9 I think the fear that I have had of a hold-out to bank, particularly a small bank that is holding out in an 11 attempt to be paid out of its participation in the agreement, so is something that I have been quite concerned about,
( 12 O W
I ) 13 I believe that one is very much in our interest.
h it 14 The change to add the words "or earnings,"
15 is difficult to describe as being in our interests to set 16 forth the times when the banks might call the loans or 17 refuse to make an advance.
l 18 On the other hand, for the banks to make known .{
19 to the Commission the explicit terms upon which they will 20 be able to participate and be able to hold the consortium I
i- 21 together, I think, is probably in everyone's interest.
22 think it would be very unfortunate if the banks were mis '
23 understood.
Frankly, I told the banks that I believe that llh
! 24 the material adverse change provision was sufficient to
_1,)
25 COMMONWEALTH REPORTING COMPANY (7171 761 7150
11 162 1r40 1
deal with the problem that they wanted to address in the 2 amendment. I still feel that way, but they felt quite 3 strongly that they believed it to be important to tell the 4
Commission explicitly the terms upon which they would be able 5 to fund Met Ed.
6 The third change, the administration fee, I think 7
it is simply a question of trying to fairly evaluate the 8
amount of time that the people at City Bank and the Chemical s Bank have put in, and there is simply no question in my 1
10 mind that they put in hours that would cost substantially 11 more than $100,000 a year..
I think it is just elementary fairness to compensate
(-;) ) 12 them for the time that they have had to put in. I think the 13 and, 14 Commission has seen a tremendous effort on their part, 15 very frankly, that is less than one-half because they have 16 the difficulty of dealing with 45 banks and trying to keep 17 that group operating together, and that is a monumental task.
18 So I think that is just a question of treating i
19 them fairly.
20 > CROSS-EXAMINATION 21 BY MR. PANKIW- l l
22 Q Mr. Graham, I have a few questions regarding the 23 RCA and the interest rate that Met Ed will experience under lgg 24 that agreement.
.)
25 It is my understanding that the RCA interest rate
__ COMMONWEAt.TH REPORTING COMPANY (7171 761 7150
163 1r41 i
is tied to the prime lending rate, is that correct? 9 2 A It is tied to the prime of City Bank, yes.
3 Q Could you just briefly explain how that interest 4
rate that Met Ed would'have to pay is calculated?
5 A Well, it is a percent over prime, and the percent a
varies with the level of borrowings of Metropolitan Edison 7 Company.
8 There is one level at 105 percent of prime and 9
another at 108 percent and another at 111 percent of prime.
10 If you look at Exhibit E-14, page 6, which is a su= mary of the levels 11 the major terms of the revolving credit agreement, 12 for Metropolitan Edison Company are shown on that page about
(.
13 two-thirds of the way down, where it says the category of 14 " pricing."
15 For Met Ed, the first $25 million is at 105 percent 16 o f prime. The next $25 million is at 108 percent of prime.
17 Everything above $50 million is at 111 percent of prime.
18 In addition to that, there is a one-half of one 19 percent reservation fee for the whole $412 million, which is 20 shared by the companies.
21 Q How often does the interest rate change?
5 22 A The prime rrte?
23 Q Yes.
When we went through the time that it was runnin
) 24 A 25 up to 20 percent, it was changing almost daily. It has been 17171 76 t -7150
. COM,M^NWEALTH REPORTING COMPANY
164 1r42 i l
O 1 coming down almost as rapidly since April.
}
2 Generally speaking, in normal times, the prime 3 will often not change for periods of six months or a year.
4 Q Mr. Graham, I was referring more specifically to 5
the interest rates under the RCA that the Metropolitan Edison Company would have to pay.
How often is that rate changed 6
7 or recalculated based upon the prime?
8 A Whenever City Bank announces a change in the prime, 9 from that day forward the interest rate changes.
10 Q And that applies to the outstanding balance of the 11 RCA loan?
(~)
\/ 12 A That is right.
) 13 Q Could you tell us what prime rate was assumed for 14 the future test year in determining the interest expense of 15 Metropolitan Edison pursuant to the RCA?
16 A I think we assumed a prime, us I recall, of -- we and I think 17 assumed a cost of short-term money of 13 percent, 18 that there is implicit in that a prime of something like 19 11.5 to 1..' 75.
20 0 CUuld you tell us what the RCA interest expense 21 incurred by Metropolitan Edison was:as a rate for the first 22 six months of 19807 23 A I could get that number. I don't have it.
lh 24 Q Is that in the filing al.,where?
.)
A No, it is not, but I can supply it to you.
25 A
165 Ir43
}
1 ballpark would be something like 16 or 17 percent. g 2 Q Could you provide that for us, please?
3 A Yes, sir.
4 Q Thank you.
5 MR. MC CLAREN: That is all the cross-examination we have at this time, Your Honor. We would like to specif-6 7 ically reserve further cross when we have had the opportunity 8
to examine the underlying data which we requested, which I 9 think is going to be available today.
10 JUDGE MATUSCHAK: We will take.a ten-minute recess.
11 (Recess.)
)
12 9
13 14 15 16 17 l 18 19 i
20 21
@1 22
]
23
- 24 0
i l
25
- - - -- COMMONWEAL.TH REPORTING COMPANY (717} 761-7150
166 l r1 [
(l We may proceed.
JUDGE MATUSCHAK:
V)
I T2,S1 We have !
2 MR. BURGRAFF: Yes, Your Honor; thank you. !
3 what I would characterize as a limited cross of Mr. Graham at i 4 this point until such time as we can do sore discovery later on:
5 this week.
6 CROSS-EXAMINATION BY MR. BURGRAFF:
4 l
'l 8
Q. Mr. Graham, you answered some questions from Mr.
r 9 McClaren earlier this morning concerning the plans for the use llt i
l i 10 of any extraordinary rate relief that the company might .
11 receive.
nUr 12 I believe you stated at the time that there were ,
) 13 no definite plans, per se, outside of what appears on paca 13- t 14 of your Statement E, which I believe you characterized as a !
15 look by the 6fficers of the company as to what is needed in the:
i 16 time frames set forth; is that correct?
I am not sure that I agree with all of the character :
17 A
' 18 izations of the prior testimony, but I view the forecast set 19 forth in my exhibit as a definite plan.
20 The thing that I did tot have a definite plan about 91 a the event that we don't get '
~
was where would the cutr zw e extraorindary rate relie.f.
I don't think that I just view this as the officers (
1 l
'. ) 24 getting together. It is a formal run of the corporate modeling furecasting system with formal inputs from the entire )
167' 1 r2 I I
) I' GPU syst'em. It is not a budget in the sense that the $
2 accountants and those people -hink of budgets, but it is a fullji I
3 h:l forecast of our spending obligations in the time fram
- ,' You we.re ,no.t presen.t . in 'the hearing . room yesterday? .;
o .
i
(. !
5I i A No, sir. I took my summer vacation yesterday.
I am 6
1 Q If I mischaracterize Mr. Newton's testimony, sure .that .your counsel will . correct. me, but as I" recall Mr.
8l Newton's testimony yesterday, he stated that there were no
+
9 i;
definite plans available as to the expenditure of the S35 lo l million requested for extraordinary rate relief at least 11 insofar as the transmission and distribution expense area was I
concerned. .
g
)
l 13 MR, BITERAFF: Is that.a proper characterization, Mr. Russell?
14 MR. RUSSELL: I am not sure that I could say it ic: - '
j '
w, 1 coht'why don't you proceed with ycur cross-examination under H
J-16 whatever assumptions you wish to assume'..
17 BY MR. BURGRAFF: l I
18 Lu. Graham, let me ask you: are there any plans thatl Q
19 j you know of insofar as the company is concerned beyond what I
/
20 we~see on page 13 and apparently backed up by the monthly 21 statements as to any allocation of the proposed extraordinary 22 rate increase in the maintenance area for transmission and 93 b.!
~
distribution, or indeed in the employee area? g, I would approach it somewhat differently. If the
~
A question was asked of Mr. Newton, "Where would he recommend 25
% NY (717i 761-7150
168 r3 i
i that more money be spent in the transmission and distribution !!
i 2 area," perhaps he would be looking at it that way. i 3 From my perspective, without extraordinary rate l i
4 relief, we cannot do -- we cannot afford to do what is set 1 i
5
. forth on page 13.
6' So, it is not a question of:.if we receive l 7 extraordinary rate relief, where would we spend more money?
- In my view, it is: if we don't receive extraordinary rate !
8 relief, where would the further reductions in things like I transmission and distribution, maintenance and construction
,i.
11 that Mr. Newton would have been addressing have to come from. ,
1 Let me ask you this, Mr. Graham: if the company j)
(~s. 12 ,
\ Q i
13 I '
received the requested $35 million of cxtraordinary rate
" relief by September 1, 1980 and you were able to accomplish i
15 the spending levels set forth at page 13 of your statement 7
16 for the rest of this year, would that maintain the budgeted 17 maintanance and employee levels that the company budgeted for 18 1980?
19 A I do not believe so. I believe that we would still You may recall 90
~
be below the levels that we budgeted for 1980.
91
~
from the proceeding in the spring that our original 1980
'2
~
budget was based upon an anticipation that TMI-l would stay 23 in rate base.
-) 24 With TMI-l out of rate base, we had to make 25 substantial reductions in our work force and our construction COMMONWEALTH REPORTING COMPANY #7171 761 7150
169, ,
r4 l
I and maintenance activities. gg
)
2i If we received extraordinary rate relief in the i) 3 fall, in September, I don' t believe that we would come up to 1
,i 4 wh; we felt we should have been doing when we were looking !
I l 5 at the beginning of 1980. ;
l 6 Q Perhaps I can phrase the question then based on 7 }' your statement, on page 1 of your Statement E where you say, !i i I 8
i "The revision of at least the GPU system's original 1980 )
8 budget is in the process of being computed," has that been iI to completed?
No; we are not revising the 1980 budget. he word l
II A 12 " revision" in that sentence, I believe, refers back to the I
13 forecast of the financial posture.
j Q So am I correct in assuming that there has been 15 no and there will be no rev.sion of the 1980 budget?
18 A That is correct. The budget is done at the Then during the l 17 beginning of 1980, and it is fixed in place.
18 year, as changes happen, there are revisions to what is i
j
' 18 expected to happen during the remainder of the year.
20
! There are revisions to authorizations to make l
~
'l l expenditures, all of that kind of changes; but the 1980 1
,, ll,
~~
! budget is still in place so that we have something against
'3
~ '.
p which we can always make consistent comparisons.
) 24 That doesn' t mean that the spending authorizatio 25 remain in place throughout the year. They have been reduced
]
s J
COMMONWEALTH REPORTING COMP ANY (7175 761-7150 i
~ ~ ~ " - ....r ,_ , _ , , ,
170 j r5 i
/) l
\-j i substantially .
2I O For purposes of discovery that we wish to do in the {
3 next several days, when you speak of " revisions," say, for l
' -c 4'
I instance, in the area of transmission and distribution expense 5 Mr. Newton informed us of the budget amount for.1980 in that- t I
6 area - is there a particdlar reyised figure that is currently 7 being. used- by- the company planners that we could see?
f a' A Yes; I think Mr. Madan will be familiar with what we refer to as CFS, and we had a run of CFS; that is what all 9[ '
10 of this is based upon, which we call the "3&9," meaning that i 11 it has three months of actual and nine months of estimated
/
12 data, and it does reflect the new rate orders that will have
-) 3 in it the construction expenditures that are expected to be I4 made for the year 1980; and they can very easily be compared is with the original estimates for 1980 which were the CFS runs 16 that were tne basis for the filings in the last rate case.
17 Q
I believe Mr. Newton testificd yesterday -- and,
~
18 once again,,Mr. Russell can correct me if I am in error --
I that if it became necessary due to the company not receiving
~
90
~ its requested extraordinary rate relief level to deal with 21 employee cuts, that he would envision a reduction of 40 22 employees through 1980 based strictly on attrition.
- 3
~ Now, on that assumption, Mr. Graham, to the best of 24 in its your knowledge, does your page 13 of Statement E, 95
~
general parameters, include those 40 jobs subject to attritior (7171 761-7150 COMMONWEALTH REPORTING COMPANY l
- 171-r6 9 i
)
I that are currently filled? g 2 I can't address that. I think in response to a A.
3 question by Mr. McClaren I said that the level of the detail l 4 of the data that I get that goes into the CFS runs does not .
5 have in it the number of people that would be necessary to do i
6 those jobs.
7 That data would be available from either the 8 operating people or Mr. Newton or the budget departments in 8 the controller's area, and people like Mr. Huff would have it, ,
10 but I am sure that we can get the numbers of people that are
~
11 implicit in my data. I just don' t have it. ,
Strictly as a policy matter, Mr. Graham, assuming b
12 Q
ha i 13 that those positions would be cut in lieu of the non-receipt i
I4 of the requested extracrM nary rate relief, can you testify '
f
) 15 that with the receipt of that money, when requested, that 1
18 those jobs would not be cut?
l7 A I think that this something that I think you would 18 have to talk to Mr. Newton about.
8 Q As I recall Mr. Newton's testimony that was given
- O to the best of my
~
~
J, yesterday, Mr. Graham, he stated that, 21 i iknowledge as I recall his testimony, if the money was i
,, il~~ !! forthcoming that has been requested that he would work to
- 3 have those positions maintained.
) '
~4 I believe he characterized the decision as comin
'5 from corporate management.
COMMONWEALTH REPORTING COMPANY 4717' 761-7150
172 -
" I r7 i
i 7_3 as a Q)i 1 Ar art of corporate management and, in fact, 2 corporate ofi :cer testifying in this proceeding, can you tell ;
l 3Il us if that indeed will be the case?
l 4 A You are talking about a specific 40 jobs in a ;
I I think that I can say that 5 specific area of the company.
6I if we receive extraordinary relief, we would not have to make 7
further reductions in the Met Ed work force. ,
8 If we do not receive extraordinary relief, we would l e
s 8 not be able to spend the money that is set forth on page 13.,
10 ' Whether those reductions would come frca attrition by not 11 filling jobs of people who leave, whether it would come from 3
(d . 12 layof fs, whether it would come from not hiring people that was ;
)
18 planned, whether it would come from another voluntary early are all I4 retirement program that we had a year ago, those i 15 h different forms of action that could be taken to reduce work l
16 force. f 17 I simply can't address exactly which of those would I J
18 take place and in exactly what order and in all of the variousl 19
- areas of the operation of Met Ed.
20 But there is no question in my mind that without
'l
~
extraordinary relief, we will have to make reductions in our
! work force in some manner over the next several months.
Q Mr. Graham, as I understand the company's petition
) a under Section 1308(e), the company is stating that, in essense 25 it needs money to prevent certain reductions in the COMMONWEALTH REPORTING COMPANY 47171 761-7150
, 173, ;
r8 I
i 1 maintenance programs and certain reductions in employee leve
)
- Can the company guarantee that if that rate relief :
I 3 ,is granted that there will be no reductions in either of those l
l 4 areas?
l 5 A I don' t believe so, because I think there are too 6 many other things that could take place that might preempt such as 7 the funds that would have been devoted to this area, 1
I 8 an extended major strike by the coal workers.
S I
i I think I can state what the company's intention t '
10 would be and that is that the company's intention would be to 11 take the steps to make the kinds of expenditures set forth on
( 12 page 13 of my testimony, but.I can't guarantee that to you e-
) 13 because there are too many changes that could take place in l
14 too many different places that might cause us to need money 1 15 very rapidly for something else.
16 ' Q And indeed, Mr. Graham, as you testified this 17 morning, isn't one of those potentialities the fact that the
'.imit?
la banks under the RCA could indeed reduce the credit 19 A I don't view that as spending money, but I think 20 that is a reduction in the money that might be available to 21 us, and their May 15th letter makes it very clear that that 22 is one of the things that might happen.
23 Q So, Mr. Graham, if indeed the Commission granted you 24 that $35 million, there are other things out there that mi t j
25 prevent the company from indeed preventing the reductions in (717) 761-7150 CoMMo_NWEALTH REPORTING COMP ANY
174 i r9 -
I I
i
\ l l
~)
I varous areas that the statute is intended to cover?
2[ A That is true whether or not the company is granted interim rate relief. There are always things out there that 3
might change our plans, might change our expectations, and l
4 virtua11y all of them are things that cause the company to
~
5 ,
6l be in a worse position, because in an inflationary kind of l
7 economy that we live in, these things are all working against ,
s ;
8
- us.
f 8I, One simply doesn't know what might happen to cause 10 us to be required to use our available credit for something Il else. .
x I
k s) ,
19 -
Q Mr. Graham, as I have _ listened to your testimony
) I3 this morning concerning the banks, the revolving credit
~
i I4 agreement, Appendix A of the petition, isn't the real emergency i
f in this situation the fact that, once again, Met-Ed is running the risk of bumping up against its credit limit by the l I
beginning of 1981 or relatively almost right on the point l I8 when the suspension period in the base rate case runs out?
I8 A Mr. Burgraff, that is just the effect, the result 20 of Met Ed needing money to do its job.
91
~ The money that it needs is to be able to operate and maintain the system, to be able to construct, to serve new and existing customers and to reinforce the system and lh
) 24 the need to do the cleanup job.
~5 When you put all of those together, they come out COX)fXr&NWE ALTH REPORTING COMPANY (717* 761 7150
175 r10 I
I to the amount of money that you need. Thenthequestionis:{lf
'lhowmuchcreditcanbemadeavailabletothecompanygiventhel 3 risks thC; are inherent, the legal restrictions on issuing ;
I 4, securities, all of those things. l 5 You can characterize it as Met Ed bumping up against 6 its credit limit, but its credit limit is a function of the 7 ratemaki?g it experiences and a function of the job that it has I 8 I to do.
9 I am not sure that you should divorce one So, I element, the credit limit, from all of the other pieces of II !
the puzzle. -
12 Q I am not trying to divorce anything, Mr. Graham.
I8 I am trying to find out what is the predominant piece.
i i
14 Haven' t you testified that without extraordinary i i
rate relief or some means of gaining earnings during the i
16 suspension period that indeed Metropolitan Edison Company willl 17 exceed its $105 million limit? ,
I 18 A Yes; given the level of expenditures that are 19 anticipated by my exhibits, but those levels of e::penditures 20
?
might have to be reduced to deal with the credit limit that
)
I 21 j j is then available to Met -Ed.
a So, the credit level can change; the level of l l
~3' 4
All of the various pieces can cha .!
expenditures can change.
,-) 24 Q What would you consider to be the greatest danger to 'p l
25 normal service as far as Metropolitan Edison is concerned, Mr.'
COMMONWEALTH REPORTING COMP ANY r7175 761-7150
[
176 i rll i
/~'ii I the problem with the debt limit or any reduction in !
~1 Graham, !
2 employees or maintenance as outlined by Mr. Newton in his 3 t testimony? i A Sir, I don' t understand your question, Mr. Burgraff.
5 Could you perhaps rephrase it?
6 I thought it was quite clear. Would you like it Q l 7
repeated?
8 .
A Yes, sir.
9 (Whereupon , the reporter read from the record as 10 requested.)
i 11 THE WITNESS: I am still having some difficulty i
A-12 understanding the question, but I don't think that one can ,
I )' ) 13 take the debt limit and the employees apart in the sense that ' ,
t 14 ;
seems to be implied.
15 The work by the employees is necessary to connect new customers, and they want to be connected in a timely 17 3
fashion 1to maintain the system in the sense of freeing the 18
' wires from trees, reconnecting customers during storms, 19 reconnecting customers when the poles are hit by cars;; all of 20 that kind of thing for which you have to have a work force 21 in the sense available doing work to reinforce the system 22 of adding new substations and adding capacity to substations 23 and building some redundancy into the distribution system and
' all of those kinds of things.
25 All of those cost money. The customer doesn't know COMMONWEAL.TH REPORTING COMPANY 87175 761 7150
r12 177 f I
t
)
anything about debt limits or where the funds come from or 1l 1
2' that kind of thing.
3 The customer does know that if we can' t get his !
4 house reconnected after a storm or if we can't hook up a i.
5 customer when the person calls for service and things like '
- l 6 that, that normal service is being affected.
7 I have difficulty knowing what is cause and what ,
8 is effect in the sense that seems to be implied in your i.
8 question.
10 BY MR. BURGRAFF:
11 Q Mr. Graham, I would like to get your definition 12 of exactly what you view the emergency being in this situati I3 A The emergency is, in my view, that Met Ed has 14 activities that it must do to maintair its system, to do I3 construction work, particularly on the distribution side 16 where the customer feels the effects of not spending the 17 money very rapidly, and to do the cleanup job at Three Mile
' I8 Island. ,
I8 Met Ed has only one source of funds to keep it 20 I going at this time, and that is its consortium of banks 91
~
under the revolving credit agreement.
22 That source of funds is limited both by legal 93lrestrictionsandbythewillingnessofthebankstofundin
~
,) ,4
~
a situation as respects their ability to be paid out.
9
~5 The emergency is that given where' Met Ed is, they l
-J ,
COMMONWEALTH REPORTING COMP ANY s717 761-7150
178 r13 l I won't have more than $105 million available.
ks')
e:
~ We have strong reason to believe they won't even 3
have $105 million available.
2 4 They should do the job to operate and maintein 5 the electric system; and without an extraordinary rate relief, 8
we will have to make additional cuts in the dollars that are 7
being spent to operate and maintain the electrical system. ,
l 8 We are not in a position where we can make very 9
many cuts without having a quick impact upon the customers, 10 because we have already made so many cuts in the expenditures.
II So, it is a combination of the need to spend money l'7"x
(,)
i to do the job and inadequate-resources, money coming in from l
' - custcmers or money being made available by lenders, to be able '
" to do that job.
15 Q Earlier today, you responded to a question and you f
16 gave the current short-term debt level for Metropolitan i
17 Edison Company. ,Would you repeat that number for me? ,
18 A $83 million.
19 Q Thank you. ,
20 According to Appendix A of Met Ed Exhibit A-3, which iL 21 is the petition itself, what is the anticipated level at year ..
H end 1984 for Metropolitan Edison's short-term debt? l 1 i
,- , 23 A With no rate relief, the anticipated level is $90 l
- l
) 24 million to $91 million. l l
25 Q I believe in the second TMI proceeding, Mr. Graham, oNWEALTH REPORTING COMPANY (717i 761-7150 _
- 179 I r14 i
)
I the company submitted Exhibit A-97, I believe. (l t As I recall, your short-term debt, at that time, in ,
3 December of 1980, was S129 million. Would you accept that 4
subject to check? ,
i I
5 A It is a number that is familiar to me. I think it I
6 is a number that did not reflect the final rate order.
7 It did not; that is correct.
O ,
t I
8l; A That's right.
i 9 i:' Q What is the total amortization in 1980 under the I Is that the number listed on paga 13 of your May 23 order? I 11 Statement? I I
A Yes; $35 million. lE think if you will take S120 -
1
)
q
> 13 so million minus $35 million, which is the =cre rapid ,
14 amortization of deferred energy, it comes out fairly close to l
15 j
,,what we are now looking at.
(
'i i 16 I am sure there have been other changes in the f t
17 composition of all of those figures, but that is essentially 18
> the reconciliation. ,
i 19 MR. BURGRAFF: That is all we have for Mr. Graham
- 20 I at this time, Your Honor.
21 F JUDGE MATUSCHAK: Mr. Frater?
-]
22 I have no questions.
MR. FRATER:
23 Mr. Graham, the Act requires or q
JUDGE MATUSCHAK:
) 24 provides for extraordinary rate relief where it can be shown 25 to be immediately necessary, for the maintenance of financial CoMMONWE ALTH REPORTING COMPANY 1717 761-7150
- 180 rl5 !
/"S stability in order to enable the utility to continue providing l-(_)) 1 i
2 I normal services to its customers, avoid reductions in its !
3 normal maintenance programs, avoid substantially reducing its I 4 'i employment and so forth.
5 From the interrogation here this morning, it appears i 6 to me that the company is asking for emergency rate relief 1
7 to improve its financial stability, and yet it is not providing i 8 ;
any information as to whether there will be any improvement f 9] or whether there will be any continuance of normal services, 10 whether there will be any improvement on the maintenance of 11 programs, whether there will be any improvement or 12 maintenance of its existing employment situation.
13 In the case of the Pennsylvania Public Utility ~ ;
I e,
14 -Commission.against Metr.opolitan Ed,ison Company and 15 ,-Pennsylvania Elect'ric Company at Docket Number I-79040308 16 the Commission on May 9, 1980 said that the _ _
I 17 Commission will provide Met;Ed the means for financial I8 rehabilitation. However, we will write no blank checks on its!
IU ' ratepayers.'
20 Is not the company, in effect, stating to the ;
I 21
,' Commission in this petition for emergency rate relief, "We a 22 want $35 million to improve our financial condition. We want ll
!)
J /~s 23 "i it as a blank check' and we will decide where the money goes J
to"? .
l
'5
" Isn't it also not true that all or any of this money' I ,
COMMONWEALTH REPORTING COMPANY 1717' 761 7150 i .
, 18L r16 [
c I I couldbeusedforthepurposesofTMIcleanupratherthananggg of these maintenance service programs?
,I
" Is it also not true that any or all of this money ;
i 4 might be used to reduce the short-term debt that the company l 5 has at the present time?
6i What gaide do we have? What do we have from the 7 company as to what the company intends to do with this $35 8 million and why it is an emergency at this time?
9' THE WITNESS: Your Honor, let me try to respond.
i 10 JUDGE MATUSCHAKi It is quite a long question, isn't it?
( l THE WITNESS: Yes, sir.
13 JUDGE MATUSCHAK: We are troubled by the responses i
14 of the company to the interrogation that was made here this 15 morning and the satisfaction in our own mind as to what the 16 immediate emergency situation is and how that immediate 2
17 4
1 emergency situation is going to be alleviated.
THE WITNESS: In responding to the question about 18 t 19 the Commission, in my writing a blank check on the customers,
{i 20 view, did not deal with this problem or this area of the l' 21 company's' operation in its May 23 order.
The Commission was dealing with the replacement 1
l 23 energy problem and the. rate base treatment of the Three Mile Island investment.
25 That is crue, but in this situatio JUDGE MATUSCHAK:
COMMONWEALTH REPORTING COMPANY 1717' 761-7150
. . 182 rl7 g 11 g under the Act itself, the emergency rate relief is supposed to K/1 1 2 nll be provided to ensure certain things; and you are not giving 3 us an assurance that those things will be provided.
4 THE WITNESS: I think that I can give you ar. ,
j assurance. I was asked for a guarantee by Mr. Burgraff.
5l 6' What I am trying to say as forthrightly as I can 7 is that without -emergency rate relief, we will not be able ' !
8li to meet the expenditures'that we have set forth on my exhloit; 9 f that we will have to make further cuts.
I 10 Now, the statute talks about performing normal
! i 11 maintenance programs.
12 JUDGE MATUSCHAK: But you are not assuring us that t
O) ) 13 you still will not make those cuts even if rate relief is the S35 million, 14 granted, because you say that that money, 33 may be used for some purpose that we have not even discussed
)
1 16 here.
17 Is that a logical conclusion from your testimony?
No, I don't think that is at all what 18 THE WITNESS:
i 10 I intended. Our intention would be to make the expenditures t '{
20 that are set forth here for distribution, construction, for i
91
~ '
maintenance, for all of those things, but there are other g
r
- 22 things that could come along that would have a greater
$3 priority in our minds and in the minds of the Commission.
gg
) '4 I am sure that if~there was an extended coal strike the o5
~
I and if we had to put up money to buy higher-cost energy, I- COMMONWEALTH REPORTING COMPANY v717, 7G1 7150
,183, r18 ,I Y
.f C-i 1
Commission would want us to use our available cash resources 9 2~
i to keep the lights going rather than to do maintenance. That
> is the point I was trying to make when Mr. Burgraff asked me:
4 can I guarantee that this money would be spent.
)
5h.
There may vell be other things that happen that have >
- i 6} a greater call on the company's needs.
On the other hand -- 1 il JUDGE MATUSCHAK:
If those other needs may be so
'd b i important that you cannot take care of the things that are 1
enumerated in the statute, then what is the emergency of c
10 these things then at this particular time? What is the M 1 emergency if you could continue on with the services you are 12 l providing now?
13 - THE WITNESS: We cannot.
I JUDGE MATUSCHAK: If you could continue on with the 5 maintenance program that you are providing now?
I0 We cannot. That is what I am trying i THE WITNESS :
17 to say, i JUDGE MATUSCHAK:
You indicated that you would have ,
l t 1 ""
to if some other situation arose that demanded these funds 9
'O 'ti that you are asking for here.
~
91 Let me explain it this way: our
~
THE WITNESS:
f '2 Mr. Newton described --
q intention is to spend the money that
~
L
~ j what I am trying to say is that without emergency relief, we
.s 3 gj
') 24 $
l cannot spend that money.
h 1
"5 We would have to make cuts in those areas of the
~
~
COMMONWEALTH REPORTING COMPANY s717- 761 7150 A
184 r19 l l
I
/~5 I company's operations and we would have to make cuts in the Ed 2 cleanup efforts. at Three Mile Island.
3 On the other hand, if we get emergency relief, I 4 believe that we can set out to do those things, and it would ,
5 be our intention to do those things and we would expect to do 6l those things.
can il The question that was phrased to me though- was:
'l a
i I guarantee it.
I have lived long enough to say that I can' t 9
guarantee it because there are other things that might 10 l happen, but we would sure expect to do it and hope to do it.
" We would hope to do as much of normal maintenance t
I - 12 i as we can. We would hope to avoid reducing work force any more
] (K-,))
I3 than we would have to.
I4 JUDGE MATUSCHAK: Speaking of the work force, Mr.
15 Graham, if you will look at Exhibit Appendix E to the 1 " petition, it is indicated that the normal level of employment
{
" I believe, that is 2,688, and it was admitted by Mr. Newton,
' that might be somewhat 18j ] because of productivity improvements, l!
i 19 1
s reduced.
5-no I
' But if you look at the employment from the year 1974 21 h approached g-
,,to date, you will find that none of t ose years
[ anything near the normal level of employment.
3 4 THE WITNESS:
Your Honor, that is exactly what gives
~3]
) 24!
- l rise to the emergency.
254 5, . JUDGE MATUSCHAK: Why wasn't the emergency in 1974 COMMONWEALTH REPORTING COMPANY #7176 7G1 7150
185 0 r20 i
I I
i, r~ l 1i,and '75 and '76, '77, '78 and '797 2,
ll THE WITNESS: Let me describe it this way: after i
i ly as we 3 ,1974, we had to cut this kind of thing as extens ve '
4 could to keep going. i We never were able to get back to the kinds of l 5
6 d. levels of work force that we felt that we should have; but 7l now what has happened since the accident is that we have cut ,
8 even further and there is no place else to go. There is no i
EI margin once you cut down to the level of people that we have 10 ! here on this page. f When you next cut some people out, be it 10 or 40 i
i II
(
l or 100, all of a sudden the customer very much starts to feel 12 l h I3 it, because the customer calls up and says, "I want a work '
"We will see you in I4 ' crew to hook up my new house," and we say, j
I a month." We are not doing that now, but that is the J
1 13]1 16 kind of thing that has to happen when you have so much cut out l q -
1 17 of the system. That is exactly the problem.
I8 JUDGE MATUSCHAK: Suppose we assume that the l d
u 1
"I maintenance level of. the employees since 1974 has not been 1,
I 90the proper level for your company; but at least if that reduced
- 1 last five or six years with
=
'l level had been maintained for the
,o V
~~ perhaps since TMI-2, what is the emergency l t,some slight change
~I
'3 (s } nature of that thing even though it may not have reac
' What is the emerge
.) 24 normal and adequate maintenance level?
I the company from
'5hu nature of that situation that would prec ld
~
ue COMPANY 717 761-7150
186 r21 l
i waiting until the normal course of its rate proceedings takes h) I 2 place? !
THE WITNESS: Judge, the emergency is that we 3l 4 simply will not have the cash resources we need to keep doing even'the very, very reduced level. That has been shown on t 5
6 this page. We will have to cut more out.
7 JUDGE MATUSCHAK:
Is that because of the imposition of the cleanup of Three Mile Island?
8 9 THE WITNESS: That is one of the places where we
?
10 ' have to supply money, because we don't have anybody else giving l ;
11 us money.
(s 12 We have the insurance funds, and we have to do the
's_) !
I 13 job. Everyone has told us that we have to do the job.
Does the company have any other I4 JUDGE MATUSCHAK:
Is 15 possible recovery other than insurance for that accident?
16 there any possible recovery from any of the suppliers of the 17 material?
18 THE WITNESS:
We have instituted suit against B&W.
19 My understanding is that they answered and filed a counterclair 20 in that suit the other day. That is the only source that I 21 know of, and I would say that if we are successful in that 22 litigation, it will not be for several years.
23 JUDGE MATUSCHAK:
You indicated, also, that the
) 24 amortization of the deferred energy costs prior to the last
$35 million in a year; is 25 order of the Commission was about
-- COMMONWEALTH REPORTING COMP ANY (717) 761 7150
l
,187 r22 l
)
I that correct? O 2 THE WITNESS:
On an annual basis, I think it is l 3 closer to $50 million or $55 million.
4 JUDGE MATUSCHAK: Isn't that an additional resource j
5 that the company has that they did not have prior to May 9, 6 19807 !
Yes. Prior to May 9, 1980, we were :
7 THE WITNESS: I Now, the situation 8 simply running out of cash very rapidly.
i think I can use the figures that 9hissomewhatdifferent, and I .
to Mr. Burgraf f referred to to explain that.
11 JUDGE MATUSCHAK: Wouldn't the allowance of the ,
12 amortization of those funds have imoroved the financial
~
gi
) 1980?
condition of the company since May 9, 13 ;
14 THE WITNESS: The financial condition of the ccmpany.!
! t 15 has substantially deteriorated as a result of the Commission's !
the Commission's order gave us l 16 order in the following sense:
l 1
l 17 more recovery of cash, but very significantly reduced Met Ed's j
18 earnings; so that while Met Ed has cash coming in from that, I
19 it has no earnings at all.
I 20 JUDGE MATUSCHAK: But it has not deteriorated the the company's earnings as it was on May 9, 1980.
I It 1 I company, 22 had to improve the financial condition of the company.
but it
'~,
23 It may not have increased its earnings, 24 improved the financial condition, because under that order is that right?
.,5 you were able to recover your energy costs; l
(7171 761-7150
'! COMMONWEALTH REPORTING COMPANY
188 i r23
)
(g!
"i 1 THE WITNESS: Yes; in the sense that --
2- JUDGE MATUSCHAK:
And, at the same time, you were l
3 allowed to amortize the energy costs which had occurred 4 previously?
5 THE WITNESS: That is correct.
6 JUDGE MATUSCHAK: So that the financial condition 7 of the company, at least as to that portion, has been improved 8 by the amortization. That has been improved by two chings:
9 first, the allowance to recover the energy costs currently; i' 10 and, secondly, the amortization -- the funds received from the amortization of the past deferred energy costs.
~
11 i j _
l
("T So that now aren' t you in a better posirion as a kj 12 i
) I an excluding anything; l
l 13 company as far as that is concerned? i I
14 else. As far as that is concerned, isn't the company in a I
13 better position for the amount of the deferred energy costs 16 that it received?
17 THE WI* NESS: Ignoring every other factor --
t 18 JUDGE MATUSCHAK: Ignoring other factors.
i I9 THE WITNESS : Which you cannot.
20 JUDGE MATUSCHAK:
' Ignoring inflation costs and all 96 21 of that, just as to that factor.
gg The answer is: yes.
22 THE WITNESS:
23 JUDGE MATUSCHAK: Ignoring the increased costs of 24 operation during inflation, on account of inflation and things 95 like that, increased wages and whatnot.
(717n 761-7150
189 ,7 r24 . I THE WITNESS:
But the other thing that you cannot O
) 1 we are likely to have less 2 ignore is that because of that 3
credit available to us in the future than we had prior to the Perhaps if I can just take a minute and 4 Commission's order.
5 explain that.
JUDGE MATUSCHAK:
I wish you would. How can you ex-6 1980?
7 plain that your credit is worse now that it was on May 9, THE WITNESS:
Mr. Burgraff used some figures, I 8
9 believe, when we filed the petition , the short-term debt of I
.0 the company that was outstanding was about $88 million. !
11 We expect it to be about S90 million or S91 million
.a (~ 12 at the end of the year.
can' 13 So, what that looks like is that our short-term !
i 14 debt is staying even.
It will go up and down a little bit, i
) l 1
15 but essentially it is staying even.
i 16 During that same six-mon'h period, we are recovering So, you would have 17 S35 million of deferred energy expense.
18 expected that the short-term debt ought to be going down becaug
(
19 of all of this cash that we are getting in from the Commission 20 order.
That in exactly what is not happening.
Why?
21 JUDGE MATUSC11AK:
THE WITNESS:
Because we need funds for the operatio-22 23 of the company, because the company is in a loss position and s-.
) 24 because we have to spend money to clean up the Island.
25 The combination of all of those things means that nc
. 190 g j
r25 o ,
if you look beyond (v'.i 1 only is short-term debt not going down, but the end of this year, the debt of the company keeps going up.
2 l
3 That is the top line on Appendix A to the petition.
JUDGE MATUSCHAK:
Don't you agree that a substantial 4
5 part of that short-term debt expense is caused by the cleanup 6l requirements at TMI?
Well, it depends upon how you define 7 THE WITNESS:
" substantial part."
Between now and the end of next year, 8
$25 million for that, but 9 Met- Ed will have to spend about i
i 10 Met Ed's short-term debt between now and the end of next 11 year would increase by about $38 million to $39 million.
r%,
12 A part of that is because of the money that we are i
)
13 spending for construction activities, the money that.we are ,
l I4 spending to maintain the system and everything else. 1 I don't think that you 1
15 On top of that., Your Honor, '
[ that I
is can ignore the f act that we must do the cleanup job; 4l f for the protection of the 17 there are substantial implications 18 public health and .f afety and that we have to have the funds 19 ,available to do that.
Thank you.
20 JUDGE MATUSCHAK: That is all I have.
21 Is there any redirect or any other cross-examination 22 MR. HARTMAN:
Your Honor, may I question the raan on 23 the stand? Is that in order?
If you 24 JUDGE MATUSCHAK:
No, we can' t allow that.
I wil:
25 have any questions, if you will submit me the question
,191 ,
r26 Could you submit it in writing? g
) 1, ask the question. T' 2
MR. HARTMAN:
I will submit it in writing, yes. i t
Submit the question to n.e and 3 JUDGE MATUSCHAK:
l l
4 I will ask it.
MR. HARTMAN:
Would you wait a moment while I write 5 '
6! it down?'
l JUDGE MATUSCHAK: Yes.
7 8 (Psuse.)
Would you give us your name and 9t JUDGE MATUSCHAK:
to address, sir?
Lot 316, Landola 11 MR. HARTMAN: Scott Hartman. !
i
(,
12 2 Avenue, Mt. Wolf, . Pennsylvania. Oi
)
13 JUDGE MATUSCHAK:
May I ask if you are a customer 14 of Metropolitan Edison? '
I t
' 15 MR. HARTMAN :
I am a customer of Metropolitan i
16 Edison Company.
I 17 JUDGE MATUSCHAK:
The question proposed to the to take a 18 witness is: are you willing, Mr. Graham, interests 3
10 substantial decrease in your salary for the better q'
. 20 of your company and our community?
21 We don't think that is a proper question of this 22 witness, and we will deny the question put to the witness.
" 23 Is there anything further?
24 MR. RUSSELL: I believe that is all we have for 25 Mr. Graham.
(7171 761 7150
-- -- r-=vr3NWE ALTH REDORTING COMP ANY
192 j r27 g/ (Witness excused.)
1
\ ___3 2 JUDGE MATUSCHAK:
Do you have any other questioning?
3 MR. RUSSELL:
We have Mr. Huf f for some very brief 41 testimony with respect to some of the statement of policy 5 items.
6 i
JUDGE MATUSCHAK: Let's t'ake a recess here for lunch.
7 We will adjourn until 1:30.
p.m., the hearing was adjourneds 8 (Whereupon, at 12:40 p.m., this same day.)
9 to be reconvened at 1:30 10 l t
i 11 i
s- 12 I k
13 ,
i 15 16 17 .
I 18 1 19 20 21 t
22 23 25 i
193 ,
P1
/
AFTERNOON SESSION I 1 .(1:40 p.m.)
1 2I ,
JUDGE MATUSCHAK:
You may proceed.
3 Do you MR. RUSSELL: We have Mr. Huff to recall.
4 want him on before we discuss the scheduling?
5-JUDGE MATUSCHAK: Yes.
6 MR. RUSSELL: Mr. Huff.
I t
Whereupon, i 8
DONALD L. HUFF 9
having previously been duly sworn testified further as follows-10 MR. RUSSELL:
If Your Honor please, I have handed 11 to the reporter three copies of documents which I have marked -
)
12 for identification as Met Ed Exhibits 3-lll.through 3-116 ll inclusive. .
14 JUDGE MATUSCHAK: Very well.
15 i (Whereupon, the documents were marked as Met Ed Exhibits Nos.
16 B-lll through B-ll6 for identi-1 17 fication.)
1 18 DIRECT EXAMINATION 19 BY MR. RUSSELL:
?
20 Q Mr. Huff, do you have copies of the documents that I 2I I have just referred to in your custody?
h 22 A Yes, I do.
23 Q Were they prepared by you or under your supervision?
) 24 A Yes.
25 Q Would you describe briefly what is represented on (7171 761-7150 COMMONWEALTH REPORTING COMPANY
194 p2
( b
'-I 1 thore several documents?
l A Exhibit B-lll; one of the requests of the Consumer 2! l 3 Advocate was for the statement of income for the twelve m 4
ended various quarters from March 1979 to June 1980.
O Mr . !!uf f , isn' t this in fact in response to one of 5l' l 6' the items on the Commission's statment of policy? !
i 7 A Yes; that was the reference on that. t l
8 Q Go ahead. l for 9
l I
A Another of .the requests was the , balance sheet lo similar periods. Exhibit B-112 shows the balances on the i 11 balance sheets for the quarters ending March 1979 through !
i s
12 June 1980. l; '
Q
)
A third request, which is displayed cn Exhibit B-113
' 13 :
14 was for interest coverage before income tax and after income 15 tax for similar periods.
In this regard on this particular is 16 exhibit I have determined -- or believe that the request 17 for the preferred stock coverage test which is after income 18 tax. At least that. was my interpretation of the request.
I didn't get that answer.
p 19 JUDGE MATUSCHAK:
m 20 Was that before or af ter?
21 THE WITNESS: The preferred stock coverage was is 22 after, and the interest coverage on the debenture test 23 the more restrictive; that is before income tax.
) 24 Another request was for the bi-weekly cash balances That is 25 and the customer accounts receivable balances.
- 761 7150
,195 ,l i
p3 for the period of January 4, 1980 I i I, displayed on Exhibit B-ll4 O.
i 2:
I through June 20. i I-l I have displayed the cash balances, which is a 2l 4
combination of the cash accounts on the books and the temporary 5i investments for e;ery two weeks.
6 However, in the area of customer accounts receivable The books and 7
it is not possible to get bi-weekly balances.
so I S
records of the company are only on a monthly basis, t 9 have displayed the customer accounts receivable balances at I to the end of each month af ter close-out.
i 11 Another request was for the annualized interest I
( 12 and dividend requirements on long-term debt and preferred llk-13 stock.
I have interpreted that to nean what the annualized 14 interest on the outstanding debt is as of the end of July 1
l 15 1980.
i 1G I believe the request asks for the ensuing 12 17 months; however, I do not know at this point which issue on \
l the sinking fund is going to be reduced, so I have taken the i
f 1 18 19 liberty of giving the balances, the annualized interest and q 20 dividend requirements as of this date.
I; The final request that I have responded to is a 21 l
22 return on the average common equity for the 12 months ended j
That is displayed on Exhibit 23 the last five calendar years.
) 24 B-ll6. I have also included on there the 12 months ended 25 each of the last 12 months in 1980.
(717e 761 7150
~~ cnMMONWEALTH REPORTING COMPANY
C * . 196 3 0
P4 for Mr.
1 MR. RUSSELL: I believe that is all we have 2 Iluf f a t this time.
3 JUDGE MATUSCHAK: Commission staff?
MR. MC CLAREN: No questions, Your Honor.
4 Consumer Advocate, cross- ;
5 JUDGE MATUSCHAK: I 6 examine?
I this time, 7
MR. BURGRAFF: We have,no questions at 8 Your Honor.
9 JUDGC MATUSCHAK: You are excused.
10 (Witness excused.)
{ 11 MR. RUSSELL:
I think that is all the testirony l
\
l l
(~/
\ 12 available for today, Your Honor.
(_
I
) Do any other counsel have any f 13 JUDGE MATUSCHAK: 1
)
f this i t
i 14 further cross-examination of any of the witnesses at l
N time, of any of the witnesses in the hearing rccm? l' IS j
16 MR. BURGRAFF: We don't.
17 MR. MC CLAREN: Not at this time.
Very well. Let's go off the 18 JUDGE MATUSCHAK:
19 record for a few minutes.
20 (Discussion off the record.)
21 JUDGE MATUSCHAK:
After some discussion by counsel 22 at this proceeding yesterday and today, we will continue the 23 proceeding in this matter for further hearing in Harrisburg
} 24 on August 11 and August 12.
1 25 The parties may file briefs not later than August
10#7/ '
p5 l.
' Y 1
at the office of the Administrative Law Judges in Harrisburg.
}
' date in that 2 By delivery on that date, no later than that
- 3. office.
4 We expect to have a recommended decision available in Harrisburg in the Of fice of the Administrative Law Judges 1
I 3 3 1 6
l i
on Wednesday, August 20. ,
i 7!
The parties may file exceptions, again delivered i !
to the office of the Administrative Law Judges in Harrisburg, 8l 9 on or before August 22.
10 We are making no provision for reply briefs in this .!!.
1 I
11 proceeding.
\ 12 ;
Is there anything further at this time?
MR. RUSSELL:
Could we have one second with respe 13 :
j A i 14 ;d to a request of the staff? !
15 JUDGE MATUSCHAK: Yes.
j :
1
' 16 (Pause.)
i 17 MR. RUSSELL: May we go off the record?
l i IU ' JUDGE MATUSCllAK: Yes.
19 (Discussion off the record.)
20 l JUDGE MATUSCHAK:
We will adjourn until Monday, i
21 L August 11 at 10:00.
i (Whereupon, at 1:52 p.m.
the hearing was adjourned 1 '2, i
10:00 a.m. on Monday, August 11, 1980 n_ 23 !', to be reconvened at l
h
' 24 in Harrisburg, Pennsylvania.)
25 17175 761 7150 COMMONWEAL.TH REPORTING COMPANY
e . 198 g p6 t
l 1
EER11[lgAIE
%)Y !
2 I hereby certify as the stenographic reporter 3
that the foregoing proceedings were taken stenographically 4 by me and thereafter reduced to typewriting by me or under my direction; and that this is a true and accurate record 5 I 4
6 to the best of my ability. l COMMONWEALTH REPORTING COMPANY, INC.[
~,
t' A 4 wm i/g/
oY: /1. .s r.1
~ Pdyllis Glass 91 ;
10 I
11 12 f is l 6
I i
15
}
16
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18 h
I 19 e
- i 20 l
21 22 23
) 24 25