ML19347E640
| ML19347E640 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 12/22/1980 |
| From: | Ogden W, Russell S METROPOLITAN EDISON CO., RYAN, RUSSELL & MCCONAGHY |
| To: | |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| 2266, P-80070235, NUDOCS 8105130165 | |
| Download: ML19347E640 (54) | |
Text
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IN THE I
COMMONWEALTH COURT OF PENNSYLVANIA No. 2266 C.D. 1980 METROPOLITAN EDISON COMPANY, Petitioner v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION, 4
Respondent BRIEF FOR PETITIONER Petition for Review of the Order of the Pennsylvania Public Utility Commission at P-80070235 Samuel B. Russell W. Edwin Ogden 1
Alan Michael Seltzer RYAN, RUSSELL S McCONAGHY 530 Penn Square Center i
P. O.
Box 699 Reading, PA 19603 i
f (215) 372-4761 Attorneys for Petitioner O
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O TABLE OF CONTENTS i
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Page
.I.
Statement of Jurisdiction.............................
1 II.
Order in Question.....................................
1 III.
Statement of the Questions Involved...................
2 IV.
Statement of the Case.................................
3
~V.
Summary of Argument...................................
15 VI.
Argument..............................................
16 1.
The Commission's Order of August 28, 1980 denying Met-Ed's extraordinary rate relief petition is final and appealable................
16 A.
Severability of Extraordinary Rate Relief From Tariff 44 Rate Increase Filing........
18 B.
Rights Are Too Important To Defer Determinatior..
20
/
(_)
C.
Irreparable Effect of Delay of Appellate Review.....................................
21 2.
The Commission's Order of August 28, 1980 denying Met-Ed's extraordinary rate relief request is not supported by substantial evidence and is contrary to the evidence and the applicable law..
23 A.
Statutory Criteria For Extraordinary Rate Relief (1)
General................................
23 (2) What is Financial Stability?...........
24 B.
Evidence re Need For Extraordinary Rate Relief (1) Met-Ec's Evidence.......................
26 (a) Financial Stability................
26 (b) Continued Provision of Normal Services..........................
27 (c) Avoidance of Reductions in Normal Maintenance Programs..............
27 (d) Avoidance of Substantial Reductions a 73
(,)
in Employment.....................
27 (e) Limitation to Equity Return Allowed in Last Rate Filing...............
28
L,
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M Page (f) Even If Limited Solely to Non-TMI costs, Met-Ed's Evidence Has Provided Full Ratemaking Support For the
$35 Million Claim For Extraordinary Rate Relief........................
28 (2)
Commission Trial Staff Evidence
-31 (3)
'ALJ's Recommended Decision..............
38 (a)~ Erroneous Findings'As To Financial
~
Stability..........................
38 (b) Erroneous Findings As to Normal Levels of Operations and Employment 43 (c) Erroneous Findings as to' Basis of Requested Extraordinary Rate. Relief.
45 (d) Erroneous Findings as to Plans for Utilization of Requested Relief....
46 VII.
Conclusion..............................................
49 Appendices - Recommended Decision and Orders Below 1.
Recommended Decision of Administrative Law Judge
(~)N Matuschak dated August 20, 1980 2.
Commission's-Order of May 23, 1c80 at I-79040308 Commi'sion's Prehearing Orde:. of December 21, 1979 3.
s at I-79040308 l
3
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t'V Table of Citations Cases Page Eichelberger v.
Nicholson, 1 SSR 430 (1815).....
16 Piltzer v.
Independence Federal Savings & Loan, 456 Pa.402, 319 A.2d 677 (1974)................
16 Pugar v.
Greco, 483 Pa. 68, 394 A.2d 542 (1978).........................................
17 1
Safety Tire Corp. v. Hoffman-Tire Co.,
Inc. et al, 458 Pa. 102, 329 A.2d 834 (1974)...............
17 T.C.R. Realty, Inc.
v.
Cox, 472 Pa.331, 372 A.2d 721 (1977)....................................
16, 17 F.P.C.
v.
Hope Nature.J Gas Co.,
320 U.S.
591 (1944)
....................... 24, 25, 32, 33 Statutes
{~s}
~_
42 Pa.C.S. 5763(a) 15, 66 Pa.C.S. 91301...............................
33 66 Pa.C.S. 81308(e) 17, 18, 23, 28 66 Pa.C.S. 81308(d) 19
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66 Pa.C.S. 51310(a) 21 Rules of Appellate Procedure Pa.R.A.P. 341(a) 16 O
_1
I.
Statement of Jurisdiction O
ruis cem=t see surisdictien over tais ret 1 tion for i
Review by reason of 42 Pa.C.S. 3763 (direct appeals from government agencies >.
II.
Order in Question Pennsylvania Public Utility Commission P-80070235 v.
Metropolitan Edison Company 0RDER BY THE CO)D'ISSION:
Wa adopt as our action the Recommended Decision of Administrative Law Judge Matuschak dated August 20, 1980; THEREFORE, IT IS ORDERED:
1.
That the Petition of Metropolitan Edison Company for Extraordinary Rate Relief in the amount of $35 million, pursuant to the provisions of Section 1308(e) of the Public Utility Code, is hereby denied without prejudice.
2.
That the exceptions, as filed by the Office of the Consumer Advocate, Metropolitan Edison Company, the Commission Trial Staff, Citibank and Chemical Bank, Victaulic Company of America, P.H. Glatfelter Co., St.
Regis Paper Company, and National Gypsum Company, are hereby denied.
- /.
BY THE CO) IS s
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William P. Thierfelder Secretary i
i s
(SEAL) 3 ORDER ADOPTED: August 28, 1980
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I ORDER ENTERED: August 28, 1980 O
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III. ' Statement of-the Questions Involved 1.
Does an order of a state utility rate regu-latory. agency denying a public utility's request.for extra-it ordinary rate relie,f (as defined by applicable state statute) aonstitute a final and appealable order?
Not answered below.-
2.
Is it reasonable and lawful for a state utility rate regulatory agency to deny to a public utility extraordinary rate relief (as 2efined by applicable state statute) on the basis of findings which are contrary to the evidence that (a) the public utility is operating at a loss, is unable to raise any external capital other than a shrinking
()
amount of short-term bank borrowings under a stringently controlled and secured revolving credit agreement and does not have sufficient revenues to support a nonnal level of service to its customers or its alraady sub-normal maintenance and employment levels, (b) the extraordinary rate relief request is not predicated upon the capital or operating costs of any major generating facilities which had previously been excluded from the utilicy's base rates, and (c) absent extraordinary rate relief, immediate i
and substantial further reductions will have to be made in the utility's maintenance and employment levels, thereby seriously endangering the utility's ability to provide safe D(_)
and reliable service to its customers?
Answered in affirmative below.
d 4
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S IV.
Statement of the Case On July 29, 1930, pursuant to Section 1308(a) of the Public Utility Code
(" Code"), 66 Pa.C.S. 101 et seq.,
Metropolitan Edison Company (" Met-Ed") filed with the Penn-sylvania Public Utility Commission (" Commission") its Tariff Electric Pa.P.U.C. No. 44'(" Tariff 44"), together with a mass of supporting data (including that required by Com-mission regulations at 52 Pa. Code 5853.51 et seq.).
Tariff 44 proposes a general base rate increase of $76.5 million annqpily over the lev,el of the temporary base rates, under which Met-Ed is precently operating.
The Tariff 44 base rate filing has been docketed at R-80051196.
p(_)
Tariff 44 seeks to increase the present level of temporary base rates which were fixed by Commission Order of May 23, 1980 at I-79040308 (Met-Ed Stmt. A, pp. 2 et seq.;
R.
3a et seq.).
Prior to the May 23, 1980 Order, the Commission had entered several prehearing orders at I-79040308, including'that of December 21, 1979.
Copies of the May 23 Order and the December 21 Prehearing Order are appended hereto in Part VIII of this Brief.
Of the $76.5 million increase requested under Tariff 44, $44.1 million is based upon Met-Ed's capital and operating costs which are not associated with either of the
.two generating units at the Three Mile Island nuclear gen-eratinIg station ("TMI")*; the remaining $32.4 million of'the
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- Met-Ed owns a'50% undivided interest in TMI.
Reference herein to TMI investment, costs, etc., relates to Met-Ed's 50% share of such items, unless otherwise indicated.
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request covers the capital and operating costs of the first unit: at TMI ("TMI-1") (Exh. B-1, Part 8, pp. 1-2*; R. 450a-451a).
On July 29, 1980, Met-Ed also filed with the
. Commission a petition for extraordinary rate relief (" Petition")
- requesting that $35 million of the proposed base rate in-
-crease be permitted to become effective on or before Sep-tember 1, 1980, pursuant to Section 1308(e) of the Code.
The Commission assigned a separate docket number (P-80070235) to the Petition.
The present appeal is from an order in that separate docket.
Four days of hearings on the Petition were held x-)
(commencing on August 4, 1980 and ending on August 12, 1980) before Administrative Law Judge Joseph P. Matuschak ("ALJ").
During the course of these hearings, written and oral testi-many and numerous exhibits were presented by seven witnesses on behalf of Met-Ed.
Testimony also was presented by one witness for the Commission Trial Staff, by two witnesses for Citibank and Chemical Bank, agents for a consortium of bank creditors of Mat-Ed et al. under a Revolving Credit Agree-1 ment ("RCA"), and by one witness for certain industrial
- customers of Met-Ed.
The remaining parties to the proceed-ing did not submit any evidence.
t
- Unless otherwise designated references are to Met-Ed testimony and exhibits.
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Af The facts in the record which relate to the presence car absence of. financial -stability on the part of Mer-Ed include the following (none of which was contro-verted by any party to the proceeding):
(a)
Met-Ed's interest coverage ratio (i.e., the number-of times its earnings before income taxes " cover" the
- aggregate annual interest charges on its outstanding long-term debt) for the twelve months ended June 30, 1980 was
. l.45 times.
Met-Ed is unable to issue any additional bonds or debentures.because its debenture indenture requires interest coverage of at least 2.0 times before any addi-
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tional long-term debt can be issued (Exh. B-1, Part 1, pp. 4-5; R. 398a-399a).
(b)
Met-Ed's preferred stock coverage ratio (i.e., the number of times its earnings after income taxes
" cover" the aggregate of the annual (i) dividend require-ments on preferred stock and (ii) interest charges on all forms of debt) for the same period was 1.04 times.
Met-Ed is unable to issue'any additional preferred stock because
'its charter requires preferred stock coverage of at least 1.5 times before any additional preferred stock can be issued (Exh. B-1, Part 1, p. 5; R. 399a).
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. (c)_ Met-Ed has not been able to issue any permanent securities through normal financing channels since January of 1979 (Exh. B-1, Part 1, p. 4; R. 398a).
(d)
Met-Ed has not paid a dividend on its common stock since February of 1979 and has no foreseeable prospect of paying any (Id; Stat. J, p. 4; R. 164a).
(e)- Met-Ed had a negative d.6% return on its total average common equity investment during the six months ended June 30, 1980; as a result, a portion of the dividends.
- paid.on its preferred stock during that period were paid from earned surplus (Exh. B-1, Part 1, p. 5; R.
399a).
()
(f)
Absent rate relief, Met-Ed's return on its total average common equity investment for the year 1980 is projected to be a negative 2.3% (Id.).
(g)
If one disregards all of Met-Ed's common equity investment applicable to TMI-1 as well as TMI-2,"the requested extraordinary rate relief (if effective September 1, 1980) would have provided Met-Ed with a realized return on its remaining common equity capital of about 9.5% for the twelve months ending March 31, 1981 (Exh. B-1, Part 1, p'.
8; R.402a).That compares with the 13.38% common equity return authorized by the Commission's most recent Met-Ed base rate i
order of March 22, 1979 (prior to the TMI-2 accident) at R-78068626.
s_s.
- 7. -
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(h)
Met-Ed's securities have been downrated below investment grade by Moody's investment rating service (Stmt.. E, lp. 19 ; _ Exh. E-2 0 ; Exh. D-1 ; R.
83a, 531a, 524a).
(i)
The only remaining source of :'unds (other than revenues from ratepayers) available to Muc-Ed was bank credit up to the then limit of $105 million under the RCA;
$83 million of such credit was'being utilized (Exh. B-1, Part 1,_p.
6; N.T. 141 ; R. 4 00a, 255a).
(j)
The $105 million limit (in effect at the 4
time of the hearings) of bank credit under the RCA was neither guaranteed nor insured; the prior limit of $125
_ ( );
million had previously been reduced by the banks to $105 million, and the banks' representatives testified that the
$105 million limit will be reduced still further in the near future whether or not the requested extraordinary rate relief is granted (Banks' Stmt. 1, p.
3; R. 185a).
(k)
Absent (a) the requested $35 million of extraordinary rate relief or (b) the substantial cut-backs in expenditures which would be needed to conserve an equivalent amount of cash, Met-Ed's cash needs, by April of 1981, will be in excess of the amount available to it even if the $105 million of bank credit were then still available.
(Stmt. A, p. 3 ; R. 4a).
Although he did not controvert any of the fore-
['T going facts, the lone Commission Trial Staff witness, the m) 1
v Director of the Commission's Bureau of Rates, expressed the opinions in the light of the foregoing facts that Met-Ed is
" financially solvent, stable _and in a condition consistent with the Commission's May 23 Order" at I-79040308; that the "May 23 Order may be seen as defining ' normal' -for Met-Ed";
that Met-Ed has shown " remarkable financial stability"; and that "A realistic regulatory goal with respect to Met Ed is-to restore Met-Ed's legal ability to issue debt (2.0 times coverage)'by the time TMI-l can be expected to return to service and to rate base and no sooner." (Trial Staff Stat. RLP-1, summary page; pp.
2, 4; R. 170c, 173a, 175a; emphasis in original).
The facts in the record as to the state of Met-Ed's operations and maintenance programs and its employment levels include the fcilowing (none of which was controverted by any party to the proceeding):
(a)
Met-Ed's present levels of trancmission and distribution expenditures are the lowest they have been in more than ten years.
(Exh. B-1, Part 1, p. 9; R. 403a).
(b)
Met-Ed's present operations and maintenance expenditures are significantly below normal levels. (Stmt. J,
- p. 1; Exh. B-1, Part 1, p. 10; R. 161a, 404a).
(c)
The present numbers of Met-Ed transmission and distribution and operating and maintenance employees are v-m
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z significantly-below normal levels. (Stmt. J, p. 1; Exh. B-1, Part 1, p. 10; R. 161a, 404a).
(d). Met-Ed's present tree-trimming program is at a 35 year.all-time low.
(N.T. 106; R. 234a).
The record also identifies in detail the further
~
consequences that will occur to electric service to Met-Ed's customers and to Met-Ed's maintenance programs and.
employment if the requested extraordinary rate relief is not granted promptly.
Absent prompt rate relief, Met-Ed will be required to take the following steps:
(a)
Non-employee related reductions (Exh. J-1, f Sg p.1; R. 776a) including:
(_/
(1) reduced coal inventories at power plants; (2) still further reductions in tree trimming; (3) still further reductions in power plant maintenance; and (4) still further reductions in capitcl expenditures.
(b)
A reduction of over 400 non-TMI employees (Exh. J-1, p. 2 ; R. 777a), resulting in:
(1) a 40% reduction in the new customer connections that can be made; and (2) a 50% reduction in transmission and distribution system reinforcements.
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(c)
A reduction of 280 jobs at TMI-l and further-reduced expenditures at that unit (Stmt. J, p. 6; Exh. J-1, pp. 1-2; R. 166a, 776a, 777a).
.(d)
A reduction of 350 jobs at.TMI-2 and further reduced expenditures at that unit (Stmt. J, p. 4; R. 164a).
The first two of the above groups of reductfr..s would leave Met-Ed (and its customers) vulnerable to a prolonged coal strike and almost insure that Met-Ed's customers will suffer prolonged outages in the event of serious storms (Stmt. J, p. 6; Exh. J-1, pp. 1-2; R. IS6a, 776a, 777a).
The third of the above groups of reductions will (3'
k' seriously handicap Met-Ed's efforts to return TMI-l to service ( St=. J, p. 6 ; R. 16 6a).
The return of TMI-l to service would provide Met-Ed's customers with energy cost savings of abou; $6 million per month (Stat. J, p.
3; R. 163a).
The fourth of the above groups of reductions will delay the clean-up and decontamination of TMI-2 (Stmt. J,
- p. 4; R. 164a).
The above reductions will severely endanger Met-Ed's ability to provide safe and reliable service to its customers (Stmt. J, p. 5; R. 165a).
Met-Ed's $35 million claim for extraordinary 4
rate relief is not based on any TMI-l or TMI-2 costs (Stmt. J, p. 3; R. 163a).
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The Commission Trial Staff witness presented testimony recommending that the Petition be denied on the basis-of:
(a) A "prtential" $31.2 million reduction of allowable revenues to reflect potential income _ tax deductione and credits which may arise as a result of losses due to the TMI-2 accident (TS Stmt. RLP-1, p. 7; TS Exh. RLP-1.1; R. 177a, 780a). 'These potential tax.
benefits were claimed by.the witness for the benefit of the ratepayers although all capital and operating costs (including income tax expense) associated with TMI-2 were excluded by the Commission from Met-Ed's base rates immediately after the March 28, 1979 nuclear accident at TMI-2 (Exh. B-1, Part 1, p. 11; R. 405a).
(b) A " potential" $12.2 million reduction of allowable revenues to reflect a reserve capacity credit associated with TMI-2 under the terms of power pooling agreements between Met-Ed and certain neighboring utilities ("PJM") (TS Stat. RLP-1, p. 7;-TS Exh. RLP-l 1.2; R.
177a, 781a).
As with the previous item, the
?
l expense-offsetting capacity credit associated to TMI-2 l
was claimed by the witness for the benefit of the ratepa33rs although the ratepayers have never paid any l
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(Exh. B-1, Part 1, of the costs' associated with TMI-2
- p. 11; R. 405a).
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_ (c)
A." potential" $2.7 million revenue reduction Larising.from rate base items claimed in the' filing which the witness challenged (TS Stmt. RLP-1, p.
7; TS Exh..RLP-2.3; R. 177a, 782a).
-(d)
.A " potential" $1.4 million revenue-reduction arising from the witness's differing view as to how non-jurisdictional-revenues should be allocated (TS Stmt. RLP-1, p. 7; TS Exh. RLP-1.4; R. 177a, 783a).
The Trial Staff witness also criticized the method suggested by Met-Ed for the allocation of the requested extraordinary rate relief among the various classes of custome'rs (TS Stmt. RLP-1, p. 9; R. 179a).
7-)s -
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The Consumer Advocate presented no testimony, but filed a brief (a) asserting that the evidence on the Petition failed to satisfy the requirements of Section 1308(e) but (b) expressing agreement with the Compsny's pcsition on the allocation of the proposed rate increase.
Intervenor Victaulic Company.of America presented no testimony but urged that extraordinary rate relief be denied.
Other industrial customers (St. Regis Paper Company, P. H. Glatfelter Company and National Gypsum Company)~took no position with respect to the level of requested extraordinary rate relief but presented testimony on an. alternative to the revenue allocation among classes-of customers at suggested in the Petition.
1
_ AU i
The two intervening banks, representing Met-Ed's creditors undar the RCA,-presented two witnesses who testi-fied~in support of the Petition.
On-August 20, 1980, the.ALJ rendered his Recom-mended' Decision that the Petition be denied.
(A copy of such-decision i. appended in Part VIII of this Brief.)
In his Recommended Decision (at pp. 28-30), the ALJ found, inter alia, that:
ne * *
"8.
Met Ed's present transmission and distri-bution expenditures are sufficient to render adequate service to its customers, and to maintain a normal-maintenance program.
"9.
Met Ed's present operation and maintenance 7s( ')
expenditures are sufficient to render adequate _ service to its customers, and to maintain a normal maintenance program.
"10.
Met Ed has sufficient financial ability to avoid any substantial reduction in the number of its employees.
"11.
Met Ed has sufficient cash flow, and will continue to maintain sufficient cash flow until about April 15, 1981.
"12.
Mer Ed's financial condition is stable.
"13.
Met Ed has no plans for the utilization of the proposed interim revenues, and has no plans for specific reductions if no extraordinary rate relief is granted.
"14.
Met Ed has sufficient financial stability to enable it to continue to render normal services, avoid reduction in its maintenance program, and avoid
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any substantial reduction in its employment.
"15.
Met Ed has sufficient short-term credit available at least until year-end 1980.
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Met Ed has no immediate need for extra-ordinary rate relief under the provisions of Section 1308(e) of.the Public Utility Code.
"18.
Met Ed faces no immediate emergency financial-situation.
"19.
Met Ed has given.no assurance that the interim rate increase revenues would be applied to the continuation of normal services, the avoidance of reduction in.its normal maintenance program, or.the avoidance of reduction in its employment.
"20.
Met Ed may face cash flow problems on or-about April 15, 1981."
In addition, the ALJ stated (at p. 7 of the Recom-mended Decision) thgt he viewed the mpjor thrust of the Petition to be to make available funds directly cr indirectly for the clean-up.of TMI-2.
l Met-Ed filed timely exceptions to the Recommended Decision, including specific exceptions addressing the fore-going findings.
(
The Commission's order, entered on August 28, 1980
(" Order"), which adopted the ALJ's Recommended Decision.and denied the Petition, is the subject of this appeal.
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~V.
Summary of Argument The-Cc= mission's Order denying Met-Ed's Petition is a final and appealable order.
Met-Ed's uncontroverted evidence has proven that Lits financial condition is not only unstable; it is precarious.
It ' urgently needs immediate extraordinary rate. relief.
Met-Ed has also proven that if the requested extraordinary rate relief is not made available immediately, it'would be compelled'promptly'to reduce substantially its already sub-normal maintenance and employment levels, thereby seriously affecting its ability to continue to render safe
.and adequate service to its customers.
()
Met-Ed's evidence fully supports the requested
$35 million of extraordinary rate relief on the basis of 1
non-TMI costs alone.
The Commission Trial Staff's oninion testinony as to Met-Ed's alleged financial stability is not credible; his proposals as to " potential" cdjustments to Met-Ed's revenue claim based on TMI-2 issues would result in unconscionable double-dipping to the detriment of Met-Ed.
His testimony led the ALJ to erroneous findings and conclusions.
The findings and conclusions of the ALJ upon which he based a recommendation to deny extraordinary rate relief to Met-Ed.were not supported by substantial evidence and were contrary to the evidence.
(()
The Commission's adoption of the ALJ's recommended decision constitutes reversible error.
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VI.
Argument.
1.
The Commission's Order of August 28, 1980 denying Met-Ed's extraordinary rate relief petition is final and appealable The' Commonwealth Court is vested.with exclusive jurisdiction over appeals from " final orders" of state govern-ment agencies, including orders promulgated by the Commission.
42 Pa.C.S. 3763(a). The " finality" requirement for an appeal is reiterated by the Pennsylvania Rules of Appellate Pro-cedure. Pe.R.A.P. 341(a).
Those provisions codify the principle that no appeal can be taken from an interlocutory judgment, order or decree, i e., one which does not finally dispose of the (A_)
subject matter of the appeal.
Eichelberger v. Nicholson, 1 SSR 430 (1815); T.C.R. Realty, Inc. v. gox, 472 Pa. 331, 337 372 A.2d 721 (1977).
The reason fcr prohibiting appeals from inter-locutory orders is to preclude piecemeal determinations and the resulting protracted litigation.
Piltzer v.
Independence Federal Savings S Loan, 456 Pa. 402, 406 319 A.2d 677, 678 (1974).
The determination of what is a " final order" is neither simple nor mechanical; the Court must look beyond the mere face or the technical effect of an order to determine its practical c aequences and ramifications.
T.C.R. Esalty, Inc.
- v. Cox, t.
ca.
In short, an order is not. interlocutory (m
(._)
if it precludes a party from presenting the merits of his
w) claim (or a severable portion of his claim) to the tribunal below or terminates the litigation between the parties with respect thereto.
T.C.R.
Realty, Inc. v.
Cox, supra.; Safety Tire Corporation v. Hoffman Tire Company, Inc., et al., 458 Pa. 102, 103, 329 A.2d 834, 835 (1974).
In a series of cases commencing in the late 1940's, the United States Supreme Court added significantly to tb2 general principles of finality of orders for appellate purposes.
The holdings of those cases were recently sum-raarized by the Pennsylvania Supreme Court in Pugar v. Greco, 483 Pa. 68, 73, 394 A.2d 542, 545 (1978).
As so summarized, an order is considered final and appealable if:
73
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(A) The issues raised are separable from and collateral to the rights ';serted in the main action.
Cohen v.
Benefic 2a1 Industrial Loan Cor-po' ration, 337 U.S.
541, 69 S.Ct. 1221 (1949).
(B) The rights asserted are too important to
.be denied review and too independent to require that appellate consideration be deferred until the whole case is adjudicated.
Cohen v.
Beneficial Industrial Loan Corporation, supra.
(C) The practit.al effect of the questioned.
4.
order will be irreparable by any subsequent appeal.
Didella v. United States, 369 U.S.
121, 126, 7 L.Ed.
2d 614 (1962); Swift & Company Packers v. Compania Colombiana Del Caribe, 339 U.S.
684, 94 L.Ed. 1206 (1950).
Application of the foregoing criteria convincingly demonstrates the finality, and hence appeclability, of the subject Commission Order of August 23, 1980 denying Met-Ed's
-Petition for extraordinary rate relief under Section 1308(e)
- '~')
of the Code, 66 Pa.C.S. 81308(e).
e -'
O).-
-A.
Severability of Extraordinary Rate Relief From The Tariff 44 Rate Increase Filing Notwithstanding (a) the contemporaneous filing of the' Petition and the Tariff 44 rate increase request, and (b) the fact that a_$35 million portion of the general rate request was sought as interim extraordinary rate relief, the Petition is entirely separate from and collateral to the general rate increase filing.
The Commission itself has recognised the sever-ability of the Petition from the general rate increase filing.
It assigned a separate docket number (P-80070235) to the Petition.
[D Section 1308(e) of the Code,.66 Pa.C.S. 81308(e),
w) permits a utility to file, during the pendency of a general rate request, a petition for extraordinary rate relief.
Such a petition can request such portion of the total rate request which can be shown to be, inter alia, "immediately necessary".
Obviou-ly, the focus of interim extraordinary rate relief is on increased rates in the present. as opposed to the ultimate level of rates which would apply to a future time period after the rate case final order.
The require-1 ment imposed en the Commission to decide the issue of extra-ordinary rate relief within thirty (30) days from the filing of the petition underscores the immediacy of the extraordinary rate relief remecy.
f'./
T Consequently, the Petition and the Order denying w
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it relate to the rates to be charged during the ' time period
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'from September 1, 1980 until a final rate order is entered
'with respect 1to Tariff 44.
On the.other hand, Seccion.1308(d) of the Code, 66 Pa.C.S. 81308(d), governs the general rate increase request.
Specifically, that section-provides-for the investigation of any general rate increase filing made by a public utility and the suspension of any proposed rate increase for a-
~
maximum period of seven months after its proposed effective date.
In view of the absence of a specific order by the
-Commission ^ permitting a general rate increase to go into effect prior to the conclusion of the seven month suspension Oi
'\\~/
. period, the earliest date the general rate increase can be
=
implemented is April 27, 1981, seven months after the
- September 27, 1980 proposed effective date of the Tariff 44 filing.
Consequently, the Tariff 44 filing relates to the rates to-be charged during the time period of April 27, 1981 and thereafter.
4 Patently, the two matters are quite separate and distinct, relate to two different time periods and are readily severable; and the Commission's Order has indeed made a final determination as to the Petition for extraordinary asu rate relief and the rates which can be charged from Sep-tember 1,1980 until a final rate order is entered with
{t g
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respect to Tariff 44.
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. ya
)
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B '.
Rights Are Too Important To Defer Determination The very statutory provisions governing extra-ordinary rate relief demonstrate.that the rights asserted in the petition for extraordinary rate relief are too important to be denied review and too independent to require deferral of appellate consideration.
By way of illustration, even the procedural aspects of Section 1308(e) of the-Code emphasize the im-portance of an early determination.
That section requires the Commission to decide the extraordinary rate relief petition within thirty days after filing -- a very shor; period indeef. when compared to the seven month suspension p) period during which a determination of a general rate increase s.
can be made.
However, it is the substantive aspects of an etraordinary rate relief petition that provide the over-riding need for earle appellate review of any denial.
Section 1308(e) requires that a utility must allege and show an immediate need for the maintenance of financial stability in order to " enable the utility to continue providing normal services to its customers, avoid reductions in its normal maintenance programs and avoid reducing its employment." At issue is the near-term financial ability of a public utility to meet its statutory responsibilities -- a critical issue for the utility, the Commission and the customers who so f%l completely rely on the utility for safe, adequate and
.. w s reliable service.
If the allegations and proof as to the need for extraordinary rate relief are as overwhelming as Met-Ed believes they are, one cannot understate the importance (to Met-Ed, its customers and its employees) of an early ap-pellate review of the denial of the Petition.
C.
Irreparable Effect of Delay of Appellate Review The practical effect of the Commission's Order of August 28, 1980 will not be reparable by any later appeal (as, for example, an appeal from the final rate order with respect to Tariff 44.
a First of all, so far as concerns Met-Ed, the Commission has no authority under Section 1308 of the Code to grant any interim rate relief for the duration of the subject Order's denial of the requested extraordinary rate relief.
Section 1308(d) which relates to general rate in-creaser (pursuant to which Tariff 44 was filed) provides that "The rate in force when the tariff stating such new rate was filed shall continue in force during the period of suspension unless the commission shall grant extraordinary rate relief as prescribed in subsection (e)."
Similarly, the Commission has no power (in co-nnection with the general rate increase filing) to grant temporary rate relief to Met-Ed under Section 1310(a) of the Code because power to take such action is expressly excluded by that section in the case of a general rate request.
/
s
J 22 -
i
,V
-Granting the requested general rate increase at the conclusion of the. Tariff 44 suspension period will not provide reparation to Met-Ed because, as previously dis-cussed, the general rate increase final order will set rates prospectively a.1d will not provide any revenues covering the interim period in which the August 28, 1980 Order denying extraordinary rate relief is in effect.
Finally, the present Section 1308 of the Code (relating to voluntary changes in rates) has no provision for making the utility whole for shortfalls (with respect to the interim period during which extraordinary rate relief is denied) between the interim level of rates and the level to
' (_)
which the utility is ultimately found to be entitled.
Moreover, so far as concerns Met-Ed's customers, no final rate order will make them whole for any shortfalls in service resulting f en Met-Ed's inability to provide normal service because of the denial of urgently needed extraordinary rate relief.
And so far as concerns the Met-Ed employees who are laid off because of the denial,of axtraordinary rate relief, no final rate order in the general rate increase case can possibly make them whole.
Therefore, the subject Order, unless reversed by thic Court, eliminates with finality any opportunity on the
. part of Met-Ed to obtain, with reference to the period O
(_/
during which the subject Order is in effect (i.e., September 1, 1980 until April 27, 1981), the higher level of base rates
'e e
r F
> cs (j to which the Company believes it is entitled, based upon the evidence and the law applicable to extraordinary rate relief.
Met-Ed therefore submits that the Commission's August 28, 1980 Order was a final and appealable order with respect to the requested extraordinary rate relief, and that the Commission's motion to quash or dismiss the present appeal should be dismissed.
2.
The Commission's Order of August 28, 1980 i
denying Met-Ed's extraordinary rate relief request is not supported by substantial i
evidence and is contrary to the evidence and the applicable law A.
Statutory Criteria For Exyraordinary Rate Relief 1.
General 73
! (-)
l The relevant portion of Section 1308(e) of the Code, 66 Pa.C.S. 1308(e) reads as follows:
"Upon_ petition to the commission at the time of filing of a rate request or at any time during the pendency of proceedings on such rate request, any public utility may seek extraordinary rate relief of such portion of the total rate relief requested as can be shown to be immediately necessary for the maintenance i-of financial stability in order to enable the utility to continue providing normal services to its customers, avoid reductions in its normal maintenance programs, avoid substantially reducing its employment, and which will provide no more than the rate of return on the utility's common equity established by the commission in consideration of the utility's preceding rate filing * * *"
The statutory criteria may be tabulated as follows:
(a) Immediate necessity of rate relief to maintain financial stability in order to enable the (n
utility to:
,)
r i
e
_.,m
/
(1) " continue providing normal services to its customers" (2) " avoid reductions in its normal maintenance programs" (3) " avoid substantially reducing its employment"; and (b)
Limitation of equity return to "no more than the rate of return on the utility's common equity established by the Comrission in consideration of the utility's preceding rate filing."
2.
What Is Financial Stability?
The term " financial stability" is not defined in the Code. ENo dictionary or textbook definitions of " financial stability" on the part of a public utility have been found.
/)
Met-Ed submits that " financial stability" can
(_/
~
best be identified in a public utility ratemaking sense by the following quotation from the decision in Federal Power Commission v. Hope Natural Gas Co.,
320 U.S.
591, 603 (1944):
"From the inv,estor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business.
These include service on the debt and dividends on the stock * *
- That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital."
(Emphasis supplied).
If a utility cannot service its debt and pay divi-dends on its stock (Met-Ed pays no dividends on its common stock and pays part of the dividends on its preferred out of earned surplus), if it cannot maintain its credit and
(^3 attract capital (Met-Ed's only access to capital is to a y
shrinking limit of short-term bank borrowings under a 7
'N f stringently controlled and secured RCA), then clearly it cannot rationally be said to enjoy " financial stability."
Moreover, can anyone rationally claim that Met-Ed's negative return is " sufficient to assure confidence in the financial integrity of the enterprise"?
The testimony in the present record as to what constitutes " financial stability" is in conformity with the Hope case view.
Mr. Dieckamp testified (at Stmt. J, p. 4; R.164a) that:
"True financial stability will require a level of creditworthiness and eannings that can assure the availability of credit and access to the capital marketa."
r-)
The representatives of the banks participating v
under the RCA stated (Banks' Stmt. 1, p.
3; R. 185a):
"We view restoration of Met-Ed's earnings as central to its financial rehabilitation and collaterally as central to our willingness to continue to make funds available.
The most important criterion upon which we judge any utility's credit standing is that utility's access to a full range of securities from the capital markets."
Met-Ed therefore submits that the present proceed-ing does not involve the mere immediate need of additional revenues to " maintain" existing " financial stability"; the fact is that Met-Ed does not enjoy existing financial stabi -
lity.
Met-Ed's problem goes far deeper than.n=re main-tenance of financial stability; it is in urgent and immediate need, first of all, of restoration to a state of financial Ox stability.
After reaching that state, then we can talk
).
about what-is needed to maintain that state.
Neither the ALJ nor the Commission has given effect to either of such needs.
'B.
Evidence Re Need For Extraordinary Rate Relief 1.
Met-Ed's Evidence (a) Financial Stability i
Met-Ed's evidence as to its presence or lack of financial stability is summarized above in the Statement of the Case'.
No useful purpose would be served by repeating the same data here.
Suffice it to say that Met-Ed's un-g controverted evidence shows it to be a utility that is financially dead in the water; it has negative earnings, has no access to permanent capital, is trying desperately to increase the seriously inadequate temporary base rates that were fixed witho't notice or hearing by the-Commission's u
May 23, 1980 Order and is dangerously dependent upon a shrinking amount of short-term bank credit uncer a stringently 1
controlled and secured RCA to obtain the cash necessary to meet its bills as they come due.
a J
It is respectfully submitted that no one can-rationally suggest that Met-Ed enjoys financial stability.
As pointed out above, Met-Ed needs first of all to be restored to a state of financial stability; there-after, the issue of maintenance of financial stability would.
1 become relevant.
1 p-()
(v Met-Ed's urgent and immediate needs are far in excess of the mere needs of maintenance of financial' stability which trigger the allowance of extraordinary rate relief under Section 1308(e).
(b) Continued Provision of Norma 1' Services
-The facts of record as to the state of Met-Ed's operations and maintenance programs and its employment levels were summarized in the Statement of the Case.
That evidence shows a utility with an abnormally low level of maintenance activity and employment and with no reasonable prospect of improvement without rate relief.
The inevitable consequence of such a state is an inability to continue to provide
' -.k)s adequate (much less normal) service to customers.
(c) Avoidance of Reductions in Normal Maintenance Programs The specific steps which Met-Ed will be ccmpelled to take promptly in the absence of extraordinary rate relief
- to reduce still further its already sub-normal levels of maintenance were clearly spelled out in Met-Ed's evidence which is summarized in the Statement of the Case.
(d) Avoidance of Substantial Reductions in Employment Likewise, the Statement of the Case contains a' summary of Met-Ed's employment reduction plans which it will be compelled to implement promptly in the aasence of extra-
{
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73 ordinary rate relief.
Such reductions encompass both TMI and non-TMI areas of activity, with serious adverse effects upon Met-Ed's ability to render safe and adequate service to
-l
-its cust'emers.
. j L: S/
(e) Limitation to Rate'of Equity Return Allowed In Last Rate Filing Met-Ed's' extraordinary rate relief request was limited to produce a return on common equity of only 13.'38%,
the' return allowed b; the Commission in Met-Ed's last base rate case prior to the accident.
Such a limitation is imposed by the terms of Section 1308(e).
But for such a statutory mandate, Met-Ed's request would clearly have been much higher in order to reflect the much greater common stock investor s
risks of having to bear all of the capital and operating costs of both TMI-1 and TMI-2, as opposed to the situation under the prior rate order where all such costs were con-k templa'ted to be borne by the ratepayers (although the TMI-2
-accident intervened and such prior rate case order was never put into effect).
(f) Even If Limited Solely To Non-TMI Costs, Met-Ed Evidence Has Provided Full Rate-Making Support For The $35 Million Claim For Extraordinary Rate Relief The overall base rate revenue increase requested under Tariff 44 was $76.5 million (Exh. B-1, Part 1, p. 1; i
Part 8, p.1; R.
395a, 450a).
Of that amount, $32.4 million is attributable to a claim for the allowance in base rates of the capital and operating costs of TMI-l CId., Part 8, p. 2;
'R. 451a).
There being no claim in the tariff filing with i.
respect to TMI-2, by simple arithmetic the revenue claim associated solely with non-TMI costs is $44.1 million.
{J Met-Ed has requested that $35 million of the
$76.5 million total be allowed to go into effect not later i
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m 29 -
c.
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thanLSeptember 1,J1980 as extraordinary rate relief.
By statutory fiat, its request must be limited to produce an equity return no higher than the totally inadequate 13.38%'
allowance which was made in the Commission's' order'in Met-Ed's last base-rate. filing back in the pre-accident era.
A.
significant portion of the difference between the $s5 million f
request under the Petition and the above $44.1 million non-TMI portion of the Tariff 44 requested increase is attri-butable to the Section 1308(e) limitation of rate relief-under the Petition to an equity return of 13.38%, as con-trasted to Tariff 44's requested 15.5% equity return (which.
~
in turn is substantially less than the 18.5 to 19.5% range
- .(
--recommended in the testimony of Met-Ed's rate of return expert (Stmt. H, p. 50; R. 160a).
If no one properly disregards the unconscionable suggestions of Mr. Robert L. Packard (which are discussed in the following section of this brief) ~or double-dipping against Met-Ed with respect to " potential" tax benefits and reserve capacity credits associated with TMI-2, the only even theoretical revenue reductions in the record that-could be set off against Met-Ed's $44.1 million non-TMI revenue claim under~ Tariff 44 are (a) Mr. Packard's " potential"-
$2.' million challenge with respect to rate base items claimed by Met. ' and (b) Mr. Packard's " potential" $1.4 million adjustment with respect to allocations of costs between 3
- )
jurisdictional and non-jurisdictional customers.
Met-Ed
30 -
disagrees completely with both of those challenges to its data.
But even if one were to concede both of such chal-
.lenges for purposes of argument, the fact remains that, even after deducticn both~ items (aggregating $4.1 million) from Met-Ed's $44.1 million non-TMI revenue claim. $40 million of such claim remains intact in the record.... as a proven non-TMI revenue claim that significantly exceeds the $35 million level of requested extraordinary rate relief under the Petition.
The~ statement of Mr. Dieckamp, acting President of Met-Ed, that " Met-Ed's request for extraordinary rate 7 -.
relief does not' seek revenues to cover any TMI-l or TMI-2 costs" (Stmt. J, p.
3; R. 163a) is fully supported not only by Met-Ed's evidence alone but by all of the credible evidence in the record in its entirety.
Correspondingly, Ine findings of the ALJ (whose Recommended Decision was adopted by the Commission) that (a) the major thrust of the Petition was to make funds available for the clean-up of TMI-2 and (b) Met-Ed has no need for extraordinary rate relief are squarely contrary to the evidence (see pp. 7, 29 of Recommended Decision).
x.>
1
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2.
Commission Trial Staff Evidence The lone Commission Trial Staff witness was Robert L. Packard, Director of the Bureau of Rates.
He submitted TS Statement RLP-1 and TS Exhibits RLP-1.1 through RLP-1.5, inclusive (R. 169a,-780a-784a).
It is of some importance that an analysis be made of the testimony of Mr. Packard.
This is not because his testimony has rational probative force, but rather i
because his testimony is the source of many of the factual and legal misconceptions which underlie the ALJ's recommended decision which the Commission in turn adopted hook, line and sinker.
He did not controvert a single one of the above cited facts in the record concerning Met-Ed's financial condition.
Notwithstanding, he then proceeded to express the opinions in the light of such facts that " Met-Ed is financially solvent, stable", " Met-Ed's financial condition is very poor, but stable, that Mer-Ed has shown " remarkable financial stability" and that "A realistic regulatory goal with respect to Met-Ed is to restore Met-Ed's legal ability
-to issue debt (2.0 times coverage) by the time TMI-1 can be expected to return to service and to rate base and no sooner (Emphasis in original; TS Stat. RLP-1, summary page; pp. 2, 4; R. 170a, 173a, 175a).
From a factual point of view, his opinions defy
- Pj
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analysis and belief.
It is submitted that no one ean reason-4
- ably reach such conclusions on the basis of the facts in the 3
_.U"
{; record.
Under his novel theory, an incipient bankrupt who has enough c.ish to pay bills falling due on the day before he. files in :aankruptc'y would be in a " financially stable" condition on tha-' day.
From a legal point of view, how can his opinions possibly be reconciled with the requirements of the Hope decision cited above?
The origin of many of the legal miscor-aptions on the part of Mr. Packard is'seen in his interpretation of the effect of the Commission's Order of May 23, 1980.
He viewed that order.as (a) " stabilizing" Met-Ed's financial condition' and (b) establishing (until TMI-l returns to service) the
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k_'
financial posture which shall be " normal" for Met-Ed (TS Stmt. RLP-1, pp. 2 et seq.; R. 173a).
He was very explicit as to what he considered Met-Ed's " normal" state to be under that order as he viewed it (Id., pp. 4-5; R. 174a-175a):
"As long as TMI-l remains out of service,
' normal' for Met Ed will mean:
(a) financial solvency; (b) overall earnings that barely cover fixed financial obligations; (c)
"B" bond ratings, or unrated bonds; (d)
. inability to raise any form of external capital, except through the RCA; (e) severe financial constraints on Met Ed's ability to undertake new construction or to expand services; and
a 33 -
(v! _
(f) insufficient funds to safely pay any dividends on its common stock."
From a legal and from a raremaking point of view, how can that Draconian view as to alleged normality possibly be_ reconciled with (a) the statutory requirements of Section 1301 of the Code, 66 Pa.C.S. 51301, that rates be "just and reasonable" and (b) the constitutional requirements of due process in ratemaking (Article 1, Section 10, Pennsylvania Constitution; 14th Amendment, U. S. Constitution)?
How can it possibly be reconciled with the Hope decision cited above?
The TMI-2 accident has caused many problems; but it hasn't repealed the Code or the Pennsylvania and U. S.
/~')
Constitutions.
v Not only is Mr. Packard's view (as to what Met-Ed's alleged " normal" financial state should be) a collection of factual: legal and ratemaking misconceptions, but it has no suppcrt in the language of the May 23rd Order itself.
One can look in vain in the language of that order for support for Mr. Packard's interpretation of it.
Met-Ed does not wish, however, to create any impression that it is in accord with either (a) the manner in which or (b) the level at which its present temporary base rates were. fixed by the Commission in'the May 23,.
1980. order.
The base rate portion of that order was entered as a consequence of a September 21, 1979 order
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(d to show cause why'TMI-1 costs shoul.d not be removed from 1
i L) su -
the base rates of Met-Ed and its sister company, Pennsylvania Electric Company.
During the course of that proceeding, the Commission also entered the December.21, 1979 prehearing
.or er which is attached hereto as part of Section VIII of d
this Brief.
As appears from the first paragraph on page 3 of that order, the Commission granted a motion to defer "the presentation of the base rate adjustments associated with 4
the removal of TMI-l from rate base" and ruled that:
"If this Commission finds TMI-l no longer used and useful in the public service, then the determination of just and reasonable rates for Respondents will be an issue before us" (emphasis supplied).
7s Having thus deferred the submission by the O
parties of evidence concerning, and a determination of, possible changes in base rates if TMI-l is remov(d from base rates, the Commission thereupon declared in its May 23 Order that TMI-l is no longer used or useful in the public service and in the same order, in disregard of the December 21, 1979 order and without notice or hearing, proceeded to reduce Met-Ed's base rates by $26.9 million to the present totally inadequate level of temporary base rates. That could not be described as a classic demonstration of administrative due process.
So Met-Ed has pardonable reason to take excep-tion to Mr. Packard's view that the Commission's May 23rd n
~,-
,e V
Order has in any way established what should be a " normal"
-financial condition for Met-Ed.
Indeed, the Commission itself thought otherwise, as evidenced by its statement at page 15 of the May 23rd Order, as follows:
"If Respondents file a complaint against the temporary rates set by this order and subsequently the Commission determines that the. temporary rates were set unreasonably. low, an adjustment can be granted through restatement of Respondents' balances of deferred energy costs.
The complaint filed by Met-Ed with respect to-such temporary rates is pending before the Commission.
While there is no basis in fact or law or even in raremaking for Mr. Packard's interpretation of the May 23rd Order, the regrettable fact is that such inter-7 s.
'v pretation clearly had a material effect upon the thinking of the ALJ, as will be pointed out below.
A second aspect of Mr. Packard's testimony that is likewise unreasonable and unsupportable involves two suggested challenges to Met-Ed's revenue claim under Tariff 4h.
Both involve alleged adjustments associated with TMI-2.
First, he asserts a " potential" revenue reduction of
$31.2 million for alleged income tax deductions and credits associated with TMI-2 accident losses (TS Exh. RLP-1; R. 780a).
He doesn't take the trouble to try to demonstrate what the amount of any such alleged tax benefits would be; he
~
tlandly assumes that the amounts thereof will equal the 1
/"N U
,c _..-
q L(^)T entire income tax expense in Met-Ed's Tariff 44 claim.
Secondly, he asserts a " potential" revenue reduction of
$12.2 million for a PJM reserve capacity credit associated with'TMI-2 (TS Exh. RLP-1.2; R. 781a).
Those two suggested " potential" adjustments are so outrageous as to boggle the mind.
Not one penny of TMI-2 capital or operating costs (either before or after the accident) has ever been billed to Met-Ed's' customers (Exh. B-1, Part 1, p. 11; R. 405a).
Every penny of such costs-has bcen borne by Met-Ed's stockholders.
What 4
Mr. Packard is suggesting is that the customers be given e double dip; not only would he have them insulated against
\\/
all TMI-2 costs, but he would also give them the alleged
$31.2 million tax benefit of TMI-2 expenses which they don't pay.
And under his proposal, the stockholders should not only bear all TMI-2 costs, but should be deprived of tax deductions for the expenses that they pay out of their own pockets.
Not 'even a nuclear accident can justify a rationale for such unconscionable double-dipping.
The same double-dipping principle applies to his
" potential" PJM reserve capacity claim.
Mr. Packard is not only suggesting that Met-Ed's stockholders bear all TMI-2 costs, but asserts that the rr'enue Met-Ed'should be allowed (even after eliminating all TMI revenues) should be reduce'd V
, 'v still further because the presence of TMI-2 permits a credit against capacity charges that would otherwise be payable to PJM if it weren't there.
He would give the customers (who pay no TMI-2 capital or operating costs) a still further
$12.2 rate reduction because of the investment in TMI-2 for which they 1.".ven't paid a penny.
And the stockholders who paid for the investment in TMI-2 would be saddled with a reduction in revenues from unrelated investments (in non-TMI property) by an amount of $12.2 million.
Such unconscionable double-dipping simply cannot bear analysis.
But again, regrettably, as will be pointed out below, the in terrorem effect of the large dollar amounts
(')
V of these " potential" unconscionable double-dipping claims, as propounded by the Director of the Commission's own Bureau of Rates, led the ALJ to conclude that Met-Ed has not proven its claim for extraordinary rate relief.
Met-Ed respectfully submits that the testimony of Mr. Packard defies analysis and reason, is unworthy of belief, and has regrettably led both the ALJ and the Com-mission to the erroneous conclusions (which are not supported by and are contrary to the credible evidence in the record) that Met-Ed has n't established its claim for extraordinary rate relief.
7-
- 38
-V (3)
ALJ's Reccmmended Decision (a) Erroneous Findings as to Financial Stability As is apparent from the foregoing discussion of Section 1308(e) of the Code, a petitioning-utility's "finan-cial stability" is a major focal point of an extraordinary raterelie{ proceeding.
The precarious and unstable financial condition of Met-Ed was extensively detailed by uncontroverted e idence offered both by Met-Ed and by its bank creditors u..
a the RCA.
As Met-Ed pointed out, when a utility having financial stability is faced with significant cash needs and m
k_)
an inability to generate all of the needed funds internally, it would normally turn to the capital markets to cover any shortfall between expected revenues and expenditures; how-ever, in view of Met-Ed's absence of earnings (in fact, its negative earnings), Met-Ed has no access to any form of permanent capital (Exh. B-1, Part 1, p. 5; Stmt. A,p. 3; Stat. E, p. 16; R. 399a, 4a, 80a).
Even the short-term bank credit under the RCA, Met-Ed's only source of external capital funds, has been materially reduced by the banks and is about to be reduced still further (Stmt. A, p. 3; Stmt. J,p. 3; Stmt. E, p. 18; Banks' Stmt.
1, p. 3; R. 4a, 163a, 82a, 185a). The testimony of Robert Gillham, a vice president of Chemical Bank, and Q
V
(-E/. Philip Kron, a vice president of Citibank, on behalf of the participating banks under the RCA, made clear that irrespective of the action taken by the Commission on the Petition, reductions in Met-Ed's credit availability under the RCA would take place; the reduction would be less if the requested rate relief were granted than'it would be in the absence of rate relief.
The uncontroverted facts in the record establish beyond any possible reasonable doubt that Met-Ed's financial condition was precarious and unstable and that it would deteriorate still further'in the ensuing months in the
(~N absence of immediate extraordinary rate relief (Exh. B-1,
-G Part 1, p. 1; Stmt. A, p.
3; R. 395a, 4a).
The only other testimony in the record on the subject of Met-Ed's financial stability, the opinions expressed by Commission Staff witness Packard, was totally at variance with the uncontroverted facts.
Such opinion evidence which has no factual basis to support it patently cannot constitute the substantial evidence needed to support the ALJ's finding of alleged financial stability on the part of Met-Ed.
Despite the evidence presented by Met-Ed and the lack of any credible evidence to the contrary, the Commis-sion accepted the ALJ's finding that Met-Ed's financial
,~()
condition is stable.
That conclusion appears to have been
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based on the following inconsistent reasons (pp. 19-21 of the Recommended Decision):
(1) The Commission's May 23, 1980 Order " stabilized" Met-Ed's financial condition; (2) The Commission's May 23 Order provided the means for Met-Ed to rehabilitate itself; (3) Although there has been a continuing deterioration of Met-Ed's earnings, there has been no " material change" in Met-Ed's financial condition since the May 23 Order; (4) Met-Ed will not be in a serious cash
'~T flow problem until April 15, 1981 and thus needs
.)
no immediate infusion of cash to maintain financial stability, and faces no immediate emergency; (5) A lack of significant fluctuation in Met-Ed's short-term debt balance for the period July'to December 1980 is indicative of financial stability; and (6) Any interim relief should await further development of events.
The May 23 Order, in which the Commission without notice and hearing removed from Met-Ed's base rates its
" guesstimate" of the revenues associeted with TMI-l costs, did not and could not have hoped to " stabilize" Met-Ed's financial condition, much less provide any means for Met-Ed
an e i.
) to " rehabilitate" i tself.
Much to the contrary, that order
~
contributed materially to Met-Ed's precarious financial position by wiping out the last vestige of Met-Ed earnings.
]
Any company with negative earnings, with no access to the capital markets, with an inability to earn enough to pay its preferred stock dividends, and with securities down-graded below investment grade simply cannot reasonably be considered to be financially stable.
The suggestion that the improvement of Met-Ed's cash flow by the May 23 Order solved Met-Ed's financial problems is sheer sophistry.
What the Commission did was to allow Met-Ed (a) to recover
/
(./
currently the energy-related costs of present service to its customers and (b) to recover over some 18 months the size-able amount of energy-related costs of serving customers in the past which the Commission had not theretofore allowed to be recovered.
Neither of such items contributes one penny to Met-Ed's earnings.
Cash flow is not a ratemaking issue; cdequate return (or earnings) is.
Met-Ed's ability to meet its cash requirements has been made possible only by exten-sive short-term bank borrowings within a shrinking credit limit under the RCA.
Such borrowed funds can in no way compensate for the disastrous impact of a continuing lack of earnings.
The Commissions's May 23 Order, in removing
$26.9 million (the Commission's " guesstimate" of TMI-l costs)
(G
_)
-rr, m
t Y
s_/
fror-base rates: contributed enormously to the lack of earnings problem which has reduced Met-Ed to its knees.
Met-Ed's precarious and deteriorating financial condition was an overriding justification for extraordinary rate relief, and was indisputably established in the peti-tion proceeding.
No further proof was needed of a'" material change" or precipitating event to trigger financial distress on the part of Met-Ed.
Met-Ed was already there!
"at the ALJ rejected Met-Ed's evidence and ignored the painfully obvious need for rate relief to restore earnings so that the long process of restoring Met-Ed to a condition of financial stability could begin.
Instead the ALJ demanded a demonstra-O tion of some startlingly new and different source of finan-cial distress in order to find a still greater immediate cash flow emergency.
His assumed absence (until April 15, 1981) of any such emergency provided the basis for the ALJ's erroneous finding of financial stability._ The glaring fallacy in the " wait until April" syndrome is that it can't possibly work.
If Met-Ed nceds millions of dollars of cash to pay taxes in April of 1981 and can't get revenues or make bank borrowings to provide the cash, the only way it can get the cash by April is to slash expenditures for maintenance,' pay-roll, new customer connections and the like to conserve enough cash by April to meet such bills.
That is precisely gs what Met-Ed has had to do because of the denial of extra-(/
ordinary rate relief.
.: /
'u The ALJ's unsupportably narrow view of the require-ments of Section 1308(e) of the Code is attributable in large measure to his misplaced reliance upon the testimony of Commission Trial Staff witness Packard, who utilized cash flow jargon to avoid facing up to the responsibility of dealing with Met-Ed's severe earnings problems which only prompt rate relief can even begin to resolve.
(b)
Erroneous Findings as to Normal Levels of Operations and Employment The testimony and exhibits in the petition pro-4 4
ceeding established beyond any reasonable doubt that Met-Ed's levels of operations and employment, particularly in the
. (m) transmission and distribution area, are significantly below normal and in fact are the lowest they have been in more than ten years.
(Stmt. J, p. 1; ixh.
B-1, Part 1, pp.
9-10; R. 161a. 403a, 404a).
Detailed testimon~y and exhibits presented in support of the urgent need to avoid further reductions pointed out that while Met-Ed's transmission and distri-bution systems have continued to grow in response to a-growing number of customers, actual dollar amounts spent to maintain Met-Ed's transmission and distribution facilities increased only slightly from a decade ago and when adjusted for inflation such efforts are substantially less than they were a decade ago (Stat. F, Exhs. F-16A, 17A, 18A, 19A; O
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7_
l.)
_ 44 N.T.98-103; R. 86a et seq., 768a-771a, 226a-231a).
Met-Ed's; tree trimming program is at a 35 year.all time low (N.T. 106; R. 234a).
During.the first several months of 1980, interruptions (excluding those from two major storms during that period) were found to be at a level almost equal to the total for the entire year of 1979 (id.).
f Prior to the TMI accident in March 1979 Met-Ed was already spending at levels below what was minimally needed to operate and maintain the transmission and distri-bution system (Stat. F, p.
16; R. 101a).
When one recog-nizes that cuts made since that accident to conserve cash I~ )
reduced what was previously considered to be " minimally" V
necessary, it is obvious that service reliability is pres-ently impaired and will continue to be even more seriously impaired ir. the absence of rate relief.
Any doubt about the reduced state of Met-Ed's transmission and distribution efforts can be resolved by a review of Exhibit F-22.
It becomes clear that there is direct correlation between operation and maintenance expendi-ture levels and reliability of service to customers.
While Met-Eu achieved certain efficiencies over the years which helped to reduce expenditure levels, such measures cannot.
pors5*1y make up for the abnormally low levels of employees and e:<penditures (N.T. 114; R. 242a).
n(,)
Such evidence squarely contradicts the ALJ's t
e
c=-
45 -
f3 O
findings that Met-Ed's present levels of maintenance expenditures and employment are adequate to render service and maintain a normal maintenance program.
(c)
Erroneous Findings as to Basis of Reauested Extraordinary Rate Relief The ALJ made it clear that he perceived the motivation behind the extraordinary rate relief request to be to make available to Met-Ed funds directly or indirectly for the cleanup of TMI.
(See, for example, pages 7, 16 and 20 of the Recommended Decision).
There is no evidence which would support any such perception.
While it is undoubtedly true that Met-Ed faces the
',)
enormous task of cleaning up TMI and restoring it to a condition consistent with public health and safety, the simple facts are that the Petition is not related to that effort, the rate relief rcquested was not premised on any of the investment or associated costs of the TMI units, and the motivating factor for the rate relief request was the need to continue the pro-vision of reliable electric service to customers.
Such moti-vation was put in proper perspective in Statement J, page 3 (R. 163a), as follows:
" Met-Ed's request for extraordinary rate relief does not seek revenues to cover any TMI-1 or TMI-2 costs.
It is based solely on the costs and related revenues that Met-Ed must achieve if it is to con-l tinue to provide acequate service to its customers.
However, the fact that TMI-l and TMI-2 costs are not r
being provided for in rates charged to customert does s
j' ( )
not change the fact that these costs are being experi-enced and that, to the extent the costs are not l
currently covered by insurance, they require cash l
from Met-Ed's available cash sources."
r l
I i
p I' ') The ALJ's own statements in the Recommended Decision corroborate the position that the $35 million requested in the Petition was calculated on a future test year for the 12 months ended March 31, 1982, excluding the investment and associated costs of TMI-l and TMI-2 (Recommerded Decision, pp. 8 and 20; Exh. A-3, Appendix F,
- p. 1; R. 390a).
The requested relief was predicated upon the application of the rate of return allowed in Met-Ed's last base rate proceeding, which had been fixed under the assumption that all of the TMI-l and TMI-2 costs were included in base rates.
Such a rate of return would
()
clearly be inadequate under the risks to which Met-Ed's common equity is exposed today.
Clearly, the requested relief represented an understatement of the presently required return on non-TMI assets. While Met-Ed recognized that TMI units are not in service presently and are of grave concern to the ratepayers, stockholders and the company for a variety of reasons and that the units must be cleaned up and maintained in order to protect public health and safety, neither of the TMI units nor the cleanup costs were required to support the extraordinary rate request.
(d).
Erroneous Findings as to Plans for Utilization of Requested Relief Met-Ed was understandably reluctant to make public in specific terms the drastic measures (including, in parti-s cular, the lay-off of employees) it would be forced to take
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if its request for extraordinary. relief was denied; but the necessity for such disclosure became apparent as the hearings g
proceeded and Met-Ed presented the details of the necessary reductions (based upon plans developed in the Spring of 1980) which would have to be implemented immediately in the absence of prompt allowance of the requested interim-rate relief (Exh.
J-1,' pp. 1-4; R. 776a-779a).
Such necessary measures included cutbacks in budgeted capital expenditures (including those associated with the connection of new customers),
reduced coal inventory levels, further reductions in' tree-trimming expenditures reductions in maintenance expenditures at Met-Ed's coal-fired generating stations, a non-TMI work q) force reduction of over 400 employees, a 40% reduction in new customer connections and a 50% reduction in transmission and distribution reinforcement projects.
Such reduct*ons would leave Met-Ed and its customers vulnerable to a prolonged coal strike, seriously undermine the reliability of Met-Ed's system and almost insure that Met-Ed's customers would suffer severe and prolonged outages of service in the event of serious storms (Stat. J, p.
6; Exh. J-1, pp. 1 and 2; R.
166a, 776a, 777a).
Such reductions in normal services to customers are precisely the types of consequences which the extraordinary rate relief provisions of Section 1308(e) of the: Code were intended to avoid.
Another set of necessary reductions, to eliminate
. r) 280 jobs at TMI-l and reduce TMI-l expenditures, could only
, 1,
'E 48 -
.(
n
\\_J-serve to handicap seriously Met-Ed's efforts to return TMI-l to service-(Stmt. J, pp.
3, 6; R. 163a, 166a).
The~ Commission was fully aware of the urgency of returning TMI-l to service at the earliest possible date consistent with public health and safety and, in fact, stated in its May 23 Order that " Met-Ed must aggressively pursue the return to service of TMI-l * * *".
To illustrate the importance of the return of TMI-1, Met-Ed's customers would. derive a direct benefit from decreased energy costs in the approximate amount of $6 million per month upon the return to service of TMI-l (Stmt. J, p. 3; R. 163a).
Section 1308(e) clearly was intended to preclude that kind of detriment to customer service and that kin of reduction in a utility's employment.
'%s/
Still further necessary reductions, to eliminate approximately 350 jobs at TMI-2 and cut back expenditures at TMI-2 could only serve to delay the cleanup and decontamina-tion efforts, likewise an area of public interest, safety and concern (id. p. 7; R. 167a).
It is apparent from the record that much of the cost of cleaning up TMI-2 has been covered by insurance proceeds.
Consequently, for the want of $4 million on the part of Met-Ed (its share of the uninsured cost of the TMI-2 work from September 1980 through March 1981), $14.5 million of work will have to be eliminated, 350 jobs climinated and the cleanup of various items of work delayed for periods ranging from 6 months to indeterminate periods (Stmt. J, pp. 6-7; Exh. J-1, p. 4; D
\\-
R. 166a-167a, 779a).
Patently the needs of TMI-2 did not govern the filing, or provide the basis of the request, of j
the Petition.
4 1+ 9 -
(',) -
The ALJ's findings that Met-Ed will be able-to
-avoid substantia 1' reductions in service and employment in
_the absence of rate relief cannot possibly be permitted to stand in'the' face of the evidence.
His-findings are not only_not supported by substantial evidence; they are con-trary to the evidence.
Similarly, his conclusion that the requested extraordinary rate relief should be. denied is error as a natter of law.
It is squarely contra to the requirements of Section 1308(e) of the Code.
VII.
Conclusion
{}
Met-Ed has proven by competent and credible evidence each of the factual criteria necessary to entitlement to the requested extraordinary rate relief under Section 1308(e) of the Code.
The ALJ's findings and conclusions are not supported by substantial evidence, are indeed contrary to the evidence and reflect his reliance upon the testimony of the Commission Staff witness which is patently unsupport-able by the uncontroverted facts as to Met-Ed's financial condition and is contrary to applicable legal and ratemaking
. principles.
If indeed the evidence presented by Met-Ed for
~
[:
extraordinary: rate relief does not make out a case for O
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r
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-. <, ~
,r+
~
v
q v such relief, one has difficulty imagining what kind of factual situation is required to warrant such relief.
Met-Ed respectfully submits that the Commission committed reversible error in the action of its Order of August 28, 1980, in adopting the Recommended Decision of the ALJ.
Met-Ed requ'ests that the Order of the Commission be reversed and the matter be remanded to the Cornission for prompt determination of the manner in which the requested
$35 million of rate relief shall be allocated among the various classes of customers, effective as of September 1,
(~)
1980.
V Resoectfully submitted, Samuel B.
Russell '
bG/' s' $W/
W. Edwin Ogderv Ryan, Russell S McConaghy Attorneys for Petitioner Metropolitan Edison Company Dated:
December 22, 1980 v