ML19347E642
| ML19347E642 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 08/20/1980 |
| From: | Matuschak J PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| P-80070235, R-80051196, NUDOCS 8105130168 | |
| Download: ML19347E642 (41) | |
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Before the PENNSYLVANIA PUBLIC UTILITY COMMISSION j
PENNSYLVANIA PUBLIC UTILITY COMMISSION, et al, Docket No. R-80051196 v.
Docket No. P-80070235 METROPOLITAN EDISON COMPAhT N
RECOMMENDED DECISION (Subject to Commission Approval)
BETORE:
Joseph P. Matuschak Administrative Law Judge APPEARANCES:
Ryan, Russell & McConaghy, Esquires Samuel B. Russell, Esquire
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W. Edwin Ogden, Esquire
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Alan Michael Seltzer, Esquire For: Metropolitan Edison Company Steven A. McClaren, Esquire Hohdan R. Pankiw, Esquire Edward Munce, Esquire For: Pennsylvania Public Utility Commission Walter W. Cohen, Esquire David M. Barasch, Esquire l
'Craig A. Burgraff, Esquire For: Office of tb7 Consumer Advocate McNees, Wallace & Nurick, Esquires Maurice A. Frater, Esquire For:
P. H. Glatfelter Co.
St. Regis Paper Company National Gypsum Company Duane, Morris & Heckscher, Esquires Roland Morris, Esquire Robert E. Kelly, Jr., Esquire For: Victaulic Company of A= erica l
8105130ll/k Appendix 1 3
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l Wolf, Block, Schoor and Solis-Cohen, Esquires Gerald Gornish, Esquire For: Citibank, N.A., Agent, and Chemical Bank, Co-Agent l
t BRIEFS:
Briefs were filed by Metropolitan Edison Company, Commission Trial Staff, Office of the Consumer Advocate', and Victaulic Company of America. Joint briefs were filed by (1) Citibank and Chemical Bank, and (2) P.H. Glatfelter Co., St. Regis Paper Company, and National Gypsum Company.
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eenn 71vania Pes 11e ut111tx Cemm1. ion:
R-80051196 P-80070235 Office of the Consumer Advocate R-80051196C001 David C. Thomsen R-80051196C002 Victaulic Company of America R-80051196C003 P. H. Glatfelter Co.
R-80051196C004 St. Regis Paper Company R-80051196C005 Rcbert Jude Jenison R-80051196C006 v.
Metropolitan Edison Company O
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J HISTORY OF THE PROCEEDING On July 29, 1980, Metropolitan Edison Company (Mat Ed) filed its Tariff Electric Pa. P.U.C. No. 44 with the Commission for a proposed increase in its retail base rates of $76.5 million per year, or an increase in overall charges to retail customers of 17.2%.
In conjunction with this filing, Met Ed filed a Petition for Extrordinary Rate Relief under Section 1308(e) of the Public f
Utility Code, 66 Pa. C.S., Section 1308(e), requesting that
$35 million,1/ or approximately 46% of the total request, be allowed to go into effect not later than September 1,1980.
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A number of complaints-to both the rate proceeding and the petition for extraordinary rate relief have been con-()
solidated with the proceeding on the petition. In addition, we granted the petition of Citibank, N.A., Agent, and Chemical' Bank, Co-Agent, to intervene in the proceeding.
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While no doubt coincidental, this is almost exactly the amount of deferred energy costs estimated to be collected by Met Ed by The intervening banks suggest that such deferred year-end 1980.
energy cost receipts should be applied to reduce Met Ed's short-term debt, and not, as projected, to be used for other purposes.
Complaints were filed by: The Office of the Consumer Advocate, 2/
David C. Thomsen, Vertaalic Company of America, P.H. Glatfelter Co., St. Regis Paper Company, and Robert Jude Jenison.
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s Hearings were held before us in Harrisburg on August 4, h
5, 11 and 12, 1980.
At the her. ring held on August 4, the Office of the Consumer Advocate (Consumer Advocate) submitted a motion to dismiss Met Ed's petition for extraordinary rate relief on the ground that the petition failed to comply with the provisions of the Commission's Statement of Policy entered on November 6, 1978 at M-78100089, which directed that certain specified information, in the form therein set forth, is to be submitted with a petition for extraordinary rate relief, purportedly as a regulation under 52 Pa. Code, Section 53.1, et seq.
Upon inquiry, we ascertained that while a copy of said Statement of Policy was, in fact, served on Met Ed on November 7, 1978, the Statement of Policy was never published in the Pennsylvania Bulletin, as required by the provisions of 1 Pa. Code, Section 31.13 for rulmnn1 ring purposes.
Cotcmission Trial Staff (Commission Staff) recommended that the Consumer Advocate's =otion to dismiss be denied.
We held that while we would not give rulemaking effect to the Statement of Policy, neither would we disregard the Commission's expressed need for such information. We directed Met Ed to promptly supply the information of the kind and in the form required.
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further held that no useful purpose would be served in requiring a reformed petition:
no party would be prejudiced if the information was promptly submitted, and the infor=ation would be available for the Commission's purposes. Accordingly, we denied the Consu=er Advocate's motion to dimiss Met Ed's petition for extraordinary rate relief.
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INTRODUCTION O
Although the Commission has not yet suspended the rate filing of Met Ed, we and all parties have proceeded here on the assumption that such suspension is forthcoming.
It must be understood that nothing contained herein shall be considered as a predisposition of any matters involved in the rate filing, or as approving or not approving any of the matters therein contained, or es to the ultimate outcome of the rate proceeding.
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DISCUSSION O
Legal Authority The Commission's authority to grant extraordinary rate relief is governed by Section 1308(e) of the Public Utility Code, 66 Pa. C.S., Section 1308(e), which provides:
Extraordinary Rate Relief. -- Upon petition to the Commission at the time of filing a rate re-quest or at any time during the pendency of proceedings on such rate requests, any public utility may seek extraordinary rate relief on such portion to the total rate relief requested as can be shown to be immediately necessary 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, avoid substantially reducing its e=plovment, and which will provide no more than the rate of retu rn on the utility's common equity established by the Comnission in consideration of the utility's. preceding rate
~ filing, except that no utility shall file, either with a request for a general rate increase or at any time during the pendency of such a request, more than one petitian under the subsection pertaining to rates for a particular type of service, nor any supplement or amendment thereto, except when permitted to do so bv order of the commission. Any public utility requesting extraordinary rate relief shall file with the petition sufficient additional testimony and exhibits which will permit the Commission to make appropriate findings on the petition. The public utility shall give notice of the petition in the same manner as its filing upon which this petition is based. The commission shall within 30 days from the date of the filing of a petition for extraordinary rate relief, and after hearing for the purpose of cross-nmnination of the testimony and exhibits of the public utility, and the presentation of such other evidentiary testimony
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as the commission may by rule prescribe, by order l
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O-setting forth its reasons therefor, grant or deny, V
in whole or in part, the extraordinary rate relief requested. Absent such order, the petition shall i
be deemed to have been denied. Rates established pursuant to extraordinary rate relief shall not be deemed to be temporary rates within the meaning of that term as it is used in Section 1310.
[ Emphasis supplied]
In our opinion, the purpose of Section 1308(e) is to assure adequate and continuous service to utility customers and to prevent interruptions thereof due to the financial instability of the utility.
It must be noted, however, that unlike prior legislation, Section 1308(e) requires a specified showing by a utility to obtain l
interin relief. The showing is mora specific and inflexible than previously required. We must treat the instant petition in the.
light of the letter and the spirit of statutory directives.
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Burden of Proof Met Ed, in seeking the exercise of the Commission's dis-cretion to grant its request for extraordinary rate relief, pt.or to the Co= mission's determination of the revenue requirement, bears a heavy burden.
As stated in the Commission's Order entered on September 21, 1978 in Pa. P.U.C. v. Pennsylvania Electric Company, 26 PUR (4th) 337, Section 1308(e)
. entitles Petitioner to. extraordinary rate relief only if it can show such rate relief is immediately necessary for the maintenance of Petitioner's financial stability (1) in order to continue providing normal services, (ii) avoid redtetions in its normal maintenance programs, and (iii) avoid substantially reducing employment.
Proof of the i= mediate necessity for such rate relief required for the maintenance of the utility's g
financial stability must be clear and fully aup-portable of a finding by the Commission that the financial stability of the utility is actually in jeopardy.
[ Emphasis supplied]
The fact that the rate increase sought by the petition cannot be made retroactive, and failure to grant interim increases may result in unrecovarable loss of revenue during the interim of the period, does not relieve Met Ed from this burden.
Nor can the Commission grant interim relief on speculation or conjecture.
In its brief, at page 5, Met Ed admits that:
It is clear that a utility seeking extraordinary rate relief has the formidable task of showing circumstances which would justify the conclusion O '
that it is suffering from financial constraints sufficiently severe that, if not remedied, would result in the impairment of safe and reliable electric service to consumers. This view has been confirmed by order of the Public Utility Commission on September 5, 1978 in Pa. P.U.C. v.
Pennsylvania Electric Company at R-78040599.
i For the reasons hereinafter set forth, it is our opinion
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l that Met Ed has not sustained. the statutory burden placed upon it for entitler.ent to extraordinary rate relief.
From our review of all the evidence, it is our view that the major thrust of thia petition is to make available funds, directly or indirectly, for clean up of TMI. This is not a valid purpose for extraordinary rate relf ef under the stringent requirements of the statute.
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I Met Ed's Presentation h
i Met Ed's request for $35 million in extraordinary rate relief is based upon the future test year for the 12 months ended March 31, 1981, excludion the investment and associated costs of TMI-1 and TMI-2, and is claimaa to yield no more than 13.38 return on common equity allowed by the Commission in Met Ed's last rate Case.
In support of its petition, Met Ed avers that:
(a) Met Ed has been unable to issue any first mortgage bonds, debentures or preferred stock since January of 1979.
(b) For the 12 months ended June 30, 1980, Met Ed had a pre-tax interest coverage ratio of only 1.45 times, which is below the 2.0 times requirement in its debenture indenture for the issuance of additional funded debt.
(c) For the 12 months ended June 30, 1980, Met Ed had a after-tax preferred stock coverage ratio below the 1.04 times, which is below the 1.5 times required under Met Ed's charter for the issuance of additional preferred stock.
(d) Met Ed has paid no dividends on its common stock since February, 1979, and has no visable prospect of paying any.
(e) The return on Met Ed's average common equity investment for the 6 months ended June 30, 1980, was a negative 0.6 percent.
(f) Met Ed's return on common equity for 1980 without rate relief is projected to be a negative 2.3 percent.
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4 (g) Met Ed's securities have been downgraded O-below investment grade.
(h) Met Ed's present transmission and distri-bution expenditures are the lowest they have been in more than 10 years.
(i) Met Ed's present operation and maintenance expenditures are significantly below normal levels.
(j) The number of Met Ed's transmission and distribution and operating and maintenance employees are significantly below normal levels.
(k) Met Ed's short term debt under the revolving credit agreement (RCA) is $83 million and is subject to a present limitation of $105 million.
(1) Absent (a) prompt rate relief, or (b) the substantial cut-backs in expenditures needed to conserve the substantial equi-valent of the cash which would be generated by the requested rate relief, Met Ed'will i
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need cash in excess of that available under the RCA in April of 1981.
(m) Tha $105 million limitation on short cerm debt for Met Ed under RCA is neitner guaranteed nor insured and should be expected to be reduced still further in the near future.
Met Ed offered testimony generally in support of such contentions.
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Position of the Parties O
Met Ed Met Ed submits that it has forcefully demonstrated that the requested $35 million of extraordinary rate relief meets each and every one of the criteria contained in Section 1308(e) of the Code, and that ;uch rate relief should be allowed on or before September '., 1980.
Commission Staff Commission Staff requests the Commission to deny Met Ed's petition because:
a) Met Ed is financially solvent, stable, and in a condition consistent with the Commission's May 23 Order.
I b) Potential Staff adjustments to Met Ed's claim would require substantial refunds.
c) Met Ed's proposal for uniform increase per KWH falis to correct inequities in the existing rate structure and fails to encourage energy conservation in any specific way.
Consumer Advocate
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The Consumer Advocate takes the position that Met Ed's petition does not comport with the requirements of Section 1308(e) or sound regulatory principles and should, therefore, be denied.
If the Commission grants part or all of Met Ed's requested relief, it urges that the revenues be recovered on an equal KWH basis as suggested by Met Ed.
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(~h St. Regis Paper Company P. H. Glatfelter Company National Gvosum Company These industrial concerns state that the Commission should give consideration to Met Ed's request for extraordinary rate relief, but they take no position with respect to the level of rate relief to be granted.
They urge, however, that any extraordinary rate relief granted by the Commission should be recovered on the basis of the non-fuel portion of the present rates, or in the alternative, on the basis of the present base rates, rather than on the KWH basis as suggested by Met Ed.
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Victaulic Company of America This company urges that the extraordinary rate relief request by Met Ed be denied.
Citibank.
N'.A., Agent and Chemical Bank, Co-Agent These intervening Links state that Met Ed has shown a continuing deterioration in its earnings, the rapid amortization of it s deferred energy account, and the effect of its projected financial picture on its short-term debt balance under the Revolving Credit Agreement (RCA), which, absent any relief from the Commission, will exceed the $105 million debt limit currently in effect by April, 1981.
Furthermore, they aver that although Met Ed's projections a
show a short-term debt balance of $90.5 million as of December, 1980, O
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O absent extraordinary rate relief, there is no assurance that such amount will be permitted by the banks.
In any event, with or withi.ut interim rate re. lief, they stated there would be a step-down of Met Ed's short-term debt limitation under the RCA, but that such limitation may be lower without interim relief.
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r-Reductions in Service,
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Maintenance and Employment l
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The specific statutory requirement for extraordinary rate l
relief is that it:
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... can be shown to be immediately necessary, for the maintenance of financial stability in order to enable the utility to continue pro-viding normal services to its customers, avoid reductions in its normal maintenance programs, avoid substantially reducing its employment.
[ Emphasis supplied]
Met Ed has failed to meet this statutory requirement. The
-statute itself specifically cites the nature of the financial stability giving right to extraordinary rate relief.
In our opinion, the statutory reference to " extraordinary" rate relief connotes an emergent form of rate relief. While Met Ed,
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in its brief, finds fault with the use by other parties of the word "extraord'inary" and " emergency" interchangeably, we note that Met Ed, itself, in its Exhibit B-1, refers to its petition for extraordinary rate relief as an " Emergency Petition." It further states that its petition for extraordinary rate relief seeks a " level of, emergency rate relief." The Commission, too, has in the past referred to extra-ordinary rate relief as "e ergency rate relief." (R-78040599)
Is there such an emergency? None h,as been shown by Met Ed under present circumstances, nor has it been shown that any emergency coriition is likely within the next few months. While it appears from I '
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the record that Met Ed is suffering both from a revenue deficiency and lll an earnings erosion, these have not created a situation which the statute seeks to prevent.
Mr. Newton, General Public Utilities (GPU) Vice President of System Operations, testified on page 17 of his prepared Statement F, as follows:
Q.
Mr. Newton, do you have an opinion regarding the levels of employees in the T&D area at 5/31/807 A.
Yes.
In my opinion, the level of employees at year ending 5/31/30 are reasonable and appropriate in the light of all of the exist-ing circumstances. However, this level is not sufficient to maintain the axisting quality of service to our customers if such level re-mains constant over a period of several years.
The number of T&D esployees will definitely have to be increased with time or the quality of service will inevitably be degraded.
(Emphasis supplied]
He further testified on cross-examination as follows:
Q.
Mr. Newton, counsel asked you if the company did not receive extraordinary rate relief, what deductions would take place in employees, and I believe you said, you would expect attrition in transmission and distribution employees of approximately 40 over the next twelve months, is that correct?
A.
That's correct.
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If you receive extraordinary rate relief, in this respect, how would the company operate differently?
A.
Its impossible to predict precisely all of the demands that are going to be presented for the utilization of that amount of increased revenue.
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We in the T and D area will certainly make as
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aggressive a plea for maintaining at least the present level --- so we will not hav-that attrition. But its a matter of decision by the board exactly how the increased revenues will be distributed among the company demands.
Q.
I take it from your answer that its entirely possible that if the company gets extraordinary
, rate relief, that you will still have the-expected attrition of 40 employees without employees to replace them.
A.
That's possible..I like to think that it won't happen that way, but its possible.
Q.
Isn't it your testimony that the company has not had a normal complement of transmission and distribution employees since 1973?
A.
That is correct.
(Emphasis supplied]
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His testimony as to construction employees was in the same vein.
Met Ed's witnesses could not be certain that any of the requested $35 million interim rate relief would be expended for con-tinuation of normal services, maintenance and employment, or that given such interim relief, specific re. ductions would be avoided.
Mr. Graham, GPU Treasurer, admitted that there were no corporate plans to apply early revenues, and that specific assurance could not be given that such interim revenues would not be used to fund TMI clean-up, to reduce short-term debt, or for other purposes.
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Gl Mr. Dieckamp, GPU President and Acting President of Met Ed, described the " areas of cost reduction." He could give no definite plan of cost reduction, but asserted that operation and maintenance expenses and construction budgets are at the minimum acceptable levels, 1
and absent early rate relief, the budgeted amounts yould exceed the revolving credit agreement (RCA) limit. The stated areas of cost reduction, however, were designed to meet the state tax payment due in April,1981, a point in time well beyond the short-term period contemplated by Section 1308(e). This testimony indicates that while additional funds may be required in the future, they are not ic=ediately necessary to avoid reductions outlined by Mr. Dieckamp. A careful read-ing of Mr. Dieckamp's testimony shows that Met Ed's major concern in this petition is its effect on TMI cleanup.
In its May 23, 1980 Order in Pa. P.U.C. v. Metropolitan Edison Company and Pennsylvania Electric Company, mimeo, p. 4, the Commission stated:
. The Commission will provide Met Ed the means of financial rehabilitation. However, we will write no blank checks on its racepayers.
Met Ed's witnesses either were unable or reluctant to identify the specific needs for, or the intended use of, the requested
$35 million interim rate increase, as it related to the avoidance of reduction in service, maintenance or employment.
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While Met Ed alleges that its present distribution and transmission expenses, and its number of distribution and trans-mission employees are below " normal," Met Ed agrees that even as late as March 31, 1980 its service was adequate, despite the fact that such "below normal" conditions had existed-over the last several years. At least, this would indicate that no immediate emergency condition exists in this respect.
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'From the statutory criteria, we would consider " normal" to refer to the " ordinary" " typical" or " usual" complement of expenditures or employees, or as averaging over a number of years, rather than a " preferred" or " desired" level, or a level existing several years before. Productivity gains, too, should be given some consideration.
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lh Met Ed's Financial Condition As we view it, the weakness of Met Ed's presentation is that though it established a valid record showing that it is in a precarious financial condition, it failed to meet the statutory test that such financial condition requires the immediate extra-i ordinary rate relief to continue to provide normal services to its customers, avoid reductions in its normal maintenance programs, or avoid reducing its enployment.
There is no question that the financial condition of Met Ed is poor.
It presently has no access to permanent financing, and must depend on short-term debt for its outside funds.
Mr. Graham, Treasurer of GPU, recognized that for the next two O
years, and until TMI-l returns to service and to rate base,' Met Ed will not have access to the bond or equity markets, and that Met Ed will have to continue to rely heavily on short-term credit.
But though poor, Met Ed's financial condition is stable in the statutory sense, and is projected to remain stable, by its own cash projections, until about April,1981, when a state tax payment becomes due.
In short, Met Ed does not need the immediate infusion of cash to maintain its financial stability; it faces no immediate emergency.
The Commission, in its May 23 Order, determined that Met Ed should remain financially viable; increased Met Ed's energy
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cost recovery to a fully current level; and provided for an 18-month recovery of all deferred energy costs. The Commission's i
May 23 Order stabilized Met Ed's financial condition. Although there has been a continuing deterioration of the earning, there has been no material change in Met Ed's financial condition since the May 23 Order.
The following Met Ed's estimates of its short-term iebt balance in the event no extraordinary rate relief is granted, are indicative of its financial stability for that period.
1980 July August September October November December s
a Short-term debt balance SS6.9m $86.6m $88.1m
$87.7m
$91.1m
$90.5m Met Ed's current financial problems consist of a lack of adequate
~J earnings rather than cash flow.
Met Ed, in its presentation, has calculated that a 13.38%
rate of return on the utility's common equity established by the Commission in the last rate case, based on a year-end rate base for a future test year ended March 31, 1981, would yield $35.3 million.
Commission Staff, however, in a preliminary review of Met Ed's submissions, has arrived at potential adjustments of some $47 million, which could reduce Met Ed's revenue requirement well below the
$35 million interim rate relief requested. Since no emergency has been shown by Met Ed, any interim relief should await further development of the facts within the next few months.
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It must be conceded by all that Met Ed still faces enormous financial problems.
It is apparent that this financial difficulty arises not only from the accident at THI-2 and the inactive status of TMI-1, but also the resulting effect of endeavoring to render adequate service to ice customers, while at the same time spending millions to restore and clean up TMI-1 and TMI-2.
In its Order entered on June 19, 1979 in Pa. P.U.C. v.
Metropolitan Edison Conpany and Pennsylvania Electric Company, at I-79040308, nimeo p. 13, the Commission said:
The Commission is of the view that none of the cost of respdnding to the accident, including repair, disposal of wastes and decontamination are recoverable from rate-payers. These costs are and should be insurable.
As it now turns out, millions of dollars will have to be expended by Met Ed, over and above the $300 million insurance recovery, in order to restore and clean up TMI.
Because of such impact upon Met Ed's finances, we cannot divorce this petition from TMI, even though certain data calculations in support thereof, exclude the investment and associated costs of TMI.
l The result is that Met Ed customers may be required indirectly to pay for a substantial portion of such clean up costs
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through increased rates, in order to support the financing for such
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This' petition is the first step in that direction.
purposes.
Before embarking on that course, the Commission may first want to make a reassessment of the TMI restoration and clean-up upon the ratepayers, be it direct or indirect.
Mr. Graham stated that if TMI-2 would be considerad a total loss by the insurance carrier, as he was pressing, the balance 1
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of the insurance proceeds would be immediately paid, affording Met Ed another substantial possible source of funds to meet its expenses
.during the next few months.
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As to the apprehension of the intervening banks, the Commission said in Pa. P.U.C. v. Metropolitan Edison Company and Pennsylvania Electric Company, at I-79040308, mimeo p. 4, on May 23, 1980: " Respondent must convince its bank creditors that it has the will and the ability to rehabilitate itself." The Commission by'its May 23 Order, provided the means for Met Ed to rehabilitate itself.
f We shall expect the same concern by other involved parties.
Met Ed will not be in a serious cash flow problem until April 15, 1981.
In the interim, all parties and the Connicsion will have the opportunity to reassess their positions in the light of events as they occur. As permitted by Section 1308(e), the Commission will keep open its door for.another petition for extraordinary rate i
relief, if need be, at a more appropriate time, and for a more valid s
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l purpose, in a more deliberate and more informed climate. The l
Commission has the ability to meet any critical situation as it may
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occur, be it at the conclusion of the rate hearing, or prior thereto.
Here, Met Ed's petition is premature in its stated apprehension-for the future.
Statutory provisions must be followed in the granting of extraordinary rate rclief. In Pa. P.U.C. v. Pennsylvania Electric Company,'at R-78040599, on September 21, 1978, the Commission said:
The 1976 amendments to the Public Utility Code reduced to seven months, after the effective date of filed rates, the maximum peric-1 which could elapse before proposed rates could become effective. These 1976 amendments evidenced a legislative intent that rate cases be expeditiously resolved and that multi-stage rate filings be limited. We find no legislative intent that a utility may, under the guise of petitioning for extraordinary race relief, secure increased revenues in order to maintain or improve its return on common equity, absent clear and con-vincing proof that such extraordinary race relief is innediate'y necessary under the criteria set forth in Sectica 308(f) (now Section 1308(e)]
of the Public Utility Code. We wish to make clear that an inability to earn the rate of return on common equity determined to be appropriate by the Commission in the previous rate proceeding or dis-satisfaction with such rate of return cannot support a request for extraordinary rate relief under Section 308(f) (Section 1308(e)]
Here, as there, the utility failed to meet its burden of showing that emergency rate relief 1s ic:ediately necessary for the maintenance of its financial stability under the statutory criteria. The difference is a matter of degree.
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The purpose served by Section 1308(e) is not to thrust the cost of nonfunctioning TMI capital assets onto the ratepayers, but to permit the recovery of extraordinary costs incident to serving the public. Here, to the contrarv, emergency relief is sought from the ratepayers largely for the costs attendant to capital assets net in the public service.
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Expedited Rate Case Proceeding 9
Because the investigation and consideration of a rate application can become such a complex and time-consuming procedure, the Legislature has given the Commission the authority to suspend the collection of the proposed rate increase during which time the Commission is investigating and deliverating on the application, a provision obviously designed to protect the public interest from the collection of rate increases which the Commission may later determine to be unwarranted.
Commission Staff recocnends that Met Ed's p.tition for extraordinary rate relief be denied, but that the Commission expedite the general rate case proceeding for conclusion prior to year-end 1980.
We are not persuadsd that euch recommendation should be adopted, both because of possible due process infirmity and pragmatic weakness.
Due process means different things at different times and under different circumstances.
In an expedited procedure, as herein, involving interim rate increases with refund provisions under extraordinary situations, only minimal opportunity for testing may be required. On the other hand, in a permanent rate proceeding, due process would require the opportunity for a more thorough testing of the propriety of the utility's request for a rate increase.
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The permanent rate proceedings for Met Ed and Pennsylvania Electric Company (Penelec), sister company, are scheduled to be consolidated, so far as possible, in rate hearing procedure. We sre concerned not only that due process considerations may not be adequately met by Staff's recommendation, but even more importantly, from a practical viawpoint, that the suggested expedited procedure may prove to be counterproductive. We question that sufficient opportunity would be given to all parties to test the propriety of the rate request, including investigation, preparation of prepared testimony, discovery, cross-examination of witnesses, briefs, recommended decision, exceptions and Commission action. Short-cutting in procedure could result in short-cutting either Met Ed or its customers.
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Proposed Allocation of Extraordinary Rate Increase In view of our treatsent of Met Ed's petition for extraordinary rate relief, we do not reach the issue of the appropriate method of spreading such proposed interim rate increase among Met Ed's classes of customers. Some comment in this connection, however, may be appropriate.
We reject Cannission Staff's contention that some alleged inequity, either in Met Ed's existing or proposed interim rates, supports the denial of extraordinary rate relief.
If the Commission were to otherwise determine that all or p. art of the extraordinary rate relief should be granted, the fact that precise and ulti=ately equitable allocation of the increase cannot at this ti=e be finally determined, should not be a cause for g
the rejection of the request. If extraordinary rate relief must await a rull investigation and determination of ultimate allocations, Section 1308(e), which requires a speedy disposition, would be meaningless.
Further, if the Commission should grant the extraordinary rate relief request, in whcle or in part, we recommend the allocation of such rate increase on the basis suggested by Met Ed as appropriate.
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l Once revenue requirements have been determined, it remains how, and from whom, the additional revenue is to be obtained.
It is at this point that many countervailing considerations come into play. The Comunission, acting in a legislative manner, may then balance factors such as cost of service, ability to pay, tax consequences and ability to pass on the increase, in order l
to achieve a fair and reasonable allocation of the increase among the consumer classes, the careful balancing of public policies l
and private needs. The Commission may balance both cost and non-cost factors in makins choice among public policy alternatives.
I While the Comunission may not be in position to finalize ar equitable I
i allocation of a proposed increase in rates, certain obvious con-siderations may be sufficient to support short-term interim rates.
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=7" approach of allocating rate increases, as advocated by some of the industrials. Nor can it be said that in the present time frame, with changing enery considerations, reliance can be given to the use of existing base rates, as urged by such industrials as an alternative. While we-agree with Connaission Staff that extraordinary rate reliel', based solely on an energy component, may not precisely reflect all aspects of cost, we are of the opinion that until a full review of rate allocation can be completed, a temporary reliance in the interim on a uniform KWH is the most appropriate approach.
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FINDINGS OF FACT 1.
Met Ed has been unable to issue any first mortgage bonds, debentures or preferred stock since January of 1979.
2.
Met Ed avers that for the 12 months ended June 30, 1980, Met Ed had a pre-tax interest coverage of only 1.45 times, which is below the 2.0 times requirement in its debenture indenture for the issuance of additional funded debt, but such dats has not been verified.
3.
Met Ed avers that for the 12 months ended June 30, 1980, Met Ed had a af ter-tax yreferred stock coverage ratio below the i
1.04 times, which is below the 1.5 times required under Met Ed's charter for the issuance of additional preferred stock, but such h
data has not been verified.
4.
Met Ed has paid no dividends on its common stock since February,1979, and has no visable prospect of paying any.
5.
Met Ed claims a return on its common equity investment for the 6 =onths ended June 30, 1980, was a negative 0.6 percent, but such data has not been verified.
6.
Met Ed claims a return on common equity for 1980 without rate relief projected' to be 2.3 percent.
7.
Met Ed's securities have been downgraded below in-l vestment grade.
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8.
Met Ed's present transmission and distriburion expenditures are sufficient to render adequata service to its customers, and to maintain a normal mainterince program.
9.
Met Ed's present operation and maintenance ex-penditures 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. Met 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 any substantial reduction in its employment.
- 15. Met Ed has sufficient short-term credit available at least until year-end 1980.
- 16. Met Ed has no i:mnediate need for extraordinary rate l
relief under the provisions of Section 1308(e) of the Public Utility Code.
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17.
Since no extraordinary rate relief is granted, it is unnecessary to address the appropriate method of allocation of any interim rate increase.
- 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.
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I CONCLUSIONS 07 LAW 1.
The Connaission has jurisdiction of the. parties and of the subject matter.
2.
The parties are properly before the Commission.
3.
Met Ed has not sustained its burden to entitle it 1:
to the $35 million extraordinary rate relief, under the provisions of Section 1308(e) of the Public Utility Code, 66 Pa. C.S., Section 1308 (e).
4.
Met Ed's petition for extraordinary rate relief should be denied, without prejudice.
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1 RECOMMENDED ORDER (Subject to Com:sission Approval)
IT IS HEREBY ORDERED that the petition of Metropolitan Edison Company for extraordinary rate relief in the amount of
$35 million, pursuant to the provisions of Section 1308(e) of the Public Utility Code, be, and is hereby denied, without pre-judice.
E<<xsER
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['Admd.tistrativeLawJudge Joseph P. Matubchak August 20, 1980
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V ITril0!VLIliAY TDIS0lf CON? ANT STATINEttf 0F 11:C074E TTi.VI; t:0*ml3 ENDCD
($ 1h u: ands)
June M arch December September June March 1980 1980 1979 IW9 1979 1079 Total Revenues
$370,371
$355.255
$333,136_
$329,'iOO
$319,W2
$317, 6 1.ess I)ierr.y Itevenues Ici lesse IMtes (a) 69,')D7 70,2h0 69,532 63.672 67,206 57,143 Energy Clituse
!!6,419 6?,20,9, la?, jlh
/
_ 23,159
__ 31,2%
9 Tuts 1 Dierr.y Revemies
_1$6.406
,114,229 I t h,oj/ '
_ 02, 2
- a ), s.4 5
_ til,g]t t:st itevenues Prl,964
,,2,MM
~ 223,4b1 22t,*f> 3 229, %"I my.ra Cpa ratt ne, r,rg ensec s Energy Costs (b) 205,202 r07,.a3 176,036 134,297 107,577 93,179 rwrerre.l Dierr.y Costa (a)
(41,725)
(70,011)
(';9,279)
(30,055)
- (16,1P)
(4,537) ser.s D rrJ lt"ve pues 356.h06 131,?24 yh,DE,
679 10?,697 e)ts,lah5 t"l, Tn ti.rt Diergy Costs Recerve Capacity 7,071 3,1f1 2,
1,615 1,u)O 23 207 416 (633) 532 1,316 2,33 Fuel stand 11ng 2,031 2,18 0 2,295 2,173 2,202 2,13!a 8
rayroll 36,737 34,069
- l4,369 33,093 33,660 34,362 Other O!st 50,641 le7,172 45,112 Is3.266 I2,G11 13.178 i
D"precintion 30.h06 37,708 37,708 35,570 32,296 29,307 Taxes, Cther than Inconne 26,651 22El
_ 22,602 22,724 21s,'/c 25 H4 Tu'.al oper. Exp.
TIT 1,85fi
~WI,64 144,4 b 1Y)/tV5 14t /i eT Ts/M l
Operatir.g income Defore Incune Taxes 60,141 74,388 79,Oh6 07,175 91,702 91,8o2 Inemo Tazes (2,264) 1,611
_ 10,265 lle,70) 21, 84
?$.23 8 6
operating Ineoce 62,409 69//55 60.701 72.li12 70,3w G,M Other incosne & Inductions:
Allowanee for Other limits (1,la60)
(1,3rf))
5 5,ht.0 10,906 16,251 Other(tiet) 517 sis 3 is21 f.la2 293 66 Total Other Incane
(%j)
(b56)
M6 5 Ikl2 11,109 M 117 Cro:s Incor.c 61.ht4 bH,39)9 69,:>ul 7
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n t,Siff T Gi Interect Expense.
57,560 53.993 50.702 47,262 45,311 43,959 Allowance fo.- Borrowed Itinds (b.170)
(3,270)
(3,074)
(3,2f6)
(4,602)
(5,F93)
,J,'122)
Q,575) 4 Allo r.nce for Borrowed Itinds (ha)
'l 901,)
OM) 201 (4,8%)
(6,663)
Total 9,G9 47,101
li ), 314 a356t{
31g IMt Incme 11,913 21,*A4 2'> 117h 37,53')
45,732 51,203 y
PreferrcJ Stock Dividends 10,269 10,209 10,209 10,2119 10.239 10,209 e
N P41anco Available for ccamon L1,6Cle Q',t09 Q5,j8,5 g
QSg9]
g pp (a) Includes kaort. of PnPUC Clauses
'I Pricir to 7-1-78 3 5,607
$ h,801 a 3,239 n 1,879 4
52's Prior to 6-1-00 1,999 U
g
[f (b) T.rcludes Ihndling Costs, Etc.
$ 2,031
$ 2,1b8 4 2'295
$ 2,173
$ 2,202
$ 2,13%
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HETROPOLITNt EDISCN COMPANY Consolidated Balance sheet
($ thousands)
June March December September June March Assets 1980 1930 1979 1979 1979 1979 Utility Plant:
In Service
$1.302,605.0
$1,298,562.2
$1,294,485.3
$1,281,098.7
$1,277,235.8
$1,265,951.2 Less Accunulated depreciation 260,637.1 251 131.6-241,985.4 234 225 957.1 217_,983.8 1,041,5673 1,047,UO3 D2.4953 D I,,467.56HJ V D,2) D T047.91G 2
Construction work in progress 15,5pB.1 12,982.5 11,582.5 19,800.5 17,786.1 20,768.8 Iteld inr future use 11,5i5.5 11,575.5 12.579.4 12.576.3 12.574.9 12,567.5 tioclear fuel 65,729.4 60,041.5 50,119.9 55,979.6 53,062.6 72.735.9 tess: amortization of nuclear fuel 7 399 0 7,399 0 7,399,0 7 M9 0 11 906 4 14,393.3 Itat utility plant V),431N 1,124.63D yT7.382.7 M,.596.6 "T32f,.)MN E 9.6$ El 2
Investments 649.5 663.7 658.6 658.7 658.8 665.7 Current Assets:
5,858.1 3,533.5 2.861.7 Cash / Temp. Cash Inv.
392.1 1.459.8 2,137.2 Accounts receivable Customers
'24,941.6 27,753.4 20,707.3 20,952,0 19.046.3 20,3SO.7 Other 12,686.7 8,776.2 7.227.1 22,933.5 17,810.1 22.123.0 inventories flaterials and supplies 18,713.1 16,844.6 15,038.6 14,156.4 13,864.2 12.370.9 Fuel 11.372.4 11.223.7 19,609.6 16,641.0 12,718.4 13,658.2 7;k Prepayments 6,089.0 827.3 940.6 2,576.1 6,380.0 870.9
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Otter 2 c01.8 4.794.3 2.748.2 2.979 3 2,960 4 2.765.4 Total 7,.5567 71.679.3 68.4003 86.096N 16.'318 75.6307
%7 Deferred Debits:
Deferred energy costs 85,640.1 97,339.9 82.499.0 56,764.9 43,915.5 26,524.8 Accuculated deferred income taxes 3,640.4 3,825.2 5,000.7 7,255.8 2,827.3 2.987.7 Other 40,659.8 46 394.2 43 1 0
76 49,164.2 8,380.2 Q
Id.595.4616~~T95.9 F o 37.lig D r
j Total
~~Tf 9.MO 147,WT.~3
_ 130.6 _ m lotal Assets
$1.335.018.4
$1.144.513d ll.327.148.ft 11.354.967.8_
11.295.674.6 11.253.845.5 N
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HETROPOLITAN E0150N COMPANY Consolidated Balance Sheet (fihousands)
June March December September June March 1980 1979 1979 1979 1979 Liabilities and Capital 1930 First nortgage bonds and debentures, including unamortized prem (disc) net
$ 542.379.9
$ 542.548.5
$ 529.596.5
$ 536.754.'
$ 536.805.3
$ 536.972.8 Cumulative preferred stock, including premium and expense 139.874.2 139.874.2 139.874.7 139.874.2 139.874.2 139.874.2 Conton stock and consolidated surplus:
Cennon stock 66,273.4 66.273.4 66,273.4 66,273.4 66,273.4 66,273.4 Capital surplus 200,523.6 200,523.6 280.523.6 280,523.6 280,523.6 280,523.6 Retained earnings 29 450 8 34,130.3 31,604 7 31,532.7 2M66.0 23 420.7 lotal connon equity
~T7b47N 3Hl.52T.T
--'378.40iD 78.MU 7 14.563.0 315,.lif7 Total long-term aed capital
_l.058.501.9 1.063.950.0 1.047.872.4 1.054.958,6 1.651.242.5 1.047.064.7 Current Liabilities:
Sinking funds & current maturities 7,476.2 7,475.5 14,474,9 7,764.3 9,223.7 9,103.1 Notes payable to banks 81,000.0 78,000.0 68,000.0 88,200.0 45,450.0 29,700.0 Accounts payable 35,162.6 31,975.0 35,927.4 32,349.9 27,541.5 30,963.0 Dividends payable on cumulative preferred stock 2.572.2 2,572.2 2,572.2 2.572.2 2,572.2 2,572.2 Taxes accrued 2,979.9 13,300.3 7,970.5 3,460.7 3,925.4 11,944.3 Interest accrued 11,413.7 6,13G.8 11,057.4 6,390.6 10,978.1 5,977.9 7
56272 3,476 9 3,223.6 5,833.7 T4T*002 061.8 7 6,.4293 74.214.T 72.131.~5 96,M g gr Other 7.418.2 x
14u.62F.E Total 27 Deferred Credits:
Ceferred income taxes 118.034.6 120,414.1 110,630.9 99,302.7 83,012.7 72,297.6 ma E Unamortized I.T.C.
6.687.4 9,850.9 18,199.6 32,535.1 32,006.6 33,977.2 om 3.14 3 067 3 1J7 4 22 96L 2 24,020.1 3 267.4
' Er 127.8)_0 5ot~~Til,.3E'5d 7.917'T 7 54 %.E 140.83 G T66.if'T 7
Other o
Total Reserves 623.2 790,0 893,7 994J 1,058.2 1.13:1.4 O
Total liabilities & Capital
$1.335.018.4
$1,344.533.4
$1.327.148.6
$1.354'.967.8
_1.295.674.6
$1.253.845.5 i
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Mst-Ed Exhibit N3.
D -Il d' 1
METROPOLITAN EDISON COIGANY Interest Coverage Debenture Test Twelve Months Ended June, 1980 1.45 March, 1980 1.73 Dece:nber,1979 1 99 September, 1979 2.04 June, 1979 2.17, March, 1979 2.40 Preferred Stock CoveraSe Twelve Months Ended June, '980 1.04
'd March, 1980 1.03 December, 1979 1.19 Septe=ber, 1979 1.28 June, 1979 1.56 March, 1979 1.71 G
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CDtc8 ExhiLEG W. MIy s'
METROPOLITAN EDISON CO:4PANY Bi-Weekly Cash Palances and Monthly Customer Accounts Receivable Ealances
($ M )
Custe:ner Line Accounts No.
bescription Th1nnees
- Receivable 1
January 4, 1980
$3,503 2
January 18 6,231 3
Jarmary 31
$21,857 4.
February 1 697 5
February 15 11,247 3,284 24,943 6
February 29 7
March 14 2,712 8
March 28 3,61o 9
March 31 27,753 10 April 11 8,560 11 April 27 5,849 12 April 30 25,385 13 May 9
'3,126 14 May 23 8,986 15 May 31 23,055 16 June 6 4,646 17 June 20 945 18 June 30 24,942-O O
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ICt-Ed Exhibit no..l3-//5 l METROPOLITAtt EDISON COMPA?!Y g
Annual Interest and Dividend Requirements on Long Tem Debt and Preferred Stock Outstanding at July 31, 1980 Line Amount Description No.
436,636,516 1
First mortgage bonds 6,h87,875 2
D-bentures 3
Total interest
$43,124,391 4
Preferred dividends 10,283,7ff 5
Total intere,st and dividends
$53,413 1 3 O
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Met-Ed Exhibit: & -f f b i
METROPOLITAN EDIS0tt COMPANY Return on Average Common Equity
(~'
Twelve Months Ending Last Five Calendar Years
($ Thousands)
Earnings Available Average Return for Common Equity Common Equitz
-(Col. 1 + Col. 2)
(1)
(2)
(3) 1979
$15,585
$374,272 4.16%
1978
$48,313
,$374,308 12.91%
1977
$48,544
$370,793 13.10%
1976
$41,322
$368,849,
11.19%
1975
$41,641
$365,977 11,38%
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Twelve Months Ending in 1980 Q
June, 1980
$ 1,685
$378,137 0.45%
May, 1980
$ 4,785
$377,854 1.27%
April, 1980
$ 8,727
$377,509 2.31%
March, 1980
$11,310
$376,711 3.00%
February,1980
$13,338
$375,588 3.55%
Janua ry,1980
$12,654
$374,985 3,37%
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