ML19347E643
| ML19347E643 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 02/13/1981 |
| From: | Gornish G CHEMICAL BANK, CITIBANK, N.A., WOLF, BLOCK, SCHORR & SOLLIS-COHEN |
| To: | PENNSYLVANIA, COMMONWEALTH OF |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| R-80051196, NUDOCS 8105130170 | |
| Download: ML19347E643 (8) | |
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O COMMONWEALTH OF PENNSYLVANIA PENESYLVANIA PUBLIC UTILITY COMMISSION PENNSYLVANIA PUBLIC UTILITY COMMISSION, et al vs.
In re:
R-80051196, etc.
METROPOLITAN EDISON COMPANY BRIEF OF CITILANK, N.A.,
AGENT AND CHEMICAL BANK, CO-AGENT INTRODUCTION This brief is submitted in the rate hearings held before the Honorable Joseph P. Matuschak, Administra-tive Law Judge, in the above matter.
Citibank, N.
A.,
Agent and Chemical Bank, Co-Agent (the "Sanks") intervened in these proceedings and presented rebuttal testimony therein.
The Banks are the Agent and Co-Agent, respectively, for 45 other banks under a Revolving Credit Agreement ( "RCA " ),
dated as of June 15, 1979,between such banks and GPU and its subsidiaries (Met-Ed/Penelec Exhibit E-21).
As the testimony disclosed, it is only through borrowings under the RCA that Met-Fd has managed to maintain financial solvency at this time.
In view of cuestions which arose during the course of the proceedings as to the signi-ficance of several dates with respect to the continued utilization of borrowings under the RCA, a brief analysis of the RCA is relevant.
Under the RCA, each subsidiary of O 8105130 N
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GPU has certain borrowing limits (Section 1.01 " Loan Limit").
The limit imposed upon Met-Ed has been further modified by a letter from the Banks to Met-Ed dated September 5, 1980, stating that the absence of earnings requires that the amount of borrowings be limited to Met-Ed's liquid assets, which included only certain uranium pledged to the Banks and the amount in Met-Ed's deferred energy account (Met-Ed Exhibit E-19-1).
By letter dated December 3, 1980 (Met-Ed Exhibit E-31), the Banks agreed to include 80% of the pledged customer accounts receivable as " liquid assets".
Projected loan balances and credit limits may be found in Mat-Ed Statement E, Supplement 1, Attachment 1.
(As of February 13, 1981 the loan balance is $44.0 million).
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Advances under the RCA are made pursuant to six (6) month notes dated April 1 or October 1, and made payable on the following October 1 or April 1 (Section 2.02).
The currently outstanding notes will be payable on April 1, 1981 (Section.:2. 02).
'The RCA terminates on October 1, 1981 (Section 1.01 " Termination Date"; Section 2.01(a)).
Accordingly, on such date, no new notes will be issued unless the maturity of the RCA is extended.
Such an ex-tension would require concurrence by 100% of the participating banks.
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As a condition for the banks' accepting new notes at the end of each six (6) month period, the borrower must make certain warranties and representations (Section 3.02(a)).
One of the requirements for renewal is that there shall not have been a determination by a majority of the banks in accordance with Se= tion 8.06 or otherwise that either the revenues er earnings available to the borrower will be insufficient to assure its ongoing financial viability or that there has occurred a change of the financial condition or prospects of such borrowar since May 29, 1979 which is aaterial and adverse and sub-stantially increases the risk that the notes issued by
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such borrower will not be repaid when due (Sec tion. 3. 02 (b) and (c), as amended by Met-Ed/Penelec Exhibit E-21-1).1/
Additionally, each borrower covenants that it will pay all taxes prior to the date on which penalties attach thereto (Section 5.01(a) ).
The failure to do so is considered an event of def ault under Section 6. 01(c).
Accordingly, significant events will take place on April 1, 1981 (when the notes will be renewed absent a determination by the banks under Section 8.06);
April 15, t
1 1581 (when Pennsylvania Gross Receipts Taxes must be paid by Met-Ed to preclude a default under Section 6.01(c) ; and i
October 1, 1981 (when the RCA terninates and all outstanding balances become due).
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POSITION OF THE BANKS The position of the Banks in this proceeding has been simply and succinctly stated in their rebuttal testimony, a copy of which is attached to this Brief (Banks' Statement No. 2; see also K. T. 2553-2577).
The most important matter before this' Commission, stripped of all its legalisms', is to grant Met-Ed rates which will allow it sufficient cash to re-main financially viable until TMI-l is brought back on line.
In accordance with the testimony of Met-Ed, this requires S76.5 million in cash (Met-Ed Statement J-1, Exhibit J-6; N.T. 2179-2181).
Absent any unforeseen events, this amount i
of cash should assure the funds to pay its taxes due both in April, 1981 and April, 1982 and to have sufficient funds te
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pay its debts as they become due while keeping substantially within the limit of borrowings under the RCA.
(Met Ed State-ment E, Supplement 1, page 5; N.T. 2502-2505).
Short of such relief, Met-Ed will continue to i
bounce from crisis to crisis and the likelihood is strong that there will not be the funds to pay its taxes or other obligations as they become due and that uhe RCA will not i
be extended or renewed at any level in October, 1981 when it terminates.
Certain suggestions have been made by the parties as to how such an increase may be effectuated without requiring that the entire 576.5 million of new cash come from the ratepayers on an incremental basis.
See Met-Ed
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O Statement E, Supplemenr 2, pages 34-21; N.T. 2179-2183; testimony of Mr. Packard, N. T.
2636 - 2637.
4 The Banks submit that these are appropriate means of effectuating substantial rate relief which are justified by the testimony.
By granting the complaint filed by Met-Ed against temporary rates and by slowing down the rate of the amortization of the deferred energy account, substantial rate relief could be afforded without the full impact of the increase becoming an incremental cost to the ratepayers.
Specifically, the Banks indicated that they would consider recommending financing a" higher level of deferred energy over a longer period i' the Commission continues to provide that the ratepayer is obligated to pay for deferred energy
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over a reasonable period.
Ohus, slowing down the rate of amortization may give rise to an increase in the " liquid assets" and, consequently, to an inersase in te credit limits from month to month. It should be noted, however, that merely slowing down the rate of amordzation, without a restatement of the deferred energy balance, will not give rise to a substantial increase in credit limits.
By April of 1981 (when this case is decided), the deferred energy balance is projected to be reduced to 534.0 million i
(Met-Ed/Penelec Statement E, Supplement 1, Attachment 1);
thus, cutting the rate of amortization in half means only that the balance will be S17 million by November, 1981 rather than zero as projected (Met-Ed/Penelec Statement E, (1) l..
O Supplement 1, page 10), and that the balance will continue to decline to zero six (6) months later.
Notwithstanding the above willingness of the aanks to facilitate the spreading of the impact of rates on the ratepayer, they continue to be concerned about the fact that Met-Ed continues to lose money at a subLtantial rate.
Accordingly, the impact of the rate order on the restoration of earnings and coverages is also important to the Banks. (See footnote lj.)
In considering reasonable rates, the Commission should compare such rates with other rates for electricity in effect or sought in Pennsylvania.
Met-Ed has neither the highest, nor seeks the highest rates in Pennsylvania O
(Met-Ed Exhibit E-33).
Considering its recent tribulations,
this is noteworty.
The Commission has significant latitude before the ratepayer can legitimately argue that his rates are unfair.
Indeed, any assistance which is to be gained either from Cong.ress or other utilities'will be very much influenced by the relationship of Met-Ed's rates to the rates of other electric u-ilities i.7 Pennsylvania and elsewhere ( N.T. 2555-2556A).
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It-is not the intention of the Banks to suggest the resolution of technical ratemaking issues.
It is rather their hope to conuinue to utilize their expertise as bankers in thi; situation so as to assist the Commission O
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in assuring that Met-Ed can continue to provide, in a reasonable manner, the service for which it is certificated, by obtaining the funds it needs from ratepayers and through bank loans which will enable it to continue to render such service through April, 1982.
This requires creative and innovative action by the Commission, but we have no reason to believe that the Commission is not capable of such type of action.
CONCLUSION For the reasons above submitted, the ?anks urge the Commission to grant Met-Ed the full rate relief requested in this matter.
O Respectfully. submitted,
=#7-fw-Getald Gornish Attorney for Citibank, N.A., Agent and Chemical Bank, Co-Agent Of Counsel:
WOLF, BLOCK, SCHOnR and SOLIS-COHEN 12th Floor Packard Building Philadelphia, PA 19102 (215) 569-4000 Dated:
February 13, 1981.
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Exhibit E-21-1 is a copy of the petition to amend the securities certificate of Met-Ed filed on or about August 12, 1980 (Docket S-80084 597).
Amendment No. 4, which, inter alia, was sought in such pe'.ition, ;cntains an amendment to add the words "or earnings" af ter the word " revenues" in Sections 3.02 (b) and 8.06 (b) 'of the RCA.
The amendment reflects the concern of the Banks that earnings as well as revenues must be present to assure the ongoing financial viability of Met-Ed and had the effect of making "the obligation of the banks to make further advances to Met-Ed dependent upon a determination that Met-Ed's earnings, as well as its revenues, are sufficient" (Order of Cormission, Septem-ber 18, 1980).
The Commission determined that the amendment was "necessary or proper for the present and probable future capital needs of Metropolitan Edison Company" and registered such certificate on September 18, 1980 (Idem.).
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