ML19347E644
| ML19347E644 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 02/13/1981 |
| From: | Gillham R, Kron P CHEMICAL BANK, CITIBANK, N.A. |
| To: | |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| NUDOCS 8105130172 | |
| Download: ML19347E644 (9) | |
Text
I REBUTTAL TESTIMONY ON BER.uJ OF CITIBANK, N.
A., IGENT AND CHEMICAL BANE, CO-AGENT Q.
Plesse identify yourselves.
A.
(Witness Kron): I am Philip C. Kron, a Vice President of Citibank. I as in charge of our Energy East Department which involves all lending act.vities to utilities in the eastern half of the country.
d (Witness Gillham):
I am Rchert C111 ham, a Vice President of Che=ien1 Bank. I am in charge of the bank's public utility group.
Q.
How are your banks involved in the instant proceedings?
t A.
Citibank and Che=ical Bank serve as agent and co-agent, respectively, under the 45-bank Revolvin-Credit Agreement (RCA) with GPU and its subsidicries. We intervened and presented testimony in the recent hearings befere this Cdssion (I-79040308) and cestified in the extraordinary rate relief portion of this rate herring (P-800702305) on August 12, 1980. We have also intervened in these current proceedings because of our interest as a creditor of Met-Ed and because of cur unique, if uncccfortable, position of being the only source of operating funds to Met-Ed other than the ratepayers. The views we express today are those of our individuni banks. However, we believe that our testicony fairly represents the views of the banking group as a whole.
Q.
What position have you taken in the current proceedings?
A.
Other then our testimony entered en August 12, 1980 in the Company's petition for interim extraordinsry rate relief, we have preferred to take a passive, conitoring role rather than active participatien in 210513 0 IM c
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these proceedings sins 3 coecific testimony r gsrding the comp:ny's financial needs and rate-making issues are appropriately handled by 0
other parties. However, we have expressed our concern to the other parties regarding the lack of Met-Ed's earnings and the failure of the Commission to issue an order that will enable Met-Ed to recover i
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financial viability.
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l In addition, af ter the failure of the Commission to act affirr.atively on the petition for extraordinary rate relief on August 28, 1980, a meeting of banks was held on September 3,1980. As a result of that meeting, considering the race at which deferred energy - the q
asset we had financed - was being amortized without a concomitant i
reduction in the balance of our loens under the RCA. we issued a r
letter to GPU and its subsidiaries dated September 5,1980 (Met-Ed Exhibit E-19-1) essentially limiting the amount of borrowings to a O
level related to " liquid assets" as defined in the referenced Exhibit.
Rather than present direct testimony, we had hoped to see a more responsive and realistic attitude by the parties to this matter in making recommendations to the Cc= mission with respect to the rate relief required by Met-Ed to maintain financial viability. In view of the recomnandations made by Trial Staff a'nd the Consumer Advocate, we have prepared this rebuttal testimony.
e Q.
Do you believe that the recommendations of Trial Staff and the Office of the Consumer Advocate will r.aintAfs the financial viability of Met-Ed?
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A.
Definitely not. Trici Staff recomm:nds $9.7 millitn cnd ths Consumer Advocate recocaends between $2.9 and $5.2 million while the company has testified that it requires $76.5 million.
Pleasestateinwhichwayyoudisagreewiththetestimonyo5 Trial Q.
Staff and the Office of Consumer Advocate?
A.
There are several poir.ts applicable to each of these parties.
First, we believe that thiy both overlook the larger picture and fail to consider what rates are necessary for Met-Ed to re=ain
- inancially viable until TMI-1 is brought back en line. Clearly, the myopic resort to legalism undertaken by those parties, which results in rates between $2.9 million and $9.7 million, disregards this point. k'e believe that their recommendations present a road:ap to bankruptcy. Not only do they not leave any room whatsoever for O
a ma: gin of error or chcnge in circucctances in Met-Ed's' projections, but they do not even provide sufficient cash to meet obligations when due.
Second, thosu reco==endations give rise to certain questions in cur minds regarding the future:
A.
Our ability to renew Met-Ed's credit at any level in October, 1981.
3.
Our ability even to contemplate a rollover of Met-Ed's notes under the RCA which are due on April 1, 1981.
C.
The ability of Met-Ed to continue to provide reliable service.
1 D..
The abi?.ity of Met-Ed to make the expenditures necessary to (3)
fccilit:ta thm rcstcrt cf TMI-I.
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Third, Trial Staff and the Office of Consumer Advocate limit themselves to the short range of I?21. They do not take a longer view of the effect of their reco==endations. Testimony by the ec=pany graphically shown the inadequacy of the awards they reco= send during 1981 and through the middle of 1982.
Fourth, we find it inconsistent for the staff to urge all due speed in getting TMI-1 restarted while totally disregarding a fundamental issue in the NRC restart hearings which is that of financial capability.
How can the staff expect the NRC to conclude positively on this important issue while providing rates that keep Met-Ed on the brink of insolvency?
Q.
Please refer to the specific testi=eny of these parties which you wish to rebut.
A.
Mr. Packard states on the one hand that the Co==ission should
" provide Met-Ed with sufficient funds ta meet its obligations as they come due" and thereby avoid insolvency (TS Statement RLP-2, p.
4).
On the other hand, his recocsendation (Id., p.5) is based on Exhibit E-28 by Met-Ed that we understand has been updated and
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changed and which shows Met-Ed running out of money in the spring of 1981. In any event, even the original Exhibit-28, as modified during the cross-exacination of Mr. Graham and on which Mr. P6tkard relied, showed Met-Ed running out of cash in the Fall of 1981 without any rate relief and only a short time thereafter with the 7s
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revenues recommended by him.
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Surthsmostpresumptuousossu2pticnbyMr.Pcekard10thItifth2 Banks would cor.tinue to extend $80 million of credit to Met-Ed. it could continue to meet its projected cash obligations throughout 1981 (Jd,., p.5).
It is highly doubtful that such credit could prudently be permitted absent appropriate liquid assets or adequate rate relief to present a basis for repayment. The actual credit limit under the " liquid assets" formula projected by Met-Ed at the and of 1981 is between $40-$50 million, well below the $80 million suggested. And we note that the price of uranium has recently decreased so that a revaluation of our " liquid asset" formula may be in order, further reducing the credit limit. The Banks have not in the past, nor do they intend in the future, to finance a gap created by patently inadequate rate relief.
Mr. Packard alsa suggests that the Banks are responsible fer placing Met-Ed into an uncertab position by virtue of their limiting Met-Ed's credit pursuant to Exhibit E-19-1 (Id,., pp.2,3). The credit limit is, however, a function of the company's viability and ability to repay its loans. It was the Coc=ission, not the Banks, which 1) removed TMI-1 from rate base and reduced the Company's base races;
- 2) ordered an accelerated recovery of deferred energy, the assac we had financed and the source of our repayment as it was recovered by the company, but without providing other revenues sufficient for the Company to meet its operating expenditures; and 3) which denied the Company extraordinary rate relief in August of 1980. Our response has merely been to take the prudent steps which we are legally obligated to do to protect our depositors and shareholders.
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We have not causd the uncertainty. We have only responded to (5)
orders of the Cour.issitn as wa fully cdviccd th3 Coeweis:sien by cur previous testimony that we would do.
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With respect to Mr. Dirmeier's testimony for the Consumer Advocate, he spends 30 pages of testimony to arrive at the conclusion that 42.9 - $5.2 million is appropriate rate relief under " traditional ratemaking determinations" (Testimony of Yichael Dirmeier, p. 31).
At that point he concedes that there has been "some evidence presented in this proceeding,regarding uncertainties in the provision of an adequate level of service arising from restricted availability of cash and access to credit." However, with respect to this issue which affects the continued existence of Mec-Ed, he states that he has not attempted to perform an independent analysis. We believe that availability of cash and r dequate credit are the most critical issues in this case and that the f ailure of the Consumer Advocate to address them O
makes its rtcot=sendation incomplete and unresponsive co' Met-Ed's current situation.
Q.
Do you have any.ecommendation as to adequate ratest A.
We have no reason to believe that the Coc:pany needs less than the
$76.5 million it has requested and which its projections show is needed to maintain viability through the middle of 1982. In fact, the $76.5 million requested may be insufficient to provide the coverages necessary to issue Met-Ed securities if a market at some price should develop. However, sirce the Company's request is for
$76.5 million, we urge they be given the full amount with the O
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composicitn of that rsliof bsing a matecr to ba datermin d using rate making tools available to the Commission.
It is a time for CI creativity on the part of the Commission. By granting the complaint against temporary rates and by slowing down the rate of the amortization of the deferred energy account, the Commission could grant substantial rate relief to the Company without substantially increasing the incremental cost to the racepayer. And, we'would note, given an order that addresses Met-Ed's need for funds through April 1982, we would consider recom=ending financing a hight: level of deferred energy over a icnger period; nrovided. however, that the obligation of the ratepayer to pay for deferred energy over a reasonable period was reaffirmed by the contemplated order herein.
Q.
Mr. Packard makes certain observations regarding federal assistance.
Do you have any ec==ents with respect to his observations?
A.
Yes. Mr. Packard has criticized Met-Ed's efforts (TS Statement RIP-2, pp. 6-7).
However, we believe that nothing will happen in k'ashington as long as it appears that the ratepayers are not paying their share. The members of Congress have their own constituencies who have their own v:ility rates to pay. There will be no sentiment to assist Met-Ed so leng as it is perceived that the racepayers of Met-Ed are not equitably shouldering the burden. And, from our discussions with other representatives of the utility industry, we sense an unwillingness to assist Met-Ed while its rates are not even the highest in Pennsylvania.
More importantly, we believe that the Federal government and utility industry are only beginning to become aware of the magnitude and i
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immedincy cf Met-Ed's prchlems.
Thtrafcro, va urg3 ytu t3 provida sufficient races and cash to bridge Mec-Ed over the time it will 7--
take the Federal Government and/or the utility industry to have an V) opportunity to develop a response to a complex financial problem.
We do not believe that a course of financial brinkmanship will be conducive to obtaining outside support for the problem.
Q.
You have earlier referred to October 1, 1981. Is that a critical date?
A.
Yes. That is the date the RCA comes due.
It will be exceedingly difficult to get 45 banks to renew the RCA on any terms in light of inadsquate rate relief and the large gap between Met-Ed's financial needs and available credit projected for April,1982. Actually, the question as to October, 1981 may be academic because the company projects running out of cash before that time.
O Moreover, there is a more imminent critical date - April 1, 1981.
On that date the varf aus Met-Ed notes come due and are to be rolled over.
A decision will have to be made by the Eanks as to whether a rollover will be allowed. Furthermore, substantial borrowings, in the cagnitude of $20 tillion are projected in the middle of Aprfl. 1981 for tax pay =ents; that too presents a critical date.
He would therefore urge the Judge and the Commission to expedite their decision in this matter so that we will have all the facts i
before us ac the time we are required to act on April 1 and April 15, 1981.
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Q.
Do you have any final comments?
A.
Yes. We feel that the Commission has to approach this situation with realism and creativity. This is a unique case with unique problems. An approach which enables Met-Ed to remain viable and solvent'is needed rather than wearing blinders and pretending that Met-Ed is like any other utility. We feel that we have taken a creative approach as bankers and urge the parties and Co==issien to do likewise. To quote Mr. Packard, " Insolvency is not a solution".
It is not enough to say these words; the Commission cust take action to implement them.
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