ML19347E668
| ML19347E668 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 05/23/1980 |
| From: | Graham J GENERAL PUBLIC UTILITIES CORP. |
| To: | |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| NUDOCS 8105130202 | |
| Download: ML19347E668 (32) | |
Text
,[.
- ME/PN Statement E, (q
Witness:
John G. Graha
)
Testimony of John G. Graham Introduction I am Treasurer of General Public Utilities Corporation
("GPU") and Vice President and Treasurer of GPU Service Corpora-tion ("GPUSC").
My testimony is submitted on behalf of Metro-politan Edison Company ("ME") and Pennsylvania Electric Company
("PN").
The purpose of my testimony is to present the financial plans of ME and PN, that is, the forecast of needs for capital, sources of funds, the ability to obtain permanent capital and O
the availability of short-term credit to the two companies.
A
. statement of my background and qualifications is attached as Appendix A.
As a result of the May 23, 1980 Order (Docket No. I-79040308) of this Commission which set temporary base rates for both ME and PN, permitted the companies to set a level of energy clause billing to customers which reflects an estimate of current energy costs and permitted recovery of deferred energy expense over the next 18 months, it has been necessary to revise our forecast of the financial posture of the GPU System since the Original 1980 Budget forecast was prepared.
Such a revision is j
now underway.
This will use actual results of operations for O
the first quarter of 1980 and forecasted data from that point fo:sard.
To be able to make this filing, earlier data had to oc used.
For this reason, the Title 52 materials have been prepared using the Original 1980 Budget for the GPU System.
This was the
!8105130')_o7
] material used in developing my testimony presented in the last proceeding (ME/PN Statement A, Supplement 1, Exhibits A-24 through A-29.) With respect to the material in this testimony, the preliminary results of the forecast revision have been used in order to present the most accurate view of the GPU 5," stem for the remainder of 1980 and for 1981.
The assumptions used in this study are similar or identical to those which will be used in the revised financial forecast new being prepared.
The forecast in this testimony is that currently being used within the GPU System for financial planning purposes.
It is my expectation that the more complete forecast will be available in
()
the next several weeks.
As appropriate, this testimony will be updated to reflect this more detailed view of our forward financial picture.
O O
_ ;s.
t
() Assumptions Used In i
The Revised Forecast In developing this revised forecast, several major assump-tions have been made.
In reviewing and evaluating this projec-tion, it is important to keep these assumptions in mind and to recognize that the results of the study will be influenced greatly by variation of the assumpticns.
With this in mind, the following assumptions have been made in making this projection:
1.
Sales of Electricity.
This forecast reflects a view of
(])
the demand for electricity made in April of this year which now reflects overall 1980 sales for the GPU System being essentially the same as 1979 sales.
That is, no growth in sales in 1980 is expected.
In 1981, sales are expected to grow approximately 4%
over the 19 80 level.
For the two Pennsylvania companies, sales growth is reflected in this forecast as follows:
ME PN Total Sales (GWM) 1979 (actual) 8,084 11,140 1980 (3 months actual, 2,217 3,127 9 months projected) 5,635 8,090 1981 (projected) 8,177 11,668 Sales Growth (E) 1980 over 1979 (2.9)*%
0.7%
19 81 ove r 1980 4.1%
4.0%
- The negative growth reflects ME's loss of the Hershey Electric load.
t
-({)) 2.
Inflation.
This forecast anticipates a rate of general price inflation in the economy of about 10% this year and 8% to 9% next year.
3.
TMI Units.
TMI-l is assumed to return to service in mid-1981.
It is my understanding that the restart proceedings are now on a schedule which is consistent with this assumption.
TMI-2 is assumed to be out of service throughout the period.
4.
Operations and Maintenance Expense.
The levels of operation in 1981 are essentially at the same levels reflected in the 1980 Original Budget except that about S8 million his been O
added to ME's anticipated expenditures and $7 million to PN's.
The Budget figures reflected only austerity levels of spending for ME and somewhat more normal levels for PN reflecting that company's healthier financial posture.
The dollars which have been added to the budget figures will be expended for some com-bination of load management activities and completing essen-tial maintenance projects which had been deferred.
5.
Construction Expenditures.
The projected expenditures i
for construction which have been included in the forecast are set forth in the following tatle:
O
({}
$ Millions ME PN 1980 1981 1980 1981 Generation Raystown (1985) 1 1
Seward-7 (60% - 1987) 5 19 Merrill Creek (8% - 1983) 1 3
Existing Plants 9
15 30 31' Transmission 2
9 8
10 Distribution 18 22 35 39 Nuclear Fuel 15 8
8 4
2 Load Management 4
4 Payments of Contract Retentions 10 5
4 General 1
2 3
_ _ _4 i
Total
$J
$_6),
$3 This forecast reflects PN continuing some progress on its next addition to generating capacity, i.e., a coal-fired unit at Seward station to come on line in 1987.
ME is not expected to L
make expenditures for new generation except for its portion of the Merrill Creek reservoir project as to which it is con-tractually bound to make its proportionate share of the expendi-tures.
In the areas of expenditures for existing generation plants, transmission facilities and distribution, higher levels are projected for ME in 1981 than in 1980 reflecting the need to return to more normal levels of expenditures.
Capital expenditures for load management activities of $4 million for ME and $4 million
_()
for PN have also been included.
With respect to payments
^
of contract retentions, soon after the accident at TMI we negotiated an extension of time for payments to USDOE for
6-O nuclear fuel enrichment services.
These payments come due in December of this year.
While we will attempt to again extend the time for payment of some or all of these bills (which bear interest at 12%), I have shown them as being paid pending completion of these negotiations.
6.
TMI-2 Clean-Uo and Insurance Recoveries.
The forecast includes expenditures for clean-up of the af termath of the TMI-2 accident of approximately S100 million per year far the System.
Half of these are the responsibility of ME and one-fourth of PN.
Of this amount, approximately $10 million per year will be charged to expense and S90 million deferred.
Essentially all of these costs are for clean up as opposed to restoration of O
the plant.
Against these expenditures, insurance recoveries of S86 million in 1980 and S55 million in 1981 have been anticipated.
These amounts represent our judgment as to the timing of these recoveries.
At present Sil7 million, out of the $300 million policy limit, has been received.
At the end of 1981, S211 million is expected to have been received.
The deferred clean up balance will have grown from about S12 million now to about S64 million.
7.
Energy Costs.
The projection of fuel and purchased power costs reflected in this forecast are based upon the following major assumptions:
O The return of TMI-l to service July 1,1981.
a.
b '.
Coal costs as fol2cws:
s
i ME PN Present
$38/ ton
$29/ ton December 1980
$38/ ton S30/ ton December 1981
$42/ ton 533/ ton c.
42 011 Costs as follows:
ME Present
$34/ barrel i
December 1980 S40/ barrel December 1981
$4d/ barrel l
l Increases in oil costs cause only relatively small increase in fuel costs to ME and virtually no in-crease to PN.
d.
Continued availability of substantial coal-derived I
energy from outside PJM.
O e.
Continued pricing of energy on the PJM Interchange 1
by split of savings.
8.
Enercy Billings to Customers.
With respect to the rate i
i of energy billings to customers, this forecast assumes the imple-j mentation of the Commission's Order of May 23, 1980.
Using the estimate of energy cost set forth previously, this results in the following projections:
a-ME i.
January 1981:
No change from the current billing factor of 26.5 mills.
This present factor is sufficient to allow essentially cur-()
rent recovery in the first half of 1981 pending the return of TMI-l to service.
ii.
July 1981:
Reduction of 7.1 mills (about SS6 million annually) representing lower costs
from TMI-l generation.
If TMI-l does not l
return to service on July 1, the LEAC will need to be increased slightly over its current level to maintain current recovery of energy costs.
i 111. January 1982,:
Further reduction of 3 mills (about $25 million annually) representing a reduction of 7.4 mills from completion of the 18 month def erred energy amortization, of fset in part by an increase of about 4.4 mills representing the forecasted 1982 energy O
costs.
b.
PN 1.
January 1981:
An increase from 9.0 mills per kwh of 1.5 mills (about $16 million annually) representing forecast energy costs in the year
^
1981.
ii. January 1982:
An increase of 0.9 mills (about S10 million. annually).
9.
Base Rates.
For purposes of this forecast, I have alternatively assumed (a) that the two companies each receive the amount' requested in these filings at the expiration of the suspension period (May 1,1981) and (b) no change from current
()
base rates except that when TMI-l returns to service (7/1/81) base rates are increased by the same amount that they were reduced when TMI-l was removed f rom rate base in the May 23, t
.h
9-10.
Financings and Availability of Credit.
With respect to permanent financings, my forecast assumes a S35 million bond placement by PN in the first quarter of 1981.
Our in-vestment banking agents are preparing to attempt to place a
$50 million bond in the later part of this year but for con-servatism, I have assumed a S35 million bond in early 1931.
The forecast assumes no permanent financings for ME.
As will be seen, that company will continue to be in a loss position until it receives base rate relief.
While it seems unlikely that any permanent securities could be placed, I have asked our investing banking agents to explore whether there is any
(])
possibility of marketing ME pollution control bonds using the SS million of bonds which mature in December and some part of 4
the S13 million of bonds " warehoused" with the banks partici-pating in our credit agreement.
My forecast assumes no sales of GPU common stock and no capital contributions to ME or PN.
I have also assumed that ME will pay no dividend to GPU but that PN will continue the.
policy of paying up its earnings.
For financial forecasting purpos es, I have assumed that no GPU common stock dividend will be paid throughout 1980 and 1981.
With respect to short-term debt, I have assumed (1) the availability of $292 million to the GPU System and (2) that ME,
(])
while limited to S105 million, will have that amount of credit available to it.
This subject will be discussed in more detail subsequently.
c-
O-Charges to Customer s With the assumptions I have made for this forecast, the following charges to customers in mills per average kwh will result:
In the case of ME, if the full requested rate relief is granted, after reflecting the impact of the operation of TMI-l and the end of the 18 month deferred energy costs amortization, customer's bills early in 1982 would be the same (actually 0.4% lower) as they are today.
Without base rate relief, bills would be 11.6% lower than they now are.
(])
For PN, with rate relief, in 1982 rates would be 19.7%
higher than today.
Without rate relief they would be 1.8%
higher.
O t1e
.. 1 Projected Short-Term Debt i
The following is our projection of short-term debt both with and without base rate relief.
GPU SYSTEM Projected Net Short-Term Debt (S Millions) 1.
No Rate Relief Case 12/31/80 12/31/81 Jersey Central
$120
$ 31 Met-Ed 91 113 Penelec 27 GPU Corp.
43 24 System Tot.
S254
$195 O
i 2.
With Requested Rate Relief 12/31/80 12/31/81 Jersey Central 120 31 Met-Ed 91 78 Penelec 9
GPU Corp.
43_
4
{
System Tot.
$254 SITf.
O i
O Cash Requirements The levels of short-term debt shown previously are a result of the sources and applications of funds of ME and PN.
The fol-1 l
lowing material organizes the requirements for funds into three major categories reflecting different areas of the operations of the two companies in 1980 and 1981.
For this purpose, the first category is the cost of energy and the recovery of these costs from customers.
The second area is the cost of clean-up at TMI-2 and the related insurance recoveries.
The final area is the need for funds for construction and refinancings (maturing securities and sinking fund requirements) compared to all internal sources of tunds not set forth previously:
O 1
- 13a -
O o
o
~.
Statement of Cas.. Requirements
($ Millions)
Year 1981 July-December 1980 No Base Rate Relief With Requested Rate Relief ME PN HS PN ME PN t
Requirements for Funds I.
Defe rred Energy Energy Cost-PUC
$ 91
$ 88
$189
$201 Energy Billings to Customers 126 94 239 219 Same as Net Deferred Energy
$(35)
$ (6)
$(50)
$(18)
No Rate II.
TMI-2 Clean-up Relief Case Expenditures
$ 28
$ 14
$ 45
$ 23 Insurance Proceeds 20 10 28 14 Net THI-2 Expenditures S 8
4
$ 17 9
I e
III.
Construction Construction &
Refinancings
$ 40
$ 63
$ 65
$122
$ 65
$122 8 Net Internal Sources 17 34 10 51 45 69 Net Construction S 23
$ 29
$ 55
$ 71
$ 20
$ 53 Net Deficiency (Genera-tion) of Funds
$ (4)
$ 27
$ 22
$ 62
$(13)
$ 44 Scurces of Funds Bank Borrowings S (4) 5
$ 22
$ 27
$(13) 9 35 35 Permanent Financings 22 Temporary Investments Total
$ (4)
$ 27
$ 22
$ 62
$(13)
$ 44
.. O While there are infirnities in making thi.s kind of a " dollar painting", it is a useful way to analyze where ME and PN are, and will be, in 1980 and 1981.
With respect to energy cost, the deci-sion to allow current recovery and to authorize snortization of the deferred balances results in a substantial generation of funds-from energy billings in excess of current costs.
In this'19 month period, ME will generate some S85 million.
PN will generate some $24 million.
At the end of the period, each com-pany should have essentially no deferred energy balances.
With respect to TMI-2 clean-up, ME is expected to spend about $25 million in the period in excess of insurance recoveries.
PN will spend half of this.
It is a substantial need for funds
()
representing a substantial portion of M3's credit availability.
At the end of 1981, ME's deferred clean-up expense balance will be S32 million when short-term debt, assuming full rate relief, would be S78 million.
In the third category, the striking difference between the two companies should be noted.
Without rate. relief, ME has $105 million of construction and refinancings in the period but would have minimal internal sources--only $27 million--to suppo rt those needs.
PN has a disparity--not nearly so large--but with access to long-term debt markets can absorb that need for funds without excessive reliance on short-term debt.
With rate relief, ME starts to have some restoration of modest financial
()
health by starting to bring short-term debt down and to have some margin of safety to its credit limits.
With rate relief, PN can continue to have modest financial health.
m
i 1,
l Capitalization-The lack of access to any equity markets and only limited
_ access to debt markets gives rise to significant concern about the capitalization ratios of the System and of ME and PN.
ME 1981 1981 1980 w/o Rate Relief w/ Rate Relief Capitalization' Ratios-%
Long-Term Debt 48%
47%
48%
Preferred Stock 12 12 13 Common Equity 33 32 34 Short-Term Debt 7
9 5
Total 100%
100%
100%
PN 1981 1981 O
1980 w/o Rate Relief w/ Rate Relief Long-Term Debt 54%
54%
54%
Preferred Stock 13 13 13 Common Equity 33 31 32 Short-Term Debt 2
1 Total 100%
100%
100%
Without rate relief, the equity ratio continues to decline and reliance upon short-term debt, even if available at such levels and under such circumstances, would be financially i
dangerous.
With rate relief, the debt ratio can be brought down somewhat and there is less reliance upon short-term debt.
There is some continuing basis for constructio'n of additional facilities to continue service to customers.
1
.. O Earnings and Coverage As a result of this forecast, the earnings of the two companies and their projected coverage ratios can be estimated:
ME 1981 1981 1980 w/o Rate Relief w/ Rate Relief Net Income S (9)
$(8)
S11 Return on Common (2.3)%
(2.2)%
2.9%
Interest Coverage 1.04x 1.10x 1.96x Preferred Coverage 0.88x 0.91x 1.19x PN 1981 1981 1980 w/o Rate Relief w/ Rate Relief Net Income S 25 S14
$34 Return on Common 5.9%
3.4%
8.1%
Intereet Coverage 2.08x 1.66x 2.33x Preferred Coverage 1.34x 1.17x 1.44x It can be seen that ME will be in a loss position in 1980 and until it receives a base rate increase.
In 1980, the Company will loce S9 million or a 2.3% loss on common equity invested in its f acilities.
It will not earn its preferred stock div-idends and will just about earn its interest on long term debt.
In 1981, without rate relief, it continues to experience a loss.
In 1981, with rate relief, ME would begin to come close to a point where it could market long term debt.
()
The graph of interest coverage on the next page (ME/PN Exhibit E-17) illustrates the impact that these base rate requests have on ME's and PN's ability to market long term debt.
t
~-
I Availability of Bank Credit The Commission is fully aware of the terms and conditions
\\
of the Revolving Credit Agreement to which GPU, ME and PN are parties.
This agreement limi ts the GPU System to a total of $292 million of credit tad sets sublimits for GPU and each of the three operating companias.
Initially, there was available to ME S125 million under the credit agre eme nt.
By letters dated April 9, 1980 (ME/PN Exhibit E-13) and May 15, 1980 (ME/PN Exhibit E-19),
the banks set forth their reaction to the NJBPU and PaPUC Orders which had then been ntered or were then anticipated in the pending cases.
The removal cf TMI-l from our rates was, as the banks have stated frequently before this Commission, "cause for serious concern as are any modificaticns to rates which adversely affect earnings (as distinguished f rom revenues) and, thus, impede the capccity of the Borrewers to raise funds in the public securities markets. "
(ME/PN Z::h ibit E-19, page 2 ).
As a result, the companies were advised that:
"1.
It still does not appear that favorable consideration would be given to any request on behalf of the Borrc-ers which would permit the aggregate Indebtedness outstanding under the Credit Agreement to exceed the present applicabla limit (S292,000,000) until there is greater assurance as to the Borrowers' on-going financial viability.
Important indicia of such assurance, particularly in the case of ME, would in-clude f avorable regulatory action and other events the ef fect of which is to bring the Borrowers' earnings to a level to support long-term financing.
"2.
At this time (and subject to the f avorable resolu tion of varicar uncertainties and the absence of adverse eve nts ). it does not appear that it will be necessary to obtain additional collateral as a precondition of
further Advances to any Borrower other than ME as to which the Banks are reserving decision.
l "4.
It is the expectation of the Banks that ME's Indebted-l ness under the Credit Agreement will not exceed the levels outlined in our prior letter.
In addition, the Banks will carefully review the final order of the PaPUC and, if still confronted with a reduction of base rate revenues, may consider further limiting availability to ME on a basis related to the reduction of ME's deferred energy costs account."
As to the limitation of ME's borrowings, the prior letter (ME/PN Exhibit E-18) had set a limit of $105 million.
Without interim rate relief, which Met-Ed is requesting in conjunction with this filing under Section 1308(e) of the Pennsylvania p
Public Utility Code, this limit is expected to be exceeded in
%J April 1981, when Met-Ed has a large state tax payment due.
However, as discussed more fully in Met-Ed's petition for in-terim relief, if the requested interim relief is granted effec-tive in September 1980, and the balance of Met-Ed's request is granted effective in May 1981, Met-Ed should stay within the S105 million limit during 1981.
It is critically important to racognize that even the $105 million may not be available to ME throughout this period.
The banks are greatly concerned that the deferred energy account is being amortized rapidly but ME's debt to them is not declining.
This is a result of needs for funds to support clean-up, ongoing construction, refinancings and the deficit now being experienced.
It is, as can readily be recognized, very difficult for a bank l
to fund into a company in a loss position.
The banks, at least in part, viewed their participation in this situation as a crsrrmnrez_9pM1As af Mofomed GaoaE1E dmim o transition geriod.
(O They must see a way of being paid out or they will demand addi-tional security, set a repayment schedule or both.
This is stated in their letter of May 15 quoted above.
We do not know how the banks will react as time goes on.
They recognize and respect the difficult judgments which must be made by the Commission, the steps taken to reassure them and that some time is needed to allow the regulatory process to operate.
They can be expected, however, to refuse to allow ME to go on without some additional allowance in base rates for earnings to begin to progress toward a time when ME can access permanent capital markets.
They have indicated the fall of this year as
{}
being a time at which they must give serious review to these issues.
As to PN, a major strategy in our having sufficient bank credit for the GPU System has been to avoid having that Company use any significant part of the Revolving Credit Agreement credit.
Marketing bonds late in 1980 will be critical to maintaining this goal.
The fact that Moody's has rated that company as being belcw investment grade (See Exhibit E-20 ) gives rise to signifi-cant doubt as to the marketability of those securities.
Prcspec-tive purchasers of these securities will look to progress in this proceeding, as well as in the TMI-l restart hearings, in deciding whether to invest in that company.
()
l f
- 20a -
_~
a c,,
Embedded Debt and Preferred Costs Met-Ed's and Penelec's rate increase requests are based on overall rates of return of 10.61% and 10.54%, respectively, including a common equity return of 15.5% for both companies.
The reasonableness of the ccmpanies' requested common equity return will be supported by Met-Ed/Penelec Witness Dr. Eugene F. Brigham, whose testimony indicates that, in view of Met-Ed's and Penelec's increased risk that has arisen as a result of the TMI-2 accident, a substantially higher equity return allow-ance would be justified.
O The remaining elements of Met-Ed's and Penelec's requested return allowances (i.e., the companies' embedded debt and pre-ferred costs, which are normally not in controversy) will be supported by me, and are as follows:
Projected to 3/31/81 Capitalization Cost Weighted Ratio
- Rate Cost I
MET-ED Long-Term Debt 50.1%
7.87%
3.94%
Preferred Stock 13.1 7.40 0.97 Common Equity 36.8 15.50 5.70 Composite 100.0%
10 61%
PENELEC Long-Term Debt 54.7%
8.06%
4.41%
Preferred Stock 13.0 8.59 1.12 Common Equity 32.3 15.50 5.01 Composite 100.0%
10.54%
- excludes short-term debt in accordance with established Com-mission practice.
n
O Appendix A Statement of Background and Qualifications of John G.
Graham I am the Treasurer of General Public Utilities Corporation and Vice President and Treasure-of GPU Service Corporation.
I have served in those capacities since September 1, 1978.
My responsibilities in these positions include the availability of adequate cash resources for the GPU System, relationships with the banking and investment communities, assurance of the completion of regulatory filings and approvals for the GPU System in connection with financial matters, and responsibility for GPU System financial forecasting and long-range financial planning. I am responsible for the GPU System insurance and G
risk management program.
I also coordinate these activities
\\>
with the Treasurers and other appropriate officers of the three operating utilities within the GPU System, including Met-Ed and Penelec.
Prior to my appointment as Treasurer, I served from i
October,1976 as Vice President for Law at Jersey Central Power
& Light Company, another subsidiary of the GPU System.
Before that time, I practiced law, mainly in the field of the regula-tion of public utilities, in Newark, New Jersey.
From 1965 to 1971 I served as Assistant Dean and Associate Professor at the Law School of Rutgers University.
Most of my research and teaching activity, at this time, was in the fields of Civil Procedure, Criminal Law and the Administration of the Criminal Law.
Since 1972 I have also served as an adjunct member of the faculty of the Law School of Seton Hall University in Newark, New Jersey.
I teach in the fields of Administrative Law, Regulated Industries and Pcblic Utilities.
I am a graduate of Upsala College in East Orange, New Jersey, with the Degree of Bachelor of Arts in Mathematics and Economics. 'I am also a graduate of Rutgers Law School with the Degree of Juris Doctor.
i
- 22a -
M;t-Ed Exhibit E-25 Witasss:
J. G. Graham q
Metropolitan Edison Comoeny
'j Post Office Sox 542
,/
.l 4%
1-F
\\
t 8
Reading Pennsylvania 19640 215 929 3601 Wnters Oltect Oial Nunicer l
September 12, 1980 Chairman Susan M. Shanaman Commissioner Michael Johnson Commissioner James E. Cawley Commissioner Linda C. Taliaferro Pennsylvania Public Utility Commission P.O. Box 3265 Earrisburg, Pennsylvanic 17120 Cear Chair =an and Commissioners:
Mr. Herman Dieckamp's tastimony before your Commission on August 11 stated:
"If Me t-Ed does not receive extraordinary rate relief, it will have no choice but to reduce even further its operating and main-tenance expenses and its already sharply curtailed construction expenditures.
- It is the purpose of this letter to inform you of the steps which Me:-Ed must new take to remain within the credi: available.
The cash projections referenced in that testimony were based on 3 months actual data for 1980 and 9 months forecast for
.he balance of the year (3+9). We have updated our cash forecasts to reflect 6 months actual and 6 months forecast (6*6) revenue and expenses (0&M plus construction) for the period August 1980 l O through Decem er 1981.
The results of this updated analysis are
' V contained in Attachment 1. summarizes the major asst:mptions in both of these forecasts.
t l
_ 'Idtf000lf20 USCM 1*F03nv 3 4 LI4""O&f Of ""9 OdF91 h03C Lt!?e$ 3yS*GN
.. Soptcmbar 12, 1980 O
With the pledge of receivables and af ter the reductions identified in this letter the forecasted deficit continues to grow to approximately S31 million by December 1981.
Fo'r immediate planning purposes, we are assuming that this deficiency can be eliminated by rate increases, improved credit availability in response to rate relief, or a modification in the portion of of current rates devoted to amortization of deferred energy.
The appropriateness of these assumptions and the level of expenditures will be continually reviewed and adjustments made as required.
The reductions from the (6-6) budget level necessary to aggregate 534 million in savings during the 7 months, October 1980 thru April 1981 are summarized in Attachment 5.
The impact of these reductions on the short-term credit requirements of Met-Ed and the relationship to the RCA credit available is shown in Attachment 4.
It should be noted and emphasized ths.t this plan does not produce additional savings to offset poten:ial adverse events.
The major reductions in budgetsd expenditures include:
a)
Coal inventories will not be expanded in preparation for a potential coal strike.
b)
Two f acrors impact our revised plan for the clean-up program at TMI-2.
First, and foremost, is our understanding of a realistic schedule on which we can expect necessary NRC actions that pace the clean-up, and secondly, the availability of funding.
U tLa -
.. September 12, 1980 the schedule remains limited by the ASLa hearing and NRC approval process.
d)
OEM and capital expenditures other than T&D will be reduced belcw the budgeted levels even though, l
in our judgment, the budgeted amounts are already f ar below the level necessary for no=nal and reliable service.
These reductions result in the elimination of about 100 jobs, e)
T&D capital expenditures will be reduced to about 1/2 of the current level.
This will result in a necessity to limit the number of new cus tomers which can be connected.
New connections will have to be accompanied by the appropriate system reinforcenent necessary to preserve the current level of reliability.
The basis for prioritizing new customer connections is outlined in Attachment 6.
A tariff change will be submitted with a request that it be pe=nitted to beccme ef:ective October 1, 1980. The redu-'d resources will permit the connection of acout 41C
.ustomers compared with an annual requirement of about 6900.
The reduced work will result in elimination of an additional 100 jobs.
In order to achieve the necessary savings, we must initiate these actions no later than September 22.
We deeply regret having to take such steps since these actions will result in an accelerating
(
l
- 27a -
Distribution Lisc:
)
i Pennsylvania Public Utility Commission United Scaces Nuclear Regulatory Commission '
North & Commonwealth Screets Washington, D.C.
20555 k.0. Box 3265 Harrisburg, PA 17120
- John F. Ahearne, Chairman i
- The Honorable Joseph P. Macuschak
- Mr. W. P. Thierfelder, Secretary Ryan, Russell & McConaghy
- Steven A. McClaren, Esq.
530 Penn Square Cancer
- Bohdan R. Pankiv, Esq.
P.O. Box 699 Reading, PA 19603 Maurice A. Fracer, Esq.
Samuel 3. Russell, Esq.
McNees, Wallace & Murick P.O. Sox 1156 Harrisburg, PA 17108 Gerald S. Gornish, Esq.
Wolf, 31ock, Schorr, Solis-Cohen 12th Floor Packard 3uilding Philadelphia, PA 19102 Roland Morris, Esq.
Duane, Morris & Hecksher
?.0. Sox 1003 Har-isburg, PA 17108 Office of the Consumer Advocace Strawberry Square 14ch Floor Walnue & Fourth Screets Harrisburg, PA 17120
- David M. Sarasch, Esq.
- Craig R. Surgraff, Esq.
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Actcche nt #5
['r%
V Metropolitan Edison Company Identified Reductions Necessary for Cash Conservation For the Period October,1980 thru April,1981 *
)
1 Iden'.ified Reductions Dollars Priority Item (In Millions) l 1
Roll-over of DOE Payment S 9.7 2.
Maintain Coal Inventory at 25 Days 6.9 (a)
Elimination of Inventory Buildup in S 4.2 Anticipation of Coal Miner's Strike *
~
(b)
Reduction to 25 Days Inventory Level 2.7 3
Reduction in Tools and Equipment Capital Budget 1.1 4
Delay of Load Management " Master Plan" Program 1.1 5
Reduction in GPU Service Corporation Expenditures
.8 O
Deferral of T&D Construction Projects and Purchases 3.11 7
Deferral of Combustion Turbine Outages
.2 8
Reduction in TMI #2 Clean Up Program 4.1 (a)
Clean up Program
$13.6 (b)
Insurance Recovery (9.5) 9 Deferral of Fossil Generation Capital Expenditures 1.4 10 Reduction in Generating Station C&M Expenditures 4
11 Deferral of Scheduled Generating Station Outages 1.6 12 Tree Trimming Expenditures a
13 Other O&M Expense Raductions - Personnel Related
- 1. l' la Reduction in Transmissict and Distribution Construction 3,. 8 Expenditure %
(a)
Persernel Related
$ 1.3 (b)
Associated Expenditure 2.5 15 TMI #1 Start Up costs Total
$34.3 O
1 1
l l
36e -
Acccchm:nt #5 Supplement #1 Metropolitan Edison Company Identified Reductions Necessary for Cash Conservation j
For the Period October,1980 thru April,1981 Imoact of Identified Reductions
- 1 Roll-Over of DOE Pavnent Cash Flow 9.7 Million The continuation of the deferral of the payment for nuclear fuel enrichment services with the Department of Energy continues the existence of the debt 1
into the future periods when cash requirements may be even more critical.
- 2 Maintain Coal Invencerv Level at Twenty-Five Days Reduction $6.9 Million
~
This expenditure reduction eliminates the planned strategic. build up of inventory levels as a hedge to the anticipated coal mic.ars' strike in March, 1981.
In addition, the inventory levels will be reduced to 25 days which is well below normal operating levels. The resul e is the definite risk that an adequate supply of coal will not be availi.ble to operate the units at capacity levels, thus resulting in increated customer energy costs. An additional risk of coal handling problems in assumed with the 1
reduced inventory levels during the winter months when 2reezing of the coal pile and railroad cars can occur with the potential result of reduced station output due er insufficent coal.
- 3 Reduction in Tools and Ecuinment Caeital Budget Reduction S1.1 Million AsignificantreductioninthNplannedexpendituresforstructureimprove-ments, office furniture, transportation equipment, tools, and communication equipment expenditures has been taken. The remaining forecasted expendi-tures of $35,000 per month will cover only emergency recuirements. This reduction eliminates the office changes necessary to effect the management consolidation in the Reading building. There will be a. reduction in worker productivity because the necessary and appropriate new and replace-ment tools and equipment will not be provided.
- 4
')elav in Load Management " Master Plan" Program Reduction $1.i Million All planned field programs with water and space heating customers and T-0-D promotion are eliminated. This expenditure reduction also eliminates all T-o-D, load management and conservation media advertising. We have cancelled the hiring of energy auditors to be trained for the RCS E 37a -
Attache:nt #5 Supplement #1
! ()
- 8 Reduction in TMI-2 Clean-un Program Net Reduction
$4.1 Million The 6+6 forecasted spending level for 71-2 is $100 million annually on a 100% ownership basis. For the perior November, 1980 through April, 1981, the following illustrates the reduction being made:
Millions 6+6 Forecast - 100% ownership 5 54.4 Reduced Spending Level 27.2 (a 50% reduction)
Reductions In Period - 100% ownership
$ 27.2 Met-Ed Shara - 50% ownership S 13.6 lasurance Recovery - 7C% of Reductions (9.5) l Net Met-Ed Savings in Period SM For the impact on the TMI-2 clean up program, see the letter to the NRC dated September 12, 1980 which is contained in Attachment 5 - Supplement 2.
- 9 Reduction in Fossil Generation Cacital Excenditure
[}
Reduction $1.4 Million Hunterstown Combustion Turbines - Cas Conversion Reduction 3.5 Million This reduction elbainates the conversion of three combustion turbines at Hunterstown frca oil to gas firing. The effect of this project cancella-tion will be to eliminate savings in customer energy costs (estimated cc, be S.8 million in 1981) due to the continuation of the more expensive oil firing at these units.
Portland Reduction S.7 Million Unit #2 Low Pressure Clean Uo and High Pressure Heater Drains Reduction S.2 Million This project is designed to Laprove the water quality of the boiler water thereby improving upon the continued degradation of the boiler tubes due to hydrogen embrittlement. The delay of this project will result in the continuation of one of the current problems at Portland which has affected the unit's availability. Thus, it can be expected O - 39a -
i
Accachmenc b5 Supplemenc #1
.h ntamber of times, there will be a continued degrading of the units which l V will further increase the risk of a major, long term forced outage with significant maintenance costs and higher customer energy costs due to che need fot purchase of replacement energy.
At Portland, Unit #1 was scheduled for a three week boiler inspection with slope ti.ibe replacements and other equipment replacements for a cost of $1.0 million. The necessary inspections and maintenance will be limited to a S.2 million expenditure. The planned work had been originally scheduled for :he spring of 1979 and was rescheduled evo times to the present date. The Portland unit has had unsatisfactory availability and
- here has been significant maintenance costs. The reduction of this eucage to meecing only the necessary inspeccion requirements prevents the improvement of :he unit's availabili:7 and forced outage costs that were ancicipated from the oucage plan. The result will be increased customer energy costs and maintenance costs resulting from expected forced outages.
Titus Unit #2 was scheduled for a 9 week outage-for a curbine overhaul and other major maincenance efforts at a cost of $1.0 million. As a replacement, a necessary inspeccion and maincenance outage will be planned with a cost limitacion of S.2 million. The effect of this change is to continue to in-crease the risk of major problems with this unit since che work planned for this outage was originally scheduled for April,1979 and has been rescheduled
- wo different times since chat time.
It has been over six years since the last turbine overhaul. The resul: will be decreased availability and in-creased customer energy costs and maintenance expense.
O
- 12 Reduction in Planned Tree Tri:mning Excenditures It is planned to continue Met-Ed's present contraccor work force of four crews to perform the cree maintenance program until April, 1981. The reduced 1981 budget then projects the addition of five crews. A review of the financial situation in April,1981 will dictate if we can add thote crews.
A desirable annual level of tree maintenance progran to limit customer inter-rupcions to an appropriate level and carry out an effective and efficient program is $2,948,000 in 1980 dollars, representing a work force of 37 crews.
Mec-Ed's tree maintenance program from January 1,1974 to the date of the TMI accidene (March 28, 1979) bowever has averaged only 31,509,000 per year. Since the TMI accident ut March,1979 we have further reduced that effort to an annual rate of SCd9,000. The annual race of the present work force of four crews is $344,000.
The increasing impact of these reduced efforts on customer service reli-ability have been placed before che Conaission in rate hearings since 1974 The most recent information is contained in Exhibit F-22 submitted in Augusc,1980 in connection with Docket R-80051196.
Exhibit F-22 projects that 79% of the cuscomer hours of interrupcion are related to trees and that as of June,1980 the annual customer hours of O
interruption, excluding major storms, will exceed the total hours in calendar year 1979 and will be ac the highese level ever experienced. '
l
- 41a -
Momen oisemake Attachment #5 Supplement #2 GENERAL r.
6 PUBUC p
- r UTTUTIES V
h -..-
- - ~ ~
CORPORATICN 100imermes Panay l
Parsocany. New Jersey 07054 i
201 263-6500 TE.SX 136-482 Wrner's Direct Oial Numoer-201-263-6030 September 12., 1980 The Honorable John F. Ahearne, Chairman United States Nuclear Regulatory Commission Washington, D. C. 20515
Dear Chairman Ahearna:
I as writing to advise you, of actions being takan by the Owners relative.to TMI Unit 2.
We have recently completed a review of our near-term planning for cleanup of that Unit.
In dat review we considered many factors including recent action by the Pennsylvania Public Utility Commission to deny the request of Macropolitan Edison Company for emergency rate relief. However, ON a major determinant in developing our revised plan was our understanding of the schedule for future NRC actions en the cleanup. That understanding is based on review of the recently issued draft Programmatic Environmental I:gract Statement, the NRC Plan for Cleanup Operations of TMI-2 (NUREG 0698) and Mr. Denton's letter of August 6,1980 to Mr. Arnold of GPU.
O Those documents, in conjunction with our experience with NRC action to date, trave caused us, very reluctantly, to conclude that we should not rely on any si*gnificant regulatory guidance or definition of criteria or approval to proceed with major cleanup activities until completion of the final PEIS. That completion had been scheduled for late 1980 but we under-I stand that serious consideration is being given to extending the period for comments on the draf t PEIS with resultant delay in its completion.
- Further, the draf t PEIS indicates that even af ter issuance of the final statement, we cannot expect to have the def4 4tive guidance and criteria required for us to establish firm plans.
Instead much of the cleanup criteria apparently will be developed in the process cf reviewing our proposals on a case by case basis. We do not believe that such an approach permits timely, effective progress.
We do not consider that this indicated regulatory approach provides the maximum assurance of protecting the public health and safety. My earlier letter to you of March 4, 1980 and Mr. Arnold's letter to Mr. Denton of June 30, 1980, copy attached, identify our concern with the extended schedule for NRC action and addressed the actions we consider necessary to permit earlier cleanup. We will conment further in connection with the draft PEIS.
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Jersey Central Pcwor & L:gru Comcany/ MetreccMan Edson comoany/ Pennsylvaru Sectnc Comcony l
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The Honsrablo Jchn F. Ahearna, Chairman Scytember 12, 1980 United Stat:0 Nuc1 car Regulatory Commistica Page 3 Metropolicao Edison's cash requirements by $32 million over the next six l
to seven months. Our :--4a4ng insurance resources can be more effectively utilized to increase our cleanup efforts onca the NRC requirements are clarified.
I think it is also important to note that our program plans still envision an expenditure on TMI-2 of about S50 million per year.
We have concluded that this course of action is the best and, iddeed, the only one open to us in view of the actions by the NRC and the Pennsylvania Public Utility Commission.
'4e do not believe that the redue:1ons in our efforts in themselves, constitute any direct risk to health and safety.
However, we also believe that the interests of public health and safety, our ratepayers, and our investors all would be better served by more promptly -
establishing acceptable criteria for overall cleanup and in particular, by allowing us to proceed wi h cleanup of the contaminated water as soon as posisible. I note that Dr. Ctmningham of DOE expressed similar views in a letter dated August 19, 1980 to Hon. Tom 3ev111, Chairman, Subcommittee on Energy and Water Development of the House Committee on Appropriations.
I again urge that full consideration be given to means to do that.
We are advising yor.: on-site staff of our detailed plans.
However, I consider -Jte significan:e of this action to be such that I wanted to bring it to your personal accancion.
~4e would, of course, be glad to meet with you to further discuss this matter if you desire.
Very,.truly yours,/
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H.Diecxamp i
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Mr. C. L. Jones, Secretary, Pennsylvania DER Chairman Susan M. Shanzman, PaPUC Presidenn George H. Barbour, NJ SPU
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At:a m t #5 Supplement #2 ht soolian Edison Company l
3 h' ld Q)l Post Cnn.s Gox 480 T
N Midotetown. Pennsytvania 17057 i
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t wmes cir.ct oist Numeef Mr. Harold Denton, Director June 30 1980 Office of Nuclear Raactor Regulation TLL 315 U. S. Nuclear Regulatory Cc=ctission Washington, D.C.
20555
Dear Mr. Denton:
- hree Mile Island Nuclear Station, Unic II (TMI-2)
Operating License No. DPR-73 Docket No. 50-320 Submerged Demineraliser System This is in response to your letter of May 23 to Mr. Dieckamp and myself.
Our review of your let:er and the basic issue of the contamina ed water which exists in the Uni: II containment building leads us :o the conclusion chac 1: vould be helpful o clarify :he C =pany's posicion on several of tha 1: ems addressed in that le::er.
Submer2ed Deminerali:er Svs em The SDS was selected by the Comoany after review of several alternatives and after obtaining technical assistance and input from a number of sources. The obj ect-ives for the system included char it provide a reliable, well-developed method for acce=plishing a =ajor reduction in the =obili:7 of the fission products dispersed within the plan: by capturing ac least 99.999" of :he radione:1ve material in the con:ain=ent building va:er, tha: 1: meet all existing ecdes and standards, and tha 1: not preclude further p:ccessing of the water. During the sys:em design development, your staff was apprised routinely of our efforts.
A Technical Advi nry Group (TAG), made available by the Department of Energy, functioned as a :echnical oversight group during the design development.
Oak Ridge National Laboratory conducted laboratory tests and evaluations to verify the effi-cacy of :he sys:em design. Recently, :he TAG, after careful review of the design development work and :he ORNL test resul:s, recommended that:
"GPU proceed wi:h deliberate speed :o complete the SDS hardware and put the sys:em into operacion.
The objec:1ve of reconcentrating the dispersed fission products into a secure and more manageable form as soon as possible is imcortant to add confidence in protecting the public's health and safety.
The imor5vement in public protection that can be obtained is importans enough to proceed even though further optimization and later cri:eria may require some reprocessing or adjustments.
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($r.HaroldDanten Solid Waste Diseosal, 3
4 Criteria which have been applied to all activities associated with the cleanup 4
effor have included packaging of radioactive vaste so that 1: can be transported o, and accepted by, vasta disposal sites in compliance with exis:ing regulations.
l We recognize the concerns which ext:s as to the form, content and ul:imate dis-
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posal of :he material collected by the proposed opera:1on of the SDS. We are also j
aware of the various proposals to modify :he exis-dag regulations. Because of j
these circumstances, we have made provision, in the design of the SDS and the availabill:y of interim on-site storage for contaminated resins, to permit pro-4 i
caeding wi:h :he immobill:ation of the fission products without foreclosing future options for :reat=ent to i= prove their suitability for long-term off-site storage j
or disposal.
These features of our planning are key elements in our rationale j
for proceeding vi:h the design, procurement and installation of the SDS.
' Tour letter indica:es "further guidance" vill be available concer.n.g solid j
waste disposal as work is pursued on :he PE!S. We urge that resolution of these
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issues be given very high priority chrough an interagency task force vi:h repre-senta: ion f.sm all :he concerned federal agencies.
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Contineenev ?lan for Transfer of Untreated Ta:er i
j Your letter s:ates tha: we are " developing a contingency plan for transfer cf the water from :he containmen: building to sui: ably shielded on-site tanks."
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In our submi::a1 of :he SDS Technical Evalua:1on Report da:ed April 10, 1980, we j
discussed on Pages 1-3 :he implications of installing shielded storage tanks. We concluded that it is not f easible to provide long-term on-si:a storage for the i
highly contzmi-atad wa:er. Of particular note is that installation time for such
=anks would exceed rwo years. Pursuing such an effort would require the defini-tion of criteria to be applied to design af such a facili:y and thus may also be dependent upon completion of the PEIS.
1 I was reques:ad by Mr. John Collins to reviev the options available for removal of the water from the containment building in the even: that became l
absolu:aly necessary.
Such a review is in progress.
In general, storage volume j
is available in Uni: 2 :anks and spent fuel pools equivalent to the estimated
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600,000 gallons presently flooding the lower level of the containment building.
j However, transfer of the water :o such storage poses significant radiological problems and can only be justified on the basis of relieving an immediate emer-gency si:ua:1on such as leakage from the building.
Our review is direc:ed a: calculating the radiation levels that would exis:
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w1:hin the plant, if : hat water were placed in the various tanks or pools. The l
resul:s of this review would be used to minimize the adverse impact of implement-ing such a contingency plan. We must emphasize that even at this stage and wi:h-out the detailed results of a completed review, expeditious cleanup of the water
- o minimize reliance on such a contingency plan is very clearly preferable.
I We believe that the TMI cleanup requires substantially greater coordination of federal, state and Company activi:ies.
Mr. Dieckamp's letter of March 4, 1980
- o Chairman Ahearne, included a recommendation for formation of a senior oversight lI and coordination group wi:h representatives from the responsible organizations.
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urge you to consider this reco=mendation and whether or not you could suppor; his proposal or an al:ernate one.
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e Atttchment #6 Elsetric Pc. P.U.C. No. 42 (Supp.16)
METROPOLITAN EDISON COMPANY Origincl Pega 92 RIDER ~D O
SCHEDULING OF CONSTRUCTION TO MEET CUSTCHER SERVICE APPLICATIONS WEICH REQUIRE CAPITAL EXPENDITURES 3Y THE COMPANY Due to limited available construction funds and the necessity to make reasonable allocation of such funds between (a) system reinforcements required to maintain service to existing customers and (b) new customer connections and capacity increases requested by existing customers, notwithstanding any other provision of the above tariff, the Company will allocate its available construction funds as follows in order to maximize the number of applicants for service it will be able to serve:
I - Presentiv Pending Aeolications For Service All applications for strice which have been received as of the issue date of this rider shall be reviewed and segregated by the status of the applicant's conecruction activity. Construction for service to such. applicants shall be scheduled as follows:
1.
'4here an applicant's cut-in card is received by September 30, 1980, every effort shall be made to serve the applicant before the end of October,1980.
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2.
Those applicants who by October 31, 1980 have begun construction A
of the facility to be served and who are ready for permanent d
service before January,1981, shall be scheduled for service in accordance with the provisions of category 1 of Item II below.
3.
All other existing applicants shall be given notice that service will be provided in accordance with the provisions of Item II below.
II - Future Aeolications For Service Construction funds available for customer service applications shall be allocated to meet applications for service in the following order (construc-tion within each of the following categories will be in order of the Company's receipt of the cut-in card):
1.
Service connections' made directly from existing secondary distribution lines for residential customers and all types of service to non-residential customers providing essential conmunity services.
2.
Extensions of secondary distribution lines and service connections for residential customers.
3'.
Transformers and service connections made directly from existing primary distribution lines for residential customers.
4 Extensions of primary distribution lines and service connections O
for residential customers.
v Issued:
September 15, 1980 Effective: October 1,1980
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Commission's Order of i
September 18, 1980 at R-800561196 i
t NOTE:
A copy of this Order has been reproduced in full j
as Part II, at page 2, of the Brief for Petitioner k
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