ML19347E712
| ML19347E712 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 01/06/1981 |
| From: | Gillham R, Kron P CHEMICAL BANK, CITIBANK, N.A. |
| To: | |
| Shared Package | |
| ML19347E637 | List:
|
| References | |
| NUDOCS 8105130263 | |
| Download: ML19347E712 (20) | |
Text
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REliUTTAL'TLS fI!:0!;Y ON lie!IALF OF CI'lICANK, N. A.,JCFUT AND CllEMICAL BA!;K, CO-ACE!;T O)
\\w
.fg Q.
Please identify yourselves.
L/I A. -
(Witness Kron):
I am Philip C. Kron,'a Vice President of Citibank.
I am in' charge of our Energy East Department which involves all lending activitics to utilities in the-castern half of the country.
(Witness Gillhan):
I am Robert Gillham, a Vice President of Chctr.ical Sank.
I am in charge of the bank's public utility group.
Q.
Ilow are your banks involved in the instant proceedings?
A.
Citibank and Chetaical Bank serve as agent and co agent, respectively, under the 45-bank Revolving Credit Agreement,(RCA) with GPU and its subsidiarics. We intervened and presented testimony in the recent hearings before this Co:.:sission (I-79040308) and testified in the w/
extraordinary rate relief portion of this rate hearing (P-800702305) on August 12, 1980. M have also intervened in these current proceedings because of our interest as a creditor of Met-Ed and because of our unique, if unccafortable, 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 individual banks. I!owever, we believe that our Lcstimony fairly represents the views of the banking group as a whole.
What position have you taken in the current proceedings?
Q.
l A.
Other than our testimony entered on August 12, 1980 in the Company's petition for interim extraordinary rate relief, we have preferred to take a passive, conitoring role rather than active participation in i
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.thmsa proceedings since specific testimony regarding ths company's
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financial needs and rate-making issues are appropriately handled by other portics, llowever, we have expressed our concern to the other parties regarding the lack of Met-Ed's earnings and the f-ilure of 1
the Commission to issue an order that will enable Met-Ed to recover financial viability.
In addition, af ter the failure of the Commission to act affirmatively on the petition. for extraordinary rate relief on August 28, 1980, a meeting 'of banks was.cid on September 3,1980. As a result of that meeting, considering the rate at whfch deferred energy - the asset we had financed - was being amortized without a concomitant teduction in the balance of our loans under the RCA, we issued a letter to GPU and its cubsidiaries dated September 5,1980 (Met-Ed Exhibit E-19-1) essentially limiting the amount of borrowings to a icvel 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 recocanendations to the Commission with respect to the rate relief required by Met-Ed to maintain financial viability.
In view of the recommendations made by Trial Staff and'the Consumer Advocate, we have prepared this rebuttal testimony.
J Q.
Do you believe that the recommendations of Trial Staff and the Of fice of - the Consumer Advocate will maintain the financial viability of Met-Cl?
(2) t-o l
- n A.
Dafinitely n:t. _ Trial Staff recommends $9.7 million and the Consumer Advocate recommends between $2.9 and $5.2 million while the company
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has testified that it requires $76.5 million.
v Q.
Picase state in which way you disagree with the testimony of Trial Staff and the Office of Consumer Advocate?
A.
There are several points applicable to each of thode parties.
First, we believe that they both overlook the larger picture and fail to consider what rates are necessary for Met-Ed to remain financially viabic until TMI-l is brought back on 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. We believe that their recommendations present a roadmap to bankruptcy. Not only do they not 1caye any room whatsoever for a margin of error or change in circumstances in Met-Ed's projections, but they do not even provide sufficient cash to meet obligations when due.
1 Second, those recommendations give rise to certain questions in out minds regarding the future:
A.
Our ability to renew Met-Ed's credit at any icvel in October,
- 1981, Our ability even to contemplate a rollover of Met-Ed's notes B.
under the RCA which are due on April 1, 1981, i
C.
The ability of Met-Ed to continue to provide reliabic service.
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D.
The ability of Met-Ed to make t!.c cxpenditures necessary to (3) to
facilitato the restart of THI-I.
Third, Trial Staff and the Office of Consumer Advocate limit thensc1ves to the short range of 1981. They do not take a longer view of the effect of their recommendations. Testimony by the company graphically shows the inadequacy of the awards they recommend during 1981 and through tihe middic of 1982.
Fourth, we find it inconsistent for the staff to urge all due speed in getting TMI-l 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 testimony of these parties which you vish to rebut.
A.
Mr. Packard states on the one hand that the Cocmission should
" provide Met-Ed with sufficient funds to meet its obligations as they come due" and thereby avoid insolvency (TS Stacccent RLP-2, p.
4).
On the other hand, his recocnendation (Id., p.5) is based on Exhibit E-28 by Met-Ed that we understand has been updated and changed and which shows Met-Ed running out of coney in the spring even the original Exhibit-28, as codified of 1981.
In any event, during the cross-examination of Mr. Graham and on which Mr. Packard relied, showed Met-Ed running out of cash in the Fall of 1981 l
without any rate relief and only a short time thercaf ter with the revenues recor.nended by him.
l (4)
But the cost precur.ptimun am,unption by Mr. Packt.rd is that if the Banko would continus to extend $80 million of credit to Met-Ed, it could continue to meet its projected cash obligations throughout
-QJ 1981 (Id., p.5).
It is highly doubtful'that such credit could prudently be permitted absent approprinte liquid assets or adequate rate relief to present a besis for repayment. The actual credit limit under the " liquid assets" formula projected by Met-Ed at the end of 1981 is between $40-$50 million, well below the $80 million soggested. And we note that the price of uranium has recently decreased so that a revaluation of our " liquid asset" formula cay be in order, further reducing the credit limit. The Banks have not in the pasc, nor do they intend in the future, to finance a gap created by patently inadequate rare relief.
O
(_,)
Mr. Packard also suggests that the Banks are responsible for placing Met-Ed into an uncertain position by virtue of their limiting Met-
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Ed's credit pursuant to Exhibit E-19-1 (Ld., pp.2,3).
The credit limit is, however, a function of the company's viability and ability to repay its loans. It was the Commission, not the Banks, which 1) removed TMI-l from rate base and reduced the Company's base rates;
- 2) ordered an accelerated recovery of deferred energy, the asset 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 Icgally obligated to d,o to protect our depositors and shareholders.
(-)}
We have not caused the uncertainty. We have only responded to l
(5)
s orders of the Cetmission as we fully advised ths Cocimission by our
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previous testimony that va wculd do.
o\\ss With respect to Mr. Dirmeier's testimony f r the Consumer Advocate, he spends 30 pages of testicony to arrive at the conclusion that
$2.9 - $5.2 million is appropriate rate relief under " traditional ratemaking determinations" (Testimony of Michael Direcice, p. 31).
At that point he cons-des that there has been "some evidence presented in this proceeding regarding uncertaintics in the provision of an adequate icyc1 of service arising from restricted availability of cash and access to credit." However, with respect to this issue which affects the continued existence of Met-Ed, he states that he has not attecpted to perform an independent analysis. We believe that availability of cash and adequate credit are the most critical issues i
in this case and that the failure of the Consumer Advocate to address them makes its recommendation incomplete and unresponsive to Met-Ed's current situation.
Q.
Do you have any recommendation as to adequate rates?
A.
We have no reason to believe that the Company needs 1 css than the
$76.5 million it has requested and which its projections show is needed to maintain viability through the middic of 1982.
In fact, i
the $76.5 million requested may be insufficient to provide the coverages necessary to issue Met-Ed securitics if a market at some price should develop. However, since the Company's request is for
$76.5 million, we urge they be given the full amount with the (6)
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cceposition of that relief being a matter to ba determinrd using rate making tools available to the Commission.
It is a time for creativity on the part of the Commission.
By granting the compicint 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 substantial.ty increasing the incremental cost to the ratepayer. And, we'would note, t,1ven an order that addresses Met-Ed's need for funds through April 1982, we would consider recommending financing a higher level of deferred energy over a longer period; provided, however, that the obligction of the ratepcycr 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 comments with respect to his observations?
A.
Yes.
Mr. Packard has criticized Met-Ed's efforts (TS Statement RLP-2, pp. 6-7).
However, we believe that nothing will happen in Washington 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 utility rates to pay. There will be no sentiment to assist Met-Ed so long as it is perceived that the ratepayers of Met-Ed are not equitably shouldering the burden. And, from our 1
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 beccme aware of the magnitude nnd f
(7)
immedidcy of' Met-Ed's problems.
Therefora, wa urge you to provida sufficient rates and cash to bridge Met-Ed over the time it will take the Federal Government and/or the utility industry to have an I')
(-
opportunity to develop a response to a compicx financial problem.
We do not believe that a course of financial brinkmanship will be conducive to obtaining outside support for the probicm.
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 inadequate rate relief and the large gap between !!ct-Ed's financial needs and available credit projected for April, 1982.
- Actually, the question as to October, 1981 cay be academic because the company
( ])
projects running out of cash before that time.
Moreover, there is a more imminent critical date - April 1, 1981.
On that date the various Met-Ed notes come due and are to be rolled A decision will have to be made by the Banks as to whether over.
a rollover will be allowed.
Furthermore, substantial borrowings, in the cagnitude of $20 million are projected in the middle of April, 1981 for tax payments; that too presents a critical date.
Ve would therefore urge the Judge and the Commission to c::pedite their decision in this matter so that we will have all the facts before us at the time we are required to act on April 1 and April l
15, 1981.
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(8) i
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Q.
Do you have any final conmunts?
l A.
Yes. Ue feel that the Commission has to approach this situation with realism and creativity.
This is a unique case with unique probicms.
An approach which enables Met-Ed to remain viable and solvent is needed rather than uearing blinders and pretending that Met-Ed is like any other utility. We feel that we have taken a creative npproach as bankars and urge the parties and Commission to do likewise. To quote Mr. Packard, " Insolvency is not a solution".
It is not enough to say thtae words; the Commission cust take action to implement them.
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(9)
EEllE[$it!~!!
Witness J. G. Graham
'O Typical Bill Comparisons, Penelec and Met-Ed l
Compared to other Pennsylvania Utilities Residential No Water Heating 500 KWH/ Month 45.49 42.83 4o.
40.66 E
40 i5 35.06 33.04 29.57 30 27.73 38.68 eo E
20 35.86 34.84 l O 3
28.48 24.76 10 22.79 0
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n E Rates in effect in January 1981 O If pending rate increase were granted in full C/Kwh 57.7, 7.2 7.0 7.0 5.7 5.0 4.6
- 0. 9.1 8.6 8.1 6.6 5.9 5.5 1/6/81
l ME Exhibit E-33 PM Exhibit E-26 l
Witness:
J. G. Grahaa Page 2 of 2 i
l Typical Bill Comparisons l
Jersey Central and Neighboring Utilities t
Residential No Water Heating 500 KWH/ Month 80 '
70.71 50.50 57.47
-49.53(B)
E 60 m
9
-45.90(1.)
g p
46.59 43.86 45.49 8
40 61.17 g
llE 52.33 Li U
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E 50.26 1
41.70 j
30.68 20 L
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5 Rates (winter) in effect in January 1981 t
' C If pending rate increase were granted in full C/Kwh O
E 12.2 10.5 10.1 9.3 8.8 8.3 7.7 9.9 9.1 0 14.1 11.7 11.5 1/16/81
ME Exhibit.E PN Exhibit E-27 Witness:
J. G. Graham PRIME RATE CHANGES CITIBANK, N.A.
DATE PRIME RATE Jul 11 11 1/4 25 11 Aug 22 11 1/4 28 11 1/2 Sep 5
12 12 12 1/4 19 12 1/2 26 13 Oct.
2 14 4
29 14 1/2 Nov.
7 15 1/2 17 16 1/4 21 16 3/4 24 17 26 17 3/4 l
Dec.
2 18 1/2 5
19 10 20
'0 16 21 19 21 1/2 1981 Jan.
2 20 1/2 9
20 b
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cir. c.xnioic c.-n A
PN Exhibit E-28 Witns20:
J. G. Grahw Baa Rated Public Utility Bond Yield Averages 1981 - Jan. 16 - 15.33%
9 - 15.26 2 - 14.97 1980 - Dec. 26 - 15.35 19 - 15.46 12 - 15.72 5 - 14.86 Nov. 28 - 14.79 21 - 14.74 14 14.75 7 - 14.91 Oct. 31 - 14.80 24 - 14.32 17 - 14.14 10 - 14.29 3 - 14.44 Sep. 26 - 14.38 l
19 - 14.14 I
12 - 13.82 5 - 13.93 Aug. 29 - 13.82
]
22 - 13.67 15 - 13.57 O
8 - 13.36 1 - 12.99 Jul. 25 - 12.76 18 - 12.67 l
Source:
Moody's e
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O-Hetropolitan v 20n Company Returns on Rate Bese 1969 to 1979
- 1. ins A
Description 1969 1970 1971 1972 1973 1974
_1975 1976 1977
-1978 1979 1
Overall Return 6.38%
5.89%
7.64%
7.96%
8.39%
8.45%
8.74%
8.73%
9.73%
9.41%
6.66%
2 Allowed Return 8.65%
8.65%
8.65%
8.65%
9.28%
9.87%
9.82%
9.82%
9.74%
9.47%
3 Return on Common 9.11%
7.02% 10.12% 10.63% 11.41% 11.09%
11.02% 10.93% 13.54% 12.80%
4.93%
4 Allowed Return on Common 13.I1% 13.I1%
13.05% 13.05% 13.33%
13.70% 13.70% 13.70% 13.59% 12.83%
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'4-Witness:
J.-G. Graham Page 1 of 6
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f METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY R-80051196 R-80051197 F
This exhibit indicates new security offerings of Met-Ed, Penelec and General Public Utilities Corporation from January 1969 through December 1978 inclusive.
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METROPOLITAN EDISON COMPANY NEW SECURITIES ISSUED FROM J AN'JARY 1969 THROUGH DECEMBER 1978 (1) 0.ffer Cost to Month /
Description Number of Amount Company Year of Issue Shares
($ 000)
(%)
1 6/69 8 1/8% Bonds'Due 1999 11/71 7 7/8% Bonds Due 2001 15 000 7.84 9/71 8.12% Preferred 160 000 16 000 8.09 3/72 7.68% Preferred 350 000 35 000 7.67 5/72 7 7/8% Bonds Due 2002 26 000 7.81 7/72 8.32% Preferred 250 000 25 000 8.30 10/72 8 1/S% Debentures Due 1997 53 000 8.09 4/73 8.12% Preferred 250 000 25 000 8.09 10/73 8.32% Preferred 150 000 15 000 8.32 12/73 8 3/4% Debentures Due 1998 20 000 8.-74 12/73 8 1/2% Bonds Due 2003 20 000 8.5 3/75 9 3/4% Bonds Due 1983 50 000 9.65 9/75 9 5/8% Bonds Due 1985 45 000 9.85 3/76 9
Bonds Due 2006 50 000 9.18 9/77 8 3/8% Bonds Due 2007 35 000 8.53 1/78 6% Bonds Due 2008 (2) 8 700 6.10 9/78 9% Bonds Due 2008 50 000 9.11 1
(1) Excludes 1% Bond issued to Small Business Administration.
(2) Pollution Control Bond
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PENNSYLVANIA ELECTRIC COMPANY NEW SECURITIES ISSUED FROM JANUARY 1969 THROUGE DECEMBER 1978 (1)
Offer Cost to Month /
Description Number of Amount Company' 1
Year of Issue Shares
($ 000)
(%)
5/69 8% Bonds Due 1999.
28 000 7.98 4/70 9 3/8% Bonds Due 2000 25 000 9.39 l
1/71 8 1/8% Debentures Due 1996 30 000 8.12 8/71 8 1/2% Debentures Due 1996 20 000 8.53 12/71 8.36% Preferred 250 000 25 000 3.37 12/71 7 7/8%. Bonds Due 2001
,30 000 7.84 6/72 8.12% Pre fe rred 250 000 25 000 8.13 7/73 8 3/8% Bonds Due 2003 30 000 8.38 6/74 10 5/8% Bonds Due 2004 50 00?
10.66 4/75 11.72% Preferred 250 000 25 000 12.31 8/75 10 3/4% Eonds Dec 1984 45 000 11.08 10/75 10.88% Preferred 320 000 32 000 11.30 3/76 9.00% Preferred 1 400 000 35 000 9.54 6/76 9 3/4% Bonds Due 2006 60 000 10.00 7/76 7 3/4% Bonds Due 2006'(2) 12 000 8.09 12/77 6 1/8% Due 2007 (2) 16 420 6.32 6/78 9 1/2% Bonds Due 2008 45 000 9.67 (1) Excludes 1% Bond issued to Small Business Administration.
(2) Pollution Control Bonds.
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CENERAL PUBLIC ILITIES CORPORATION NEW SECURITIES' ISSUED FROM ass 5ARY 1969 THROUCH DECEMBER 1978
4 Proceeds Offer
($/ Share)
Prior Ye'ar-End
% Below Month /
Description Number of Amount or Cost (%)
Book Value Prior Year-End Year (1) of Issue
_ Shares
($ 000) to Ccmpany
($/ Share)
Book Value 9/69 Common Stock Rights 1 322 500 28 943 21.15 20.61 (2.6)%-
12/69 10 1/4% Debentures Due 1974 50 000 10.25%
5/70 Common Stock Rights 1 389 960 24 324 17.10 21.04 18.7 11/70 Common Stock Public 1 000 000 19 140 19.06 21.04 9.4 11/70 10 1/4% Debentures Due 1980
!! 000 10.26%
5/71 Common Stock Rights 2 993 442
$9 869 19.74 21.05 6.2 12/71 Common Stock Public 1 400 000 29 203 20.78 21.05 1.3 5/72 Common Stock Rights 3 437 406 65 311 18.77 21.22 11.5 12/72 Common Stock Public 1 500 000 33 384 22.16 21.22
.3 5/73 Common Stock Rights 3 932 764 72 756 18.27 21.63 15.5 6/74 Common Stock Rights 4 301 702 50 000 10.98 21.94 50.0 i
3/75 Common Stock Public 2 300 000 30 636 13.23 21.66 38.9 9/75 Commod Stock Rights 4 971 971 68 613 13.08 21.66 39.6 1975 Dividend Reinvestment Plan 126 723 1 980 15.62 21.66 27.9 1976 Dividend Reinvestment Plan 506 567 8 697 17.17 20.93 18.0 6/77 Common Stock Rights 3 770 000 70 499 18.32 21.41 14.4 1977 Dividend Reinvestment Plan 590 604 11 332 19.19 21.41 10.4 TRAESOP 97 692 1 064 21.13 21.41 1.3 1978 Dividend Reinvestment P! sn 857 278 If 249 17.79 21.94 18.9 TRAESOP 392 151 7 343 18.72 21.94 14.7 1979 Dividend Reinvestment Plan (2) 272 685 4 570 16.76 22.41 25.2 TRAESOP (2) 19 940 349 17.50 22.41 21.9,
(1) Annual summary of Dividend Reinvestment Plan'and TRAESOP (Tax Reduction Act Employee Stock Ownership Plan).
(2) Suspended in April 1979 e
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Paga 5 of 6 METROPOLITAN EDISON COMPANY Rates of Return 1969 - 1979 f
Overall Returns
' Common Equity Returns Achieved Allowed Achieved Allowed 1969 6.38%
9.11%
1970 5.89%
8.65%
7.02%
13.11%
1971 7.64%
8.65%
10.12%
13.11%
1972 7.96%
8.65%
10.63%
13.05%
1973 8.39%
8.65%
11.41%
13.05%
- 1974 8.45%
9.28%
11.09%
13.33%
1975 8.74%
9.82%
11.02%
13.70%
1976 8.73%
9.82%
10.93%
13.70%
1977 9.73%
9.82%
13.54%
13.70%
1978 9.41%
9.74%
12.80%
13.59%
1979 6.66%
9.47%
4.93%
12.83%
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- t Page 6 of 6 PENNSYLVANIA ELECTRIC CCEPANY Rates of Return 1969 - 1979 Overall Returns Comon Equity Returns _
Achieved _'
Allowed Achieved Allowed 11.42%
1969 7.12%
10.66%
1970 7.11%
1971 7.79%
8.21%
12.20%
14.20%
1972 7.50%
8.21%
10.47%
'14.20%
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1973 8.41%
8.97%
12.67%
14.57%
1974 7.36%
8.97%
9.14%
14.57%
1975 8.71%
8.97%
12.63%
14.57%
1976 8.80%
9.53%
11.66%
14.80%
1977 8.40%
9.53%
9.98%
14.80%
O 1978 8.15%
9.56%
9.18%
'13.50%
1979 8.69%
9.55%
10.50%
13.12%
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