ML20003B464
| ML20003B464 | |
| Person / Time | |
|---|---|
| Site: | Three Mile Island  |
| Issue date: | 12/03/1980 |
| From: | Dieckamp H GENERAL PUBLIC UTILITIES CORP. |
| To: | |
| Shared Package | |
| ML20003B456 | List: |
| References | |
| NUDOCS 8102120145 | |
| Download: ML20003B464 (38) | |
Text
., .i PN/ME Statement A O TESTIMONY OF HERMAN M. DIEC KAMP O Q. Please State yo ur name and address.
A. My name is Herman M. Dieckamp. My business address is 100 In terpac e Parkway, Parisppany, New Jersey.
Q. By whom are your employed and in what capacity?
A. I am P r e sid en t and chief operating officer and a Direc tor of General Pub lic Utilities Co rpo ra tio n ( "G PU") and of GPU Service Corpo ration ( the " S e rv ic e Company"), Ac ting President and a Direc tor of Me tropolitan Edison Company
( " Me t- E d " ) , Chairman, chie f executiv e officer and a Director of GPU Nuclear Corporation ( the " Nuclear Co rpo ra tio n") ,
a Direc tor of Pennsylvania Electric Company ("Penelec") and a
(~T Direc tor of Jersey Central Power & Light Company (" Jersey -
v Central").
Q. What is the purpose of yo ur te stimony in these proceedings?
A. Th e purpose of my testimony is to provide the general f r am e-work and backg round fo r ( a) the operating ag re eme nt among Je rsey Central, Me t- E d , Penelee anJ the Nuclear Corporation, which is the sub j ec t of the proceedings in Docket No. G-80060098 and (b) the af filiated interest ag r eem e n t between Me t-Ed and Penelec relating to the propo sed. combined manag ement of the two companies, wh ic h is the subj ec t of the pr oc e ed ing s in Do cke t No. G-80070101.
Q. Please identify GPU and the various GPU System companies J
cf wh ic h yo u are a directo r.
1 8102inolM(C)
A. GPU is a public utility holding company registered as such under the Pub lic Ut ility Holding Company Ac t of 1935 (the
" Holding Company Ac t") . GPU owns all the common stock of O Me t- E d , Penelee and Jersey Central and virtually its sole l
source of income is d iv id ends on the common stock o f those companies.
Met-Ed f urnishes electric ut ility servic e to ap pr ox im a tel y a
360,000 customers in a 3,300 square mile service area in c en tr al and eastern Pennsylvania. It own s all the common stock of Yo rk Haven Powe r Company, which own s a small hyd roel ec tric station in the Susquehenna Riv er down stream of Three Mile Island.
Penelec furnishes electric utility service to ap p r ox im a tely 510,000 customers in a servic e ar ea o f approximately 17,000 square mile s in we stern , central and northern Pennsylvania.
O Penalec is also the lessee of the electric utility system of its s ub sid iary , Waverly Electric Light & Power Company, and through such facilities Penelee provides service to ap pr ox ima tely 2,500 elec tr ic utility cus tomers in the villag e of Wav e rl y ,
New Yo rk , which is immediately adj acen t to the Town of Sayre, Pennsylvania. Penelac ha s ano the r sub sidiary , Nineveh Wa ter i
Company, which renders wa ter servic e to Penelee and also# to some retail customers in the area of Seward, Pennsylvania.
Jersey Central furnishes electric utility servic e to ap p r ox i-ma tely 690,000 customers in a 3,300 square mile se rvic e area in northwest and east central New Jersey.
O
_2 _
y e , ,--e-- .a n .-. -.-,r - - , -- - - , , e--- - - - -
The Service Company performs engineering, ecco un ting , data processing and other se rvice s a t cost to the compan ie s in
(} the GPU System. GPU own s all the common stock of the Se rv ic e Company and the Nuclear Corporation.
The Nuclear Co rpo ration wa s org an tzed on September 11, 1980 to render se rv ic e s in connection with the operation of the
,uclear g e n e ra t in g stations owned by the GPU System c om p an ie s ,
namely, the Three Mile Island Generating Station ("TMI") and the Oyster Creek Generating Station. Such services will also be rendered at cost. The Nuclear Corporation has not yet commenc ed operation. It will do so upon the completion of certain regulatory proceeding s includ ing the proceeding at Docket No . G-800 600 98 before this Commission. Sub sequently , I will desc rib e those regulatory proceedings and their present status. ,
Q. Pl ea se describ e b riefly how plant ownership and costs will be allocated under the proposed operating ag re em ent s wi th the Nuclear Co rpo ra t io n .
A. The operations of the Nuclear Corporation will no t change the l
own er ship o f TMI o r Oy s ter .Cr eek. Mo r e o,v e r , the performance by the Nuclear Corpo ration of the duties assigned to it by the l
proposed operating ag reement s of the Nuclear Corpora tion with the own er s o f TMI and Oyster Creek will no t limi t in any way the existing or future authority of either your Commission or the NJBPU with respect to TMI or Oyster Creek. The Nuc. lear Corporation will rend e r services under the TMI agreement filed l
in this proceeding at its cost. It will be a service company under the f e d e r al Pub lic Utility Holding Company Act, and the cond uc t of its business will be subject to that act and the SEC's rules and regulations thereunder - - inc lud ing the SEC's Uniform System of Accounts for se rvic e companies. In !
the case of se rvice s rendered by the Nuclear Corporation for TMI, the costs of such services will b e allocated am o ng the o wn e r s of TMI in propo rtion to their owner ship in ter e st s . In the case of services rendered by the Nuclear Corporation for Oyster Creek, the costs of such services will be allocated to Jersey Central which is the sole o wn er o f Oys ter Cr eek. To the extent th a t services rendered by the Nuclear Corporation are no t direc tly allocable to a pa r ticular g enera ting ~un it ,
such costs will be allocated am ong Jersey Central, Me t- E d and Penelee in pr op o r t.io n to each company's nuclear steam genera ting capacity. -
Q. Please state whether or no t the GPU System is an in teg ra ted pub lic utility sys tem?
A. Many ye ars ag o , the Securities and Ex chang e Commission
("SEC") found that GPU and its sub sid iar ies constitute "an .
~; ,
in teg ra te d pub lic utility sys tem", as defined in that Act, s
namely,
" As applied to el ec t ric utility companies, a system consisting of one or more units of generating plants and/or transmission lines and/or distributing fa c il it ie s , whose utility assets, whether owned by one or more elec tric utility companies, are physic ally interconnected or capable of ph ys ic al interconnection and which under no rmal conditions
-4 -
may b e economically o perated as a single inter-connec ted and coordinated system confined in it s operations to a single area or r e g io n , in one or more Sta te s , not so large as to im pai r ( c onsid er.ing the state of the art and the area or reg io n lO affected) the advantages of localized manage-ment, e f fic ien t o pe r a t io n , and the ef f ec tiv eness o f regulation;"
Q. Please d esc rib e brie fly the nuclear f a cilitie s within the GPU System.
A. As I h av e ind ic a ted , the GPU System inc lud e s the two nuclear stations Oyster Creek and TMI. Oyster Creek consists of a single 6 50 MW nuclear unit placed in se rv ic e in 1967. It is owned by Jersey Central . Three Mile Island consists of
. tim nuclear units , n amely , Unit No. 1 placed in se rvic e in 1974 and Unit No. 2 placed in serv ic e in 1978 Unit No. 1, which has an in s talled capacity of 800 MW, and Unit No. 2, which has an installed capacity of 880 MW, are each owned as O tenan ts -in common by the GPU utility companies , with Me t-Ed, having a 5 0% und iv id ed in ter est and Jersey Central and Penelec each having a 25% undivided in ter e s t .
Q. Please d e sc rib e the b ackg round and purpose of the operating ag reements with the Nuclear Corporation.
A. I s tated at the outset that one of the subj ec ts of my testimony is to outline the b ackg round for the ag reem ent b e tween Me t-Ed ,
Penelee and Jersey Central as the owners of Three Mile Island Station, o n the one hand, and the Nuclear Corporation on the other, which is the subj ec t of the pro c eed ing s in Docket No.
G-80060098, and fo r the comparable agreement between Jersey o
O
-~ ~ . -- - . . - .
- Cen tr al , as the own er of Oyster Creek, and the Nuclear Corpora-tion. Essentially, the purpose of those agreements is to i lod g e in a single organization re spo n sib ility for the safe O operation and maintenance of the Three Mile Island and Oyster Creek Stations, includ ing the cleanup and rehab ilitation of Th r ee Mil e Island Un it No. 2. The obj ec tiv e of the Nuclear Co rpo r atio n is to serve as the vehicle fo r the management and direc tion of the nuclear ac tivitie s o f the GPU System to provide the high level of pr o tec tio n for the health and safety.
of the public and the employees working in the Sy s t em' s -
nuclear genera ting stations and, consistently therewith, to generate electricity from those nuclear stations in a reliable and efficient manner in conf ormanc e with all ap pl ic ab le laws, r eg ul a t io n s , licenses and other requir ements and the directions and interests of the owners of those stations. In order to O put the ag reements in perspe c tive , it is necessary first tea trace the dev elopment which has led to the organiza tion o f the Nuclear Corporation.
Altho ug h there were some ex c e p t io ns , the general pattern 1
in the electric utility industry f or many years wa s that l
elec tr ic utility companies did no t maintain large engineering I o and construc tio n organiza tions for the design and con s tr uc tio n of genera ting facilities. Fo r mo s t of them, the tim e in te rv als between the design and installa tion o f g enerating units were j too large to pe rmit them-to economically utilize large engineer-l ing and construction staffs.
, Cl) l 1
l i , ,,
As a consequence, when they decid ed to .cmbark upo n the
,; construction.of a new g enera ting unit, most -elec tr ic utilities wo uld employ an engineering firm to carry the maj or responsib ility in the design and supe rv isio n o t c o ntruc tio n , and either tha t firm or another firm to se rv e as general contractor for the con struc tio n of such a s ta tio n. That pa ttern wa s employed ,
, for example, in the construc tion of the coal-fired and oil-fired generating stations now owned by the GPU companies l
l and also for the thre e coal-fired and two pumped storage units in which CPU System companies participate with other companies. The same pattern wa s also initially employed in connec tion with the construction of the Oyster Creek Station.
Indeed, it went ev en further in that particular in s tanc e .
The Oy s te r Creek St ation, which wa s the first economically -
c om p e titiv e nuclear generating station in th e United States,
( was purchased on a turn-key b asis from General Electric **
l l Company, which took responsib ility f o r no t only the component parts of the sta tio n but also for the design and con s tr uc tio n of that station.
12 Oyster Creek ev olved , it b ecame increasingly apparen t that nuclear stations would require a much more ac tiv e role o
on the par t of the owners during the design and con s t ruc tio n t
ph a se s . This was underscored by the fact that the two maj or equipment m anuf a c tur ers , General El ec tric and We stingho use ,
that had initially been willing to sell nuclear stations on a turn-key b asis , b ecame unwilling to continue to do so. Thus, O
-7 -
i in the early s tages of the planning for the two TMI Units, in d e pe nd en t eng ine e r ing and co n s t r uc tio n firms were selec ted
() to carry the principal d e s ig n , e ng ine e r ing and co ns t ruc tion roles, but an in f o rmal group of GPU System personnel known as the " Nuclear Ac tiv itie s Group" was organized to play an ac tive role in monito ring the design and construc tion of those two units.
l The Se rv ic e Company wa s organized and began operation early in 1971. One of the pr incipal pur po se s for its f o rm a tio n wa s to s tr eng then the par tic ipation of the GPU System in the pre-operational phases of maj or generating and transmission f a c il it ie r . The engineering division of the Se rv ic e Company took over the role of the informal Nuclear Activities Group and , p ur s ua n t to the Servic e Company's con trac t with the operating companies, acted on their behali during the d'e si gt, i
I lic ensing and construc tion phases of the two TMI units . Th e l basic concept wa s that, on behalf of the TMI own e rs , the Se rv ic e Company would be significantly involved in the design, licensing , construction and te s t ing phases of the TMI un it s ,'
and would then turn over to Me t-E d ( in who s e service area the units are located) the operation of the units.~In order to have an orderly transition, Me t-Ed personnel would have a significant pa rticipation in the- pre-opera tio n and testing phases and then, when each unit was ready for commercial
.~
operation, it would be turned ov er to Met-Ed. The sam e l
pa ttern was also applied to Homer City Unit No. 9, a coal-C fired unit.
1 i
In essence, this mean t tha t for nuclear un it s , just as fo r co al-fired or o the r generating un its , after completion of construction, primary r es ponsib ility f o r operation and main tenanc e would rest with the ind iv id ual operating company, although it would continue to rec eiv e support se rvic e s from the engineering and other divisions of the Se rv ic e Company.
By 1977, we in the GPU System were questioning whether this was the optimum institutional arrangement for nuclear units. The design, c on s tr uc tio n , licensing , operation and main tenanc e o f nuclear units represents sa sub s tan tial an ac tivity tha t it began to appear to us tha t' it migh t b e well to establish a separate o rg aniza tio n which would have undivided responsibility for the operacio n and main tenance, as well as for the supervision of the design and construc tio n o f such r%
tv ; un it s .
One of the elements that affected our thinking was that the operation and main tenance of a nuclear unit requires skills and training that are different in substance from those required fo r o ther kinds o f g enerating f ac ilities . We
, engaged a manag ement co nsul ting firm, Booz, Allen &
Hamilton, t o pe r f o rm an overall management aud it for th# GPU System. One of the things we asked them to look at was wh e the r this kind of organiza tional chang e, f or the conduct of our nuclear ac tivitie s wo uld be de sirable. In the course of their management a ud i t wo r k , Booz,' Allen sup po r ted our views that this kind of an o rg an i za't io nal change wo ul d b e 9-
d e sir ab le and va ware in the process of moving in that d irec tion when the TMI-2 ac c id en t occurred.
,() . Dur ing the period while th e Booz Allen s t ud ies were b eing made and the reaf te r, we continued to f o rmul a te po s sib le org aniza tio nal arrangements that would f acilita te our- pr imary obj ec tiv e s ,
n am ely ( 1) to achiev e a closer coupling between our in-house e ng ine e r ing and plant operations, (2) to b et ter translate l
o p e rat ing exp e r ie nc e in to new plant designs, and~ (3) to create sufficient in-house c apab ility to ad equa tely d ev elop specifications for new s tations , b oth nuclear and non-nuclear Since Oys te r Cr eek had been completed a.lmost a decade earlier and TMI-1 ao out four years earlier, and TMI-2 was in its final stages of construc tion, we concluded tha t this kind of organiza-tional change should be in itia ted in connection with the
( Forked River nuclear station, which was then in the early
-n stages of construc tion, and the Seward co al- ffred s t a t io n Unit No. 7, wh ic h wa . in the early planning and design stages. We also b elieved , ho wever , that, as we gained more experience, it would be feasible to "back fit" this kind of o rg an iza tio nal structure to Oyster Creek and tho TMI Units by applying expanded engineering support without undue o
disturbanc e of existing organizational relationships.
I had lengthy discussions on that subj ec t with Mr. Kuhns, Chairman and chie f executive officer of the GPU companies, with Mr. Arnold, Vice President of the Se rv ic e Company's i
- Gene rat io n Divisio n , the Presidents of the GPU System operating O -
10 -
companies and o thers . Our view was that this was the d esirab le way to go. Indeed, our views had j elled suf fic ien tly that, shortly b efore the TMI-2 acc id en t , I had requested our O general counsel to review this matter and to develop an id e n ti fic a tio n of the potential legal im p e d im e n ts to ac hiev ing it and of the ways to deal with those po te n t ial imp ed im en ts .
Other aspects we were also inv e s t ig a ting were the experience l
[
of other ut ilit ie s , b o th in terms of organiza tional structure and the level of expenditures that were being made by them .
We made a study o f compar ativ e expenditures on operation and main tenanc e o f nuclear. units. We found, for example, that, of some 29 pressur ized wa ter nuclear un it s , the exp e nd it ur e s for TMI-l were the second highest in the nation. Nevertheless, we were co nvinc ed that we should be spend ing more , not less, on
/~T nuclear operations and main tenanc e, but we were concerned
-e about the rate regulatory "esponse under tho se circumstances.
Of course, the accident at TMI-2 res ul ted in rad ic al changes in our organiza tional needs.
l Immediately af ter the acci'ent, with the exception of the personnel required for Oys ter Creek, vir tually our entire s
nuclear resources in the system we re devoted- to TMI. We also 1
recruited extensively f rom outside and extenaively ut ilized l co n tr ac to r personnel and, in the first few weeks after the ac c id en t , personnel made availab le to us by other utilities, manufacturers, government laboratories and others. Our first
- 11 -
i .
1
ef fort had to. be to ac hiev e safe sh utd own and to make provision for main taining TMI-2 in a stable and safe c o n d-i t io n . We put
- in place an interim expanded organization. headed by Mr.
Arnold, who was elected a Vice President o f Me t- E d and became-th e o n- site se nio r of ficer at T:II dealing with the ex ig e nc ie s r es ul tin g from the ac c id en t . Fo r several weeks after the ac c id en t , I was also present at TMI.
Wh il e we b eliev ed that we had been on the eight track in our pr e-ac c id ent view that a separate or g an1%ntt+&n ,- dievoted sol ely to nuclear func tio ns , wo uld best assure the safe operation and main tenanc e o f nue-lear plant s , we d e c id ed to def er moving ahead with the formal implementation of such a program until we had the benefits of th e numerous inv estig a tio ns of the acc id en t tha t were b eing made b y many others , in clud ing the n.
Pr e sid ent' s Commission chaired by Dr. Kemeny and the NRC s .,
Special Inquiry Group headed by Mitchell R'ogovin.
An impo r t an t conclusion which has emerged from these various studies is that there sho uld b e a single accountable organiza-tio n with the requisite expertise to ta ke res po nsib ility f o r the in teg rated management of the design, construc, tion, l
operation and emerg ency ~res ponse f un c tio ns fo r- a, nuclear # power i
! plant. (See, e.g., Kemeny Commission Report Recommend a tio n B .
l 3.) Another important r e c ommend a tio n is tha t the l ev els of staffing and the c ompl ement o f skills av ailable , both at the
^
plant site and off site, should be very 'sub stan tially inc rea sed .
I *
- Il -
m m s- -,,s -m. -- y
Th e f o rm a t io n o f the Nuclear Co r po r atio n and the in termed ia te steps b e ing taken un t il the Nuclear Corpo ration can be fully o p e rat io n al are all d irec ted to carrying out those obj ec t iv es ,
i O~
as more fully set forth in the applic ation to th e Se c ur it ie s and Ex cha ng e Commission ("SEC") which has been supplied as backg round mate rial to your Commission.
We b eliev e that the obj ec tiv e o f providing at ac c o u ~.s t abl e organization with the r equistee' exper:tiae to take' reepo ns ib ility for the i n t eg r a te d ma na g em e nt' o'f' theS d'a afg'ak c'ohst's ne.cl.a n ,
operation and emergency response f unc tions can b e b est ac hiev ed with a siegle organization for the three nuclear generating un it s o wn ed b y the GPU companies, rather than b y creating ind ividual organiza tions for each of tho se un it s .
Q. Wh a t do you foresee as to the trendssin manpower and cast O requirements a sso ciated wittt nue:L'eae generat'ing "n tes g1tneFally and with the GPU units in particular?
A. At this point, it should he empha size d that the costs of op e r a t ion and main te. in t e of all nuclear generating s tat io ns in the U .ited St a te s am a b eing, and will b e , sig nific an tly increased as a consequenc e of the additional staffing and other requirements necessary te achieve the recommendatdons set for th in the various stud ies and the mul t it ud ino us l ad d it io nal re q ui r em e n t s imposed by the NRC. The in d iv id ual utility must first sa tisf y it self and then the g ov ernm e n tal agencies concerned, particularly thes NRC, that it is organized, sta f fed , and otherwise equipped to provide assurance of safe
- 11; -
l
cporations. While va believe -that TMI-1 and Oyster Creek had an outstanding record of performance, it is cl ear in the post-TMI-2 ac c id e n t era that increased staffing and lev els of expenses for those nuclear units and- fo r all other nuclear un it s are mandatory.
The co s ts o f o per ation and main tenanc e o f TMI-L and Oyster Creek will not be increased by reason of the fo rmation and operation of the Nuclear Corpor.ation, since; the leret of
~
staffing and on-site and o f f- sirs
- seppetm forr TEI--L and Oyster Creek that will' b e requir ed wo uld ber essentially the same with or without the Nuclear Corporation. Ind eed , there is a reasonable prospect that there will be somr modest sav ing s in.
cost by reason of the operations c.f the Nuclear Corporation as ag ain s t wh a t would b e requir ed for the complete separate staffing of TMI and of Oyster Creek. The number o f' th e on-site personnel re quir ed fo r TMI woula be the sante , with) or^ wf th7ut the Nuclear Corporation. Howertr, there will b e some personnel performing ov e rall manag ement , te chnic al suppo rt, adminis tra tiv e and similar f un c tio ns for b oth TMI and Oyster Creek, which will lead to some efficiences in personnel as against that which would exist if both TML and Oyster Creek had to be fully I
staffed in d e p e nd en tl y .
! Th e number of operating and main tenance employees at TMI has been inc rea sin g and is scheduled to co n t in ue to in c re a se l independ ently o f the formation of the Nuclear Corporation.
l Company r ev iews , inc lud ing as se s sm e n t of lessons learned 4
l t
fron the TMI acc id en t , showed a need for augmented staffing in
. such areas as. Quality Control, Training, Rad iolog ic al Controls,.
Ma in ten anc e , and Technical Support. The need for such inc rea se s in staffing is confirmed by the various TMI inv e s t ig a t io n s and specific NRC reviews and such inc rease s are un d e r wa y . In i
addition , a s part of the Nuclear Corporation dev elopment , it is in te nd e d to provide more support in such areas as Quality Control, Training, sad Technical Functicas at the pl an t site as well as in he ad qua r te r s a:f;Mm.
We also believe there are advantages in expanding the breadth of experience of those inv olv ed in the management of the operation and main tenance of nuclear generating s ta t io n s . The cro s s- f e r t iliza tio n pr ovided by responsibility f o r the o pe ra tio n and main tenance o f TMI and Oyster Creek should be of benefie
() to bo th stations. In ad d itio n , the increase in manning re f e r red to ab ov e is expected to re sul t in the im pr ov em en t in plant oper ation and con trol and assurance of safety, and to pr ov id e fo r improv ed reliability of the plant for long-term operation and make the modifications meet f u tur e r eg ula to ry requirements.
Q. Are there any additional benefits erpected from. tha. establish-
=ent of the Nuclear Co r po ration?
A. The e s t ab li shm e n t of the Nuclear Corporation is expected to provide in c rea se d . manag em e nt resources and control. There will be an increase in the level and presenc e o f se nio r O
management at the site, and this, along with other actions being taken, will help improve the support of nuclear stations by providing:
- The ability to focus greater expertise '
on any area and on short notice.
Increased _ proficiency under emergency l conditions due to pre-existing working I
relationships.
Personnel policies and procedures ap-propriate to nuclear activities..
The ab ility to attract and retain superior ~
people.
l Some resulting efficiency improvement after I
establishment.
O by ,
Q. What regulatory authorizations are required'in connection with the Nuclear Corporation and what interim steps, if any, have the GPU companies taken pending receipt of such authorizations?
A. The operations of the Nuclear Corparation require authorization by the SEC (which was received by order, dated September 5, 1980), your Commission and the Board of Public Utilitie's of the State of New Jersey ("NJBPU") and amendments of the I operating licenses for TMI-1, TMI-2 and Oyster Creek. While the proceedings relating to these matters have been pending it has been necessary to proceed with the strengthening of the l
management staffing for those nuclear unito in order to meet our own objectives and the re comme nd a tions of the Kemeny
() Commission, Rogovin Group and others. As an interim measure,-
this has been done by the formation.of the General Public Utilities Nuclear Group (which is not a separate corporate entity) through.which the operating and management responsi-bility for TMI and Oyster Creek wt11 he implemented until the Nuclear Corporation is o p e ra tio nal .- This action required NRC amendment of the Technical Specif'ications for TMI-1 and Oyster Creek.
PN/ME Exhibit 4 is a copy of:the letter, dated September 15, 1980, from the NRC relating to the amendment of Technical s
Specifications for TMI-1. (A similar letter, also dated Septembur 15, 1980, from the NRC relating to Oyster Creek O was also received.) In the detailed attachments to that """
letter (which were not included as part of Exhibit 4, but which will be available for inspection and copying), the NRC Staff found that the General Public Utilities Nuclear Group will provide acceptable management and technical resources to manage and support the operation of TMI-1; the NRC agreed with us that such changes strengthen.the overall management ind .
increase the technical resources for TMI-1;. however, the NRC Staff noted that its findings with respect to the General Public Utilities Nuclear Group are subject to possible modifi-l (s~1 .
I
j l
cations should the NRC Staff's further review or the NRC's j finding in the TMI-l restart proceeding necessitate such a change. As indicated, these changes are only of a transitional nature. When the Nuclear Corporation is permitted to become ,
operational, it will replace -the General: Public Ettlities Nuclear Group and the licenses will be amended to delegate operating responsibility to the Yaclear Corporation; the owners will continue to be licensees.
The requisite filing has been made with the NJBPU and is under consideration by that Bo-;d. It is anticipated that applications to the NRC for authorization of the requisite amendments to the operating licenses for TMI-1, TMI-2 and Oyster Creek will be filed in the near future. We have assumed that consideration of the authorization by your Commission and by the NJBPU would s
proceed essentially in paraller and' we believe that that is the present posture. While we are not able to determine at this time when the 51Clw111 act on the applications to be submitted to it for the amendments of the licenses for TMI-l and Oyster Creek, we believe it will assist the NRC's disposi-tion of those applications if it knows that the proposed r
program is acceptable to your Commission.
Q. Who will be the initial directors and officers of the Nuclear Corporation?
A. The initial membership of the Board.of Directors and the initial officers of the Nuclear Corporation are set forth in
- 18;-
l l
l L
)
PN/ME Exhibit 5, which also sets forth the present re s p o ns i- l bilities of such individuals.
O Q. What will be the principal functions of the Nuclear Corporation's Board of. Directors?
A. The principal functions of the Board of Directors of the-Nuclear Corporation will be
- 1. To de termine maj or FElfCf*Si
- 2. To. provide an overviw of" alf GPtT Systear nuclear activities, including those relating to public and employee'^ saf ety and operating performance;
- 3. To monitor the performance of the officers and to make such additions or changes as may be warranted; and
- 4. To consider and act on capital and operating Os and maintenance budgets for the . nuclear stations which will then be incorporated in the budgets- of the owners for consideration and action by their respective boards of directors.
l l Q. How will the operations of the Nuclear Corporation be financed?
A. The Nuclear Corporation's capitalization._will be nominaJ, namely, $50,000. It will have a working fund provided by the owners of the nuclear units, and major contracts relating to v i
l the nuclear units will be en te red in to by, or in the n am e s an d '
on behalf o f , tho se owners.
O Q. Are there any precedents for an operating entit- that is se para te and apart from the owners of a generating station?
A. In sub s tanc e , the agreement b etween the o wn er a. o f the GPU nuclear units and the Nuclear Corporation is similar to the agreements that have been in effect for many years for the operation by Penelee of the Keystone, Couemaugh and Homer City co al- fired s ta tio ns , and for the operation by Penelee and Jersey Central, respectiv ely, of the Seneca and Yards Creek pumped storage s ta tio n s .
I d on' t wan t to overstate or und erstate the significance of the fac t that we have chosen to utilize a separata corporate
() vehicle for this ac tivity. From a sub stantiv e. po int- o f viam, our obj ectiv e is to in teg rate in a single organiza tion the variety of skills and experience required for the con s tr uc tio n ,
operation and maintenance of nuclear plan ts . We wa s t to define the relationships and responsibilities and costs associated with those ac tivitie s as clearly as we can. It i
wo ul d , o f co ur s e , b e f ea sib le to achieve many o f our obj getives by continuing with the existing GPU Nuclear Group ( which is not a separate corpo rate entity) or by re-establishing in Me t- E d a separate nuclear division to operate and main tain TMI, and do the same thing in Jersey Central to operate Oyster Creek. It is our view that this would no t focus as well the
- 2a.-
I
mission of the GPU System nuclear parconnel, and would tend to submerg- the-nuclear group within th e larger operating utility organir.stions. Our obj ec tiv e is to ac hiev e increased visab ility O for the conduc t of our nuclear ac tiv i t ie s and we believe that this will b e be st achieved with a separate cor po ra te en tit y .
I should point out that, while the Nuclear Corporation will b e fully staf fed for nuclear o p e r a t io n and main tenanc e matters, we are not d uplic a ting: within the Nuclear Corporation those f un c t io n s which are not directly associated with such a c t iv it ie s . Fo r ex ample , the Nuclear Corporation will not have separate treasury, accounting or corporate seeretary staffs. Those servic es will be su ppl ied to it b y GPU Service Corporation.
Q. Will you please describ e the evolution and thr nature of the ft
'/ a rr ang em en ts that are r eflected' ir the a f fili'ated in t e re s t"*
ag reement b e tween Me t-Ed and Penelec for the proposed combined management of the two companies, which is the subj ect of the proceedings in Docket No. G-800 7010 l?
A. At the outset, let me make clear that the affiliated interest agreement does no t pr ovid e for the co r po ra ce merg er or consolid a-tion o f Me t-Ed and Penelee and we. don no t propo se such a 42rg er or consolida tion. "Specifically, Lt is my understanding tha t a co rpo ra te merger occurs when all the assets and liab ilitie s o f one corporate entityr are combined with ' tho se of another corporate enticy, which then continues in busines s with all
- 21 -
such asoots and liab ilitie s, and with the merged entity then ceasing to ex i s t as a separate corporate entity. It is also my understanding that a consideration occurs when all the A
U assets and liabilities o f two separate corporate en tit ies are combined in a new corporate en t it y , which takes over all such assets and liabilities and con tin ue s their b usines s , while the former entities cease to ex is t . The subj ec t ag reemen t does not provide fo r , and we do nat con template , any such actio n.
At the. present t im e , Me t-Ed ans. Fenelec Erre same' commod officers and directors and some separate officers an dir ec to r s.
The proposed management agreement provides that the two comp an ie s shall have id en tic al officers and directors, but that each of the will continue as separate corporate entities, with separate as se ts and liabilities, and. with each serving customers in its own se rv ic e area-- pur suant- to1 ra tes- es tab lish ed O
by this Commission b ased upon the separate existence of each such en tity.
I believe it will f acilita te an un d ers t and ing of.the s ub j ec t affiliated interest ag reem e nt fo r the conbined management of Me t-E d and Penelec if I trace its- evolution.
At the pr esen t time, the investor-owned elec tr ie utility-industry employs a variety of institutional and org aniza tio n al ar r ang em en t s . One such arrangement is the single utility corporate entity ( sometimes with minor corporate subs id iarie s ,
generally not directly engaged in utility operations).
O V
., i l
Phil ed elp hi a Electric and Duque sne Lig h ting typify such an .I i
arrangenent. Another is a reg istered non-utility holding company with two or more ut ility s ub sid iaries ; this is generally enployed when such ut ility oper ations esb rac e two or more states. The GPU and All eg he ny Power registered holding company systems illustate such arrangements. .A thi rd -inv olv e s an electric ut ility tha t is predominantly an operating utility but ha s one o r more relatively minor ut titty sub sid iar ies , and
.is , ther efo re, excajt from the registration re. qui r em e nt s of the Holding Come eny Act. Examples ar e Ohio Edison with its s ub sid iar y , P e.nn s ylv an ia Power Company, and Northern States Power Company ( Minne'soE[af with. it s 'sub stdiary , Northern States Power . Company (Wisconsi'n) .
In the case of the GPS System, we have followed a pa tte rn in which the chairman and chie f executiv e o f ficer; o f: G-PU holds O,
similar positions with each of the operating; pub lic_ utilitie s ,
and this has also been true.of the chief finc;cial officer.
In addition, the chairman, chief financial of ficer. and two other officers of GPU or the Service Company typically serve on the board of directors of each operating company.
The board of directors of the Service Company in turn has s
consisted of the chairman and- chieff ez ecutive-o f fic er , the chief operating officer and the chief financial officer of the Service Company, and the Presidents of the o p er a ting pub lic ut ility c om pan ies .
l The result is that we have to d ay , and have had for several
_ z ,_.
l
. years, a great deal of common management of Mat-Ed and Panelee.
The ho ld ing. -o f these in te rlo cking po sitions has been expressly authorized by the FERC under Sec tion 305 (b) of the Federal O Power Act, and by the SEC in authorizing the role and relation-ships of the Service Conpany and its personnel. This Commission ha s also b een f amiliar with these arrangements although there was no p r ev iou s occasion for it to function expressly on these matters.
For several years pr io r to m id- 19 73 y the GPG companies in clud ed two New Jersey electric utilities, the present Jersey Centr al. and New Jersey Fewer & Light Company . The Jaccer was less than 30% the size of Jersey Central in te rm s of operating revenues, d epr eciated utility as sets and to tal ca pit ali za t io n .
For sev eral ye ar s , Jersey Central and :New Jersey Power had common of fic ers and directors,. j us.ct as we. ara _ propo sing 'for O ,
i Me t-Ed and Penelee. By-the late 1960's, it-appeared likely that New Jersey Power was too small a co rporate en tity to be able to raise-capital economically or to undertake maj or construc tio n proj ec ts. However, the Jersey Central first mortgage bond ind enture contained a provision ( required by the SEC in 1946 when the indenture was first executed) to the s
effect that property acquired in a merger- by Jersey Central could not be certified as property additions un d er the Jersey Central first m o r tg ag e indenture unless the bonds of the merg ed company (New Jersey Power in this case) wh ic h wo ul d b e-a prior lien on the properties acquired by Jersey Central from o
O .
-a-l 1
L Nsw Jercay Powar were not in excess of 15% of the aggrcgate of the Jersey Central bonds then outstanding and then issunb le on the basis of its unutilized bond able property additions. The
~
difference in r ela tiv e size and growth rates, and the fact -
that New Jersey Power had some maturing f und ed d eb t , made it f ea sib le and appropriate to merg e the two companies finally in 1973, without requiring the early retirement of any significan t am o un t of New Jersey Power senio r d eb t securities, and this wa s d o ne . Howev er , a s relev an t he re, we had had several years o f experience with an arrangement where of f tecer and directo rs ,
o f two utilities were id entical, but the assets, l iab ilitie s ,
service areas and like matters of each. entity were separate.
By contrast with the sit ua tio n in New Jersey, d ur in g the 1973-1978 p e r io d , Me t-Ed and Penelec were no t only reaso nably close in size but Me t-Ed local senior personnel were primar ily
() occupied with the management o Er the oFeration of' TMI-1 and-*
getting ready for TMI-2, while-Penelee local senior personnel were primarily occupied with the mat.sgement of the operation of Penelec's own coal-fired generating facilities and the 5,000 MW o f co al-fired generation tha t it was operating in whole or in part for others (Keystone, Conemaugh and Homer City). Moreover, b o th org anizatio ns hai time-cons uming e l
re spo nsib ilit ies in b ring ing their existing facilities in to l
complianc e with b ackfitting requirements under the Clean Air and Clean Water Acts and regulations. We did no t see at that time any benefit to be gained by seeking to apply the New Jersey common management prec edent ,to Me t-Ed. and Penelee .
The aftermath of the TMT-2 acc iden t produced a radical change. Fo r the first several months after the a cc id en t , we were too occupied with containing the accident, obtaining the r
requisite rate adj us tments and bank credit that would perm-it I
us to continue se rv ic e to b e ab le to address po ssib le o rganiza- '
tional changes. However , by the Fall o f 19 7 9, we were reasonably co nvinc ed that th e Kemeny Commission and other inv e s t ig a t io n s would rein fo rce our view that an organizational' structure fo r nuclear stationi along the lines- con templa ted for the GPU Nuclear Corporation (which I have pr eviously d iscussed) was desirable. This would , o f course , mean tha t Me t-Ed' s own generating staff would be red uc ed to hav ing re spo nsib lity only for the relatively small Portland and Titus coal-fired s ta tio ns ,
fo r Me t-Ed's combustion turbines and for the sm all York Haven hydroelectric s ta tio n . It appeared to be to o sm all an assignment to be able to staff efficiently. ' The passib ility o f comb ffTng the Penelee and Me t-Ed groups responsibles for the operation of the Penelec und Me t-Ed f o s sil-f ue l fired generating stations so tha t they could apply their j oint resources to th e manag ement of th e fo s sil f uel generating facilities o f b o th companie s wa s ap pealing .
s .
There were o ther po te n tial advantagas- f rome a _ combina tio n o f the managements of the two organizations, such as those l
relating *to fuel procurement and uniform po lic ie s which I shall discuss in a moment. Moreover,'the financial con s tr ain ts as a result of the TMI-2 accid en t and its af t ermath we re so l
l l
l
{
L , _ _ _ _ . - . __ _
savore that it was clear that construction and many types of
.,, main tenanc e ac tivities would have to be cur tail ed . We b eliev ed tha t it wa s clear that we would get more value from the O red uc ed staf f s of both companies if t h e i.r efforts could be spread ov e r the operations of both companies.
Late in Oc tobe r 19 7 9, o ur financial people and counsel to o k another hard look at the que stion o f whe ther a corporate merger or consolid ation of Me t-Ed and Penelee was f e a sib le .
While technically it was feasible, it would have required the redemption of sub stantial amoun ts o f outstanding first mo r tg ag e bonds with low interest races and the substitution of new bonds with much higher in te res t costs, a s s uming tha t~ such new bonds could be sold - which was b y no mean s c er tain . It wo uld also have required the redemption of some outs tanding preferred
{} stock with relatively low dividend rates and the sub s titut io n of.new preferred stock with much higher dividend rates, again assaning that such new preferred stock could be sold. We conclud ed that, as a prac tical < matter , the se imped im e nt s precluded a corporate merger or conaolidation and tha t there was no o c ca sio n to determine whether there were other obstacles to such a merg er or consolid atio n.
s We also briefly explored at ab ou t the same tim e the q ue s t io n of wh e ther it wo uld b e feasible and desirable to create a new s ub- ho ld ing company that wo ul t' ewa the common stocks of bo th Me t-Ed and Penelec, and whose common stock would be owned by GPU. We co nclud ed that this was f ea sib le , but we also conc lud ed
that it would not serve any useful purposo and wa decided that we would not pursue that al t e rn a t iv e. By the end of November 1979, we had concluded that a combined manag ement f o r Me t-E d O and Penelec , o n the pattern prev iously employed in New Jersey for Jersey Central and New Jersey Power, was the most d e si r ab le approach to employ.
I p reviously ref erred to the fact tha t we concluded that th e combined manag ement approach would provide benefits in terms of making direc tly available for the operation and main tenance o f Me G-Ed's two c o al- f ir e d s ta tio n s ( P o r tl and and Titus) the resources of the Penelee organiza tion which is re spo nsib le fo r the operation dnd maintenance not only of Penel ec's o wn coal-fired s ta tio n s ( Sh awv ill e , Seward, Front Street, Wa rr en and Williamsburg , with an aggregcte in s t alled capacity of
() approximately 1,000 MW) bur also of the three maj or mine m33th s ta t io ns (Keystone, Conemaugh and Homer City, with an aggregate installed capacity of 5,000 MW) in which o ther no n-af filiated utilities pa r tic ipa te a s o wn er s .
Direc tly related to this matter is fuel procurement. Once again , b ecause Penelee has responsibility for a number of co al-f ired g .:nera ting stations, it-is economic for it to have more personnel with greater resources in coal procurement than fo r Me t-Ed with only two coal-fired s ta tio ns (apart from Conemaugh, in which Met-Ed is a j oin t owner , but which Penelec operates) with an aggregate capacity of about. 640 MW, or about 10% of the capacity of the coal-fired stations operated by
~
Ponslec. In add itio n , the pr inc ipal cource in Pennsylvania of coal utilized for elec tric genera tion is near Johnstown, so tha t the Penelec coal procurement group ha s b e t te r access on a co n tin uing basis to the in f o rm a t io n re l ev an t to coal procurement.
We also conclud ed that it would be desirable to add to that c>mbined group the Service Company employees who had been wo r kin g on co al procurement. In the lig h t of these facts, we concluded that the manngenent combination would provide greater resources for coal procurement for the coal-fired stations of both companies.
Another advantage that we believe will be provided by the combined manag ement -
or, more spec ific ally , by the extension to a larger group of Me t-Ed and Penelec officers and employees of the par tially combined management that already exists, as I
() no ted earlier - has to do with establishing more un ifo rm -e policies. Wh e nev er there ar e two organizations with capable and dedicated people, it is dif ficult to achieve and maintain uniform policies, vihtout suppressing in it i a tiv e . Som e tim e s differences in policies have little significance. However, in the af termath o f the TMI-2 accident, every aspec t of the
( operations of the GPU system companies ha s b een subj ec ted to l
l searching, and f requently c ritical, examina tio n, and differences in policies have sometimes b een regard ed by o thers as more significant than they are.
One area where un ifo rm policies and the ir implementa tion are likely to be particularly important relates to load management
~
29 -
l
cad conservation. We concluded tha t customers ware likely to be more r e s po n siv e to our efforts in th i s regard if they perceived that the GPU companies in Pennsylvania were following un if o rm policies in the appr oxima tely o ne-half o f the land area in Pennsylvania that Penelee and Me t-Ed serve.
As I h av e stated, we are not proposing a merg er or consolid a-tion o f Me t-Ed and Penelec. Wh il e I do not say that this may never occur, it is not part of our present program and there would have to be maj or changes in circumstances to make this likely.
Similarly , we are not proposing that rates be e s t ab lis hed for the two companies on a combined basis. In stead , each company's rates will continue to be determined on the basis of it s o wn cost o f service, c apit aliza tio n , revenue requirements and other relev an t facts, as an ind iv idual company, j ust as ha s b e en~'
true in the past.
We are not proposing that the financings for the two comp an ie s be determined on a combined basis. Fo r ex ample , we do not j propose that ?enelee issue securities and then make the proceeds av ailable to Met-Ed. Indeed , we do no t b eliev e, this would be consistent with the separate economic in terest s o f the public security holders of the two com p an ie s . In any event, it would require prio r regulato ry autho riza tio n by this Commission and by the SEC, and we have no in ten tio n o f se eking such author iza tion. To a limited deg ree , the r ev,o lv ing credit O !
t i
k
ogreement with the group of 45 banks establiches some linkage in credit av a ilab ilit y to both companies, since it establishes j l
both an overall lim i t on credit availability f or the GPU System, as well as sublimits fo r each system company , but that linkage is a consequence of the fact that the . three operating companies j ointly own TMI and hav e the same common stockholder, OPU. That linkage in the Revolving Credit Agreement antedates the present plan for the combined management o f Me t-E d and Penelec and would exist whe ther or no t tha t plan is im pl em e n te d .
We also do not plan to have either Me t-Ed or Penelee co nstruc t i
f a cilitie s for the other. Here, the situa tion mus t , however, be viewed in context. The very concept of an in teg rated el ec tric utility system is tha t maj or facilitie s will be designed and cons truc ted to serve, on the most economic basis, the needs of the system a s a wh ole , with due regard to a r e.a,
)
pr o t e c t io n , r eliab ility , d iv er sity o f fuel sources and the like. This means, f o r ex am pl e , tha t new g enerating units are planned and installed on a basis determined by over-all system requir ements , and are then shared in proportion to their relative requirements for the par ticular type of generating . capacity. Some times that sharing is achieved by o wn e r s hi p , and sometimes by contrac tual ob lig a tio n s . We have histo ric ally us ed bo th me thods and wo uld ex pec t to do so in the future. Moreover, when cond itions chang e so that the
.. ., . . . . .. , .n . .. . . ~
jeeceived : relative needs change from tho se existing when co ns,t ruc tion wa s initiated, we have sought regulatory authoriza-tio n for a change in ownership.
O 31 -
Saace ne ither Ms t-Ed or Penelec is now engegod in o ub s t an t ial.
const ruc tion of genera ting f ac ilitie s , this issue is not a pressing one at this time. In view o f the fact tha t the O Pe nel ec load has been below forecasts, Penelee has r ec ently 1
deferred the conpletion date for Seward Unit No. 7, which it h'ad planned to construct primarily f o r it s own requirements.
I p rev iously no ted that by the latter par t of November 1979, we had concluded tha t the management co mb in a tion fo r Me t-Ed and Penelee here under consid eration wa s the appropriate way to go. We then had to address the question as to how tha t plan should be implemented and how it should be an nounc ed .
These were affected by the fact that we were engaged almost continuously in proceedings before this Commission, and also had a number of other ongoing ac tiv itie s wi th the NRC, the investigations being co nduc ted by the Rogovin Group, the V( g #
Sub commit t e e on Nuclear Regulation of the U. S. Senate Committee on Environment and Public Wo rks chaired b y Se n a t o'r 'Ha r t , the Subcommittee of the U. S. House o f Representa tiv es chaired by Congressman Udall, the General Accounting Office, and others, as well as the day to day conduct of the business.
In its Prehearing Order, dated November 16, 1979, this #
Commission had directed us to state on the record in the pr oc e ed ing before it any changes in management struerure th a t we in te nd ed . We believed tha t it was clear that the Commission would wish us to make any initial public announcement on the subj ect of the proposed management combination in the hearings O -
32 -
e
l before it rather than in some o ther f o r um . We therefore b eliev ed that we were precluded from discussing the s ubj ec t with community lead ers in the Me t-Ed . and Penelee service areas.
until we had testified before the Consission. We f el t ,
however, that the f ac t tha t the Commission had directed the initiation of a management aud it to be co rdinated by Theod ore Barry & Asso ciate s und er the direc tion of the Com i s sio n' s audit staf f, provided a vehicle for initial informal discussions with the Commission's audit staff and the Barry g roup.
In th e interim, we developed in outline fo rm our preliminary plans for the management combination. On December 17, 1979, Messrs. Kuhns and Condon met separately with members of the Barry group and members of the Commission audit staf f relating to th e pr o s pe c tiv e scope of the Barry audit. They subsequently advised me that, d ur in g the course of that discussion, they had ad vise d that group of the po ssible manag ement combination for Met-Ed and Penelec, and that s ub s t an tial in ter e s t had been expressed in it. La ter in December 19 79, we advised the GPU Board of Directors of those plans and it was among the subj ec ts discussed at the Board's January 3, 1980 meeting. Some of the o
Barry repr esentative s also met on January 3, 1980 with some ind iv id ual outside GPU directors. I d on' t kn o w wh e the r the i
proposed Met-Ed-Penelee management combination wa s discussed in those meetings with individual GPU directors.
l l
t O _3,_
l
In early January 1980, va had some in-house meetings following whic h Mr . F. J. Smith, Senior Vice President o f Me t-E d , and Mr. W. A. Verrochi, President of Penelec , d eveloped draf t s o f o rg an iz a t io n plans, d a ted January 7, 1980 and January 8, 1980, r e spe c t iv el y .
Mr. Kuhns and I were scheduled to te stif y, b e fore the Commis-sion on January 17, 1980 on a wide range of subj ec t s , includ-ing management plans. For obvious reasons, we did not wa n t that testimony, and the reports in the media about that te s t im o ny , to be the first kn o wl ed g e that the senio r personnel of Penelec and Me t-Ed had of it. Co nse quen tly , d ur ing the week-end prec eed ing January 17, 1980, we had meeting s .in Re ad ing and Johnstown with small groups of key personnel in b o th companies , c autioning them that it should no t b e discussed
() with others pr ior to the pr e sen ta t io n of t h' e t e s t im ony . ,,
On January 17, 1980, we presented our te s t im o ny to the Commission outlining that plan. Since that time we hav e proceeded to develop the plan in greater detail, and have had the benefit of comments from the Barry g roup and others as we were developing these details. The present s ta tus is that we are in a position to implement the plan as soon as this #
Commission authorizes it, and as soon as the FERC g rants the -
au tho r iza tio ns reque sted under the Federal Power Act for the interlocking positions that have no t previously b een authorized .
o
Q. How will the cost o f the services o f the common officers and directors be allocated under the combined management ag reem e n t?
O A. The se rv ic e s rendered by the common officers and d irec to r s will be allocated to each company on the basic o f co st. To the extent f e a s ib le , such allocations will be based on t im e records; where not fe a sib le , suc h alloca tio ns will b e ba sed on the f o rm ul a s set forth in the ag re em ent filed in this proceeding. Each o f fic er or other employee performing common f unc tio n s fo r both compan ies will be on the payroll of one company or the other, but not both, to av oid complexities concerning social security taxes, pensiows, insuranc e and the like, but the company that makes such payroll payments will alloca te the cost of the ind iv id ua l' s services in the manner provided in the agreement. Mr. F. A.
Donofrio will discuss such matters in greater detail in his O t e s t im ony .
Q. Do es or will the proposed management combination involv e any co n fl ic t of in terest between Penelee and Me t-Ed ?
A. Wa do not believe that the proposed m anag em e n t c omb in a t io n
'nvolv es any conflict of interest between the two companies; instead, the ind iv id uals involv ed will render services to the two companies, which will share these costs in accordance with the se rv ic e s rec eiv ed by eac h.
Giv en the nature of the operations of the two companies and the nature of the arrangement, the possibility that there will b e conflicts of interest is r em o te . Ind eed , to the
- 35 -
best o f m y kn owl ed g e , this Commission, the SEC, the FERC and
- . other governnental agencies have not suggested r%nt there were i
. because the same in d iv id u ai s on fl ic t s of in ter e st .e serving as chie f executive o f ficer s and chief financial officers fo r both companies or because the two companies had j four common d irec tor s. The FERC, like its predecessor the Federal Power Commission, regularly authorizes in te rlocking officer and director po sitio ns for pub lic u t il itie s that are members of a registered holding company system.
If any conflict of interest should arise, there are several lev els o f audit and review that wo uld ensure that it wo uld b e properly d ealt wi t h . In the first pl ac e , we have a significant in te r nal aud it staff that wo uld b e expected to raise any i
questions of this sort. In add i t io n , we have ind ependen t certified pub lic accoun tants who se scope o f r ev iew f un c t io n s would also address such matters. We hav e detailed reporting 4
requirements to this Commission, the FERC and the SEC, and
{ would ex pe c t that my conflicts of interest would be matters which this Commission and such o ther Commissions would consid er I
in r ev iewing such repo rts.
- As I have previously stated, the proposed arr ang emen t d oes not involve any financial suppo r t or subsidy from one company to the o ther . Spe c ific ally , it will not cause Penelec to bear any expense o f Me t-Ed re s ul ting from the TMI-2 ac c id en t . It will not cause any burden or bene fit to th e present or future holders of Me t-Ed or Penelec preferred or common staock. To 36 -
t
the extonc that it results in im p r ov ed pe r f o rmanc e in the areas I have discused , those benefits will enure to the customers o f both companies.
Q. What cost or othe r benefits or b urdens do yo u expect to r e s ul t from the pr opo sed ag re em en t s?
A. We expect tha t ul t im a tely th e r e will be some reduc tion in ov e r- all costs as a result of the combined management. Th a t reduction in co st s will not be immediately achievable and will be more readily identificble in rel a tio n to where future costs would go without the management comb in a tio n than in r ela tio n to present costs. This is true for two reasons. ( 1) As our pr io r filing s hav e mad e clear , the l ev el of Me t-Ed's current expenditures is sub s tantially b elow the level needed to main tain se rvic e to customers, simply by reason of the cash
() constrain ts curr ently experienced by Me t-Ed . Ev e n wi t h th e,,
management combination, Met-Ed requires more funds for operations and main tenanc e expenses than it presently has. With the management c o mb ina t io n , Me t-Ed' s expend itur es for these purposes will have to increase. Wi tho ut the c omb in a tio n , they I
would have to increase even more. (2) Initially, there will be some relocation expenses inv olv ed in impl em e n ting the e
plan.
l The plan for the management combination will no t b enefit or burden the holders of the bonds , d eb entures , or short-term ind eb ted ne s s o f eithe r Me t-Ed or Penelec. As I h av e stated, we an tic ipa te tha t th e r e will no t be any burdens on the
r customers of either conpany, and va believe th a t the long-term benefits, in terms o f better performance and ul tima tely lowe r costs, will b e realized by their customers.
O If any f ur the r details on the proposed operation of the Nuclear Corpora tio n are desired in th is pr oce ed ing , Mr. R. C.
Arnold, who is the President of the Nuclear Co r po r a t io n , is better equipped than I am to supply them, since he is charg ed with r e s po nsib ilit y for im pl em en t ing the detailed op e ra t io n of the Nuclear Corpo ra tion. Similarly, if any further details on the propo sed Me t-Ed - Penelee management combination ar e desired, Mr. Verrochi is better equipped than I am to supply them, since he is charged with responsibility for im pl em en ting th a t program.
O -
, . - _ , - ~ - - _