ML20003B475
| ML20003B475 | |
| Person / Time | |
|---|---|
| Site: | Three Mile Island  |
| Issue date: | 11/19/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML20003B456 | List: |
| References | |
| NUDOCS 8102120177 | |
| Download: ML20003B475 (159) | |
Text
{{#Wiki_filter:.. . . - .. t s l
?
l 1l Before ' f~) , i M 3' i THE PENNSYLVANIA PUBLIC UTILITY COMMISSION I 3f --eco-. 4j In re: R-8co51196 - Pennsylvania Public Utility Commission, et al. versus Metropolitan Edison Company. 5i Investigation into a requested $76.5 millien
, dollar rate increase.
o h C-80072105 - Metropolitan Edison Ccmpany versus 7j Pennsylvania _Public Utility Commission.
~
Complaint I against temporary base rates fixed by the Commission dl in ita Order of May 23, 1980 at I-79040308. I 9 R-Roos 1197 - Pennsylvania Public Utility Commission,
- et al. vor. sus Pennsylvania Electric Company.
10 [ Investigation into a requested $67 4 million I dollar rate increase. 11 ,
! C-80072106 - Pennsylvania Electric Company versus 12 i Pennsylvania Public Utility C.cmmission. Complaint 4_ [ against temporary base rates fixed by the Commission
(/ '# j in its Ord r of May 23, 1980 at I-79040308. I4 Hearings. 15! __noo._ 16 f , Harrisburg, Pennsylvania 1'7 November 19, 1980 ga.' --oco-- 19: THIS DOCUMENT CONTAINS ,' 2c 4.: d P00R QUALITY PAGES i j Pages 573 to 715 a1 ; il 1 22 ;
? .
23 ;,! MOHRBACH & MARSHAL, INC. 1 27 North
- Lockwillcw Avenue gy 24[l Harrisburg, Pennsylvania (f ,,- '7112 s3f L.
nx:mes :: m :>,.v.. m =. - u :.1.wasu.w m. - n.msauna. n. nn: 82os22o j 7 7
. 3 573 l
0 1 Before O Gr ,, d'
! THE PENNS'lL7ANIA'PUBLIC UTILlTI COIGIISSION h
5 --cdo-- 4 i In re: R-80051196 - Per.asylvania Public Utility Commission, i et al. versus Metrcoolitan Edison Company.
#!' Investigation into a requested s76.5 million d llar rate increase.
l 5 I C-800721c5 - Metropolitan Edison Company versus h Pennsylvania Public Utility Com:nission. Complaint g against temporary base rates fixed by the Commission
< in its Order of May 23, 1980 at I-79040308.
9;1 R-80051197 - Pennsylvania Public Utility Commission, et al. versus Pennsylvania Electric Company.
*0 { Investigation into a requested $67.4 million
, dollar rate increase.
. , , C-80072106 - Pennsylvania Electric Comoany versus
" Fennsylvania Public Utility Ccm::31ssicn. Complaint 7~.,,
j against temporary base rates fixed by the Commission (2) l in its order of May 23, 1980 at I-79c40308. 4 Hearings. l i l 1*: - __ coo __
'6
' e 5 Stenographic report of hearing held j q j in Hearing Room No. 3, North Office j
.i Building, Harrisburg, Pennsylvania, ;
Wednesday, 19 j November 19, 1930
, q at 10:00 o'cicek a.m. -
'0 0 1 __oco__
l 21 JOSEPH P. MATUSCHAK, ADMI?CSTRATIVE LAW JUDGE l 22 ) --oOo--
,. d:
f( *h
./ '~ ,
-.O j i 4 !
I
' 0 X*
?.OH a : 'A? S
- t IL' . :f *C. - 27 % t GC:fY/*: * ' W AVE " # MRIG E URdE. *A. 17112
< s 574 4
I 11 APPEARANCES: l 2lh[ STEVEN A. McCLAREN, ESQUIRE Deputy Chief Counsel 3' JULIAH S. SUFFIAN, ESQUIRE
!, Assistant Counsel 4i BCHDAN R. PANIT4, ESQUIRE
, Ascistant Counsel 5{ Room 19, North Office Building P. O. Box 3265
- 6) ,
Harrisburg, Pennsylvania 17120
, For - Commission Trial Staff 7j W. EDWIN OGDEN, ESQUIRE 8j$ ALAN M. SELTZER, ESQUIRE Ryan, Russell & McConaghey -
9l! 530 Penn Square Center , i P. O. Box 699 10 4 Reading, Pennsylvania 19603
! For - Metropolitan Edison Company and ,
11 ; Pennsylvania Electric Ccapany I i 12 ; CRAIG BURGRAFF, ESQUIRE l _13 t DAVID BARASCH, ESQUIRE 1425 Strawberry Square g Harrisburg, Pennsylvania 17120 For - Office of Consumer Adyccate 14 f 15 5 BERNARD A. RYAN, JR. , ESQUIRE 800 North Mird Street 16i lj Harrisburg 'ennsylvania 17120
,,j At s For - .thlehem Steel Corporation 3 JOHN E. FULLERTON, ESQUIRE I 18 ) 407 North Front Street l .g Harricburg, Pennsylvania 17101 i and 3 C. B. ZWALLY, ESQUIRE 20i 1801 North Front Street j Harrisburg, Pennsylvania 17108 21 g For - Proctor & Gamble, National Forge Co. , et al. ,
3 Industrial Complainants ! 22 I ROLAND MORRIS, ESQUIRE 23 ; ROBERT E. KELLY, ESQUIRE j Duane, Morris & Heckscher j 24 -; P. O. Fox 1C03 ; & 4 203 Pine Street W
;3j Harrisburg, Pennsylvania 17108 l
" For - Victaulic i MCHM S ACH & MARSMAL. INC. = 27 N. LGC:tWILLOW AVE." MM"LIJEUN G. P A. 17112
{ ._ .
, a 575 3
n
. 9 2
5 IEEX TO WITNESSES l O' - > 2b l
'd RESPONDENTS _DIFICT CROSS 3i . .. ... ..... -
583 4 ') David L. Huff . t-l T. L. Carroll . . . . ....... - 686 5 i E. F. Carter .. . .. ...... 708 709 l 6 i 7i
~
U 3 42 i 9 10 ) . INDEX TO EXHIBITS 4 11 0 i u IDEN-MET-ED- TIFIED 12 l 13 ' C-38 Growth Rates, 1977-1981............ 653 Q
-1 14 'h
?>
13j PENELEC: 1 16jC-26 Abex, et al, Interroga tory No. 11. . . . . . . . . 654 s 17 I C-27 Trial Staff Rate Structure Interrogatory ! I i 11........................................ 654 18 i 1 C-36 - Response to Request at Transcript Pages 19 4 5 61 to 64 Relative to Growth Rate.......... 654 1 20 ) l 3 21l f 22' s me !
.. j k
253.! i
>j zo:os e.cx s :caSMA! mc. - M !!. '3C::Vau.OW AVI. - HMDWBUM G. **A. INE l l
57o
?. !
4 g 4 f 1j THE ADMINISTRATIVE LAW JUZGE: On page 163 i 2 j there is an errer. The sentence reads: We are going to dodge O 3 *) the ruling -- referring to the interlocutory appeal -- we are 4 4 l going to dodge the ruling of it and pass the buck to the I I 1 1 35 Cot =iscien. I I 4 The right statecent by te was: We are not 5f 7i going to dodge the ruling. We are not go'ing to dodge the 5 8 $ ruling of it and pass the buck to the Cc=sission.
=
The word, 4 9 j not, takes a little difference. I 1 I i 10 j So we will have the record corrected. ! 11 3 The other preliminary =atter is we have 12 j three cosplaints filed by the American Society of Utility 13 l g 3 Investors. We had inadvertently neglected to note that the llh 1 14 ) petition concerning the extraordinary rate relief matter and a 15 ) the petition ccncerning the temporary rates were not ccmplainps 1 i 16 .d against the Metropolitan Edison Company but were complaints l 5 i l i 17 i against the Public Utility Cc= mission. 4 18 5 We had indicated that we were going to 5-3 41 dismiss these two petiticas at the last maeting we had. We l' $ , l 20 ] are now inforced that those petiticns, which are against the Sil Pennsylvania Public Utility Ccmaission and against Metrcpolitan A 1 1 e 22 i Edison, are not consolidated with these nearings but are i 3 4 I 23 [ being segregated and are being give.n ceparate treatnent. f 1 2 2,. The only ccmplaint of the Aaerican Scciety s . , 23 of Utility Investors is the One involving the general rate
'!O'GD ACN ,: * *i e -J A%. ::( 0. ~ U *f. (8 0:* . aL %'. A *.T.
, - M WIS2U RG.
- A 1712
577 r. 1 increase and the complaint tha1 the rate increase requested O L U 2lisnotsufficient,andalsothematterofthepetitionto 1 intervene. Those are open tatters with us. 3l : 4, Any ruling that ue had made as to the first' 3 two complaints we will withdraw those rulings and let the 6 l ComMssion staff proceed on those. Are there any other preliminary matters? 9 't 3 I MR. MORRIS: One other preliminary matter, b 9:i Judge Matuschak. On Septecber 30, 1980 the Commission entered an order in connection with the issue pertaining 10 n $ to preferred dividends of Metropolitan Edison. In response 1
- :) I I
12f to that order of the Commission, Metropolitan Edison and the Commission staff responded to Victaulic:s motion. O V 13 , t i Victaulic, by the terms of the order, was 144a i given an additional 13 days to reply to the answers of 13 iffMetropolitanEdisonandthestaff. Such a reply would now 1
!! l 17 be untimely. }
16 4 I am not ab' e today to indicate whether 6 19 ll we received a copy of that crder. We do not, as to the J ! 20i lawyers participatirs in this hearing, remember adverting i 5 to it and I wanted to notify Metropolitan T.dison that we j 31 i ! 22l w uld be requesting permission of the Commission, which I I 1
,# assumeisproperlyaddressedtothem,tofileareply,whichf
~
,,2 will be severs.1 days unti=ely by the time we do it, and I !
- a ;
(.
' \d ;g; thcught I should advise them of that en the record today. l 5 :: car.m2es a w4nsnAt. ruc. - :: r:. .4e:criu+.cyr av:. - wariarssi.raa. 72. iris:
O f 578 3 i Our letter will be addressed'to the Commission.
,4 THE AEMINISTRATIVE LAW JUDGE: 7ery well.
2 :l fi MR. RYAN: Are you going to delay acting, ! 4-Judge, on the remaining petitions of that Society of Utility
;l
[ Investors, the ones that de apply to this case? THE ADMINISTRATI'E LAW JUEGE: I think at
,e the last hearing We had my thoughts were that the Society
.J 3 gj was in the wrong forum.
E' 9] MR. RYAN: Right, I heard part of that 1
- comment.
0)3,
; THE ADMINISTRAT1'E IAW JUEGE: But I said 1
; I will reserve definite ruling en it and give them an 13 PPortunity to give me a memorandum of law within a week. llh
( '1 I also indicated that we would not consider, _.) 1+
;t
..J the petition to intervene in the form in which it was sub-is ]
15;i mitted because it referred to the other two matters also,
., and if he would re-form that petition to intervene then we l 17 f
n I 3glwouldruleonthat. j N 19 , ?.G . RYAN: That agy come up on Friday of i 4 - 20 5
- 1
; THE ADMINISTRATIVE LAW JUEGE: Any other !
31 1 ! _ ] preliminary matters? ! l '# 1 l ~! MR. BARASCH: Yes, Your Honor. 77ur Honor,!! 23 :
-l I have tuo matters I vould like to take up. '
24 j
?
First of all, in the last set of proceedings i re wm sca c :nne:% me. - 27 n. s:xwt' on Ave. - Ne na:ss s-o. =A. v7 i:
579 a i 1i we had a very extensive off-the-record discussion with Mr. O( ;{iNewton,someofwhichwethenput on the record in the form 3 of data requests or other questions. 4' After thinking the matter over further, we 5i have a few other questions for Mr. Newton, but I don't i 6; particularly have the need to re 611 him. I don't need to i 7! get these answers from him on the stand if the company would S provide responses in the form of a data request. N 9 To exp' Gite the matter, rather than prepare! 10 : a formal interrogatory and serve it and all the rest, I 11 would like to do it on the record orally. i 12i I have a rough typed copy of the matter in O V 13 front of me which I will give to Mr. Ogden so that he won't 14 ? have to have the court reporter -- 15i THE ADMIIIISTRATIVE LAW JUI:GE: Well, put 3 it on the record so that all parties may have notice of what 15j 17 your requests are.
'l il' 18 MR. BARASCH: Regarding both Metropolitan
, 19 Edisen and Pennsylvania Electric Company, regarding the PJM j 20. reserve capacity payments reflected in the year ending March 21 31) 1981, we would like htr. Newton or some other officer of {
22 the company to provide several things. 33 q First of all,-the date of forecast for the 4 y] installed capacity and accounted for obligation-for the j u - 25 , portion of the test year prior to May 30, 1980 and for the q
- tCMCACM 1h 24ARSMAL. IN O - 27 N. f.01:<W1LLOW AVE. - H ARIUS B'J ?.G. .'A. 17112 l
# B 580 a i E l 1fportionafterMay 30, 1980.
2f Secondly,thethree-yearperiodsforforced,$ N l 3j outage rate experience that were used in the two forecast j i g i periods referred to in the first part of the question. 5j Then e. question. Isn't it true that the n i 6i first time the TMI outage will be reflected for purposes of h
? PJM reserve capacity expenses, that is to say, actual expense 8{ or credit not projected, is for the planning period beginning 9 June 1, 1982?
If not, when will the E outage be reflected 10 l t il for reserve capacity expense purposes? I 12 J Furthermore, isn't it true that the planning g 13 , period beginning June 1, 1982 will reflect nine months of the g 14 ' outage averaged with 2.25 years without the average? 13 ] Fourthly 3 isn 2t it true that it will not 16; be until the planning pericd beginning June 1, 1984 that the 17 h full effect of the outage for PJM purposes will be experienced 1 18 due to the three-year average forced outage rate?
't 19 4 Finally, isn't it true that the effect of
- 20. the cc pany's filing is to begin to charge in rates full 3; reserve capacity expense of the outage even though the full i
22 reserve capacity expense will not actually be experienced 33 until the planning period beginning June 1, 1984? Nou I have that in written form, and for (, ! 33= ease of Mr. Ogden's response I will give him a copy of it.
.h I
" 33:r.3ACH Je !! ARCMAL. 'NC. - 27 M. t.oO:" Willow AV . - :4 Aa R!s s uec. .% tyt1: I
580-A d 1 Those questions apply with equal impact for coth Met-Ed and I 2 Penelec. i 33 One other matter, Your Honcr -- 1 4; THE ADMINISTRATIVE IAW JUEGE: Do any of I i 5 j the other parties wish a copy? i 6l MR. BARASCH: I would have to have it 7i Xeroxed on the break. 8 THE ADMINISTRATIVE LAW JUDGE: Depending 9 on the parties who request a copy, you can give them a copy. 10 :
! ~
,i (Transcript continues on next page.)
li i 12 . O' 23 l ! 14 i 15 16~ 17; 13 [ 19
- i 20! I' 21i a
7- ~ 22-23' 74 . ! h_ -
.I
+
+-2 ,
i i
'40MacAO:t a MAMS*fAL !!aC. - 27 fL C 9C*tWILI.OW AY2. - H ARM:33URG. .* A. 17112 1-
581' J n 1] MR. BARASCH: There's another matter, Your Honor. 2 Yesterday we received in cur office correspondence from GFU u
- 3. j regarding a Met-Ed Exhibit J-3, a letter I think dated 9
November 13th from Floyd Smith to the Commission. And in 3)i 5jthat letter there's a reference to a request that the 6 Companies have made with the State Department of Revenue for 7 3 an extension regarding final paymant of a 1980 gross receipts 4 t 3 :j tax and regarding payment of a tentative 1981 gross receipts i i
? .i tax that are now presently due in April of 1981. That issue
)
a 7_1 IC j is ver; relevant to these proceedings, obviously, because of 11 j the credit line that the Company has testified to in the
.I 113 proceedings, i
12 What we would like is if the Company's attorney j ggg 2 14 could inform us as to whether or not that formal request has i 13)actuallybeenfiled. And if so, we'd like a copy so that we 1 Igjunderstandwhat the status of the prcceeding is with the t
;7 l Department of Ravenue. And if it hasn't been filed, we'd l 1,3 :. like to make an cutstanding request to be ..ovided with a I
1 i 19 j copy when and if the request actually is made to the Depart- l
. r 20 I ment of Revenue, i T; j MR. OGDEN: Counsel for the Company presently
,g. j seated will have to check with the counsel for the Ccmpany 3;; ) who handles tax matters to ascertain whether and if the
;,4 filing will be made.
;llk 23 THE ADMINISTRATIVE LAW JUDGE: You can report l,
1 m e u w a n o s w m e. - :- : a:m:te.cm =. - uwecu.no. .% mu
582 5
-4b
~$ ack.
n^ 'v( ' 2f MR. BARASCH: Thank you, Ycur Honor. That's all 3 J I had preliminarily. 6 a 42 ?R. CGDEN: Your Honor, ne had indicated we would b 3lhaveMr.HuffhereforMet-EdaccountingmattersandMr.
~
6;' Carroll here for Penelee accounting matters. It doesn't 7, matter to me which one of them goes first. Do I take it C that Mr. Huff may have more. questions directed to him than 9 ! Mr. Carroll and perhaps we ought to go wita kl.m first? 2 -2
.0, MR. BARASCH: As far as today's concerned, that 11 certainly is true for the Consumer Advocate's office, l Mr. Huff.
27, k MR. OGDEN: I a 3 13 ; THE ADMINISTRATIVE TAW JUDGE: Has he been sworn A $ 14 !,t in.both cases? 13 }! MR. OGDEN: Yes. He's been sworn in the Met-Ed - 4 1.6 3 prcceeding, both in the petition for extraordinary rate 3 17.j relief and with respect to the temporary rate matter hearing. 3 i 13 4' THE ADMINISTRATIVE 12W JUDGE: Let me swear him . l 19 s in, and than we'll cover all stops. i 4 20 3 i
;31 i DAVID L. HUFF, recalled as a witness on 21] behalf of Respondents, was sworn and testifi.ed i '
33 ) as fcllows:
'j .
34 ,l O i V 25j MR. CGDEN: Mr. Huff's available for cross-I .IO C *.:AGH ts .1ARSI!AL, tXC. - 07 !*. LOO:"WILLM*/ WL - ' W'R!S OURG. P A. 17110 5
-- Huff-Furti:er Cross , 583 s
I E 3 examination. 5 , THE ADMINISTRATIVE LAW JUDGE: Staff. g J 33 MR. SUFFIAN: Thank you, Your Honor. 4g a 5N FURTHER CRCSS il 6 l BY MR SUFFIAN: i' 7 Q Mr. Huff, can you tell us when you believe c 3 TMI-2 will gc, ;ack in service? 93 fHE ADMINISTRATIVE LAW JUDGE: I think someone
'l 10 else testified about that.
a gg j MR. CGDEN: Your Honor, Mr. Arnold was here last d week and gave some fairly extensive testimony. And I don't 12, q!! 13 l think Mr. Huff, being the accounting witness, can give you -- (
.14 MR. SUFFIAN: If he has any idea, I'm asking if G i
13 :; he could . I know Mr. Arnold was testifying for the most n 16 ] part on TMI-1, I believe, in the third or fourth quarter of 17 j 1981 being authorized to go back in service and actually 1
'i l ;g] going back into operation. If he doesn't have any idea or 19 l if he can't answer the question, that's all right.
4 i .m THE ADMINISTRATIVE LAW JUDGE: Well, if he can't l 3;. j answer the questien, you can request of the Company that 3 j they provide that infor=ation for you in one form or another.! 3,1 7,3 f MR. SUFFIAN: Okay. Perhaps you could provide i y. l that in the form of a data request. I thtak we focused l l 23 :l last weak en TMI-1 I mwen n usw.. - :2. - a n teacutow =. - mmuenc. m un: -- l
Eutt-Ftrther Gr03s 584
- 1 1 MR. CGDEN: I'm sorry. Maybe I missed the o i 2 gq uestion. Would the Reporter /ead the question back, please?
33 i (The Reporter read back the question as 4j follows: 1 3j "Mr. Huff, can you tell us uhen ycu believe i 51 TMI-2 will go back in service?") i 7l 1E. OGDEN: I fail to see the relevancy of that, 0 Your Honor. We're not sking a claim in this case for d 9 ?TMI-2, either in rate base or in the income statement. l
- .0 MR. SUFFIAN: Well, I think it's clearly rele-
;;jvant. Insofar as the associated cleanup costs of ' TIE-2 are l 13j concerned, it might be claimed as an allowable rate-making 13 expense recoverable through races. And also in the area of Q.
14 ' taxes. If perhaps TMI-2 is abandoned, this is part of the 13 g examination I intend to get into this morning, the effect 1 16a i that would have on taxes. THE ADMINISTRATIVE LAW JUDGE: I think it does 17 f 18 have some relevancy. And acide from that, if my recollection':s A 19 ( correc t, the Ccmpany has been making statements in the 20 j public press about that, anyway. I think it dcas have some i 31;rslevancy, too, en the financial condition of the Company 5 g and its financial costs. We'll direct the Company to fur-t 1 l n j nish that information, either by a witness or by a response, l MIL SUFFIAN; Data request aculd be sufficient e _. 4
;3 ; for Staff, Your Honer.
*dOMRSACM C *A33HA! '!'.'J. - 07 M LO*WitLLO'N X!2. - man %J3URG. PA. ?? TO l
l Huff-Further Cross
~
535 F
.P 1 j BY MR. SUFFIAN:
2a Q Mr. Huff, I believe Hr. Arnold testified last ! 1 3 ! week that he anticipated cleanup nosts for TMI-2 in the E
- q. 3 neighborhood of $1 million or somewhere thereabouts'.
1 3 A That's correct. 5( Q Do you recall that? Okay. Now, assuming that 1 1
? g TE-2 is abandoned, what wculd you anticipate the abandon-5 G!! ment loss to be for tax purposes?
?
96 MR. CGDEN: Your Honor, I'm not awars that
- I 10 i i there's been any testimony in this case that a decision has 11 been cada to abanden Eil-2, 12 MR. SUFFIAN: I didn't say a decision had been
( 13 i made. I said " assuming". This is hypothetical: Assuming h 1<.f ; tnat TMI-2 were abandoned, uhat uculd you anticipate the 1 33{. abandonment loss to be for ta:: purposes. i 13 j MR. CGDEN: I don't think tha t question's i
.y a relevant, Ycur Honor.
1
~
- m. - .;
MR. SUFFIAN: I think it's :learly relevant, 1 19 i Your Honor. If it eventually is abandoned. then certainly l
;c j this uculd generate a significant loss for tax purposes which
?
31 q could be utilized by the Company in reducing its taxable n j income in the past and in che future, and this would have an i }
, 1 7,;i effect en rates, j i
i i MR. CGD D: But there's been no testimony that n' , 23 this is the assumption that the Ccmpcny's =sking.
-3:m:::-: : :2.uw.. :::. - 27 . :.o :.: n t:v e c. v.annun. ." im:
Huff-Furchar Cross 586 d j 1l THE ADMINISTRAu vE IAI7 JUDGE: We 11, it 's a i
- C(' 2 l hypothetical questien as to the effect of abandonrent, d
We 2,foverruletheobjection. 1 4 THE WITNESS: I don't know the exact numbers. 3 ! There's nothing that I have in my pcwer of recall at the 5 [e moment. Met-Ed's investmen-c in TMI-2 is on the orde of i, 360 million for electric plant in service, I believe. 'Ihe e effect of the abandonment, if we hypothetically did abandon 9 it, it wculd be probably in the range of 300 million or 10jthereabouts. That number, subject to checking, of course, i 11 ; may be higher or lower. 12 f LY MR SUFFIAN: 1 f 13 j Q And this 300 million, or thereabouts, abandonment (v - L t. M: loss if TMI-2 were abandoned, when added to the cleanup is f costs for TMI-2, would result in, oh, abcat $1.3 billion, i 15 i assuming that the cleanup costs would amount to approximately i l 1/ l 1 billien, as Mr. Arnold testified to last week? l 1 l 19 g A Given those tuo numbers added together, it would i 19 ;f be 1 billion 3, yes. They're both subjected to wide 20]varlations. t 31 Q I understand that, Mr. Huff. 1ir. Euff, w mid this
.?
22 i loss -- or could this loss be carried back, I believe, b . t 331 three years to offset taxable income in past years, therchy ; . 2 f.y reducing tax liability to the federal government? l 33 A The tax laws provide fcr enufcack provisions, I
'lOHn tr.O*: 1 i f AS 3'W !% ".7 .*f. '.C M?CU.9W ?.'?". ~ .A :M!SZtJaG. M. t?!12
Huff-Further Cross 587 If yes. Whether or not there is encugh taxable inecme in the O 2)i Prior three years to cover that, I think that probably the 3 g amount that oculd be carried back wculd be, fairly small in 41 comparison to the 1.3 billion.
' a. .
- 5) Q But it could be carried as the tax law provides?
J 6y A There is a provision that it could be carried, 7; yes. 2 :; a Q And given the history of earnings of Met-Ed and a
?j I GPU, what do you -- and the magnitude of loss, approximately.
a
)
Ic j '
$1.3 billion, how many years would you estimate that the j i
11 loss could be carried into the future to offset taxable 12 .4 income of Met-Ed and GPU? ( 13 $ j MR. CGDEN: Ycur Honor, this calls for so many h 14 j assumptions that it amounts to speculation. 3 15 ; THE ADMINISTRATIVE IAW JUDGE: We ll, it's his i
;3 i general knowledge as to what -- I get he wants to know what 1
27 j the carry-back and the carry-forward is. a Ishi El. SUFFIAN: Precisely, Your Honor. That's
;.9 g uhat it is. I understand that these are very rough esti-Io ;
mates, and that's why I'm phrasing the questions as I am, 31 4 gi en the history of the ta::abl earnings of the Company and f; the cagnitude of the loss. ii e , THE ADMICTISTPATETE LW JUDGE: How many years t,.. cculd you carry forward under the IF.S rules? g THE i71TNESS: At the moment I fcrgot. I think ! 1 ac as -u a un sa: me. - = . L.oc cv n e c. 4 up.rsa as. n msz ! a
Huff-Further Cross 588 4'l it's seven years. 1] 1 O(' . 3: f BY MR. SITIFIAN: 3i Q So you believe that it could in effect offset
'l
- i. your taxable income, Met-Ed's and GPU's taxable income, for 3 the entire seven-year peried?
3 :j A There is a provision there to carry forward 7' seven years. It may entirely offset any earnings that may 3 be available, yes. 8f
? Q Okay. That's a possibility. Now, has GPU 10 ) claimed as a loss deduction on its federal income tax the i
losses, all or any portion of the Icsses, attributable to 11 l 13 ,! the accident at TMI-2? 13 j A I'm troubled with the definition of the word 14,', ! " losses". 15 Q We11, has it claimed as- a deduetion the loss
,I 13 ( due to the investment in TIE-2 due to the accident?
b 17 A No. Once it's declared abandoned or declared a 1 loss, the entire loss must be recorded en the financials 13 [ I? ' and taken at this time. That has not been done. 20 g Q Nou, uhat losses has Met-Ed or GPU claimed on 1 31:i its federal income tax return insofar as the TMI-2 accident i 22]goes? j 32 A I believe the expenditures of the cleanup have ! 1 ;/ 4
~
been included. However, I'm not certain. 23j ], Q Then there is a possibility that a certain 9 wrmw a :tusa.c me. - = ::. toe.v.mw.v m. - + 3.mscuac. .-4. ne t: 4
~ 589 t s
,s ; portion of the loss and the investment in TMI-2 may have 4 -
llh 2 ! been claimed on the tax return? i 3l A Not the investment on the books. That has not
)
4j been claimed as a tax loss. 4 51 Q Now, could you tell us why at this point La time d 65 none of the investment in TMI-2 has been claimed as a loss 1 4 7g because of this accident? 8- A .Why it has or -- pj Q Uns not. You said it has not to date, and I'm I 7,9 ; asking you to explain -- q; A It's my understanding that it is not considered
;;-l as a loss. And until such time that a determination that it
.1 is is a complete loss, we believe -- are going forward on the llh 4
....c. 4 i assumption that it is coming back in service. So therefere 1
;g i, it is not a loss.
73 l Q Mr. Huff, are you familiar with the Internal
.17 ] Revenue Service revenue rulings with regard to the timing J
- .3 of an abandonment loss for tax purposes?
3.; A No, I an not.
;c.
- Q Well, a specific revenue ruling, Revenue Ruling 3,; 54-5U1, mentions that an abande: ment isss is deductible when e the loss is actually sustained rather than when the overt i "1
~;
I act of abandonment occurs. Now, accepting that this revenue ruling dcas stata this, that it's when the loss is sustained
- q. rather than the overt act ccetrs, uculdn't it be true that
.e x =, e , .e ut. ne.- = m sc = tur ce - "w tsse u. :"- mu
r c~~ - ., Euff-Further Crosa 590 1 s j the abandonment loss for THI-2 investment should be taken in . O i {- 7,jtheyearthattheaccidentoccurred? A If it was considered a loss, I believe you're 3 4;ccrrect. But it's not censidered a loss. 1 3, Q It uasn't considered sustained in the year that i 3 ) the accident occurred? 1
<r N A No.
1 3 THE ADMINISTRATIVE LAW JUDGE: In that connection, g could part of it be considered as a loss without cons'idering the wholeplant as a loss under the tax rulings? 10 j gg j THE WITNESS: I believe that may be possible. a
- 12) BY MR. SUFFIAN:
O.c c 2S i' o And no gereien of the actuat tnvestmene wee con-y ] sidered as a less insofar as it was sustained in the year q3)I that the accident occurred; is that true? k A To my knowledge, yes. 16 :g Mr. Huff, do you know what a technical advice l 4 3,7 j Q
\ .
33jmemorandumis? j 1p ll A I know they exist. I have read scee en very few f
?,0 g occasions .
4
., 5
,9.*.
Q Would you agree that it's advice given by the IRS
.t iL national office to a field office regarding the current 22 i i l 33 h examination of a specific ta): payer in the context of a A g particular factual setting?
O..L i That's my understanding of uhat they are, yes. l ea. A ,
) $
0:C.?*CM O. *%*.,1516A*., IMC. - 27 !!. BOCK'el;b'.3W A*/2. - Mt.M?tt35';.73. ,% 1713-
Huff-Furthcr Crcss 591* it - i 1; Q Non, could you tell us whcthor Mat-Ed has ever n ( 7, j requested a technical advice cemorandum from the IRS during h J 3 g a current cramination with regard to capitalized pension J 42a coses and taxes?
'H 3l 4 A It 's my understanding that Met-Ed itself has not, 6 no.
I
?l Q Now, in Met-Ed's most recent examination by the ff j IRS did the examiners ultimately do ty capitalized pension ? q costs and taxes as a current expense in calculating taxable
- O income?
21 A (No answer) . l 1 l
,s,05 Q Perhaps I should refer you to your response or u 3 the Company's response to Trial Staff's Interrogatory No.16.
( a
- .3 } Do you have that reference, Mr. Huff?
e w
;.5 j A Yes, I do. ;,3 j Q I believe Page 1 of 1 of your response states thac 1
j7.; the IRS was contemplating the disallcwance as a current inccme s 3 f.;; ; tr< deduction of the pension costs and taxes but they did J t.9 ; acquiesce in the matter and they permitted the deduction for
- C j tax purpcs os.
2- A For the years '77, '78. I o,7. , Q Right. Now, the capitalized pension costs and i
;" " tsnes for Met-Ed claimed in this rate case -- correct me if ;
. j I'm wren;; -- are $1.347 millicn.
.3) .
A Righ0. I.*4 }"* 9/ Ml 1 I O 7 E T*.e N *C " U I = E D- * * ~ 5A N ** * !*
.____.___m.._- __ _ _ _ _ _ _ . - _ . _ _ _ _ _ _ ___ - - . - . _ . - _ . ~ . -
- i i
e - - - s. - -- . .. .. Fuff-Further Cross _ 541 -a i 4 : ) ; l- Q Ucw, did you take as a deduction in calculating l ! ) (' g. t< your federal income taxes -- for rate-making purposes, new -- i .t j 3 l these capitalized pension costs and taxes? i A f, j A No, we did not. l l R i j 5 (Transcrf.pt continues on following page.) i < l b . l 3 r j </
- i,-
i r-i. t I i [ hl I i !
; t
! g* .
+
- "" i
-' ij i -
13 Ii i t . I a e f' 4#.' 'j r, 4 se .1 l 3 i 17 J ' J l 13 j F 4 19 . 4
*1i <
1 4, 1 21 J
~, 4 am ;
{ E 71 4
! E 1
'J, .
~
n f~ 0 :::: l :.: emu:n a ausw.t m. - o 7:. : ocr.w ow m - >:m:nu io. n. r e
;---w--w y-v--w-+ +-,w,-,w w,,, ,up,.y..-,,gy m,,.m, , , , , ,
Huff-cronc qqg a 4
?
1 ;l Q You did for tax purposes for the government h 2 y but you did nct for rate-caking purposes? ! 3 A Yes.
?
.} j Q Thank you. Have you completed your answer, i
34 Mr. Huff? a l 6; A We indicated in that response that we 7 l thought the national office would reverse that ruling and 8 " I have supplied the staff with a copy of the letter that i 9 [ you refer to which indicated that the national office feels l 10 : that they are not deductible at current tax expense, 11 i Q But they had been permitted as deductions I e 12 :[ for federal income tax purposes in the past? 13 A In the past, yes. lll
.14 Q And they have not been deducted from 15 j federal taxable income for rate-making purposes in this
?
16 f case as you testified?
- i i 17 ' A No, they have not.
l 18 ' , I Q Now I am going to refer to a question that 19 I directed to Mr. Arnold last week and which he referred to il l 20 ] the accounting witnesses, yourself and Mr. Carroll. 1 21 3 When TMI-l is in the testing phase, how il 22 uill the tect energy costs be treated for accounting purposes? l d 23 j A Referring to the third quarter of this l 0 ca:, year when Mr. Arnold indicated they would be going through j 25 j certain testing prccedures? ; Q
- l l i '
- mecAca :: /.a c: v_. 'nc. - a n. toc:ccm. .cw Ave. - urnmssu ec m. t n 12 i
l l .
Huff-cross 593 2
;)
n Q Correct, I think it is the third quarter p 3 of 1981 and the fourth quarter --
,, f A I stand corrected, yes, the third quarter 3
L 4 fof1981. There are at least a couple scenarios that come to mind in the accounting treatment of it. One would be -- 3 6 ( let me rephrase that -- both of these scenarios that I am talking about are covered by the provisions that are in the 7 3 energy cost rate, both the current and the proposed. 9 The first scenario is that Three Mile Island No. 1 is a plant that is in an extended outage and 10 71 ; therefore when power is produced, whether it is through the 12 test program or whether it is when it is in full operation {} ,- 13 is immaterial, is that the cost of the fuel would be charged 7,4 to fuel expense and therefore would be covered in the energy ygj cost rate. I The other scenario that I can think of at 16l the moment would be the situation where, if the Commission 17f 13 l agreed to let us capitalize the operation and maintenance i 19 i expenses and the depreciation in that instance, it still 29 ! would be covered under the ECR rate, the test energy, and 21 I put that in quotes, that tre would probably charge the 22 1 customer the average cost of the other sources of energy 23l other than nuclear through the ECR rate and offset the amount
-,* capitalized.
0 ~') 23 Q I didn:t catch the last. ll h ;,f tliR3 ACM C; f, TAR 3HA: P'IC. - 27 M. CGC*Ov1LLOV/ AVL = M A 9".tSEtJRG. PA. 171f2
Huff-cross 59 s 1 A Offset the encunt of the capitalized 2 portion. In other words, the customer would be given credit i 3, for that. i 4; Q You are saying there would be capitalization
>?
3 of the fuel and energy costs associated with nuclear? 6f A When I talk of capitalization I believe 7l the proposal that was in the modification of the petition i 8 n was that we would chargo, I believe it was, Account 184 or 9 186. In that terms I mean capitalized. I 10 Q 1 cm just trying to understand what is 11 i capitalized. It would just be the nuclear fuel and energy 12 ; costs in the testing phrase and you would expense what, now? , 13 A The proposal was to also capitalize the
'i
- 14) restart expenses and the depreciation, in other words, 15, collect it for recovery over scme future period. Under 16i this scenario it is possible that we would, through the ICR il 17 rate, charge the custcmer for the value, if you will, of 13 the test energy and credit those expenses so that the total 19 " dollar a=ount recovered in this capitalized piece would be il a
201 much 3:aaller. i! 31ln Q What wculd be recovered thrcugh expenses 4 22, under the second scenario? Did you mention that a portion
- 23. would be recovered through e::penses? Or were ycu talking 1
.;4 : about the credit to expenses to offset the charge for g 25 ;; capitalization -- !
i-2c:e:c.u w.wx m - a ri. tec wr :.aw m. - ammut u n. i m e.
.. -.n. . . . _- _
Huff-cross 595 y 1 1 A I meant that the offset credit e be I~ 3 fj added to the expenses that we had capitalized for future i b
- 3 . recovery.
i 4; Q Or reduce the expence. l I 5 A They would reduce it, yes. But in either i I 6 i case the energy coct rate would cover it. In other words, l
- f. 7' have provisions in the energy cost rate formulas to cover I 8 the test energy.
i 9: Q But in the second scenario I think you 10 mentioned the amounts would be capitalized rather than go i 11 ; through the energy cost rate, so that is a bit different, is 12: it not? I No, the energy cost rate would, and for O{ 13 A 14 illustrative purposes perhaps the average cost of energy is 15, 30 mills from other sources as opposed to nuclear of three 16f mills, the 30 mills would be recovered through the energy 1 17 cost rate because that is the average of other power sources.
; 13 y It may produce two or three hundred thousand dollars or what-1 19 ever that number may be multiplied by the megawatts of test.
l 20, That two or three hundred thousand dollars would be charged 31 through the energy cost rate and the offset of the two or three hundred thousand dollars vould be credited against 22{ l ! 23[theexpensesthatwerecapitalizedforrecoveryoversome f( 3,$ future period. L.- e 25 $ Q A set.nnd matter that was discunsed last E r rn:as a.ca a :.:ARSHR. mc. - 17 Mc t.CC:!VAU.OV/ AV2. - H ut313Etmc M, 17172
,- . ~ - , - - - , . , . . , , - . , ~ __. _ _- -- .,-
Hu'f-cross 595 I 3
,n week, could you tell us whether the original and revised i 4 forecasts, the load and capacity forecasts prepared by ,G r
dMessrs.CherryandRaber,ucreusedbyyouinthepreparation 34 of your origicsl and revised budgets? _i o A Neu you are saying original and revised? l 6 Q Well, there was an original budget and that was revised. 7 g A Yes. Q Are you familiar with that? 9 10 '
? A Yes.
f 11 , Q Mr. Raber, I believe, last week testified
'l that he submitted a revised load and capacity forecast dated 1 13 May 23, I think,1980, and that this revised his original g
i load and capacity forecast.
" " " 57"" " " " ""
15
- s apa ity f recasts prepared by Messrs. Cherry and Raber were 15 I
gjusedbyyouinyourdevelopmentofyouroriginalandrevised i
, gjbudgets.
A First of all, a revision as you are 19 r ng to a redsed budget, in ce nmenclat ue h not 20
, ; a revised budget per so, it is a later forecast. That o,
differentiates between an original budget which we track y(againstconstantly,andaredoingnew,asopposedtoa
~,
?
d later estimate. I M: lg j It is a complicated precedure uhereby the ;
**O,
i "10ll :3ACM L lt A t3N AL. !N O. ~ 07 : LOO:"V/1LLOY/ AVL - :! AEft:33UTIG SA, 17112
Huff-cross 597 load and capacity forecast is utilized in the generation C2 .. ( 3 ycomponent and in the fuel forecast component in which many I people are involved. 3Lt j Specifically to the May 23rd, whether that 5!
)
i to check that. 6 Q Will you check that for us and get back to 7 i
,f us on that, please?
ot A *8* 9
" * ** # "E 10 '
11 ; that would be the best procedure. Could you tell us also g whether the original load and capacity forecast was utilized 73 j by you in developing your original budget? p A Yes, that one, yes. Q Thank you. Could you tell us whether any 1 5! a 16 [ Xpenses associated with the conservation and load management i,
- l. g i master plan are claimed in this rate case?
_3g A It is my understanding they are not. Q They are not? 19 e! A They are not. New maybe I can qualify it 20si 3
,, e a little bit. Within the GPU charge that Met-Ea has in its alj
,i budget there may be some of Mr. Hood's time in working on it 42)i l
23 ( but it is not identified as a load management program. 1 So to that degree there is a possibility M, 1 t l (_ s
)
_,.j ; cne could conceive that there is a very small piece of his l i n1 :g
'to:-:liCACH A .MARSMAt IMC. - 27 N. t.GC*:V/1'47?/ AV3. - H ARM 155UnG. PA. 17112 i
Huff-cross 598 j 4 y; time within that charge. Q '4culd that be limited to Mr. Hood or would O
,, .1 there also be included the time of other personnel working on
,p j the load management and conservation master plan?
5 A It is possible within that charge there t 6 may be other people involved. 7 Q Do you knew what the magnitude of that 3 would be? p A No, I do not. 20 , MR. SUFFIAN: That is all the cross-yy examination we have today, Your Honor, of Mr. Huff.
.. 12, THE ADMIIIISTRATIVE LA'4 JUDGE: Consumer 13 , Advocate? g 14 MR. BARASCH: 'Chank you, Your Honor.
- 15. BY MR. BARASCH:
16 , Q Good morning, Mr. Huff. I 17 ' A Good morning. 28 , Q Turn your attention to your Exhibit B-1, 191 Part 8, page 1. Most of the questions I will be asking you l 20 concern Part 8 of B-1. We may as well start there. Do you 1 have that, sir? 21
., ., j A Yes.
.~ q
.e,3 l Q Take a look at column o, line 5. I see 4
there that you have not included an ad.justment for late 7
.w . , ;g i
g, gayment charge revenues along with your other ad.justments
,w.:,. a a nu.cu.u m:. - :7 :n to:::veu. sw wz. - uwssuas, n. irn:
L
suff-cross 599 i 7
. to achieve the required return, is that correct? <- A ,
A That is correct. Q You may have been present when Mr. Ca.rroll I testified a week or two ago. Were you, sir?
.' A No, I was not.
'i Q U n t, w uld y u accept, subject to check, 6
t ' i that Mr. Carroll in the Peneloc proceeding included a late 7 g, payment charge increase associated with the requested revenue i increace? 9 A Subject to check I will accept that. 10 i g! Q Would you also accept that his late payment g charge adjustment was .225 percent of revenues which, if we i ! 13 were to apply that same percentage to your filing, would j y, amount to about $108,000 of increased revenues? A It is possible. 15; g, Q If we were to perform a similar calculation
, for Met-Ed, in order to nor:nalize the value shown in column l
re i l 3 3 -- do you see colt u s chere? i 1 19 A Yes. Q You would basically divide the late 20 payment charge va.lue of $573,000 by the $242,441,000 figure
; to come up with the ratio, would that be the correct approach?
I ~i l _' At least if we wanted to get a comparable percenta6e figure l D J. . i for Met-Ed. ()' i
., , J A I am not sure if that is a correct approach I
NONR37.CH a '4/ M 3HA1 !?:3. - O* Pl. Ccc:<W:LLOW A'.*f. - U P.rtt33 UR G. .*A. 17112
- ~ - . , - . , , , . . . .- , , . , , , .
Huff-crcss . 600 il
'l
; j but if you are ccming up with a comparable number, that may J
C 2 J be one way of doing it, yes. h 3 ,5 Q And that number would be approximately 4 $ .236 percent, does that sound right, sir, just 1 coking at 5; the numbers? , 6[ A Yes, sir. 3 I 7 ll 4 Mr. Huff, isn't it true the late payment ; i 3)chargeisassessedasapercentageoftheaggregatedollar 9 amount of outstanding bills beyond the due date as a general l 10 ; proposition? A That is correct, yes. 11 f 12 Q So if the ccmpany would receive higher 5 13 f revenues en m h bill due to higher base rates in a rate 14 ' case, then the aggregate outstanding bills wculd be larger, all factors rema.ining the same, wouldn't they, sir? 15f a 16 j A All factors remaining the same, but I think 4 0 17 ;j that is important, that assumption. i is . Q Now do you have any reason to believe l lo t that if this company was awarded a rate increase that we d l 1 20 li would not see concomitant growth in the hte payment charges i 31 j' the company would be receiving from its ratepayers? 22 A It is entirely pcssible it may so up, it q3fisentirelypossibleitmaygodown.
, ,r .'
Q Cculd you enlighten me as to why in your I 23 ; prepara. tion of the Met-Ed case you have not made an adjustment h
*?CM3ACM L */ A't SH A* . If!C. ~ 27 M. LSCDY!LkOW AYI ~ MANU36DNO. PA. 17112
Huff-cross 601 I N 1 I while L*. Carroll han in tbo Fenelec case? Is there some O 1 2 ) theoretical difference between these tt o co= panics? A Ho, I thinic it may be a matter of -- as 3} j 41 you understand, cany people are involved in preparin5 a rate 3l case. In the accounting preparation of it we calculate the 6i revenue requirements on line 7, and in conjunction with Mr. I 7 l Carter, utilize his services to allocate whatever line numbers 8 ! are above that. 9j It may have been an oversight. 10 ! Q Let me just ask you one other question. F isould you anticipate that as the rates of this company go up3 11 } not only would the value of an individual person's late pay-12 l 13 : ment charge increase but that you also might have new 14 : delinquent accounts that you never had before? 15: A That is a very difficult thing to agree to 16 : because of many circumstances, one of which I am not sure 17 whether there is a direct correlation between the size of i 16 ' the bill. It certainly may be the mo d o of the customer or 19i maybe the economic conditions. I I can't respond to what causes it to go 20f up or what causes it to go down. 21f 22 Q Have you noticed any pattern over the time 23 that you have been with the company that as your base rates 24 go up what happens to your delinquent accounts? Have you j 23 j noticed any correlation?
' ?fCH30ACH a f f ARSHAL. ?!C. - 27 21. L.0C;; Wit. LOW .WE. - MAnatsauMG. PA. 17112
Huff-cross E i 3a A Tnere is an increase in the uncollectible :
, accounts. However, I think that a great portien of that is s
,i! due in part to bankruptcies. We have fcund that --
a$ 4j Q What did you say? 1 3j A I am sorry, I am thinking of the write-off 0 6]ofthedelinquentacccunts. I have not done a study to show the 7f 2 1 3 p; relative pattern of delinquent accounts. It is my recollection h 9 d that we nad thought that they would go up more than they 0 1 10 )' have, chat the customer accounts receivable have been well yy within our expectation. l Q Thank you. Just so I understand this, Mr. 12 , ( 13 ] Huff, the late payment charge, is that a percentage fee g g N tecked onto a bill? How was that charge determined? 15 A I believe it is a percentage, yes.
- 16. Q So at least in theory if the amount of the f !
37 3 bill outstanding beyond the due date grcus, then the late l 9 i
'8 L payment charge associated with that higher amounc will like-!i 19 h wise grow?
a A That is right. 20 - Q New I think earlier when I first started 31
,, ,, ( into this you indicated that -- we were discussing some u) ratios that I gleaned frca the Penelec exhibits -- that 3-
, i
., 1 what I was proposing us one way but I think you might have "3 , -
,2, - said may not be the best way.
, Do ycu have another approach l N = xn=:.=a c. i +.n w m e. - = :r u =m aw m=. - mm un. n- tm1 1
l
Huff-cross 603 I l
, jthatyouthinkwouldbeabetterwayofreflectingthatratio O e
(- 3 or relationship? A Not specifically, but I a::1 troubled a little 3l i 3 4 l bit by the direct correlation that as the bill goes up so does 5; the late payment chcrge. Tneoretically that is entirely possible. Tneoretically, it is possible, also, and I am 6l 7, talking in general terms, and I repeat, that it probably i 8 would depend on some econcmic conditions. 9' Q So when you wers saying you rot sure, you 10 , were not questioning the numeric calculations I uns making? i A No. 13 12 Q You were questioning perhaps the theory a k - U 13fbehindmyquestion? 14 ! A That is ri6ht. 15 Q Would you turn to page 12 of Part 8, please? 16 i Do you have that, sir? 17 ! A Yes. 3 Q Now, at line 8 on B-1, Part 8, page 12, you 18 ] 19 ' have an increase in expense to amortize the investment in t
.,0 ! j Berne and Stony Creek.
, Do you see that, sir?
1 31j A Yes, sir, b Q In addition to these amortizations, isn't 22{ , f a .i it true that Met-Ed has also included a total of about
)
431 million in rate base for t;he unanortised balances in O', ~ n., 4 y- these inve::tments?
.es ;
t?cM*tC AOM ,. MAR JHAL ;??O - 27 N. C3C4WIL' O # AYL - HA 9 pts 3 U R 3. .*A. ~ 17112 l
Huff -crosa 604 c- } A That is correct. l 13 i (~ ;j 2 Q And that *.re would find in, I think it is, g il 3; B-1, Part 2, pa6C 10 A That is correct. 4lI' Isn't it true that you are requesting the 3j Q
.1 6~ amorti::ation because the investment in these facilities now 7 in the company's opinion will not be utilized, is that correct?
a' A That is correct.
- 1 93i Q The amount to be amortized for Berne and 4
10 ) reflected in rate base for Berne is only the amount of the 11 ' costs incurred for engineering, licensing e.nd environmental , 12 studies, is that correct? 13 j A That is correct. The land cost is not ( We anticipate selling that. O 14, included. 13 '- Q The book cost of that land invesment for 16 ! Berne, excluding these licensing and related costs, is about d
~
1/ $4.4 million? 18 A That number does cound familiar. 19 Q I think it is $4,380,000. 20 '; A Yes. 1 Q Ilow I think you just testified that the 21] il 22 Ecrne property is presently for sale, that the company J 23 l1 intends to sell it?
.I p,j A That is correct. Mr. Sarasch? i 23 ;
Q ves. le i c . .ov ven a ur.a,m.. ne. - =, n. me.c.u.w i.n. - ,u.m,ocna. n mn
Huff-cross 605 k l . A I think I stand corrected on the Berne m 'g ( alte. It is my recollection that there was a reversal of
. .,,.{
allewance for funds used during construction during the late 3 t ' 9 3 springtime which reduced the actual balance to $3,834,000. 4ti oi
-,- Q So the $14 38 million uculd include AFDC7 ~
4 A Yes. 6l 7, Q When you back cut the AFDC you end up with g I what? l N A $3,834,000 That was as a result of a 9 pri r FERC audit. I am sorry if I interrupted your train 10 i gy j of thought. l i i Q No, that is okay. As I understand frcm 12 ! I i 13
< 1, your testimony, I think it is page 8, you are testifying l 34,q that if you sell this land at a profit you intend to flow i that back to the ratepayers, is that correct?
1:..';- a
.? A Yes.
Ao; W Q How do you propose to amortize that gain? e71 4 Are you 6oing to do it over a five-year period or what? 33 Assuming that there was a sale for profit. The reason why 19 N t I propose this five-year period in ny question is here you l 20 I are proposing to recognize the expensos and amortise them
"_ , i i
- i. over a five-year period in this case, j 22l 1
_ ,, ! I a:n just :tondering, would you also propose:
.<.a ;
i d that the benefits derived fccm the sale above book would also, _. , flow to the ratepayer over the same period of tisd ! l "Ol } i 3:w :.cn s .asut. me. - :: u teco<tu.CW AYI. - MRJti_9st:RG. PA. ?T11: l l [ _I
Huff-cross 605-A
, :i A I think that would be one apprcach that ,
^
we would heavily consider, yes. 2 [ Q Now anothar matter which is really I
.'important is, if it is the ccmpany's position that upon profit
+
i frcs the sale it is going to be credited to ratopayers, would O
, you immediately begin to amortize tnat profit on the books or
,7 would you wait until a rate case comes along? Do you under-3
" stand what I am getting at in my question?
9' 10 (Transcript continues on next page. ) i 11 ]. 12 i 1 3 ( 14 15 h 9 16 .t 17 , 1
- 1 13 l
l 19: 20) l
)
4 31 . l 22;1 d 3 23 9 li 24 a 25j l zwuc:4 : :.i.r:striu. i:4c.. - 27 tr. teara<iute .r Avz. - iiannisr.una. gr. i2::: i
__m._. ab Huff ourther Cross 606 a
;j A A::suming that the sale cccurred prior to the a
P dg-s a 3 1g conclusion of the rate case and acceptance or denial of 3] revenues. But if it was accepted that it should be in the ti
<.- rate base, it would be my thought process that ne wculd start c
y j amortising it when the ratemaking started or when the rates n u 6 were started. ai j Q So if we had a cale above boek between now and a 3 j the end of this case, you would propose to make some sort of 4-1 g adjustment in this proceeding to reflect that profit over f go l perhaps a five-year pericd or coma other period? 4 A Yes. 11 lsi l 12 ji Q Now let's say the sale is not concluded until - \ l m 13 , after this case is over. Uould the Company begin to show (' . 24 ]- that on its books imrwdiately, or would they wait until the ! i l g; next rate case so that in fact we actually see the benefit l 16 fl wing threugh to the ratepayers over a five year rated 17' period? l ,g A This is assuming that the Commission allowed it 19] in rate base? 2c, Q Well, the assumption I'm making is the sale takes n ; place after the conclusion of these proceedings. Obviously, 1
=
! ,, ,; icplic it in that is it would have been permitted in rate basej 1 ' 33 i A I would think that we would start amortizing l
- .a'
- immadiately in accordance 9eith ratemaking if it's included in j
,g bas'e ra tas .
ue::w.ctr a sxxxut. me - a r: L*ccu Lo's M - NS"N 'A- 'm __ y -n- , ~
Huff-Further Cross 607 t Q I don't understand the phrase "in accordanca T. p 3 'i with racemaking".
?
THE ADMINISTRATIVE LW JUDGE: Well, it wouldn' t O 3* o;, be included if it came af ter the . case. It wouldn' t be 3 included until the next rate case, uculd it? a g,) MR. BARASCH: That's what my question is aimed at, t 7 THE ADlmiISTRATIVE IAW JUDGE: The ques tion 4 -2 ' a refers to any sale made after this case is concluded and i
;o after the Ceuxaission makes its order. That's the assumption, 1
104I as I understand it. 1g i MR. BARASCH: That's ccrrect, Your Honor. 3 THE ADMINISTRATIVE LW JUDGE: What would be your 13 i 13' treatment then? Would ycu uait until the next rate case? ('
- w.f THE WITUESS: But the point I'm trying to make $
1 g 3 is if it is in the rate base, this unamortized gain -- it i
;g ] would seem to me that we oculd probably treat --
.f
.g y ' THE ADMINISTRATIVE LAW JUDGE: It couldn't be in i l'd; the rate base because you wouldn't hcVe it yet. At the con-
,+
19 j clusion of this case and at the conclusion of this hearing, a
'0.]theccnclusionoftheCommission'sorder, 2 it cocid not be in 1
l rate base because you haven't sold it. So if ycu haven't 2.2 s Id it until after this case is concluded and the Conraission 33 ] makes its order, hou are ycu going to amortize it? Are you 1 z Soing to ace-tize it thereafter ' ediately, or are you >
, 'a 4
(, ' l
.~,,. going to wait until the nere rate case? It cculdn't be in
~
r
> ___,=--m....- -
--ee. s Huff-Further Cross 608 it i 3
1 j the rate base because it hasn't taken place. l 2 THE WITNESS: I understand that, but my thought , f 3l process is we have an amortization of engineering costs. 4l ;- MR. BARASCH: I think we're getting a little bit 3' confused here. I i S; THE ADMINISTRATIVE IAW .1UEGE: I think I 7 ,k - He means if you have the
$understandwhathemeansnow.
G; amortization of engineering costs, then you would adjust that 4-3 9 l amortization to reficct a gain. Is that what you mean? - 1 10 THE WITNESS: It's obvious that un have not i 11 j fully explored that piece of input. It does seem to me that ! 13 f in our latest or in the last two or three years in delving . t 13 with rate cases and with amortization, that if an order s~~ e .
.14 ' includes an element of cost or if it includes an item such i ;
ggg as this in rate base, then the package we treat in there. 1 g, j And I could presume that cur decision would be that if there , l 37 , was a gain subsequent to the inclusion of the engineering 13 ! costs in rate base, that in all probability we probably
'l 19 4 uould start amortizing the gain.
t 3 20 ) BY MR. BARASCH: 1 31] Q Immediately? 3 22 f A I may be incorrect. , Q Immediately before the next rate case? 7.; 1 n, a. -; A I would think so, yas. That dcas not mean that 4 /
- in the next rate case it would not be adjusted similar to 23 J i
- o:nner e ::m.w me. - u : . z.onom.w:1 an. - :wmssun. n. m n=
l
Fuffg,g,th i r Cress 609
)
i 2 ; what we have in incoca tax refunds. d c 2j THE ADMINISTRATIVE LAW . JUDGE: Youmaanyouwould1g . 3 I 3 ,y be amorti: zing the costs, engincaring costs, and so forth, in i. 99 this rate case. And then if there uns a gain there af ter J S 2 the case was over, ycu would modify that amortization to i 6 reflect the gain. Is that -- i 7 TIE WITNESS: No. What I think I'm saying is 0 that we uculd probably amortize the gain and would amortire v 9)the-- 44 i
.to j THE ADMINISTRATIVE LAU JUDGE: I maan the general
'4 33 [ effect trould be -- if you amortice the gain, then the general i
n j effect wculd be that the amortization of engineering costs 10 would be reduced. g S:. THE WITNESS: rut I recognize - no. I think
;3 it's two separate items, Ycur Honor. I recognize that what M { Mr. Barasch is asking me is that if I start amortizing it
.7 iti it.sr.cdiately, then the customer does not get a benefit. It
- hj does not preclude in ratersking similar to I believe an i
19 j instance toe have in income tax refunds, that in the next rate to. case it will be taken in its entirety in the adjusted rates. n] MR. BARAECH: That is exactly what I was driving n: at, Your Honor. The question 10 if it begins to be amortised l 2, ca the books of the Ccmpany in an intervening space between
' rate cases, the ratepayer vill caly pick up some futura piecej g 2 of that ecst unless ccme sort of back::ard looking adjustment l
? w. n = r =u - '
- nw.. m. - u ;,. w ==w.e : .v=. - m .=> w.c..v. mm.
4 Huff-Further Cross 610 1
;$ is present in the next case to raccpture that amortization
'4 O 1 C[- 2 f of gain, i
'3 ' ,
THE ADMINISTRATIVE LW JUuGE: I say in effect 4 what it would be would be reducing the amortization of the 5 costs by the benefits that you get. 67 MR. BARASCH: For the Company's purposes, but not
? I the ratepayer. That's exactly what the cencern is.
J 4-5 Si MR. CGDEN: Your Honor, I think it's important to d p 'j clarify the record here. We're talking about the assumptien 3,o ;j that there is in fact a not gain. That is not the only 1 1
.a J assumption one could make.
J 13 ; THE ADMINISTRATWE LAW JUDGE: The assumption . p 13 [ that there would be a sale and the assumptien there would be G. ) 14jagain. 35l MR. OGDEN: A cet gain. 16 , MR. BARASCH: I was certainly aware of the 3 1;fassumptions. Igh BY MR. BARASCH:
.1 19 ; Q I believe in ycur pre-filed testimony you state 20 } that the Stoney Creek property trust revert back to the 31 g Commenwealth because of the Pennsylvania Scenic River Act of 23l'72. Do you recall that?
'l 33 j A Ten, I do.
I
,; Q I wender, do ycu know what provision of the Act :
33 ] cr under whac provisien of the Act the property raust revert i h uw e.: :. w.um. : <e. - n : . we=w = = w= - wr uws. n w-
. . _ , Euff-Further Crcs. a
*611 ~
}
1 back, what the basis for your statement 137 (- 1g, A The basis of the statecant is in the agreecant G 4 33 between the Co=nonwalth of Pennsylvania and Pennsylvania 7 4 ' Power and Light Company -- and PP&L is the titleholder of 3 lh the land -- there was an agreement which Met-Ed -- I don't 1 4 6: know if they countersigned it or whether they agreed in 3
'; I principle to that -- that in exchange for this proper::y that G j was going to be used for this generating s_te, PP&L exchanged a
pj sc=e other lands. And in that agreement if the project does
?
4-6 10 i n t becoze a going project, then the Cc::nnenwealth keeps the 1 11 j property that PP&L gave them plus they regain title to the 3 12 y property that was transferred to PP&L. 3 13 FR. GODEN: F2. Barasch, I think, if I recall g 14 j correctly, there was an cutstanding interregatory frca your 2
;3 i office in this area. I think I also recall that there's a l
;] response in preparation in writing for the question, l'j f FR. BAPASCH: I'm aware of that. I was partially 2[", trying to see whether we could get so=e of that here now.
l' 19 ;. I won't belabor this c:uch longer. I
;c1 BY 12. BARaSCH:
Q So when you said the property would revert back 32 : to the Cca:nonwealth, we start with the proposition that the i 23 '.! Cocmenwealth ooned the property originally? , j: A Yas.
~
2y Q And does thaE property revert baCN, to the DGst m._.._. _ . ,. . . . s..-
Huff-Further Crosn 6 12 1 ;] of your knwiedge, without any reccurse for the Company or ! O q g without any provision for compensation to the Company? 3i A In answer to that question, that's the one i
,5 q question which I'm trying to rosolvo. It's a legal question.
I l 3 i I am not a lawyer. And that's what's holding up the response
}
6)asyouoriginallyaskedfor. I do not know whether tlwre's i t 7}recourseornot. 4
- 4 3l Q Well, is there a provision for the conipensation 9 3i n the event --
~7 I 10 MR OGDEN: I think, in fairncss to Mr. Huff, il 3 this does get into a question of mixed fact and law. 7 nile 12,1 Mr. Huff does have the facts, his lawyers are still working .
l 13 l on putting together the legal aspects of it for a complete 1,; response. l 23 MR. BARASCH: We were aware of that when we l 16,' asked the interrogatory. Excmse me one second. 5
;7 (Off the record from 11:11 a.m. to 11:12 a.m.)
1Gj SY MR. BARASCH: J 19 i Q There's one other matter I wanted to ask you 1 30 sbout this. Has Stoney Creek eser been included in the rate 31 base of Metropolitan Edison Company in the past? For that
;-; ) Icatter, has the Burne facility ever been included in rate 33 base in the past?
il y] A Burne has, yes. O ;5 j 4 Q I wonder if you could giie me -- take the tirne a Mc%w cM o Mem"% !"12. - 2'I L LeC:;vr:r.Leact "/L - HAc.msounc, rr, syst: - f
Huff-Furthar Cross 61 t 1, that you need -- tell me chan Burne was first put inte rate ( ; j base and to what extent it has been put into rate base. And O
.1
;jwithStoneyCreekthesamething. If it hasn't been in rato j
5 i base, I guess whac I'm asking is, Is this the first time the 3 :, Company is requesting it in rate base, when in fact we know a G fi it's not going to be used and useful.
'i , A It's my recollection that Stoney Creek has never 4-8 -
G 3 been in rate base. Burne has been in rate base for a short ' d 9 pericd of time. My recollection is it was in for parhaps a 4
..o yaar in the mid-1970s.
11 ) Q Okay. Well, as far ac I'm concerned, for Burne Ig )3 if you'd like to consult with your other people and report . 13 back on that, I'll give you an opportunity to get the infor- g
. 4 ; mtica completely. But on Secney Creek, as I understand the 15 l situation, ce have had a plant that is basically being held
.t t
is for future use but has never been in rate case. 0 Ir/ 5 A That's right. 1 la i Q And now the Company here is preposing to place it 19 j into rata base nem that it's bacn decided that the plant is
;.3 { in fact going to be used. ;
33 j A That's correct. May I ask a clarifying question,I. 4 g air? !
^;
;. Q Sura.
- A Q.a t is it that you wish to have in respect to ,
s Burne?
' i
- . w w - u. r.w en. - = -. ecc ruar w - w.nnre=ene. n. , m..
i
' *^
Euff-Further Crcss 3 l 1! Q I just wanted you -- if you're willing to stand 1 O' (~ % ! by your statement completely that it was in for one year, or
'l 3 something, in the mid '703, that's fine with me.
,f A It was in rate base.
In other words, there was a previous period in 3l Q i f 6l the early '70s and back in the '60s when it was never in l */ ! rate base; it was in for one year, and then it was removed i i 8landisnotinnow? l 1 l 9i A I don't know if it was for one year er -- it was W IC ; for one rate case. J 2g '; Q Well, if you could perhaps just identify what , 12 the period is for us, between what two cases or whatever. D, 13 i A It seems to me that R.I.D.170 and 171 it uas u ! 14 taken out of rate base. R.I.D. 68, which was the prior one , 13 - to that, it was put into rate case. I think those are the 1 1 l 16 j tuo dockets. ii Q Thanks a lot. 17 )3 IG MR. OGDEN: R.I.D. 64 it :nay ha te been. 19 B'l MR. BARASCH: 2 2Ci Q so it was between R.I.D. 64 and 1717 i.i ; 31.; A That's my recollection. , i l 22 j Q And in 171 it was taken cut, and then 434 it r } remained out and then 626 it remained out, and now -- c
-.j r
A 303, Phase 1 and 2. mi n
;3 f Q I think we've covered everything. 2ica, then, if 1- :,:en-2.m c: : e.nsi:As n:e. - r ::. *.se:eme ow . " - s uma v..c. n. t7 :
t t -
l Huff-Further Cross 615 , '
, L 3 There you are computing 1 ) you could turn to Page 18 of Part 8.
(~ 2 an adjustment in the amount of 216,000 for implementation of g 3 1the RCS, or Residential Conservation Services Program, is ; 3 e'N that correct, sir? A Yes, sir. 3))4, Now, originally that program had been planned for
- 6) Q 3
? q implementation in September of 1980, is that correct- sir?
4 Sj A At the tire of the preparation of the rate case 4-10 9 13 that was the anticipated time frame that we would sta t the i a 10 j program, yes . 31 l Q What actually has been the experience of the n Company with this program? Has the program started?
) A No, it has not.
13 g y Q When ic it now expected to be started? 13 ! I assume what happened is it was delayed due to i 4 161 4 the layoffs that have taken place at Met-Ed? 1 17 j A No, no. I think it's a delay in the full imple-1 Ig < centation by this Cocmission and the government as on what Icq Lt's going to cover. a zo ) Q Oh, I see. So it's delay -- ycu could not
.31 ' attribute the delay to any of the financial difficulties the y;. Ccmpany has been in recently?
3 e
- .3 F A tio. But if it was implemented today. it would g.} give us considerable problem because na do not have the 2,; j employees.
g
^ %:c?in CH
- 7t* 33:tAL.1*'?::. - 07 P. Lo*% yNLew Ayr. ~ :4 &M!sstdoc. N% 171 *:
Huff-Further Cross 616 4 3j Q Do you have any idea uhen impiccantation is now 3 !l expected to take place? ( 1 I 31 A In general terms, I think, in talking with people 3 e 4j. yesterday, it probably will start in the first quarter of 1981 , 3 subject, of course, to the same kinds of things that are 6 f going on now with final approval of the program. 7[ Q But as you just testified, the Company would be gi facing some difficulties due to not having employees or ade-9[ quate employees for the progrcm. Shculd I assume, then, that i-ll 20 there is an expected increase in the number of employees to Y 23 r occur in the first part of 1981 that are carraarked to handle i 12 ithis program? -
?
A Yes, sir. O('-- L 13 )i l 24 ) Q Do you have a claim for that in this case? 13 { A Yes, we do. In conjunction with the $216,000 13.j found on Page 18, we also have 204,000 on Page 9 for the pay-
;<7jroll portion of it.
I might add that these two dollar amounts were 13 g i 1 1 19 y what were forecasted at that time to be incurred from ii 20! j September 1980 through to the end of the test year. .They werd 3 y f not annualized amcunts. The annualized amounts would be in i y j the vicinity of $1 million. 4
.23 j Q IIou could you stay with B-1, Part 8, Page 9, s
.- .. where you just referred us to.
There you're reflecting a e,v j
.1 3 j co=putation of the adjustment to payroll expense for rate ;
- wm.m o :.msw.. me. - r r ecrzm =v. v:. - :m:saac. n. m-:
-w.. s.- .-- - - .v. .--r_e..,,,,., ,_#_ ,y
. o Huff-Forther Cross 617 f .
2 lease purposes, correct? (~ g i,. i A Yes, sir. e 1 3g Q Moa, Adjusements 1 through 4 on that page are 9
- s. l designed to adjust from the budget amounts of payroll increase 3 [ to the actual increase, is that correct?
A I didn't hear the last part of your question, i 3[!d I 7 j! Q You'ra basically making an adjustment from your a budget figures to your actual experience, is that correct, N p]what y ou r anticipathd actual erperience will be?
"~1~9 "
10 A No. I make an adjustment to the year-end 3
.t ,.; aconditica, budgeted condition.
4 12 . Q And that year-end adjustment is based upon 13 assumption of what your actual employee levels will be at g
}
.24.jthat point, correct?
ej A As budgeted, yes .
~) .
I y,3 Q Now, Adjustment 6 on that page, Mr. Euff, is 17 ) designed to adjust the resulting payrolls for the additions 1 gg i to employees made during the test year ending lurch 31, 1931, 1 w 1 is that correct? n 20 j A Yes. g} Q And Adjustment 6 is suppertad by Part 8, Pages 1 10 and 11? 33 A That's right. It appears there are adjustments in specific nt Q g g , months; correct? ! 5 1 l .w=cu . . . uw . m. - u . c ==ow ri - xm:s=mo. ". mu l l l
r Enff-Wrther crean 618 l 1-; A Yes. O g Ucu, is that because the actual payroll additions ( s 2 ,!,t Q 3 Imade due to new employees was different than the amcunts I 4 Ijbudgeted in those specific months? 3 9 3j A When you speak of actual, in an acccunting sense
?
6f that means something that has occurred. I'm not sure if I
?>s completely understand what your question is.
01 Q Let's try it again. On Adjus mant Ho. 6 you're 4- 13 ; attempting to adjust the payroll for the additions tcade during 4 to ] the test year ending March 31, '81, right?
.i 3; $ A That's correct.
Ig . Q New -- and that's supported by what follows on 13 ! resee 10 and 11.and there 1 eee chae there ere ad3ustmenes O(- $ 14 being made in specific months and the normalizing adjustments. li 13 g A Certainly. 9 16, Q Now, is that because that reflects a variance W l 27 j' between what had originally been budgeted and the actual pay-la j roll additions that are being made during the test year and 12 { the timing of them? 7,0 } A No. The wholeintent of that adjustment is that i .
;1 j you have the full year effect of any propcsed additions. In l
2 n j other words, we're adjusting payroll to a level that we i 2.3 j anticipate en an annual basis at 3-31-81. Tharefore, when l (} y, j cce projects an addition to be made in a particular monen, j u
~. .
r ] ne must then normalize for the portion of that salary that is l l 1:.xm= vmw e_. - e. - :- n. w :eie.:.w .=. - mn m:.v.. n. m ia --
, 619 ,
~
Huff-Further Cross Il._ i
; j not in the budget.
r, d r ;j 1 Q Fine. New, at the botcom of Part 8, Page 10, g 3 3 you indicate that you have an adjustment for a 9 percent 3
,5, ,
increase and a 7.71 percent increase. I'm gleaning that from 3 g Line 14. Do you see that, sir? 6 {! A Yes, sir. O Now, isn't it true that the 9 percent increase r; 5 Q e: i went into effect on January 1,1980?
)
9 A YeS-
.-14 go . Q And the 7.71 percent increase is scheduled for 4
.u. j January 1, '81, right?
12 j A That's correct.
?
13 : Q Now, uhy would ycu be increasing the normalized k.. I la e or normalizing adjustments for the months after January 1, $ 13, 1980, for the 9 percent adjustment that took place at l 16 ; January 1,1980? . 3 jf A I just explainsd to ycu the concept of what we're 1,3 ) doing, Mr. Barasch, is thae in Column 1 the net annual 4 lyjsalariesareatthethenbaserate. It did not include any 7,g :fwagerateincrease, il 31] Q So the April -- let ze just make sure I follou l
- )
c you. The April '80 figura for 59,000, for example, on the e/* q j g first line did not include the 9 percent increase that eccur~ed en January 17 !
. ,3 , A No. ,g 1 -
, - _ ..= -
l
_, Huff-Further Cros3 62G
'l a -
1! Q Okay. Thank you. I think I understand it unless
/(-
2 j there was more of an explanation ycu needed to give.
.1 3j A In the budgeting process through the computeri-9 4 !! zation runs the concept of budgeting is at a -- whatever A
3 2 base salary the employee has or whatever the anticipated I f 0
$ j salaries that you would expect to coms on. Subsequent to 7, that is then the wage rate increases are applied to the 1
0y computer runs. These numbers were taken prior to the f4 g ;j application of any wage rate increase to accomodate.
, _g go l. Q See, my confusion is this , Mr. Huff: I assume i
;;jthattheCompanyputtogetherthisbaseratefilingforboth 4
.12jMet-EdandPenelecinthespringof1980. I assume.
i.' A ~ A Yes. L1 23 : 3.g, 3 Q And the difficulty I'm having is understanding l 33 why the Company would be backing out a wage increase that 16 4 was already in place when they put together the filing. ! 1 l 4 17 j A The answer to that is, Mr. Barasch, that the l l l 1 ; budget that was utilized -- ? r
)
l .i.9 y Q Was a 1979 budget?
- 1 20 ]
A -- was -- only had through September actual of i - 31.l 1979+ l 3 i Q I see. So the budget that was the underlying 22 l4 l 23 h basic for the future test year was Septem:bar or Cetober of l ? l
-2 '79 --
l . "3 A That is correct. 33 l 4 10F"RE A CM O ? 1 tas;Mt tNC. - S7 . LocX'.Y".'.3 # A'/T. - MAP.'1tS 3tJRS. 9". 1711:
Huff-Further Cross ,620-a 1 J 1 1 Q Okay. I understand it now. p ; THE ADMINISTRATIVE LAW JUDGE: Is this a goed
- 3 time to take a recess?
c 5 4g MR. BARASCH: If I could just ask abcut two more a 3 3 questions, I could close out this line, Ycur Honor. l 4 6 $ BY MR. BARASCH: I 7( Q And the same explanation you just gave me, Mr. J cli Ruff, wculd apply on Adjustments 1 through 4 on Page 9, o 1
. .-16 . 9jcorrect? That is, we backed out the utge rate increase 1
Io d before we put together the filing? l
;. .. I A That's right.
)
w 12 $ (Transcript continues en following page.) 4
. .. is LJ ?
k'
..,i s., G
)
.3 i
17 1 10 5 4 4 2C i aC.7 3 n
.'sde I
'i a
*9 -9, 4 l i
mm . _ _m. m. - c., : . . _,
. . - .,..,m =m. 2,. - a
7_.. , Huff-cross 021
.1
,3 c MR. BARASCH: Your Honor, looking at it Op ^!
.,4 further there is really about another five or cen minutes i on that point so I think this Jould be a good time to break.
4j THE ADMINISTRATIVE LAW JUDGE: All right, 5 we will take a ten-minute recess.
;. t 6I (Short recess.)
7' s DAVID L. HUFF, resumed. 9, THE ADMINISTRATIVE LAW JUDGE: You may 10 , Proceed. 31 BY MR. BARASCH: 12 Q Just to kind of continue a little bit 13 , along the line we were before the break, as we understand yl it, Met-Ed is asking the Commission to establish rates in 15: this case based upon your estimate of expenses to be incurred 16 d oing the test year ending March 31, 1981 as normalised, l zy I correct? i ' i A Yes. 13 (
~
19!j Q Now it is our understanding from one of 20 Mr. Graham's exhibits a number of cuts in the transmission 21] and distribution area and O&M area and other arons have been i i 22.i made. As I understand it, they were first expected and d 23 f.l estimated to be made then deferred then finally they were 1 3,; in fact instituted, is that correct? s a ; 25l A We are referring to the September 12th I f I
*te:m2 AOH 4t MAR 314AL. INC. - 37 N. LCCn flLLOW Av2. - MA tRts3UM3. AA. 171t2 l
Huff-cross bN 1 l letter and those proposed --
-A e ,i Q Well, certainly that is a piece of it. h ,; First, the company was talking about a series of budget cuts, +j. for example, there were some 79 employees were laid off I think November 1.
5 6 A Yes. Q Then there was a hiatus where nothing 7 S ! occurred and then in fact those cuts were put into place, b right? g, i 10 A A portion of them. 3; Q At least 79 employees have been removed? 12 , A Yes. 13 Q Now those November 1 cuts were not reflected {- l 1,4 l in this filing, were they? 15 A No, sir. 16 Q So far the company has provided no update, 17 ! for example, along the lines of B-1, Part 8, page 1 and the to
;g , other schedules / reflect the impact of those November 1 cuts 19 upon the company's operations?
20 A No, we have not, i 31 Q Could you provide an update that would a gl reflect the impact of the actual payroll employee cuts that 7.3 I have occurred 30 far during the test year in this case? And p i perhaps do it along the line of B-1, Part 8, page l? Would 7,3i j you b2 able to do that? O 4 f
- CMT.O ACM 3 M AR SH AL. !*IO. - 17 Ni ECO.:CW3'. LOW AVE ~ MATilSSUftG. PA. 17112
T Ruff-cross 623 A If it was only restricted to that one item -- 1h 0 2q Q Do you mean the 79 employees? A The 79 employees, certainly that is not 3 4 too dif"icult to do. Are there other matters that if we really 5[ 3 Q 6, wanted to show the difference between budget and actual l . 7 experience to date, are there other employee cuts other than 8l those 79, other variances from the original budget? A Certainly we are aware that Met-Ed is in l 9) 10 , a rather precarious position with cash flow in this type of 11 i activity and Met-Ed has had to make many adjustments, one of 12 which is a payroll freeze on hiring of new additions. 13 , To normalize all of those conditions in b effect is the preparation of a new rate case. That takes a 14 1 15 , considerable amount of time.
\
16 The reason it takes a considerable amount I 1 l 17 of time is because part of the attrition is the people that ! 18j do the rate cases. We are in a problem area, Mr. Barasch. 19 , Q Let me just make sure I understand it. As far as the 79 employees that were actually cut on November 1, { 20 ( y u e uld give us an update of B-1 to show us what it would 21
.,, have looked like if you had budgeted that initially, right?
.., l .
23 {, A That certainly in en the assumption that k cne would expect that those 79 cuployees are going to stay p f yfofftherolls. Certainly we were in a position where -- ;
?!CHR3.ACM Ca MA 15H AL.1MC. " 27 N. L3CKW:LLOW AVE - H 4RRt3DURG. PA. 17112 L
Huff-cross , 624 , s ,
- 1) Q I make no assumptions abcut the information. 1 9.i
(_ 2 I am just making a data requect. ggg a 3 '- , A I am introducing an assumption because i 4j , there is a very basic philosophy here that because of the 5 ;I fact we do not have the earnings, because of the fact we do 6 not have the cash, we have had to take drastic measures. l
?l: Q I well understand what the company's position would be, but at this point in time for the 79 I 8f 9 am just making a data request.
i 10 :j I think as I understand it you are saying 3 . 11 ! you think you could give us a depiction of what that would 12 j look like. 13 A As an alternative to this, if I may suggest; (-
.14 h is what the dollar impact of the 79 employe.es is on the o&M ~
Ih i f 15j expenses. 9
- 16. MR. CGDEN: Your Honor, I should note for T.? [ the record that any such data would be without prejudice to 1 ;
i 18l Respondent's position as to what a normalized test year j l 19 , should be in this case. 4 l 20 ll MR. BARASCH: I certainly have no intention i 21 of prejudicing the coupany's case in that regard. j 22.; BY MR. BARASCH: I i 23l Q It would be preferred if we could have l c 24.0 something that would look like page 1 of Part 8, if that is (- ; l 25 5 possible. ; I O 0 v o >:r.2 ,ca wisnAL. me. - 27 N. t.oc::vn! ' ow Av2 - lf ARRIS B UR G. A. 17112 l l l
IInff-crocs 625 l
. A Including revenue requirementc?
h 2; Q There would not be any adjustment to that.
~
, 4 hat we are just trying to reflect wculd be the impact of 4ypullingthe79out.
A And only restrict it to that piece? 5f MR. BARASCH: Your Honor, perhaps we could 6l
,, j go off the record for a second.
8: THE ADMINISTRATWE LAW JUDGE: Very well. I - 9i (Discussion off the record.) l 10 , BY MR. BARASCH: yy . Q Mr. Huff, trill you be able to provide a 12, calculation similar to what is shcwn on B-1, Part 8, page 1 i 13 ' to ex91ein the deve1erment of the impact of the cut of the O( -.. ; y' 79 jobs that occurred on November 1, 1980? 15 ' A Yes. i 16: Q In addition to that, would you be able to 17 report 'oack to us, in the form of a data request, as to the l 18 original projection of the number of employees in the test
- i l 19l year, which I assume included anticipated new hirings, and I l 20j segregate out for us the impact of whatever job freeze there 31 may be at Metropolitan Edisen to chow us what hirings that 22 were originally budgeted fcr in fact have not been filled?
h 23i A Yes. 11
- p 24, ] Q Thank you. Now cn page 9 and 10 of Part 8 i'd I; 23 j you reflected in your filing s cne adjustment to payroll f I
}"
f *0MRDACM & MARS' dAl IMO. - 27 N. t.CCKWILt.3W AVE. ~ FfARRISSURG. PA. 17112 I
Huff-cross - 626' 3 1
, ;{ expense for a wage increase that was to come into effect on 1
}
O January 1, 1981. 3 Nowicthatwageincreaseduetoanalreadyfg 3 i negotiated contract with labor or is it just in anticipation 4 of what you hope to be a settled number after the result of g 1
- l. collective bargaining?
6j A It is my recollection that was a negotiated l 7 wa6e. The contract is May 1, I believe, so at the time we g' would know what that contract would be. i 9: Q The contract -- 10 l A The contract with the union personnel i 77 starts May 1 of each year. l 12 Q But you are talking about a wage increase ('u 13 that was due to come into effect on January 1, 1981. Now y. was that kncun and agreed to as of May 1, 19807 g
;3 g A No, I believe that is only a one-year 16 contract in this go-around. I would have to verify that, 17 whether it is a one-year contract or whether it is a two-13 year contract.
- 19) Q So you don't know whether or not that 20 i 7.71 percent, whatever it was, increase scheduled to take 21 effect on January 1, 1981 in fact is something that has 22: already been negotiated and agreed to or whether or not it 2 merely represents an estimate of what the company believes 1
i e.44 I will be the negotiated settlement? i
- 1 33 A Let me go back one moment. There are two $
9CMR3ACM & !.i C3M AL. tPtO. - 27 N.1.30:0V/3LLCW AVE. - MAR %521JR 3. P A. 17112 !
l . . _ Huff-crocs 627 l l l l 2
' wage rate increases that we are dealing with. Number one
~:
i e 2 is the weekly and bargaining employees. We have not included 3 in here any of the 1981 wage rate increase. i j On the monthlies, which is the 7.7 percent,
! I believe, that is an anticipated amount that would be grante1.
3l 6I in 1981. There is no contract -- l 7! Q There is no contract, it is not a collective 8 bargaining agreement. Are you dealing with the union there? I 9" A No, sir. I 10 l Q Will that wage increase actually happen 11 in view of the fact, to the best of your opinion, in view 12 y of the present companyis financial situation? Do you think ([j/{ 13 i it is a valid assumption to assume the company is going to 14 f give a 7 7 percent increase to its non-union employees in i 15 iI view of all the cutbacks and other developments in the company? A I think it probably may be higher, and for 16 fiJ 17 a very good reason. il ! lal As I indicated earlier Met Cd is in a 19 position where it has substantially less number of employees i 20 t than it would like to have under normal circumstances. It i 21i is true that several of our managers, several of our top-flight people have gone to other companies. 22l 23- At least in my opinion it would be , i 24] advantageous to treat your e:cisting employees that you p),V (. a I I 25 {a, have new to an e:ctent that they also do not leave you. 1731 . i t OKR3ACM L :.t AMSMAt., MIC. = 27 N. LOGKWILLOW AVC. ~ lARRisatJRG, PA.
Huff-cross 628 3 1 } thinkit is a very key issue. 24 Q If you uculd turn to paSe 28 of B-1, 3 there you are computing the normalized state and federal l 4 g income tax expense for the March 31 year, correct? 3, A That is correct.- Q 1981. I left that out of my question. 6l 7: March 31 3 1981 year, is that correct?
)
A- I thought you had said 1981 but that is 8]l : 9 A correct. 10 Q Isn't it true that this ccmputation 11 , excludes a deduction for pension costs and taxes capitalized? i 12 1l A Yes, it does. ( 13 ' Q I believe earlier in discussions with h 14 ; Mr. Suffian you agreed that the impact of that would be 13 $1 347 million? 16i A Yes. 17 Q The theory behind the company's failure is I to make that deduction for rate case purposes is because f 19 ) the company knows that the IRS is considering a ruling to i l 20 h disallcw those expenssa a,s a deduction for tax purposes? r 21; A It was nob a failure. It was a judgment 1 22 j that these would not be allowed as a deduction.
.i 23 } Q Yes, I understand, with that adjustment.
.i i 2-!. a The reason 5 thy you are doing it is because you ea a anticipat- g u , ing that the IRS is going to rule on the matter so as to dis-!
i MGMM3ACH O %!AE 3HAf INC. - 27 M. LGCXWl'.I.0W AVO. - MAARIG3tJRO, PA. 77112
Huff-cross i t 1'g allou such a deduction for tax purposes? Ob n A That is correct. 2 . 3f Q But at this date there has been no t definite ruling on that, is that correct? 4f 5g A Other than what we have read in these 6 tax advices in which the company -- I believe it was stated
.P 7 as Company A, I am not sure who the company was -- but the 8j tax advices did indicate that the national. office had agreed 9; that there would not be a tax deduction.
I Q But there has been no final ruling on 10 i 11 this catter by the Internal Revenue Service? 12 I A To my knowledge, no. 13 Q Could you provide for us the amounts 14 I within that $1,347,000 figure that relate separately to I. 1. TMI-l and TMI-2, either on the stand, or could you provide 13 l i 16[ us with that information? il I could not do it on the stand, and my 17 y A i 181 h recollection of the process of identification would mean I 19 that we would have to search and research a considerable 9 20 amount of work orders, so it may take me time to get that 31l information, substantial time. E 22: Q We can agree, though, that there is a piece 23 j of pension costs and taxes capitalized that do in fact 1 Or 2.; !l relate to TMI-l and TMI-2? UU i A I think that is a fai assumption, yes. 25 ll ' i 17112
" *!GMn3ACH J M AR SHAT.. !?!O. - 17 !!.' !.SC CWILLO'.*/ AVI. - H.UIRIS3URG. PA.
- -,--. - - , +"#
Huff-cross 630 -
)
1 Q Perhaps you could take that matter and 2 report back to us. h 3< A It may take some time to do it. 4; Q I understand. 5! A With that understanding. Once I review b 6l it back at the office, we may take a reasonable shortcut 7! approach as appesed to looking through every work order. 8aI Q You just tell us what your best opinion 9i or estimate is of these divisions. 10 Now I gather, Mr. Huff, that as a citizen 11 ; i you are aware of the considerable discussion that has gone 1 i 12 l on during the presidential campaigns regarding a business 13 1 tax cut in 1981, you are familiar with this development in i G 14 the public demain? 154 A Not really. 16: Q Excuse me.
. l 17 ! A Not really. I understand there are proposed IS tax cuts.
Q Well, each of the presidential candidates 19 f 20j were fighting among themselves how big the tax cuts should 21 be and when it should be implemented, you are aware of that, B 22] aren't you, sir? fi a 23: A I am aware there is politicking, yes. , 24j Q Pow I assume you have not reflected or 23i made any provision for any such anticipated 'ousiness tax cut i
- !CMI:3Act! a tIAR $HAL. INC. - 27 N. LOCCVt'4 3W A VE. - H, AMIS 3URG. PA. 77112 -
Huff-cross 631 F i in your filing, have you? Op 'Q
, A No, and I think to recognize anything like i
o {jthat=ightbehighlyspeculativeatthistime.
*?
Q At line 23 of page 28 you compute a federal. 4! Do you see that, S[.r income tax amount of negative $17,382,000. 6; l sir?
! A Yes.
?! ,
An ye a ne end result of you tax 8 t computation on that page, due to tax credits, you show a f positive federal income tax expense, is that correct? 10 ; , A Yes.
, f Q In the Penelec proceeding the company on
.2; sm -
() - 13 [ a normalized basis in a similar exhibit showed a positive il j federal income tax corresponding to your line 23 but a 14 :
) negative total federal income tax corresponding to your
.t:
line 29 Would you accept that subject to check? 8 __- A It is possible. At> Q Specifically, I am referring to B-1, g 3 Part 8, page 20 of 22 in the Penelec proceeding. We have 19 ; exactly the inverse relationship that you just described in the Metropolitan Edison. 41
- Now why is it that Met-Ed can have a 22 negative ta::ccmputation but a positive total federal tax?
g ,, A Why is it what,2dr. Baracch? Q, ""j Q Why is it that Met-Ed can show a negative a ,.
*!OXK3ACH 3:
- AR SH AI
?NC. - 27 74. t@C1hY1 LOW A VE. - N A.P.RIS3tJRG. P A. 17112 "
Huff-cross - 632 - l tax cceputation on line 23 but a positive total federal tax? p I wonder if you could explain that to us.
,1
.- A I think it has pr-imarily the effect of in s
this ccmputation of reducing that negative amount by the 4: am unt of the job development tax credit. 5 6 6l It probably would be far better, Mr. 1 i E aranch, if one would look att the total income taxes because 7 &, i 3 in the past rate proceedings we have probably confused the issue a little bit by takirq the tax computation piece of it 9 i g J as one line and the job development tax as another line. We have reduced the negative credit of
.y. $17 million by $22 million job development tax credit and 13 ! show a positive amount, and at the same time, over on pa6e 1 O
q)$wehavetakenthecreditbackagain.
^
g It is an allocation or it in a line total 16, f a differentiatien between job development tax credit and I 17)currecttaxes. I 18 Q Y u say you put it back a6ain on page 17 19' A Yes, the credit is on page 1, line 29 20; In other words, we show a positive current tax and then a L o 1,n negative job development tax credit. d.4 Q In actuality, Mr. Huff, Met-Ed is not pay-4 3,3 :! ing any incoue tax at this tir.e to the federal government, 9 1 is it? I understand the ccmpany files consolidated returns. i ( W j g JhatwearereallytalkingaboutisMet-Edisnotcontributin'gh fr f' 7?CMn3ACH % ?1 A:tSM AL. !NC. - 07 PL LOO 2VLL!.CVJ AVI. " MAR RISS17tG. ** A. 1711:'
Huff-cross 633
)
']anythingtothetaxliabilityo# GPU at the present time, Op s is it?
4 h A Unfortunately, no. 34 Q On the other hand, is GPU paying any 4
,i ' federal income tax at all at this time via the earnings of 3:
6I perhaps Pennsylvania Electric Company or Jersey Central? f i
,y l A I don't recall whether we are in a tax i
3 position or a tax loss position at this point. Q Do you knew whether or not Met-Ed's tax 9f 1 s3 is being written off against the taxable income of 10 glPenelecandpossiblyJerseyCentralforfederalincometax il 12 ; purp ses? i A No, I think that Met-Ed's tax loss is l (mJJ 13 i 1+, ! taken as Mot-Ed's credit, on a concolidated basis all three I g f are together, but I don't think -- at least my understanding g is that the other operating ccmpanies are not taking Met-Ed's t g; loss. h Q But GPU is taking Met-Ed's loss on a 13 ll i 19 , consolidated basis? I 20 A It is part of the consolidated return basis. 31 Q So when I say taken against I mean you 2<. .; i 23 ;) have net earnings perhaps over in Penelee and perhaps Jersey
! l
... ] Central versus scce losses in Met-Ed and the consolidated O' v ..
impact of all that is that GPU is getting a tax reduction j 33; 9 ! 3
??OMR2ACII C4 MAR 3 MAL. IIIC. ~ *.7 ;L LCCM ,/s'.I.QVI AVE. - li ARRISSURG. ?A. 17112
IIuff-cross '634
- s l perhaps to zero from Met-Ed's operating less?
O
~;
t A The net effect of the three operating h
. 'J cc,mpanics, which are the producers of revenues, may make it
.s y
$ down to zero or negative or positive, or whatever the case
-1 p
.. may be.
3i 3 A point of clarification, Mr. Barasch, i I while I am thinking. In prior rato cases there was a formula', 7 g I believe, where the loss company did not receive its credits i predicated upon its loss. The new GPU taxation formula or 9l 10 agreement in effect says that each ccmpany stands on its own i yl as far as its contribution to the overall consolidation. l t 12 So if Met-Ed was in a tax loss position, 13 l it would get its credits. If Penelec was in a taxable (
- g. position, it would have to pay its tax.
9 15j Q Nw how is it that the losses being incurre:d 16 g by Met-Ed today for federal income tax purposes would be reflected in the rates of Met-Ed in the future, especially 37l 18[ in view of what we have just talked about on page 28 where 19y a negative federal income tax computation of negative $17 20 million ends up becoming a positive total federal tex of i l 21 )
$3 5 million?
A That $3 5 million is offset by a $22 22 23 , million carry-back and that is reflected on page 1. pf Q You mean the job development -- 35! A The job development. W N =canates c. mwm me. - e7 n. ceanwe cow avr. - unmsauna, ei. mu 1 l
- .. .. ._. - - -- . _ . . - - = - . - - .- . __ _. . . - . . . _- _
l
~
Hulf-cross 634-A il
.I i d Q So what you are saying is but for the 3
O 9 i f 2j job development impact it has alrec.dy been reflected?
?
3j. A Yes, the job development tax credit is reflected in this filing. 4! r b (Transcript continues on next page.) 6{
?
8 1 9 l 10 l 1 , 11 !
- 12 i:
13 ! .14 I i l J 15 l
- j. 16 I I
i 1781 ISl I 191 I 20l i i 21i ; 22l an . u. Q 24la 2s
.i . .
O ?.!OKR3ACH L **Af!SHAb. IKC - 27 gg, t,poxwtLLOW AVE. - MMt'tissnJRG. PA. 17112 i
,+-----se---*-...erv 4- 4--,~w.- .,wer-r- -w - - - - - - - ~ --
Huff-further cross 635 d a 1' Q It is your testimony tha t it is the impact of i 2 ; the icb development tax credit that is increasing Met Ed 's 3 4 ta x 119 bility so tha t we end up wi th a to tal federa l tax 1 i; 4 l being positive? If we vere to pull th9t piece out, we sould t 5 [ show a negative? I 6i A Again, I think we're in a confusing situation 3 here. Take the situa tion on F,ge 28. We have reduced the 7f S; current tax -- 9nd tha t's basic,lly what F9ge 28 represents, i 9, is current tax -- by $20 million. We had a tax loss of 10: $17 million. c,rry back all the tax loss reflects, I believe, i 11 return of job development tax credit. There's no money that 12 l takes place. There's no c9sh. It's nn exchange for tex 1 13 ; loss versus joo development tax credit. g 14 ' We then bring that to Fage 1. This has 15 produced , as you say, a positive current ta x . But ,t the 16 same time I reduce F9ge 1 by c2 million. It's a wash. 17 Q Oka y. Thank you. 3 18 3l MR. BARASCH: Your Honor, I'm about ha lf way 1 19 j through m'y questioning. Mr. Morris had indicated thm
- he 20 ' ha d n few ques tions tha t he wants to a sk. And rather tha n d
21 : put him in an a. kward position, I'd be acre then happy to 1 22 ! interrupt my cross and defer to Mr. Morris 9 t this junc ture. il 23 9 THE AD:IINISTPATIVE LAW JUDGE: Very well, a
.; t :
a d3. MOR3IS: Th9nk you. Mr. Sarasch. lll
~n uw
.,w m ex 2 ,m.,w m m .- a n.tc= m em, c:.- m m e m . m. in a
Huff-further cross 636
-IhBYMR. MORRIS:
O 1 Q Mr. Huff, would you turn to Me t Ed 1' 3 ' Exhibit B-13P, Page 3? 4 A Page what, Mr. Morris? 5{ Q Page 3 Do you have that before you? 6 A Yes, I do. 7 i Q Thank you. This exhibit, I believe , was 8 prepared by you or your staff in response to some earlier 9! . ques tions of ours and, eventually, a request of Judge 10 Ma'.uschak that you allocate some expenses to various portions 11 ' of Met Ed. Is that correct? , 12 A That's correct. { 13 l Q What I want now to do is to make sure that I 1 4 understand the theory on which some of the allocations were l 13l made. Le t me take firs t Line 17 rela ting to interest i 16[ charges and preferred dividends. Do you have that line? i 17l A Yes.' ' 13 f Q Would I be correct in assuming that the
~
19,! i nterest charges there referred to include your- long-term 20 debt, the RCA and all other credit arrangements which you 21l hnye? 22 A A11 interes t arrangements. 23j Q On what 'casis did you make your alloca tion or F 24 d how did you arrive a t the a11ocation of interest charges? s.s. i 25 J A I took the average rate 'c ase times the long-
'lON't3AOM L casHAL. INC. - 27 N. LOCXWtit.OW AV2. - M ARMISEtJR G.
- A. ' 17112 l
[
Huff-further crosc 637 1 1 il term debt component of .0hC3 And for the preferred I took 1 (~ l 2 4 the so.me average rate base times .cc97, vhich arn *'* l. d I 3 S effective rates, I believe, in Part 2.
,1 4 Q ! started with jus t the interes t. Le t me 1
stick for a moment to the interest and we 'll come back to 3 '.: 6, the preferred. For interest charges you took what component, 7 ( what average component? O 8' A The everage rate base for TMI 1 and TMI 2. 9 Q Right. g 10 -3 A Times the long-term debt component of point --! 11)4.04 percent. 3 12 j Q Now would you describe the deriva tion of - 13 4.34 percent and/or direct me to it? 1 34 9 A It's my recollection that the average through l 4 15]theendofSeptemberoflong-termdebt to -- it 's the average 16: ccs t of long-term debt. 17 l Q As a portion of the rate base? Le t me see if 1 18, I understand it. I want to be sure I understand the concept. 19 If your average long-term debt was showing an interest ra te 20 i Of 8 percent and half of your rate base expressed as capital 31 ] w.ts supported 'oy long-term debt, say 500 million of e i 22 o billion dollars, then you would come out with a 4 percent i U 23 i figure? d i
- 7. 4 ', A Yes. Now then I speak of avera.ging, this is ggg
( f 25l for the 13 periods. l*
- o w, .acx a m.m u. m e. - n x. i.o cou x w . - u x is a va 2. % in ,:
4 Huff-further cross 638 1! Q Describe what you mean by "13 periods . "
*; A It's a 13-month average , which says tha t I i
3f take -- for the 12 months ended September 1980 it would be 1 4 f the average at October 1 plus the average at October 31 and i 5! the average of every calendar month thereafter. The I 6l: accumulation of that divided by 13 equals the 13-menth 7, average. It's a normal . . . Q So that the assumption underlying the 8l 9f allocation you used -- and understand me; I don' t criticize
?
10 ; it -- was that the average rate on all long-term debt, no , 11 matter when borrowed and no matter for what spent at the I 12 i time it was borrowed or shortly thereaf ter, is applicable to 13 ( )([ every capital unit regardlecs of when that capital unit was 14 cons truc ted? i
- 15) A That's right. I believe Mr. Graham so d
16li testified when we introduced this exhibit. l i l 17 ! Q I'm sorry; I 'wasn' t here tha t day. And since b 18 f it was sponcored by you, I wanted to be sure I had that clear. 19 1 Precisely the same method, I take it, was used with respect 20 to attribution or allocation of the preferred dividend? A .That's correct. 21f
/
22l Q And I assume'again the same method would have
)
33 7 been used for attribution or allocation, whichever word you
.1 2
("T( 24! prefer, of any short-term borrowingsY
% J
f 2{ i Q That was not cash actually received in any 3[ sense? i 4I A No. That's a calculated amount. 5f Q And that amount, I presume, was later 6 consolida ted into the GPU incorce tax return, and appropriate 1 7i taxes for GPU were paid to the federal government? 8i A Well, please understand that tnis is as of 9f Sep tember . We do not file returns on a partial-year basis. 10 l Whatever the affect would be at year end, that scenario would 11 i occur. 12 Q It woulo follow the pattern I've suggested? 13 l A Yes. 14 ! Q What is obviously troubling me about the i 15;1 expression of the exhibit or the manner of expressing the I 16h exhibit, Mr. Huff, is the treatment of the credit figure i 17 l using, for example, Column 2 for the parenthesized note 18i $10,240,000 from a rate making standpoint. And I ask you to i 19 [ explain to me why. in terms of assessing the cost of TMI 2 20 to the Company and deciding whether that cos t should be-l 21 passed on to ratepayers or not the income tax computation 22 resulting in a parenthesized figure $10,240,000 should be 23 j credited to the operating e::penses. , O 24 A Well, the $10 million or the 11 million 1, ob e
- 25) if you will, includes the tax depreciatica on Unit 1 and d
I nexauen a uaswat. me. - :7 n. teor.w:ttow ave. - saeaissuno. p4. iri : I l
Hurf-further crcs 643
..__ . l 1
3 Unit 2 and a deduction for the interest component. So that 1 I_ Z 8 we have associated with thoce two unics uhat the tu effect ou h' 3 I would be/ interest and tax depreciation. 4 So when one is looking at the overall 5' including those two units, there is certainly an advantage 6{ there. When one is isolating ou: Unit 1 and Unit 2, we have 7 associated the interes t cos t and other cost to that unit. 8i So that in a non-DiI atmosphere, as you see in Column 4, we 9 have not reflected in that number the interest and whatever 10 ; tax flow-through piece of Unit 1 and Unit 2 are in the non-11 TMI component of the business. This certainly is in 12 conformity with the way that this has been handled in the 13 l loss of revenues on TMI 1 ar.d TMI 2 that this Commission has 14 handled. O 15 i Q I do not disagree with you that it is the 16 ) form in accordance with PUC accounting. The question we're y 4 17 a t, unfortunately, is different because of the tragic iS ;, accident at TMI 1 and 24I 2. And it is from our standpoint,
!l 19 4 as you understand, To waat extent should the ratecayers pay 3
And in that context let me ask you the following 20 ] f or that? 31 e) ques tion. The total tax liability of the Met Ed system l 22i absent TMI 1 and 24I 2, were they isolated and recoved, is,as 23 I understand it, $14 cillion. l c 2+] A 7as. t 25] 3 4 q Therefore, the use or any lesses , at leas t in i O
*n, na Acx a .taasw A: :t: .:. "J N. L O ra:.t.me rig. - v r.tniss uns. P A 17112
9 9 Huff-further cross 643-A i 1j one year, generated as a result of D11 1 and 'IMI 2 could not, d 2 l as I see it -- and correct me if I'm wrong -- result in a i 3l greater benefit to any ratepayer on account of federal income i 4 1 taxes greater than $14 million. That's the maximum you can Si shelter. - 6l l
} '/
f , 7l 8! i i 9' 1 10 ; J 11 ; ! 12 h( s ._ 13 ! ! .14 ; ! 15 i i
- 16 (Transcript continued on next page.)
17 , t' 18 ! i 19 ! 20!
?
21( l 22 23 < d r OL .5 1 f."OH*4EASH s MAM 3 hat 1:40. = 17 14.1.CC4W.L'.C'.'t AVE. - HAM?.f S B U R C. P A.. 17112 f
, . , , - . _ _ . _ _ . _ , _ . , , , _ . _ . . _ . . - _ . . . , . . - _ . . . . . _ . . . . - . . . . _ . .. .._ , . _ , ,. . .r-
um. .w.. 644 i A I am just not sure of the response to that 1 e 5 2i (
,jquestion, I am ccrry.
I am not familiar what I can shelter
, and what I cannob shelter.
3'
,j 4
Q Well,byconsolidating,toputitinsimplerf 9t terms for both of us, maybe, $14 million is the maximum amount 5: on the sheet, as I see it, which in one year you might be 6) required to pay, but as a result of the Internal Revenue 7, g Service regulations you can justifiably avoid paying. A I think that is correct, yes. 9 Q And so that is the maximum benefit which
, ! the ratepayer in terms of real dollars, or the company, can 11 :
see from the losses of TMI-l and TMI-2 in any cne year? 22 f ( 13 g , sq my ne ye m Ms g I happens to reflect what has happened for the 12 months 14 t
! ended September, 1980. I am not sure what is going to happen 15;
. in October or November. That is why I am having trouble with 1.6 !
maximum shelter. 17 , f Q I have excluded carry-forward and carry-AS j g f back from the question and your only difficulty wich the question is then we are working here on Echibit 132 in terms i 20
'l j of a year which is not a calendar or reporting year?
olj 1 A Yes, and in terns of all ramifications of l what you characterize as shelter. I am not totally familiar
.a' 24[
with that arena. g Q Let ms for interest of clarity in the . 25 ,y 4 i 5:O%O ACH % M ATISM AL. m C. - 27 1 LOC.PLL OW A VI. ~ iti,MRIS3UM 3, S A. 171TO
Huff-cross 645 I
.,l record,toestablishtherathersimple,Ithink,pointI Op 1wishtomakeandreframethequestionsinthisway.
In your rate filing you included as 3{! necessary expenses certain interest charges, certain payroll,
,j certain O&M which are allocabic -- assuming we agree with the
~!
eU ea a n -- p esuan e - 32 6l f to TMI-1 and to TMI-2 in the amounts there stated, that in 7; i g correct, is it not? g MR. OGDZH: I ob i ject to the question. I 10 ; n smsen g ness. - , page 3 is obviously on its face data for the 12 months ended September
,1
.t 12 1980.
The canpany's rate base presentation 13 , i p i obviously in the 12 months ended March 31, 1981. l I think trying to mix the two of them in la. g terms of comparison may be misleading the witness. gl MR. MORRIS: The difficulty with Mr. Ogdents position is that that would lead to a data request for a 18l normalized exhibit, which is something I would certainly 39l i I prefer not to make and I r.m sure he would prefer that we
,0, 4 :
31 hdonotmake. g i THE ADMINISTRATIVE IAW JUDGE: I think the 22
,, ,, ! inquiry is directed to the method of the application of it
.a l k rather'than to the exact numbers. -
l ( , '.h I MR. MORRIS: That is the way I meant it, g i llGHRACH th AI Aa3H AL. !?tO - 27 f t. C4d:CYtILLOV/ AVI. - IMRR156tJRG. ?A. 17113
Huff-cross 646
) I i3 because if the numbers are in this order of magnitude it f 2, would change what we believe the ratepayers should support, 3l and that is the context in which I asked the question.
4f TE ADMINISTRATI7E LAW JUDGE: The objectioq 5l 1s overruled. 6 THE WITNESS: Would it be possible to have C 7! that question repeated? 8:i BY MR. MORRIS: 9; Q Sure. I had difficulty framing it, Mr. Huff, 10 and I am sure you had difficulty in understanding it. 11 f Mr. Huff, the operating expensos which in 12 , Met-Ed Exhibit 3-132 you have allocated or attributed to { 13 I TMI-2 and TMI-1 respectively in columns 2 and 3 are operating h 14 expenses which in theory and in figures of like order of 15t ma6nitude are included in the expenses which you ask the 16 j Met-Ed ratepayers to beitr in part in this rate filing, is Il 17; that correct? 18 j A With respect to TMI-1, yes. 19 Q Isn't it true also with respect to TMI-2, 20l at least insofar as interest charges e.nd preferred dividends ' 21l in the amount of $16,244,000 are noted? 22' A We have not asked for a return en the rate
- 23. base of TMI-2, which then a great bulk of the $16 million is ,
?
3; not asked for. t g 35j It is true that it is in the capitalization!
" C:-:.13/ CH Q MAP 5MAb GIO - 27 PL 'A!! WILLOW AVL = ?!AFU*f SCt#RG, ?A. f7112
7 _. ,_ _ Huff-cross 647 I formula to arrive at the percentage and to arrive at the 2! effective rate. 3, I am not sure I could agree with you that 4[: we are asking for the $16 million of interest because we have i 5: not asked for a return on DiI-2. 6i Q I understand that you have not asked for 1 1 7! a return on it, and you may be able to enlighten me, because 8I there is perhaps an underlying failure to ccmmunicato on i 9I this question, a failure on my part to understand the f 5.0 i implications of removing TMI-2 from the rate base. 11 i As I understand it, and as I read your 12 previous oxhibits, you have arranged or requested that 13 sufficient revenues be provided to discharge all of the (- 14 l interest on your long-term debt and pay your preferred I il , s la dividend, that is correct, isn8t it? 16$ MR. OGDEN: I think -- t L l 17 . MR. MORRIS: 1 don't see any reason to pause l over it. It has to be correct. You have got to make those l 18 lf i 19 i interect payments. 5 20f MR. OGDEN: ilhat I am about to say is I l I 21 q think we are getting into a financial area as to what the u l 22 company is going to do with money it gets from any rate 3 23 " relief and that is an area Mr. Graham has addressed in i m J 1-i. ;l terms of the financial aspect of the overall company and (Wb 25> the system. j t*1112
'tCM.u/.0H 3 MATSMAL. ;NC. - 27 *t LC3MWILLOW AVE. - M ARR159U R3. .* A.
Huff-cross *648 ' 13 I think Mr. Graham would be the more 3 2
)
appropriate witness to answer tnat kind of question. !h 3j MR. MORRIS: I thought that was so i i 4 fundamental that almost any financial witness could answer it. 3 MR. CGDEII: To the extent Mr. Huff may know, I 6; fine. 7 MR. MORRIS: If he dces not, he is free to i
'3 ; say so, but I am sure he does.
p THE WITITESS: May I respond in this manner, 10 , that the revenue requirements that we are asking for of 11 , $76 million -- aside from the fact there are O&M expenses -- 12 ' we are asking for a return on rate base exclusivo of TMI-2. (_ 13 f BY MR. MORRIS: g W Q That does not anowcr my question. I do 14 l! 15! not indicate necessarily that you are wrong. Perhaps the i 16 i question is not yet understood. I 17 j Before you achieve a return you must 18 develop sufficient revenues to discharge certain obligations, 19 j including interest on long-term debt, that is correct, is it l 1 1 30 ,; not? 31 A We utiliza cash to pay for dividends, for long-term debt, yes. l 22 ]? d Q Ncv as I understand the ccupany's positio)- l 23 ] l i 2!.1 in its rate filing -- and correct me if I am wrong -- you g
- -- have included as c
- tpenses waich must be paid and deducted j W i
CH R GACH O I T M SM AL. It&C. - 27 !!.- CCCW.YRLOW AVT'. "' M AMISBLY.G. Pt 17112 1
Huff-crcas 649 i fr a revenues prior to any return at all, $16,244,00 on 1[ h account of TMI-2? {. 3; A There is an obligation to pay that amount, "f yes.
,t t
Q And that has been included in the expenses l It is the same question. If which you expect to discharge? l 6l you misunderstand it, then we are still not communicating. 7 A We must pay the long-term debt and we 8 9; utilize our cash to pay for that long-term debt. I Q You must pay it assuming that your 10 ' g! corporate organization is as it is now? 1 A Yes. . t Q That is s.n important question. Do you 23 [ g ,,, understand it? A I am not going to try to out-guess you. 15 f gg Q Now dropping then, and assuming that you l t 37j did, to line 14 where we reflect in parentheses an income 18 tax figure in the amount of $10,2'40,000 in column 2, that i 19f figure, unlike the interest figure, is one which the company 20 f, will not recetve from the government or see in the form of cash, it is completely different than the interest expense, 21 t that is correct, isn2t it?
- u. , I
{ ,{ A The inclusion of the effect on TMI, when 23-lg , you say we will not see it in cash, certainly the interest !f - ccmpenent associated with TMI is being taken as a current 33
' 17110
.wwancs c. unsu: me. - 27 f t. ESCMW?LLCW AVE. " H AArttS3tJ?.G. PA.
Huff-cross '650 ' I 1: deduction, so it does lessen the amount of cash that we have f [ 2[ to pay out for taxes. 3I Q Yes, it does, Mr. Huff, except for the , 4f fact that the return you request is sufficient to pay your 5l shareholders or to provido a return net of income taxes, 6 ! correct? 7j A Yes, but not on TMI-2. i 8! Q Given that understanding between us, then, 9l I ask you whether or not you will not agree with me that in 10 ; assessing the expense to Metrcpolitan Edison of LII-1 and 11 TMI-2 ac reflected on Exhibit 132, it is not inappropriate 12 to include an income tax credit or parenthetical expression 13 { to the extent of a total of $21 million when looking at a g 14 l rate filing? 15 Please understand I am not saying the exhibit is wrong. It says ishat it says in a bookkeeping 16 l 17 entry. 13 A You have given me many double negatives 19' and I am not sure what your question is, i 20i MR. OGDEN: Given wnat understanding? 31{ BY MR. MORRIS: 22 Q Let me put it another way, since apparently 23' we are not ecmmunicating, and I did not mean to use double l 24ll negatives. i l 3 l 2~j Let me ask you to assume that we stripped N neuw en a nusw.it. me. - 27 n. ucc.wau.ew av . - :anmsevna. w m: l l l
i Huff-crosa 651 I Il 3 ! TMI-1 and TMI-2 out of the Metropolitan Edison corporate O ~! 2j organization in its entirety and all figures associated therewith. We would be left wi, somothing that looks like 3
?
4l column 4 on Met-Ed E:chibit B-132, page 3, right?
.5 A That is the intent of this exhibit, yes.
5 i Q Except to the extent that that organization 6l 6 7j would have to pay some $14 million in federal income ta::es, i 3i there would be no inccme tax benefit or other benefit to i Metropolitan Edison by including DII-1 and TMI-2 in it in p! i 10 j. terms of real dollars, actual dollars? I 11 j A That is right. 12 Q Now if I might I would like for a moment 13 ! to exe sure 1 underecend e nuestion which was 1ert la v Oc 14 mind by one of Mr. Baracch's questions so I am going to ask 33 f you to ch ange context entirely. You spoke of capitalizing the clean-up 16l and depreciation costs of TMI-1.and TMI-2 as a currently 27 li 13h pending issue and that you had developed certain at least d 19d preliminary approaches to that issue. A I would like, if I may, to get away from 20l the word, capitalize, because to different people it means 31 different things. We will put it on the balance sheet as 22 3.i: a deferred item. ,
^
Q That is fine, if you are going to amortize
,q p
Q ; 25 k that item, if that theory is pursued. cnd it may or may not U h 'tcangACH e4 Marts!!AL. INC. - 27 He LOCMV/1Lt.OY/ WI, - MArtRtS3tJ!!G, ?A. 17112
.- -- -. .- , , , , . - . , ~ , -
Huff-cross 652 k 1 be, ov2r some period of time. g f 3, A Yes.
,f Q If that is done P.nd a schedule of amortiza-4; tion or a payment, if you will, on a deferred basis, is projected, is it proposed that those deferred payments in 3f i
6l the years that they occur, to the best of your understanding, 7( w uld be charged as operating expenses of Met-Ed? l gl A Yes. 9l Q That is the notion then? f 10 A Yes. Q Clearly the notion is that in soma future 11 13 f years in smaller increments than all at once the ratepayers ( 13 would bear the cost of that? O 14 I A It is not unlike storm damage that we have in the case now where the expense was incurred in one time 15 l 16! frame and amorti::ed over scme other time frame. . l 17 1 Q Vell, thank you for your argumentative i 18 help with which I am not bound so I will not agree as to 19, what it is like, but I understand the theory the ratepayers 20f Will pay for it. 31j MR. MORRIS: Thank you very much, Mr. Barasch. I i THE ADMINISTRATIVE I.AW JUDGE: Let's recess l g" 33 until 2:00 o' clock. , Q b i 23i (The hearing recessed atl2:57 o' clock p.m.) fl
*MMR3ACM 4 LtAR5HAL. !NO. - 27 ff. LOCXWtLLO'.V AVE = M A R R153 UR 3, SA. 17112
] 653 1 (The lunch recess ended at 2:10 p.m.) F 2, AFTERNCOII SESSION 3 l 4i THE AEi1INISTRATIVE LAW JUEGE: Are we ready 5l to proceed? I 6{ MR. OGDEN: Your Honor, jus t a preliminary i 71 matter before we get back to Mr. Huff's cross-examination. l 8{ - I've distributed to the parties and handed to the reporter l 9j three copies of the following exhibits: They are Met Ed 10 ! Exhibit C-38 and Penelec Exhibits C-26-1, C-26-2, C-36. 11 f In addition to that, I've distributed to the 12 f parties but I have not made a part of the record at this 13 point various responses of Mr. Carter in the Met Ed case to 4 g 14 l Consumer Advocate interrogatories and in the Penelec case l 15 ; several responses to Staff, Industrial and Consumer Advocate i 16! interrogatories. These are all in the area of rate i 17 I strueture, I IS; THE ADMINISTRATIVE LAW JUDGE: Very well. 19 i Those exhibits will be marked for identification. l 20) 311 (Met Ed Exhibit C-38, a one-page document j 0 entitled " Metropolitan Edison Company, 22 ] R-80051196, Growth Rates 1977-1S81," was y produced and marked for identification.) 23 ? l a E5 1.
.03 it E
d MGHMBACM t MARSH AL. Irgc. - 27 M.- LMXW1LLOW AVE. - MA9RLS3UMG. P4. 17t10 L
654 . i 1, (Penelec Exhibit C-26-1, a seven-page document
. enti tled "Abex, et el. , Interrogatory IIo. 11,"
I a 4as produced and marked for identification.) ggg n 3, (Penelec Exhibit C-27-2, a one-page document entitled "PaPUC Trial Staff Rate Structure 4i Interrogatory No. 11", was produced and marked f for identification.) 5i (Penelec Exhibit C-36, a one-page document 6 entitled " Response to Request at Transcript j Pages 61 to 64 Relative to Growth Rate," 7! was produced and marked for identification.) P 8: t THE THE ADMUESTRATIVE LAW JUEGE: Anything 9h ,1 10 i further, Mr. Ogden? 11 i MR. CGDEN: No, Your Honor, not at this time. i 12! THE AEtCIESTRATIVE LtW JUDGE: Very well. 13 p Mr. Barasch. ( 14i i MR. BARASCH: One preliminary ma'tter, Your Ill i 15 Honor. For the information of various parties to the 16 l proceedings, I would just like to note for the record that E 17 F Consumer Advocate has a series of outstanding interrogatories L 18 regarding rate structure issues posed to the Companies, both P 19/ Met Ed and Penelec. And we have been having some discussion 20 with the Company off the record about perhaps resolving 31 these matters as quickly as possible in informal discussions. 1 22 ) And we have scheduled a meeting, part of which would be in 23 Harrisburg
'i
]1 with Mr. Carter Friday morning, and' then our c 24 k expert would proceed to Reading and meet with other GPU (s ;
25 officials in Reading to ge t answers to other questions on i 1:lC. - 27 ?L JG;"W1' L % M!E. - M AROISBURG. PA. 171*3
} lll MONREAO;4
- N AR 5MA'
___7 , 655 I Friday. Op 1l 2h And it's the unders tanding of the parties , at i 3f least, that none of the attorneys are going to be attending 4 ' that mee ting. It's just going to be between our expert and t 5 i Mr. Carter and dispose of it in that fashion. And I just I 6! note that for the record for other parties ' information.
}
7l MR. SUFFIAN: I'd like to ask where in f 8 Harrisburg Friday this meeting will take place.
,9f i MR. BARASCH: I guess we would have 10 Mr. Ruback talk to Mr. Carter in this rcom, if possible, at 11 ;i 8:30 in the morning, something like that, i
12 THE ADMINISTRATIVE IAW JUDGE: Very well. 13 That is noted on the record. 14 , i 15 (The witness resumed the stand.) 16 BY MR. BARASCH: 17l Q Mr. Huff, returning to the cross-examination, 13l would you turn to Page 4 of Part 8? Now, on Page 4 you
?
19hredued'revenuesby 24,761,000, which is - the amount that l 20l; you've budgeted for tax surcharge revenues, is that correct 21 sir?
?
A Yes, 22l - t . ; l 23h Q Now, if your actual tax surcharge revenues 1 24 j were equal to the budgeted amount, then would that mean that v si during the year ending March 31, '81, you would bill f.*O*O3 AC:1 & 7t AR$HAL. L!;c. - 27 !!. LocxW11. LOW 4V2. ** If APAISSURG. *A. 17112
Huff-further cross 656 . 1y$24,861,000 to your customers pursuant to a curcharge? And I (~ 3 empha size the word " bill. " ggg 3; A Yes. 0 Now, given that you would bill thas amount, 4f Q 3lt you wouldn't actually collect the exact same amount in the i 6, test year due to the time difference between billings and i 7* collections and the lag be tween tha t, correct? l 3j A That's a fair assumption, yes. t 9i Q Now, given that you bill that amount of tax 10 ; surcharge revenues, when would you actually pay those 11 revenues to the State in the form of taxes? What I am trying' 12 .' to get at is the lag between the time at which you are billing 13 ' customers for a set of funds pursuant to the tax surcharge (' llh 14 / revenues and actual payment of those tax surcharge revenues 15 ; to the S ta te . 16! Perhaps we could take it in pieces . Maybe you 17' could explain to me the percentage amounts that you owe to 13 the State and the date when those obligations come due, and 19 then we can back into what the lag is. 20 A The PURTA tax -- to my recollection it's due 21 on June 1st of each year. 22 Q Maybe you could be more precise. The 1980 l 33 ; PURTA tax payment is due on June 1st of 1980?
.
u,: nii: ' m:. - a n. u u . u.e w vn - saamsavia. =.t Euff-further cross 656 A 1 tax. That tenative tax is based upon 90 percent of the filed ( 2 "b return the year preceding the prior year. In othcr words, t 3' it's 90 percent of the filed return for 1978. 4 During that year there would be a final 5j payment for the preceding filad rcturn of '79 and any 6 settlement. Probably 1980 there would be a settlement of the 7i 1978 tax. The final se ttlement would be October the 15th. 8 I'm sorry; the final 10 percent, if you will, of the prior l That would be ' 79 9 ,! year would be October the 15th. 's re turn --- 1 10 i 1979's return would be filed on October the 15th,1980. 11 ,! , I i 12 ; 13 l 1:, i - i 15i 16 1 17i (Transcript continued on next page. ) I 18 [ : 19 l l l 20l ! k , 31 I 22)l' I 23! '\. t' Mt 4 C 1.v k \ if ?.'OHP.B A CH fa .*Mf!3M AL, tN=, = 2* ?!. LOCXWILLcw AVE. - HARfttSCU"tG. PA. 1711?. , . - , . w w - - , - . -,-% , .~v.-n- - - - , , , , , - - 7 auff-crcss 657 Q The laat 10 percent? !4 A Yes. 3 ('~ 2l; i T i Q The last 10 percent of the 1980 return 3; f would be filed the follo' ting year, October of 1981? 4 . . A Yes. 5) 0l .' Q Are there any other piecs. in the tax i surchargo? 7 i A There is a corporato net income tax which 8, is the state tax. I am not sure, there is a phase-in of a g{ ,0 payment schedule on that, I believe. I think in 1980 if 2 ! there were a state income tar, I think it is qucrterly this 31 g} year. 1 Q You are paying an est h ted tax in 1980 -- *3 (. A Yes, you pay an estimated tmc. 14 :s , I Q On a current quarterly basis? 15 :l ,,l io, A I am not certain if it is quarterly yet .7;: but they are striving to got to that point. 1 Q Do you Imow what the timing of your gj 1 cstimated corporate net income tax payments for 1980 have 4 .,o been so far this year? What paycenta have you made? s ? A The payment this year for corporate inccm3 tax is zero. We arc anticipating no taxable income, The federal inccme tx: follcus the quarterly payment. yl i Q But again Met-Ed is not going to be payingi ' . 7.4 , ._'. :3 an inccma tax to the federal gcVernment, are they? { $l \ l t " ** OMP.2 AC14 (; M AR 3H AL. !!!O. - 27 ?!. LCCXY/tLLO*,Y AYE. - If Art.1133Wfte. #A. 19112 Huff-cross 658 l' y, A That is right, e 2e Q Are they making payments to GPU? 2; A No, we have a tax loss position. *I b Q Are there any otner tax pieces other than 4 those three? 5 A I think I have addressed the PURTA tax, 6 ,,, gross receipts tax, the capital stock. I addressed the capital stock tax. There is a gross receipts tax. 8f 9 i Q Could you describe that payment schedule to me, please? Excuse me, I think you described gross 10 l re eipts tax already. You have not described the capital 11 stock tax. Either that or we confused you. 12 ^= 1 uaeor tana it, ir I co=1a suet reca9 Oc 13 l 14 what I thought has transpired, you had PURTA where you paid 15l June 1 for the year 1980 and I thought you sc.id gross receipts l l 16l tax you pay 90 percent based upon 1978. i 17 i Nw were you speaking about gross receipts l 18 ; tax orwas that supposed to be capital stock tax? ? 19 ' A I would like to correct that, if I did i 20l say that. That was capital stock tax. Q So all that discussion we just had, the 21g 22; 90 percent and lo percent, was capital stock? 23: A That is correct. Q Now perhaps you could explain to us the 2J. QN y 33 g payment schedule on the grcss receipts tax. 3' % HTt3ACM & f!AT:SMAL. INO. - 07 fl. COC:W!!!. LOW AV2. - HAPAISBURG. PA. 17112 Huff-cra:0 . 659 7j A On April 15 on the gross receipts tax we i C 3 1 pay 90 percent tentative tax and I believe that is based g y upon the hmediate prior year. ,4p Q So on April 15th of 1980 you would make 3 a payment equal to 90 percent of your obligation for 1979's 6 l gross receipts? A YC3-7i : 3! Q When does the final 10 percent get in? A The following April 15 9; s Q Is there a June date someplace relating 10 i ! to gross receipts tax? The reason why I ask this question 11 l is I belleve early this morning I was referring to a letter 12 from Floyd Smith requesting delays in payment of gross ( 13 O 14[ receipts tax cbligation, I thought, and there was some reference to getting a delay from April to at best delay 15 16 things till June. 17; A That letter is a special request to the a Ig 'j Departmentcf Revenue. Whether or not the Department of l ? 19 i Revenue will grant it is high speculative. There are srue 3 i 20l who doubt that it will be granted. l \ l It is movng it to the June time frame 21i l from the April time frame. 33 i ?. 1 .n.., Q What I was wondering, the reason why I 4, , "y, j asked you about June, is there some sort of statutory or (- i .25 regulatory significance to June? Or is that we just cre lg '4C HT.3 3 CM & M AN JH AL.1 ;O. ~ 27 ! .. t@ 2JCTM.L OW AVE. - H AR R16 5 U R G. .a A. 17112 s l Huff-crcss 660 t conte =ple. ting -- 3 p 3 THE ADMINISTRATI7E LW JUDGE: That would 3f.be i the end of the rate case. 4j THE WITIESS: I don't recall any statutory 3 i delay. We have just asked for the three-month delay as a 6l request. 7 '. BY MR, BARASCH: 8 Q I see. New does that complete your answer 9; on the gross receipts ta::? i A I believe so, yes. 10 [ 11 , Q If you could clarify something, in the 12 f calculation of the gross receipts tax piece in this case was 13 the cc=pany looking out to 1981, to April of 1981, and basing 14 , that portion of this case upon the 90 percent estimate for 15 the calender year 1980? Is that how that number is developed 16 i in this case? I or is it based upon an April 15, 1980, 17j 18 , 90 percent paymcat which refers back to 1979? A In 1981? 19l 20 i Q I as asking you in terms of the future f 31l test year in this case, what is the basis for the development ; 22, of that number? I think I have described the two possibilitida. i 23 ] There may be a third. y, A On the payment in April 1981, as I under-h(.. .. 23 j stand you" question, that would 'ce ba.3ed upon the estimato , b w.c.nen a mnsm. me. - n n. t.o=wu.s.ew wr. - unmssuna. n. me Huff-cross 661 ' i 1j that we had for 1980. f ; Q But in the test year in developing that O 3l adjustment in this test yccr, you set out a total tax sur-i 4; charge number. There is a gross recolpts piece in there, 5,i right? 6l ; A Yes, sir. 7 4 That piece of it was based upon what? t 8: Ninety percent of the 1979 period, i.e., what you actually 9' paid on April of 1980, or is it 90 percent of 1980, that is, 10 what you will be paying in April of 1981? 11 , A That mcy be the area of niscommunication. 12 3 The tax surcharge revenues are developed upcn an estimate of the rate to be applied. It does not confine itself to the { 13 14 , payment of that tax. h 15 l THE ADMINISTRATIVE Lau JUDGE: Can I 16 interrupt for one minuta? 17 BY THE ADMINISTRATIVE IXtf JUDGE: l 18 Q I believe you said that the gross receipts l l 19 t tax due on April 15 is for the prior year. I am looking at 20 Mr. Smith's letter in which he scemed to indicate the gross 31 f receipts tax, the tentative payment is made for the current 1 22 year. In other words, he says the tentative payment of the t 23l 1981 gross receipts tax of $17 m1111cn is due in April 1981, y co that wculd make it for the cu-rent year, wouldn't it? ! L s A Yes, we make two payments on April 15, l r.3 4 3 vesncres unsart. inc. - 27 N Lac:<wu. Low Avz. - ifann:.sawna, PA. 171in l Huff-cross 662 ,( one is for the tentative ta:: which is the 90 percent, and then uc also have to pay the 10 percent of the prior. i _i Q Ten percent of the prior year so that on #l 4 ;I April 15th you pay the 10 percent or approximately $6 million on 1980 gross receipts tax? o A Yes, sir. 6l Q And you pay the gross receipts tax tentative 7 3; payment in advance for the current year? I g A That is right. I THE ADMIITISTRATIVE LAW JUDGE: I think the 10, testimony was -- A1 ,' I lo, i! MR. BARASCH: That helps a little, Your t , 13 Honor. {} .-
- y. THE WITIESS: But the tentative payment r cment M, H you W, is, I Weve, basd upon 15 [
the revenues in prior year. We have to have some form --
16i
. THE ADMINISTRATIVE LAW JUDGE: That is A7 gg , not tthat Mr. Smith's letter says. Mr. Smith said -- and I
.4111 quote you from his letter -- We are 19 l
;g: filing a request with the Pennsylvania Department of Revenue i
for an extension of time in which to make a payment of a 21l i
22 final installment of the 1980 gross receipts tax ($6 million]
and the tentative payment of the 1981 gross receipts tax 23 g ($17 million) both of which are currently due in April 1981.
Q ,,
ii
...c ;J My recollection is the other situation la N
MONRE ACH * *MMSHA1 !NC. - 07 N. LC 01GTRLOW AVE ~ MAnnLastHito. *A. 3 7 t ts.
Huff-cro:3 '663 '
that you pay the gross receipts tax in advance on April of c- the current year. gI
. THE WITNESS: You c.re perfectly truc, Your 3;
$ Ecnor, but what I as addressing -- and I would like to check 4l f it if I cay -- is hcw do you calculate that tentative tax?
5i t
Is it based upon the current year estimate or is it based 6l upon the immediate prior year? In other words, what do you 7
f g, ,
base the 90 percent on?
THE ADMINISTRATIVE IAW JUDGE: I am not 9{
talking about the 90 percent --
,o j A
l THE WITNESS: That is the tenative ta::,
.t 1 l. l 1.,] Your Honor.
i
- THE ADMINISTRATIVE LAW JUDGE: Well,
( #[
Mr. Smith's letter says the tentative payment of the 1981 g
..t 4 '
~g : gross receipta tax is due in April of 1981.
)
16 ,] THE WITNESS: May I have just a moment, 4
ij please?
t I would like to talk to -- ,
i THE ADMINISTRATT/E LAW JUEGE: Yes, you 13 19 6 can check with Mr. Carroll.
, BY MR. BARASCH:
20; Q Mr. Huff, eculd you briefly summarize n
where we are on this issue about how you compute your I2<
.,,b; 1980 tax liability for gross receipts tc purposes?
.~ ;
1 A For paymen'c --
, .*k t
.. U -
j Q For payment purposes the gross receipts !h 3
'*CHEMH a MARSH AL. IP!C. - 2'f ;4.1.3CT.YILLOW AY2. - M W13&kiRG ?A. 17112
.c.,
.m"WE - -4 Huff-cross M ki 1! tcx.
x I 2; A The tentative tax paid on April 15, we 3 utilized the 1979 tax as a bacia and pay 90 percent of it.
4l Q Of the tax or of --
I 5i A of the gross receipts. The following 6 April 15 we then pay the balance that is due. In April of 7l 1981 we know what the 1980 revenues are and the tax basis.
8l We calculate the tax, deduct from that the tentative payment i
9 that we made April 15, 1980, and pay the difforence.
10 I Q Now I hope I am not going to complicate i.
11 ;} matters. The question that led us into this diversion was, 12 l for rate case purposes when you come up with your twenty-13 four some odd million dollar tax surcharge revenue that you
-14 are going to back out of the case, what time period are we 15 talking about in terms of the gross receipts tax? Is that 16: based upon what ycu paid in 1980 or what you expect to pay l l l
17{ in 19817 18 f A bty response to that is going to have to 19 i be a little bit vague. It is a combination. The tax sur-20 ! charge revenue computation, as you may or may not know, is 21l an overall rate as applied against applicable revenues.
i l
22i For April 1980, which is the first month 23l of the test year, there is an anticipated rate for that 9
24! month times applicable reyenues.
v#- y,
~
That rate would be based upon the prior q
f.tOHTIOACH "4 MARS:4 At I:10. - 27 Ni t,3C:nYtt.t.OW AVL *AARPi$9UMG. ?A. 19112
Huff-cross .
663-9
~
1 year's taxes, revenues, et cetera, as the norma 1 aurtax is .
f g i
ccmputed. g As we go down into time, when we get to 3} il 4; 1981, we estimate what the rate in 1981 is going to be, so 3 that that would reflect, the 1981 rate we estimate would 646 reflect 1980 conditions.
7j Q For the test year the rate is based upon 8i April 1, 1980's rate, the tax surcharge?
l' 9 A What it would be ferecasted as?
10 Q April 1, 1980.
11 A Yes, April 1,1980.
12 ' Q Not 19817 13 ! A April 1980 rate is estimated what that
.14 rate ia going to be at that time.
G 13 THE ADMINISTRATIVE LAW JUEGE: I still
'1 16l' think that in the final analysis you are paying the tax 1
17 in advance and though you may look at the prior year to make 18, your estimate, when you maka your final 10 percent you are 19, going to pay on the 1981. You me.y pay it in 1982 but you 30 ] are going to pay a combination of the tantative tax and the 21 balance in 1982 on the 1981, p,, THE WITNESS: Ths.t is right. 7nere is a
,a , differentiation because this revenue is predicated on the 1
,g, j rate theit we are going to collect from tto customer c.nd
,;3 nct necesse.rily on the payment piece. h
' t C M a c A C H & :.l A R S H A1 IN C. - 27 N. C O OKWtt.1.O*.V W.- M A P.P.!$ EtJ RG. P A. 17112.
Huff-cross 666 b
1!1 BY MR. BARASCH:
Q And it is based upon the revenue stream 2
that you expect in the future test year?
A Yes, sir.
4,i I Q Would you accept, subject to check, a
switching subjects now, that on your Exhibit B-1, part lo, 6i 1
- page 2, you show a March 31, 1980 balance in taxes accrued 7l '
l 3l account of $13,300,000?
A Yes, I believe that is correct.
9 Q Now if you will turn to your Exhibit B-1, 10 3 g i Part 5, which is your cash working capital piece in this
""U" ~~
12 MR. oGDEM: That is the cash working l
p(.'
U 33 capital piece for the historical test year?
g .
MR. HARASCH: That is correct.
1
,5 ,,
i 2
6 t Q Now there your computation of the March 1[4 ,
,3 31, 1980 working capital reflects an amount of $3,326,000 19 , for taxes accrued. Do you see that, sir?
A I am sorry, W M page are we on?
20 i l . ! Q Page 1, Part 5 41 1 22, A $3,326,000,yes.
i Q Can you exp1 Tin why the taxes accrued 23 2,+
!i that you reflect as a rate base deduction in the historic l
\q sV h test year is so much less than the taxes accrued as i
e j:i l
J . lee 3JACM o a.rAn3 MAL. INC. - ::7 N. LOCXWILLOW AVE. - HARRISBURG, PA. 17112 l
! a
Huff-cross 667 3
0 reflected on your balance sheet for the same period as shown 1
F, y
- j:i in Part 10 of B-l? One shcus thirteen million three the :
e l
other one shows three million three.
3l B i
a r A We are talking about two different things.
33 Number one, the $13 million 3 that is in the balance sheet f
3 is as of the end of a particular moment in time and it only 7j reflects the difference,the accrued taxes and what we have
\
Sh Paid during the course of that time frame.
9 On the working capital, hcwever, we are 10 Computing a dollar amount lag between the time that we l
1 gy collect frem the customer and our payment needs.
So it seems to me that it is two different 12 {
! A 13 i areas. W
(' . l ,.
24 Q If we went back and looked at your IS balance sheet for every month during the 1980 year, would 36! we find that the average balance, or should I say wouldn't we find the average balance in accrued taxes approximately l 17 l
18 , $6 million every month? Dces that sound right to you on
[
- 19) average?
I i.;
l 20; A I assume your average is simply dividing 3;l by two.
22- Q No, it is not by two. You would be l t
73 3 basically lookin6 -- if you were somehow to look at a 1 t
e
\
y 12-month period and looking at what you get when you take fg l 23!! these 12 monthly belance sheet figures and divide by 12.
1 _ xcunnen e. vn wx.. me. - 27 n. uccxmu.ew av . - wannesouno ra. 37,22
Huff-further crcss 668 0 .
I Does that sound right?
2l A You took the monthly figures from the i
3l operating report?
I 4 A That's right. Go back and talte a look at 5 ) your balance sheet on a monthly basis, basically.
6 '
THE ADMINISTRATIVE LAW JUDGE: Take the total 7, on a monthly basis divided by 12.
O BY MR. BARASCH:
i 9 Q And you'd end up with a number in the vicinity 10 of $6 mill, ion.
11 A That would produce an average, yes.
l 12 Q You have no reason to doubt that that would 13 probably be what the number would reflect, approxit. ate ly?
l l
30 A That would be the average of the outstanding r .
15 f balance at the end of the month. It does not necessarily 1
- 16) reflect the fact that you may pay those taxes during the 1
l 17} middle of the month. "
18 i Q Fine. I'm going to ask you a questien now I
l 19f that's similar to one that was put to Mr. Carroll when he was i
20 ) on the stand a couple weeks ago. I wonder if you could 21 reconcile the tax accrued of 3 3 million that you have as a I
.02 ! rate base deduction to the taxes accrued at the balance sheet t
23[forMarch31, 1980. trnat I'm locking for is an explanation, 2 really, of why the balance sheet number isn 3 t the appropriate
-.a
-a gt or a more appropriate number to use and why the balance sheet -
1 P4 0HR E ACH *: ?!AP sMAL. tN" *= 27 !!. LOCKW11 OW AVE = MARRISBURG, PA, 17t11
Huff-further cross 669 d
5 1 number is so much larger than the number that you have in the ggg c
2! rate ce ;e for working capital purposes. If you'd like to 3 consult with Mr. Carroll, I ' think --
k 4f A My first reaction to that is that the balance 5 j sheet does not reflect the dollar amounts that are collected i
6 7 from the customer, which the working capital is.
7 Q I guess what I'd like to see is a 8! reconciliation.
[
9 MR. BARASCH: Perhaps, Mr. Ogden, it might be 10 ' worthwhile for Mr. Huff to consult with Mr. Carroll, who's li j in the room, since this was basically the same ques tion that It 12 fwas put in the Penelee proceeding a week or two ago.
13 might help the matter.
O
(
14 s MR. OGDEN: Do you desire to consult with k
15 : Mr. Carroll, Mr. Huff?
16I THE WITNESS: I will agree to consult with 17A g Mr. Carroll, but I'm not ce. .ain that I can reconcile it.
il 18 We shall attempt to.
19,4 MR. BARASCH: Can we go off the record, Your a
20'lh Honor? .
1 31 THE AI2iINISTRATIVE LAW JUEGE: We're off the a
22; record.
23: (Off the record from 2:43 p.m. to 2:46 p.m.)
24! BY MR. BARASCH: lll s.
.l 25 Q Af ter that off-the-record convercation, do you I *
'?C M3 3 ACH L MA.~.5 i AL tNC. - 27 N. LCC "'Nf LL OW AVE.- M A AR13 5 U R 3. P A. 17112
_~
Huff-further cross 670 0
4 1t understand the nature of what we are inquiring about? And I
/~3~ :
k-( 2 f gather you've ~ censulted with Mr. Carroll. Could you provide i
3g us with a response along the lines of the question h
4 ;
consistent with the question that was put to Mr. Carroll last 5 week in the Penelec case to reconcile this difference?
6f A Yes. We will meet with Mr. Carroll and I
7j jointly discuss the problem and take it under advisement and 8i try to responsd.
9 l1 Q Turn to Page 5-A of your Part 5 ':'ha t 's B-1, 10 i u Part 5 Now, for each of the taxes that are shown there, as i
11 i 1 see the circumstance, you basically have three relevant 1
i 12; time considerations or time period considerations. The first 13 would be the 12 months during which the revenues and
{~}{ t 14 operating expenses are incurred that form the basis for the 15 ) computing of the tax expense. The second would be the 12 i
16l months during which the tax expense is expensed per your
~
i 17 ! books. And the third period would be the 12 months during i 5 18 I which the tax expense is actually paid. Would you agree with i
t 19 ; that conceptual framework, that for any of these taxes we 20 have a maximum of three different considerations in terms of 21f time period?
a 22 A I think I could agree to that, yes.
l l
23 h Q Ucw, I wonder for each of the taxes that are I
fs 24] shown on 5 A -- I don't know whether you can do this on the
(){ 13 i s tand . You might be able to. Otherwise we would be 1 I '
__ ren :s.ux a m.a suu mc. - n re t.ecm cw
- wz - ><Aanissuns. =^- iri':
R
Huff-further cross 'o71
- I h perfectly happy to accept this as a response. Could you g
I~'
2]J provide an explanation of the three relevant years regarding lh' 3l the data base for computing the tax, which is the firs t part, 4 ) the time period for the expensing of the tax, and the time i
5 { period for the payment of the tax?
i I think we put a very 6 similar kind of request to Mr. Carroll a couple weeks ago.
7i A The tax expense in Column 1 are those taxes l'
8[ developed as a result of all the applicable items within the 9- test year, including revenue requirements.
10 t Q For what 12-mon th period?
i 11 ! A - This would be the test year. Part 5 would be i
12l April 1, '79, to March 31, '80.
13 l Q And they would be based upon the revenues and 14 operating expenses incurred during the historic test year?
15, That would be the data basis for the computation of those i
16i taxes?
17i A Ae normalized.
l 13; Q Okay, d
19 A With revenue requirement.
I 20fi Q Just to make sure I understand it, Mr. Huff, L
21 ] you're saying that, for example, for federal income taxes ! )u t
22- took -- you split'out t'he 9-month period from April 1, 1979, 23 I to December 31 3 1979, and ccme up with a tax piece there and 5
25 then split out the 3 months frcm the first 3 months of the !
t
^3 1980 federal income tax piece based upon your expected level MOMM3 ACH & f 4 AM GH AL. IMC. - 27 fic L 'OKWiv.3W AVE.- H Alt rt!3 5 U R G. ' A. 17111
Huff-further cross 672 0
X
, 1 j of operations and developed a tax expense?
- .' i m 2i A It's predicated upon the income statement and 3 the tax computation pieces in the inccme statement, Page 34.
4 Q Page what?
5 A Thirty-four.
6 Q Page 34 what?
7 A Oh. I'm sorry. Part 9 The basis of the tax 3 expense is developed through the utilization of the components in Part 9, Page 34, as far as the federal income 9l f
10 ! tax and Pennsylvania income tax. I ydon t have my work sheets 8
11 , with me to show the development of that, but the computation f i
12l of the tax expense is an integral part of the normalized
( {} 13 measure of value and the normalized income statement.
.14 l Q I guess what I'm trying to distinguish l
15 i between, Mr. Huff, is whether or not the numbers shown in 16I Column 1 represent -- since that's the way you've phrased i !
l 17 i your answer, I'll s tay with your answer -- represent the l l 18! 12-month period in which those expenses are expensed for l
19hbooksorwhetherornottheyrepresenttheperiodinwhich 20{ the expenses are incurred that form the basis for computing E
21l the tax expense.
f l 22; A I think my answer would bt the latter.
1 23' Q Now, then, so basically you've given me an b
- y~
~
- 24) answer, then, perhaps to the second part of the question.
(~J%'
\_ i Let Te take it back to the first part of the question. Could 23{
;AC H M 3 Acid A M A P.SH AL, INC. - 17 . I.GCK W LL OW AVE.- M ARRIS204G. PA. 1781 ,
l 1
f
Huff-further cross (72 k il 1 ] you tell me what the data base is for the revenues and b -
2 e xpenses that form the basis for the ccmputation of tax 3lexpenseshownonthatpageofyourexhibit?
O 4$ A Well, the expenses are interrelated with the 5( ,
tax computation that is the April 1, '79, through March 31, 6 1980 normalized expenses.
7l MR. BARASCH: Your Honor, I think I can help i
8 .J the proceedings by going off the record.
9fi THE ADMINISTRATIVE LAW JUEGE: Very well.
10J We're off the record. Le t's take a ten minute recess.
11 (The recess began at 2:55 p.m.)
i 12 ,
"; e 14 '
13, 16i.
17 i (' 1 script continued on next page.)
0 18' 19 20!
i 21l 22:
i 4
23 ]
94i 35 v g :Ut B ACM L :' tT S:-I A: . !!!O. * *7 f{. L OC't w *:t. LOW A VT. - h tMR!S SU P.G. ? P.. 171 t *.
Huff-cross 673 I
gt DAVID L. HUFF, resumed.
O BY MR. BARASCH:
2 Q Mr. Huff, for each of the taxes shcwn on 3
ahPart5,page5A,couldyouprovideenexplanationofthe
-p 5 j three relevant years regarding data base for computing the i
6 tax, expensing the tax and payment of the tax, and in l
7 [ providing that response could you attempt to do it in a 8j manner consistent with the manner in which Mr. Carroll is 9j providing a similar response in the Penelec proceeding?
10 A Yes3 we will.
11 l Q Thank you. Mr. Huff, turning to another 12 i matter, isn't it true that interest expense is a cost I
13 recovered in revenues paid into the company by ratepayers?
I 14 A Yes.
t 13i Q Now could you turn to page 18 of Part 2 16; of B-1. There under the heading, Long-Term Debt, you show 17 , items that consist of bonds, debentures and other items.
18 j Can you tell' us, isn't it true that each of the series of 19' long-term bcnds and indentures is such that interest is 20! paid every six months for each of the series? Is that 21, correct?
4 A That is correct.
22l 23 Q And the first payment would be six months i
h,- y I after the date of issuance rnd the second payment on the CD j 23 y anniversar'y of the issuance?
O i'OMP.0 AC}4 a *.! AR $!! %t.. !!'C. - 27 74. tLGCitWLt.LQ7.' AVI. - "! A*t Rt S 3 VR G. . A. 1*f112
Huff-cross 674 4
II
.k A That is correct.
O f .,
Q Would you agree that the purpose of i
including working capital in rate base in a rate proceeding 4
is to reflect the full investment in the used and useful I operations of the company and that full investment includes oi amounts for the day-to-day operations of the company?
6{
f A Yes.
7
- g. Q Now could you turn to Part 14 of B-1.
I Now in computing the cash working capital for the year 9;
en g 3, 9 , sn% M me M you Mye not 10 reflected the lag in the payment of interest?
i g, A That is true, yes.
( 13 Q Lo kin 5 at page 2A of that exhibit, that h page reflects a March 31, 1981 period also?
14
..' A Yes.
LD 16 j Q Now would you agree that if we were to
- I l 77
" 1cok at the March 31, 1980 computation, which is in Part 5, yg that there you reflect an allowance for short-term purchases 19 ; which is line 7 cf zero, whereas for the March 31, 1981 4
_0 ' computation there is a $44,647,000 figure for short-term l
purchases.
A Yes.
i 22' 1
Q I wonder if you could tell me why the i 1
- number under short-term purchases for the historic year is 24 I l C i sero.
23' s
f1GW'G ACH 1 \ TARS H AL. !?:C. - 07 N.1.OCKWRt.C'Y AVE. - HARRtrBUMG. ?A. 17112
Huff-cross 675 h
1l A May I have just a mcmant, please?
Oc - 2f a
Q Certainly, i
3[ MR. CGDEN: Mr. Barasch, Mr. Newton I
4,r, prepared in response to one of your interrogatories a response 5 j which answers this question.
t l 5! MR. BARASCH: One that has already been l
7l distributed?
i 8i MR. OGDEN: Yes, it was a response to your l 9l Interrogatory No. 23 i
BY MR. BARASCH:
10 j Q Perhaps Mr. Huff can enlighten us on the 11 l l 12. ! record regarding his understanding of why that number is I ,
O) v 13 i
zero.
- 14 f
- A The reason it is zero is because a member i
l 15 l of my staff bad made an erroneous assumption in computing 16 i working capital, and we have further been corrected by the l
17' response of Mr. Newton that it should not have been zero. l 18! Q What I would like to do, Mr. Huff, is to
- 19. establish what would happen to this ccmputation shown on 20 Part 4, which is the cash working capital requirement for i
21' future test year, if short-term purchases for the test year 32 f were zero. If they were zero, would you agree, subject to t
23 l check -- and barring any other changes to the schedule -- ,
a j that the total lag days for expense of line 12 instead of 24[
i Os t being 17 days would beccse about 21h days?
i 23;4 4 0;!R *: AC2{ .a MAA 3HAL. ITf:* - 07 N. C301 WNf.OW A'/~ - H ARRIsratsRO. PA. t73r2
+ , , _ , s w e h,+
But?-cross $7g j
A I think that would be a fair assessment of 1j .
g p ,
the effect.
\ &
! Q Is it fair to say that if short-term 3I
! purchases were not 'oeing made or were unavailable for the l
,! company, that the power represented by those purchases would o:
q'00 Coming from eiCher interchange or increased Coal and oil
! generation by the ecmpan'/7 A In all probability. Probably it would be g
the interchange.
7 Q, Now if we would accept that 3 bort-term 10 ,
purchases were substituted with interchange purchases, as
,1.
A i
I understand there is s. 35-day lag associated with inter-
*E "8"*' # ** *
{ 13 ,
lag in expenses of about 23 7 days. Does that sound right to you, sir?
A You are substituting short-term purchases
,6-1 l for purchased power and then calculating -- just the computa-
' ,,i u l tion of the lag days?
l l
18 Q No, we are substituting interchange p es s r p wer p m h es, and as I under-20 stand it--and correct me if I am wrong -- your interchange 41 purchases, according to this exhibic, purchased poner and l re e , sh us a lag cf 35 days?
33 i
l 14
.j; A Yes.
1 1 -.
230 2
' i c W r. 3 A C'4 a It Att sH t1. tN C. - 27 . L CC ct:WH ' ow AVE. - itA AP.2stwtG. PA. 171t2
Huff-Further Cross 677 4
i 1a Q Now, if we were to take all of the short-term
\
2 ) purchases and basically contiert those values into inter-3 l, change and purchased power purchases, the impact of that upo T
t 4; your lag in the cash working capital would be to increase the 3.j lag to about 23.7 days. Does that sound right?
$ $ A I would expect it to rise, yes.
7i Q And isn't it also true that had the Three Mile 12-1 !
i Island accident not occurred, it is likely that the short-0l 9 l term purchases of Met-Ed at March 31, 1981, would be zero?
i 10 j MR. OGDEN: If the witness can answer. I think
(
21 i; it calls for speculation.
12 THE ADMINISTPXiIVE TJ.W JUDGE:: If he can answer 3
23
{ it. -
14 l THE WIT'.iESS: Had the accident not occurred, we 13 l may not have been in a short-term purchase market.
?
16 :t BY MR. BARASCH:
17 :j Q Isn't it true that prior to the accident, to 10 [ the best of your knowledge and belief, the Company was not 19 '. making any short-term purchases? And secondly, isn't it
)
20j true that prior to the accident with the introduction of y ) TMI-1 and 2 in the service of Metropolitan Edison, that i
s 22 j Mec-Ed was considerably long;- it was a net seller on the 13[ interchange?
p.j A ies. Y e s to both quasticas , t t O, ;
!*" 25 i Q So by deduction we back dcun to the third point,
;*o n:13 4. m . 7.7.ru% *nc - 27 :t. Locuvv.ov/ av . ~ :nr.a:sm na, sa t ra :
Huff-Further Cross 678 3
3 p
14 which is, Had the accident not occurred, it is likely that i
r, i the short-ter:n purchase values of Met-Ed for March 31, 1981, e
2 in fact would be zero?
~h
,;. O THE ADMINISTRATIVE LA!f JUDGE: Assuming everything l
3i else was the same.
Gc 'THE 17ITNESS: 8 That s correct.
l.
9i BY MR. BARASCH:
t 9 Q Now could you turn to Part 2, Page 1, Line 23?
3 12 -2 gi Do you have that, sir?
10 ' A Yes.
gg l Q Ifould you secept that the accun:alated deferred i
12 tax balance for liberalized depreciation of $77,896,000 c
13 that you reflect or Line 23 is an average balance for the h
.3,9l year ending March 31, '817 gg., A Yes.
1 16 ) Q Now, the caption to that exhibit indicates that 1
l 37 ) the rate base is as of year-end March 31, ' 81, correct?
I J 18 j A Normalized to year-end conditions, yes .
l
;9 :l Q And the accumulated deferred tax balance shown f
2C j on this exhibit is not as of ' year-end, is it? It's an 9
~ ;j average basis?
y
'l y., j A It in effect is an average, yes.
3 7,3 ) Q New, similar to a questien that was put to Mr.
3 ,.
Carroll in tha Penelse proceeding, could you provide the f 7,3 j actual balance at March 31, 1980, and reflect the changes ;
'; i
".7 **. OC .TC/'.* I.AFl/ /.V2. ~ M/AF.fSCtdRG. N..
U *
'3W54.cM 3 : . 9 7.!a' . M!C. 171tA
Huff-Further Cross 679 4
2; in that balance using budgeted monthly amounts to reflect a Q !
2 ', projected March 31, '81 balance?
8 3g A I will confer with Mr. Carroll and try to 4
4l respond,yes.
4 3l Q Thank you. Now, if you could turn to --
1 l
6 g' actually, you don't have to turn. Just refer to Line 13 on l !
l 7i B-1, Part 2, Page 1. Now, there you reflect the deferred I .
3l energy balance net of applicable deferred taxes for a pre-t 9
f May 31, 1980 energy clause, correct?
12-3 i 10 A Yes.
4 13 [ Q Now, the date of pre-May 31, 1980, is used be-12 f. cause at that time the Company began to amortize this l
p- 13! j balance through the fuel clause over an 18-month period, is u_ ,
g c that correct?
13 j A I think that was a surcharge, if I'm not mistaken .
3 Q Right. But it started --
16l 3
.m.. 4a A Has the same effect.
't 1g Q Thank you. You are familiar with the R.I.D. 626 lo f order of this Commission for Met-Ed?
.b i
A I have on cccasion referred to it, yes, 20 l yj Q I'd like to read to ycu from Page 21 of that 4
l 25i rder, if I could . I'll give you a copy if ycu'd like to 1
23 } see it.
g; Mc;;, there at Page 21 the Commission stated, n",- .
l 23 ] cuote, " Respondents propose to include in its original cost l L t l '
3 I .to4nr.c f a t m<AL. :;0. .a.7 n. Le T7?tto?/ , /z. - na.ra:sauN o. PA. 17tt:
_ _ _ . .. . , . . . - . . - se-
I
.__i 680
~jmeasureofvalueunamortizedexpansesassociatedwith e
c h 3 deferred energy costs,, storn damages, and rate case expense",
3 5 and I skip a little bit there. "In line with past Commission i
4 ! policy, these items are excluded from the Company's original li 3fcostmeasureofvalue." Do you see that quote, sir?
A Yes.
6l A
? Q Thank you. Now, as I understand that order, the 3 ;' Company -- the Commission order excluded about $6 1/2 million i
pl of unsmortized deferred energy costs but included about a
;c j $1 million of deferred energy costs in a different line in W
.2 -4 the rate base. Do you remember that, sir?
t 13 ,i A That, as I recall, was the old energy clause, 13 :
uhich was the June 1978, h t
14 l Q Fine. Can you tell us what the million dollar u # figure that was allowed in the rate base referred to and the
-- n 1
16 $6.5 million figure that was allowed -- that was disallowed i
1-f]referredto? Could you break out those two pieces for me?
4 18 This is in the 626 case.
s 19 MR. CGDEN: Do you recall?
20 d THE WITNESS: I have difficulty. {
}
31 ! BY MR. EARASCH.
l
.s2 ] Q I believe you started to give me an answer a 33; moment ago. You said one referred to some old clause; seme-I-
jg i
thing else referred to a different clause.
2g ] A It appeared to ee -- as I recall, it was the
.! I t . ,mm 3 mm, m, _. y :., , m.v.u.c v wz. - :.ums evac, ru. us sa
Huff-Further Cross 681 b
i pre-Juns, pre-July 1, 1978 clause that was excluded frem 2
gj rate base.
4
,, t Q And?
~I 4l A And the post-energy-clause was included. That's J
3 a my recollection.
6g Q Okay. Now, in the rate base that you have at t
<; ; B-1, Part 2, Page 1, which amounts correspond in type to k
3i the $6.5 million figure that was not allowed in the rate o il base in the last case?
'd 12 -5 10 A Line 14.
i And which amounts correspend to the $1 million 11 Q g4 figure that was allowed?
4 4
13 j A Line 13.
d {
Now, Mr . Huff, isn ' t it true that Metropolitan 14 j Q 8
gg j Edison is in the process of filing or has just filed an i
16 ] energy cost rate for the 1981 year? Ara you aware of that, i
, ,, j sir?
a
,j
.g A We have filed a proposed energy cost rate for 19 f 1981 and are now in the precess of discussing it.
3 Q But in ycur proposed filing isn't it true that 20 ]
'4
.o
- ( you have assumed that TMI-l vill not return to service
!I 1 during 1981?
,a 3 The firse assumption is that we're proposing t
;3 g A g,j that an cutage such as TMI or a major plant not be included
( ),"
J in such a cost energy cost rate, that it wculd be included 1
, 3; 1
3
.:o:<u mn a m.stt4: a.~2. - 27 i. erww3iac .y syc. ~ :::%IsaUP.G. SA. 17 12
.- Huff-Further Cross 682 .
k il)whenthatunitcomeson. O f 2 Q But in terms of developing a millaga charge that 3 3 goes into your ECR proposal, you have put together a number 4
3 4 j that effectively excludes TMI-l for the 1981 year?
9 a
3l A Yes. You would have to do that in order to come 6 up with that rate.
?f Q Now, you're doing that even though the rate case e . filing that you're testifying to over here has assumed that 9 W TMI-l for rate-making purposes will return in July of 19fsl, j
12-6 10 and last week I believe Mr. Arnold testified tia t we should 11; expect full power operations to be resumed in t.he fourth i
12 j quarter of 1981.
{ 13 ; A I heard that testimony, yes. h
)
14'[ Q And, nevertheless, the ECR filing presumes no 9
13 ) return during 1981?
a 1,3 j A What I'm saying is we have excluded THI-l from 17 )i that computation because otherwise you do not get an ECR t
is j rate which excludes the plant if you didn't exclude the d
19 3 dollar cost.
20] Q Now, if we assume that your ECR filing is l .n ! accepted which assumes that TMI-l will not return during k
;; i 1981 and also assume that the unit does actually return in i
35 ] July, let's say, or August of this year, this coming year, w in that event, Mr. Huff, assumirg that the other elements g
.33 j cf the ECR are esticated accurately, isn't it true that the T =new a m.m r.=. - -r n. u.w.e. v:: .,,,.- w n u u,x. n ma
Huff-Further Cross 683 I
1 deferred energy balance of Metropolitan Edison uculd be fully 7, amortized before the end of 19317 3p A If we did not come in and request a lowered rate i
4; because of TMI?
i 3 Q That 's right. Everything stays the same and L
12 7 6 the plant really does start to produce power in 1981.
7 A That would be true, yes, assuming that we did shnotrequestachange.
9 Q Assuming that nothing else was changed, at the I.
10 ) end of 1931 you would end up having a negative balance in
- (
gglyourdeferredenergy, correct?
12 A I believe that may be true, yes.
- g. 13 f MR. BARASCH: That concludes the cross-examinatios, W
y f subject to the outstanding data requests.
1 33 : THE ADMINISTRATIVE LAff JUDGE: Mr. Frater?
1, 16 !! MR. FRATER: No, Your Honor.
A, 17 ) MR SUFFIAN: Your Honor, I do have one or two l
13 j additional questions, if no one else has cross-examination.
19 THE ADMINISTRATIVE LAti JUDGE: Very well.
7,o i BY MR. SUFFIAN:
a il 3j Q Mr. Huff, have ycu projected or can ycu project
=j
$ the federal taxable income or loss for Met-Ed for 1980,
.,3y 1 assuming full rate relief ?
yj MR. CGDEN: TJhen you say " full rate relief", what g# g i
do you maan?
1 ; TOM 30 ACM & 7' A".3 MAL. ';!O. - 27 f t LCC:*VALLOV/ AVC - MA.*.18SM. ?2.% 17110 L
l Huff-Further Cross , 684, 5
MR. SUFFIANi The requested rate relief in this
;k p 3- proceeding for Met-Ed, everything you've requested. g 3 f Assuming everything you've requested is granted --
i
,; MR. OGDEN: When?
3'i MR. SUFFIAN: At the end of the seven-month 6f;statutoryperiod, i
o! BY MR. SUFFIAN:
a l
c Q Assuming that, tinat would you anticipate to be g! the federal taxable incoce or loss for Met-Ed for 19807 20 ' A It seems to c:a that the taxable -- the statutory 12-8 is beyond 1980.
11 l 12 Q It goes into 1981. Then have you provided that, 13 : then? That's included in the rate filing.
b j g
.14 ; A I have some difficulty.
,i Q What I'm getting to, I'd like the estimates if 15 'l1 16 you have or if you can project them for '80 and '81 for 17 Met-Ed as far as the federal taxable income or loss goes; as
;3 I said, assuming full rate relief.
l 1
39; A In April of 1931?
A That's right.
l
- 20) q l e .i A Oh, cPay.
~j 22h (Transcript continues on following page.)
23 ,
2+ ,
e#
J '
* :Awsswac. ru. t yn 2 rwirm: e t.assia.. r :c. - sr : . t.samn.tew xc.
T Huff-cross 685
.N 1L Q I did not hear your answer.
O m
i
( A I am thinking for a mcment. I don't think 2h t
3 it is in this particular case but we will endeavor to provide 4 it.
5 Q Thank you. Also, assuming the TMI-1 is 6 not allowed in rate base in this proceeding, do you believe l
7i that that in itself would bring about a taxable icss for 3 Met-Ed in 1980 and 1981?
A Yes.
9l 10 Q That in itself would bring about the loss.
I 11 Would it have a taxable loss assuming the inclusion of TMI-1 12,$ in rate base?
~
13 A Projections that I recall, toward the end 14 ! of 1981, achieving the full $76 uillion, we would be in a i
15 positive tax position.
16l Q That is assuming the inclusion of TMI-1?
17 l A Yes. It is my recollection without i
18i THI-1 we would be in a loss position.
l 196 Q And in 19807 i
20i A 1981.
,3 21; Q In 1980 you are in a loss position?
i 22 A ~1980 we wculd be in a loss position.
t 23 !, 4 Assuming the exclusion of TMI-1, which, 1
24 of course, is the present case?
a 25 ;y; A Yes.
??OHMCACH 3 MAR $9AL. tric. - 27 H, t.OC CYttt.t.OW AVE. - HARRISBtJRG. PA. 17112
~~'
Huff-cress 685 4
$ MR. SUFFIAN: That is all I have, Your p
lI
,W Eonor, thank you.
h 4! i THE ADMINISTRATIVE LAlf JUDGE: Anything 4;
'ffurtherofthiswitness? Do you have any redirect, Mr. Ogden?
! MR. CGDEN: Not at this point in time, o
g Your Honor.
THE ADMINISTRATIVE LAW JUDGE: Very well, 7Q f thank you. What is the desire of counsel?
8 qf MR. OGDEN: We have Mr. Carroll here today i
10 ; for Fenelec. If the parties have cross-examination for him i ve would be glad to put him on and sub, Ject him to some further 21 ; ,
cross.
.t 2 .g 13 MR. SUFFIAN: I have scoe cross-examination h t for Mr. Carroll. We could handle that now or at some other 2 4g time. It makes no difference to staff.
15,i ,
g[ MR. CGDEN: Why don't we put Mr. Carroll
.'1 on and do that? l
. *' b i E: Ve q well. l 28 l' !
l 19 j )
4 g T. L. CIdlROLL, recalled as a witness on ;
_f behalf of Respondents, having been previously sworn accordingi ol. ;
, a, ;
to lav, was examined and testified further as follows:
~
l 23 , CRCSS-EXAMINATICN ,
9 !
2A. BY MR. SUFFIAN: g 23.j Q Mr. Carroll, I would like you to refer to j j .:c:e:aca a u.u:ut. :ne. - 27 n. c.senwit:.ow 4 ic. - :innziisa.:aa. gx 27tia 1
l .. - .. ..
Carroll-cross 687
, Penelec Exhibit B-1, Part 2, page 5 with regard to electric
;i 0
LP' 7' r!
plant held for future use. Do you have that reference, Mr.
l .- Carroll?
4 A Yes.
I s 5i Q I am specifically referring to the last l !
l 6it eight lines on that schedule, referring to Warrior Ridge 1
e 7j hydroelectric station. Oculd you tell us what the current a life span for Warrior Ridge is?
9: A Do you mean in terms of license of the Federal Energy Commissicn or what?
10 f 11 I Q In terms of years that it has to run, that r
12 i it can operate.
Q} 13 A Warrior Ridge is not operating at the 14 i present time. It was inundated by Hurricane Agnes. That 15 , is why we have the plant held for future use.
16; Q Before it was inundated by Hurrican Agnes, I
17 :. what was the then life span for Warrior Ridge, if you know?
i 18 If not, you could provide us with that.
19 A I can answer in this manner and then I I
20; think I can give you a more precise date at a later time.
I
- 21. The current license for the plant, I 22 believe, expires in about seven or eight more years. Subject 23 ,, to check, I believe -- and perhaps my counsel can help me at 24 this point -- but I think the term of a license of the l
i
.]J ?
25l Federal Pcuer Ccmmission is in the area of 50 years.
IICH75ACM Ja M ARSHAL, INC. - 27 Me Loc:CatLL3W Avt. - MARntSSURG, PA. 17112
[_ . ,4-m = . . -
Carroll-cross ' 688 '
it '
1j MR. CGDEN: To tell you the truth, Mr. .
( 2' Carroll, I have to check that myself.
t h
t 3; BY MR. SUFFIAN:
I.
You are 4i Q Let me just see if I understand.
i saying the license itself, you belie're, is 50 years?
l 5l A Yes.
7i Q And that you have got seven or eight more I.
8l ,
years left?
9i A I believe. Can you just bear with me a 10 , moment?
Q Sure.
11 l 12 : A I would have to check that to make sure.
( 13 THE ADMINISTRATIVE LAW JUDGE: The life 14 j span may not be the same as the license.
15 MR. SUFFIAN: Exactly. That is what I 16 I was getting to next.
4 I '
17 ' BY MR. SUFFIAN:
18 : Q What do you estimate the actual life span i
of the plant to be, the investment, the useful life of the I
19fs l
l 20 !! plant?
14 a
21? A Of a hydro plant?
22 Q Of the Warrior Ridge hydro plant.
33, MR. OGDEN: To the extent we are in an 0
24i: area that is more depreciation related than acccunting D L But to the g
! 15 ) related it may be a question for Mr. Garland. ,
! i .:cua3xcx c euum. i.y=. - 27 n. toc:nv<stcw avz. - i44na suix:2. . . . 37si:
I - _ . . - , _ _ .
Carroll -cross 689 i
cxtent Mr. Carroll does not know I would say we would bc i
O. :
C 2 glad to cupply the information.
3 TIIE WITESS: I can give you some con;!ecture 4 and it would strictly be, you know, my best guesa, that the 3: life of a hydro plant is much longer than it would be for a i
t 6! steam generating plant.
I J I would say somewhere in the neighborhood 7)l 8i of 50 years and that would be my best guess at this time.
9l It is strictly a guess.
10 l MR. SUFFIAN: Thank you very much. Could 11 you provide us with more precise data in the future?
12 MR. OGDEN: Yes.
13 BY MR. SUFFIAN:
C 14 l Q I guess it would also be better to respond I
l 15 f in the form of a data request to my next questien or questior: s.
'l 16 N What would be the termination date for 17 the current life span for Warrior Ridge? And again I am IS t talkird about the investment in the plant, the actual t
depreciable life.
19{
20 A The reascn I am hesitating here, we are 21; in the prccess of rebuildir.g that plant. Are ycu aware of 22h that?
r 23; Q Yes3 that is what I was going to get to
- n. ;'i in a minute. I would like the life before rebuilii og and -
G1 25 tj then later ue will handle the situation as to what the i
i; nexneAcn a m.asun me. - u n. Lecnwn Lew Avr. - wumsauno, n. i7stz uy l
l v , -- w
- Carroll-cross 6??O anticipated life would be after it goes back in service.
1*
d c MR. CODEN: Let me maice sure I understand
! 2' ,h the request. Tnis was the termination date of the life span 3!
I of Warrior Ridge before it gcrt hit by the flood?
4i
,, h MR. SUFFIAN: Current life span, not currently after rebuild. I suppose it would be current 6 l;,
3 in the sense of beft,re rebuild after the flood. What is 5
8, the current termination date?
i.
I MR. CGDEN: By current do you mean --
9.
1 i MR. SUFFIAN: Frior to rebuilding.
10 3 i MR. CGDEN: You mean current as of right ..
11 3 s
.,2 ;j now, this very minute?
A THE ADMINISTRATIVE LAW JUDGE: It would 13 not be as of right now. It would be the current life span 14 which may extend into the future a nunber of years. He is 2
- g. trying to base it on the life span less the improvements 17 hthatareintendedtobemade.
9 MR. SUFFIAN: Correct, Your Honor. It is 18 ; .
before Hurricane Agnes, before any rebuilding, and then after 19 l Hurrican Agnes what would be the modified expected life span?
20i MR. OGDEN: It was currently that was sort of throwing me, aa?
. MR. SUFFIAN: Do you understand what I am u3 }
,,,f
. .e >
looking for? It would be the anticipated two life spans, ;
y
~;
before the accident, the flood, and the after it is refurbish 9^
i MO;4.U ACH O M A F.SMAL. INC. - 27 N. hT,(W11.CW AVE. " M.AR R'5 E UR G. 9 A.
. 17112
Carroll-cross 691 i
! MR. OGDEN: Mr. Carroll thought we perhaps O- 'i
.;had an interrogatory in that area. You go ahead and I will i
i look for it.
5i BY MR. SUFFIAN:
4
. Q Mr. Carroll, could you tell us whether any af f the depreciation expense associated with Warrior Ridge is 6 I i included as a rate-making claim in this proceeding?
7t A Warrior Ridge plant is just about fully 8.]
(
If I am not mistaken, g j written off, fully depreciated.
J
, subject to check, I think we have about $!r(,000 left.
j Q Is a portion included as a rate-making
, i claim? The investment itself is.in plant held for future
.2t "2
O<- 43 A That is right and so is the depreciation.
g
! Q Then it would not be a rate-making claim.
15 : ,
.t6 ;
Would that apply also to the O&M expenses associated with
; Warrior Ridge, would they be included as a rate-maH ng claim?
17 F A If there are any O&M expenses related to 18,!
l Warrior Ridge they would be very minimal and I trould say 9
.Oh miniani in this respect, that occasionally we will send a f man over there to check the fences, to make sure that vandal-21; I
ism is being held down by the best possible means.
22-4 But the plant is not running. We go over
,,3}'
4
;j and check it for safety purposes from time to time in order O 44j u, i, a
to maintain the license. There are certain things under the es ;
4 f.taH"t3ACM 3 MARSHAt INC. - 27 N. t.QCKW!LLOW AYZ. ~ MAP.RISatJRG, PA. 17t12
i e s Carroll-cross 692 i
I license we have to assure the federal government that the
{ ]healthandsafetyofthesurroundingareaisbein6taken care of and if there is any in the filing it would be minimal.
i I
Q Are you saying that there is a claim in the 40 1
. filing but it is minimal?
*l 3f A It would be minimal.
I 7; Q Is there a claim in the filing?
i
,g l A I believe there are some minor expenses in 9 our O&M expenses for Warrior Ridge but they are very minim.nl, k
Q IG it possible for you to provide me with 10 [
^y 4 the amount of these expenses? ;
N 73 y A Yes.
gf Q Are they separately charged? @
1, j ree.
4 3B3:1 Q Would you de so?
16 A Yes.
Q Thank you. Moving down the page to the
'7 d 13 coal reserves for Reesedale, GPU drillin6, Homer City, coal 19 reserve exploration and tripartite, are these associated
! i 20 g with land held for future use? That is on the same page 5, Part 2.
ol)
_ h A Yes.
s2
- g. Q They are land held for future use?
s !
C p a Yes. '
g
_ ii Q I see the elimination of scme $3 million
.a :l
*:cHMsACH A !. tait sxAL. tNC. - 17 N. LGCXYtu. LOW AVE. - f uRalsSURG. PA. 17f12
Carroll-c' recs 693 4
7
' of the GPU drilling expenses in the next to the last column
; on that page.
A Yes.
3 Q My question is: are you saying that the 4
5l renaining balance of approrJ.mately %4.3 millien is associated l
6l with plant held for future use that will go into service 7 ! prior to ten years after the test year?
0 a' A That is correct.
9 Q I would like to turn your attention now to 10 i Penelec Exhibit B-133, that is page 3 Do you have that?
gg A Yes.
Q On page 3 under the column Total Company 12 {
13 As Booked, does this column contain reserve capacity charges 1,4lasactuallypaidtothePJM? I as referring specifically 15 [ to lina 11, Other 081f. I was wondering if that might contain 16 charges for payments to the PJM.
J A Yes.
37 f 18 Q Could you tell us what portion of that . g would be the charge to PJM, what portion of the $7/,088,000 19 20;l would be payments to PJM for reserve capacity?
A Can we go off the record a moment?
21l THE ADMINISTRATIVE IAW JUDGE: Yes, 22[
j 23 g (Diacussior.
THE WITNESS: offI the record.)d thought I ha that number il .
p, in my work papers. However, my assistant here thinks we can i vy ..
25j derive that number perhaps even this afterncen yet from the 3 MMC ACM & WR$m. WC. - M NI LCMMM.CW AW. " HARMaWRG. N. mu
Carroll-cross 6C4 4
1 books. g C 2 Right at the mcment I don't have that 3 number handy.
4 4 4BY MR. SUFFTAN:
l 5" Q Could you provide us with that number when 6l you do get it?
I 7j A Yes.
8! Q Under columns 2 and 3 headed TMI-2 and 1 9 on page 3 of B-133, is it true that all the costs associated 10 with '1"4I-l and 2 are removed under theco columns?
11 ! A Yes.
j Q Is an adjustment made to reserve capacity 12 ]
13 charge expense in these columns? I guess also under line 11,
{
14 j Other O&M.
l A Subject to check, I would say they are.
15 i.)
16 jf Q Could you also provide us with that l ?
17, information, what the adjustment is there?
l I A Yes.
16 f 19! Q Turning to pages 1 and 2 of B-133 it seems that the overall rate of return of 9 7 percent shown 20f 31, on page 1 is broken doun on page 2, A That is correct.
22l 23 ) Q As to the cost of capital. Doen page 2, t
- p. Which lists the actual types of capite.1 and capital structure g 23 ) for Penelec include capital attributable to TMI-l and 27
.temerca 1. usasart mc. - a n. tocavm.t.cw Avt. - e nmssuno, n. mu
Carroll-cross 695 n
A It cxcludes TMI-1 and 2.
7 Ob 2 Q TMI-1 and 2 are er,01uded?
., A Yec.
Q Could you tell us how much has been 4
exc uded for M -1 and 21 5
6l A We eliminated an average of 25 million 768 i
7l for TMI and 166,184,000 for TMI-2.
Q Thank you very much. I would like you to 8f i
9' refer now to Penelec Exhibit B-111-2, pages 1 and 2. Do you i
have that reference?
10 l I .
77 t
A Yes.
r 12 Q Is it true that both of these pages include 23 , certain costs for TMI-1 and TMI-27 I
g A Some of the rectart expenses for TMI-1 are i"*
15 ,
i 16l Q Pardon?
A Some of the restart expenses for TMI-1 77 i
.t S .; are included.
19 !
2 0 ,' (Transcript continues on next page.)
I 21f; 22l 23 h 1l l
g 4 V 24 ii
$b
??OMA3 4CH 3 f tARSNAL. ifl0. - 27 FL- LCCXWILLOW Ayr. - HA?!R338UftG, .*A. 17192 u
C rroll-Cross 696 1
5 i Q Does that include other expenses besides the
") h C
3 j restart expenses for TMI-l on Page 1 and 2? What I'm trying
)
3 ] to get at is an explanation of those costs relating to TMI-l 4 and 2 which would be included on Pages 1 and 2.
- 3) A I believe if you look at the footnotes on Page 2 gfof2,theNoteBandNoteC.
0 9j Q So are you saying that these are the only costs d
g } associated with TMI-l and 2 and that these have been a
g g normalized out?
9 d A Yes.
10 't 73 l Q Then would it also be true that Page 1 doesn't l
~4-1
~
12 [ have anything as far as the costs related to TMI-l and 2? I i
13 ! see that these notes seem to apply to Page 2 of 2 g
(~ t
;,4, ,
A Page 1 would include restart expenses as far as i
1g;TMI-1.
16 ; Q Where would I find that?
n .] A In Other O&M.
gj Q So that's Line 12, Other O&M7 il gg / A That's correct.
;0) Q Could you break that out and provide me with what y portion of Other C&M would be the restart expenses?
g ll A Yes.
J Thank you.
- 3. .;, Q Okay.
., , J A Ne' have no payroll.
- ~i gj Q No payroll in the Othar C&M7 ;
rcn.w.sca :. :a.uw_ , . - :. n. . o :muev. m - -:saume. n. mu
Carroll-Gross ,
697 4-3 y it A I said there's no payroll related to TMI at all.
Op 7, j Q Now, I'd like to ask you a few questions that I 1
3 l directed to Mr. Huff eariter tcday, and these, of course, 4
4 ; uill be limited to Penelec. Now, would ycur answers be the 5lsameasMr. Huff'sinsofarasthetreatmentoftesting 6 3i Phase test energy and fuel for TMI-1 for accconting purposes?
[
A Yes, it would.
7j .
gf Q What would that be, just to refresh my own ehrecollection?
+
14-2 A Well, if I recall Mr. Huff's -- you're referring go )i I to the test energy related to starting up of TMI-17 gg 13 i : Q Right, test energy and costs for the start-up.
13 A Cnc of the scenarios would be taking the test l
yif energy through the energy clause because the energy clause 15 {
now has the ability to handle test energy. And I believe the k
ther scenario that Mr. Huff was referring to possibly -- I 16j e7.,h have to try to remember exactly how he put it. I thf nk he i that we put the plant 16 } w s talking in terms of capitalizing, gg ] into plant held for future use and capitalize it.
3
;gj Q Capitalining the C&M and depreciating and then 74 amort 12ing?
y,3 fl A Yes.
3 23 0 Q And then your answer wculd be the same as Mr. .
.1 Of b..L'suff's?
l l 7,3 A My answer wculd ba the same as Mr. Huff's.
u mm m. num,_ i:,c. - m.4 m.mu= w=. - m .. u. m. .m 1
Carroll-Cross 698
.S.
Q Another ques tien which I directed to Mr. Cherry 3l p g and -- Mr. Raber, rather, last week was the original and the O
,d 3 j revised load and capacity forecast which uns prepared by Mr.
C 4i Cherry and Mr. Raber -- was that used by you insofar as you k
3 ; had your input into the prcparation of the original and
-l 6,i revised budgets for Penelee?
a 9
72 A You're talking in terms of load capacity and load 3
a l forecasting?
.i
- 9) Q Yes.
ii 10 A Yes.
.4-3 1 33 Q And what would your response be to the expenses 3; j of the master plan for conservation and Icad management as l'
13 j far as inclusion of such expenses in the current rate pro- g 1,;,(cceding?
i 13 A In the current rate proceedings in the filing, 16 . which amounts, I think, to $1.6 million, there's no pro-i 17 j vision for the master plan. What that $1.6 million in i
is y Penelec's filing is related to our Conservation -- what we l Ig ]b call the Conservation Audit Program, which has been an 1
7,9 j ongoing program. We have approximately 11 people working on 4
n it now. Five hundred thousand dollars of the one point six 3 is already included in our budget. For the full expanded 22,0
.;3 j program for the audit program tie're saying it should take us 1
>j up approximately another million dollars, one point ene
- m !.llion. :
- 'I " '
M *: n tett a : 1.u :A!
r & c. - 27 II. t.C .4"%t. 07? -!. - ;u.utstuu. PA. int:
' ~
Carroll-Crosa 699 a
3 -
1l Q But you're saying as far cs the conservation load
{ %! management master plan, no expenses have been claimed or will 3f be associated with Penelec?
4! A The reason I'm hesitating is that there's a
)
3 j possibility that some of maybe the preliminary work may have 4
(3 j come through on a billing or it may have been included in a 9
7 [ budget. But it would be -- I would say it would be very Gjlittle, if any 9 !I Q Would they be like minor expensos that I think d
sc; f Mr. Huff mentioned with regard to Mr. Hood in personnel?
11 A Yes, and I say it would be very minimal if there 3
n i are any.
14 -4 a o 13 { Q Now, this is an area that I also covered -- this dr .
14 ) next area I'm about to get into, that I also covered with Mr.
i u j Huff with regard to Met-Ed. And now with regard to Penelee, i
16 if TMI-2 were abandoned, then for tax purposes do you know 17 $ what the amount of the abandonment loss would be for Penelec, 4
;a federal income tax?
19 A No, I do not.
- t Q Do you have any idea?
20 )
31 A No, I do not.
h 23* Q You would agree that it could be -- or could it i
23,) be carried back. three years to offset Penelec's tanable e incema? !
(d[
253 A Ye8.
i I
!JCXMMM f. *tAnsyJrL. ';1C. ~ f?? 72. 'EW/1L .OYI AVE. - MARR!TSC!*6. PA. IFt12 am-n- - + s n,--. .
~
Carroll-Cross .
700- l If Q Uculd it be so used in effect? Have there been l p g j' other offsets to taxable income for Penelec which wculd t
l$
3l{makeitunnecessarytocarryitback?
i 4 ,3 A If that were the case -- and conjecturing nov --
n 3f Q This isn't conjecture. I'm saying, could ycu 6! take advantage -- If in fact there was an abandonment loss, i
? could you take it back and offset your taxable incc=e for a; Penelec/
9: A I really haven't studied the subject at all. To .
10 ; give you an answer, I would say most likely it could be taken 11 ; advantags of, yes.
I
. _ 12 Q Could it also be taken advantage of in the future 14 -3 ,
I 13 for Penelee's taxable incore for the next seven years as far
(. ,
141as carry-forwards go?
e y.g l A Without looking into the IRS rulings on this 16 , subject, I would say yes.
?
17 Q But you do anticipate taxable inco=e against g which an abandonment loss would be offset in the future, 19 assuming thiit there is a carry-forward of seven years, which a
3 0 j I believe there is?
1 yj A Yes. I agree with that. State that again for me.
?,
2.3 q Q Ycu do believe that assuming that Penelec does 1
7,3 j have positive tanable incere in the next seven years and y;. c assuning that a loss, abandanzent loss, could be carried }
i
?J forward for Such period of tiCO, OhiCh I believe the tax 12U @
. saunas. cst s :nains t.. m . - c r . . t.s =w '.cx '.v1. ~ nronszune. r: mn
. ~ . , _ . . . . - - - , , . - - - . - . - --- -~.
Carroll-Cross 701
)
it s j states it, there vould be a reduction in taxable income due Op ~4 2 f to the offset?
J 3-h A Yes, 4 Q Okay.
3 Q Mr. Suffian, you raised a question a little while 3
3 ago relative to che amount of reservo capacity we had in the 7 September numbers. I believe you were talking about B-111-2.
a@ Q Yes. What is this in response to, Mr. Carroll?
0 gl A You asked me what amount was included in the
,1 10 'A Other C&M for reserve capacity. I believe that was your
'6
+-
.u.hquestion.
12 .
Q And that's on Exhibit B-lll-2, Page?
r A The sam numbers on both pages, Page 1 and 2, O~ b.- 23 would lI be what's included in the 77088.
24 And it's a negative 23 } 6 millien 338.
3 g 4 Q Uell, I also wanted the amount that would be 27 , included in the other figures on Page 1, namely May through 10 Auguse of Line 12, Other C&M.
19 j A I'm sorry. I thought you were just --
a 2c ) Q No. I was referring to the entire line, all i
gg] five 2caths. ,
i' 22 j A I guess where I was mi::ed up is that -- we're i
23 [1 talking abcut_ twelve months ended September now, all right? l 1 i g Q Yes. I want to see if it varies.
4 ~. A And for the twelve months ending September that :
23 n w= : uan - n r. w nr.:.w:, x .=. - u.~~e n ,mz I.
Carroll-Cross 702
,i would be the amount that's in thoro for that twelve-month
~t So now are you asking sa now what was in the twelve-O p 3(period.
i 3,.g month period for May, June, July, and August?
1 j, j Q Yes , I am. Ycu have five 12-month periods listed j
5 here, and I'd like the amcune included in each figure.
- 6) A l's sorry. I misunderstocd.
t 7( Q Okay. Could ycu project or do you know what the 0 ' federal taxabic incose for Penelec would be for the calendar 9 f years 1980 and 1981 assuming full rate relief?
10 l MR SUFFIAN: I asked a question slmilar to this
.;g l
~
! for Met-Ed of Mr. Huff, and now I'm directing this to Mr.
14 -7 13i l Carroll for Penelec.
(..
13 ) MR. CGDEN: Again I guess I need to clarify what h 14; f. you mean by " full rate relief", when and at what amount.
MR. SUFFIAN: Full rate relief granted in April 13 16 i . in the amount requested in your filing.
I 17 , TIE LTiTNESS: I'd have to supply that to you.
?
16 [ W MR. SUFFIAN*
ip d Q Would you do so?
i 1 i
101 A Suro.
21 Q Okay. And that 's both for '30 and '81.
23l Now, if TJII is not allcwed in rate base in this 23 proceeding, would you say that that in i?self would bring
.,n, el about a taxable loss, federal taxable loss, for the years Q 7g j bd0 and '817
.dJMMS ACM C: !!A:19"r*M
' f:.*",. - ;7 : c L3C"CI.*tt.L G'Y A'/L " P 's.1 * *.6 E U.1G. % t */17.".
Carroll-Cross 703 1
1 1Q A Subject to doing some calculations of my own, I'd i say no.
O{ g 3 Q No?
s
.s. 5 A (The Witness nedded his head.)
n 5l Q I'd like to ask you whether Penelec has requated i
6l or received a technical advice memorandum on the subject of 7 capitalized pension costs and taxes in any examination by the c' IRS.
l 14 -8 9: A Would you repeat that, sir?
Io j Q This is in the area of capitalized pension costs a
gg and taxes, and I'm asking chether in the Panelec proceeding 12 ;. whether Penelec has requested or received such a memorandum i
c"Pi ta t=ad Pa"=ta" a*"" *"d ****=-
Oc 23 l "it" A'as"'dNot* to my knowledge. Are you referring to THI-l 24 [
15 i and 2 again?
16 )l Q Well, I'm referring to capitalized pension costs 17 3 and taxes not just for TMI-l and 2, broadly, generally.
4 1G 3 And ycn're saying that you haven't received or requested ,
t
( 19! such a memorandum, is that correct?
l 20j A Not to my knowledge at the coment. We may have ,
! a j 31)andI'mjustnotawareofit.
4 22; Q Okay. Is it true that -- would it be correct to l
l ni state in the IRS examination of Penelec that they uitimately 3
-,i did allow -- its last examination of Penelse they ultimately j ma p(
v' 1 3 :] did allow the capitalized pension costs and taxes claim as 1 zona a m --. arm.. tre. .-- . ,cauew m:. - unn.am. n. im2 i
l l
Carroll > Cross -
o 704' S
1 j they did in Met-Ed?
n
- p. 2. f A I believe that's correct. $
l 3 f; Q And in the present proceeding is it correct that 3
4 j. there were capitalized pension costs and taxes of 4
3 % $1.836 million for Penelce?
1 .
et 6: A Yes.
7l Q And was there a deduction made in cciculating i
C l federal income tax expense for race-ttaking purposes of such p , capitalized pension costs and taxes?
14 -9 j 10 l A Yes.
11 Q Then a deduction was cade both in calculating il 9
12 d federal income taxes for rate-making purposes and in calcu-d 13 ; lating federal inccme tax liability to the gover-nt?
14g A Yes.
13 f MR. SUFFIAN: That's all the cross-examinatien I 16l have, Your Honor.
17 p MR. CGDEN: Your Honor, if I might just clarify l
I laja point one moment. May I have a moment with the witness?
10 .l THE ADMINISTRATIVE LW JUDGE: Very well.
}
l 20 ) (Off the record momentarily at 4:13 p.m.)
i Li 1, THE WITNESS: May I clarify something? I think i;
7.7,; I misspoke en my last question, and I'm referring to my 5 i
n ! Tcx Interrogatory lio.16. And I think your question was, ,
3 ' Did we -- Have the pension and ca:es capitalis:ed been deducted
. I
~
25 ;, in arrisring at the taxable inco:r.c for rate-tcaking purposes. h
; O:4 *.3 ACM & v.a ;t S;tAL. 'MO. " ."Y ! . L DCT?/s'.LC'.'/ */C. - E/.7."L;S BU R G. P t. 17170 L
e
- Carroll-Cross 705 1 'i I don't know whethet you have access to that -
4
' O{- 2 l BY MR. SUFFIAN:
}
3j Q I have it for Met-Ed, but I didn't have it for 4 3. Penelec. That's why I didn't make reference to it.
3 A I believe we have put in a respcnse to Pa. PUC i
6fstaff. Ife called it Tax Interrogatory No.16. And at the 3
7! time the current rate case was being prepared, the IRS Service a
i Oj in the course of their audit for the year '77 '78 was cen-I 99 templating the disallouance of the current income tax 3
14 -10 10 ; deduction for pension costs and tax capitalized. And sub-l 12gsequentlytheIRSacquiescedonthic' matter.
1 12 s Q Ifould the answer be the same, then, for Penelec F
== te was for x -za?
Oc 13 l g:] A Yes, t
23 j Q Then for rate-making purposes you didn't take it 4 -
16 j as a deduction, then, in calculating federal income tax, i U
- 27 ; althcugh for federal income tax liability the actual expense
- i IG )$ calculation to the government you did take it as a deduction?
19 ' A That's correct.
I 20 ) Q Then that amends ycur answer of a few moments 1
31lago?
4
;; A Yes.
U 20 j P2. SUFFIMi: Okay.
! THE ADMINISTRATIVE IAlf JUDGE: Do you want to 29j s 3 i
- sa start now or do you want to wait till tomorrow? t i
i .,
eas amu a w.s:ut n:. ~r v. :.:::rmu.on x:=. - ru..emau.,s. n. wn: !
706 i l MR. BARASCH: Your Honor, a week or two ago the 3
g j Concun:er Advocate's office largely ecmpleted its cross-
,g
( .1 3, examination of Mr. Carroll except for certain outstanding 3
4 j data requacts and whatnot that were put to him. And as of 3 j this point in time I don' t believe Mr. Carroll's had an J
5)opportunitytopreparethoseresponses,sowe'renotprepared 14-11 )
7, to proceed today or tomorrow in terms of our further cross-al examination for Mr. Carroll because, simply, we have no other i
9 t new areas to explore other than matters that are left open on' 10 , the record from previous appearances. I think I'd indicated y,; that last ueek, that this was a possibility.
12 i THE ADMINISTRATIVE LAW JUDGE: What other wit-13 nesses can you cross-examine now? Does Staff have anybody? g
(- ;
Mr. Carter is here. Do you have any further cross-examination y ,,1
) .
13jofMr. Carter?
]
3q MR. SUFFIAN: Well, we will have cross-examination 4
17jofMr. Carter. In fact, I do have a bit of cross-examination 1
?.C j that I could direct to Mr. Carter today somewhere. Iut most i
3.p p of our cross-examination will have to take place at a future a
,o,date. I mentioned this also last week, that we wouldn't --
3;, we cculd not be ready at this stage considering the Ccapany's
.n , responses or lack of responses to our interrogatories to 33 ' pureua cross-examination in the aca of rate structure.
7, MR. PARASCH: If I could, Your Honor, we b- 3 ccenleted all cur cross of Mr. Carter other than rate design !
i w.nueu :. numu. r:c. - =r u. ucanan n= - nw mm. n- w= '
707 i
~
3 e matters . And as I indicated earlier, we're going to be 2jmeetingwithhimlaterthisweektohopefullydisposeofthe ,
1 3 ) bulk or perhaps all of the discovery in that area. And some-J 4; time after that we would be able to cross-examine in rate 5 s truc ture.
G, Aside from that, we have rate of return witnesses t
l 7j that have not yet taken the stand. I think we also still a !d have discovery matters outstanding there as well. I don't d
9 ? know what other -- I'm not aware of any other witnesses off 10 the top of my head.
7g MR. OGDEN: Your Honor, one point I do want to 11 [
12 4 clarify for the record in respect to Mr. Carter: I would i
13 like to come to his defense in terms of responses to l
,14 l interrogatories. I think he's been prompt in responding to i
15 i, any number of interrogatories, including rate structure 4
16 l ma tters .
s
;7 i In terms of where we go from here, I knew Mr.
13 Russell has been trying to set up some dates for the I imagine that 19 {i appearance of the rate of return witnesses.
And I'd have to 20 l1l uculd be coordinated with the other counsel.
4 3 ; ,' check with him to see what dates they would be available.
j .g g They certainly would not be available tomorrow or Friday.
1 The other area that we have open is Mi . Carter l 23
- 5 in rate structure. But I'd say thero are a number of wit-
.n .
O" .3
~
nesses ue can have here if there's further examinaticn for I ,:o:cucu a nusa,u me. - :7 r. c.oc:cm ow .m. - nwssvaa, n. ivn::
I l
l l .
707-a u
1 1 3 them in these two days. If not, fine.
- 2. i THE ADMINISTRATIVE TAW . RIDGE: Let's go off the s
- 3. } record for a minute.
4g- (Off the record at 4:18 p.m.)
d 34 (The transcript continuca on the following 3
6i page.)
i 7i .i O!
i 14 -13 10 -
'4 11 j 13 w
e kh I
13 l i 3
16 4 a
1 17 )
a 13 'l w1 i
20 4 i
R A
.l' I
':
- Y U do -
1
$5 1
-.-? 4, c _:
.w .,
- tcynaA CM a ? taps >'At.. !1a-07'ttOC7 W N*'t " M W IO N O * 'MI A
e 3 Carter-direct 708 3
,1 EUGENE F. CARTER, recalled as a witness
- :I
] on behalf of Respondents, having been previously sworn
,y according to law, was examined and testified as follows:
*i ,
) 4l DIRECT EXIM.INATION 5 BY MR. OGDEN:
6i q Mr. Carter, I show you what has been
?l marked and I believe identified as Penelec Exhibit C-26.
Gf Do you have any corrections to make to that exhibit at this 9! time?
i 10 ; A Yes, there is one correction that should 11 ! be noted on Exhibit C-26 and this is Penelec Exhibit C-26.
- i 12 ! On page 6 of that exhibit the column Oc 13fheadeeMarch,whichisthe1astc1mmnontherisht, con 14 ! taining billing deterrainants, for customer number one shows ISf kilowatt hours consumed for this period as 25,477,000. Th'at 16 number should be corrected to read 38,224,000. ,
17 Q Mr. Carter, there has been marked for l ,
18! identification Met-Ed Exhibit C-38. Was that exhibit 19l prepared by you or under your supervision?
i 20' A Yes, it was.
21 Q I also show you whic have been marked 22: for identification as Met-Ed Exhibits C-34, C-35, C-36 and l
23[ C-37. Were those several exhibits prepared by you or
] 24 25' i'
under your supervision?
A Yes, they were.
MOH.McACM .1k itAM SM AL. INC. " 27 Ill '.30:{VALLO'.*/ AVE. - MARRISSUltG. PA. 17112
-- - . a. - - -
Carter-direct 709 I
f Q Nott in the Penelec proceeding there have g
(~' 2 l4 been marked for identification Penelec Exhil. to Hos. C-26-1, ,
3 C-26-2, and C-36. k!ere those several exhibits prepared by 4 5you or under your supervision?
X
.5 f A They were, i
MR. OGDEN: That is all we have on direct 6{
7, at this time.
8I 1h CROS3-EXAMINATIOJ i
10 ,
BY MR. SUFFIAN:
11 j Q Mr. Carter, I would like you to refer to 12 i Penelec Exhibit C-1, page 1 and Exhibit C -3, page 5 I will 13 be making reference to both of these. Do you have that 14 i reference, Mr. Cartor?
15 , A Yes.
16; Q On page 5 of Exhibit C-3, I am looking 17 under the last column, Rate of Return. Now it is correct, 18 is it not, that the system average rate of return as 1
l 1 19 requested by Penelec and shown here is 10.54 percent for 20! the test year ended 3-31-817 A That is correct.
21g 22 I Q And it is also correct, is it not, that 23 i the return indicated for non-jurisdictional operations is
)
- 24. " also 10 54 percent? $
l L U i
;3 ij A Yes, that is correct.
- t 1 MCHM*.JCM a M A;tSHA !NC. - 2714. f.CCmvu. LOW AYE. - H A R Mt.S EL'RG. P A. 17112
_o __ ____ _ . _ . . . _ _. _._. __ _
Carter-cross 710 F
. Q In order to arrive at the 10.54 percent O $
return for non-jurisdictional operations it was necessary 2ll to impute or assign approxi m tely $1 929 million of the 3
proposed $69 million base rate increase to these non-4l t i d i na perations. I am referring n w to page 1 of 5
I C-1. Do you have that? I am looking under column 8 on page 6 [j 1, C-1. At line 23,$1,929,344 is assigned to the total 7
other jurisdictions, correct?
3l ;
l
- A That is part of it. There is another piece 9;
10 down on line 26, $933, that is the late payment charge gf revenues. So those two pieces in total would be the amount.
t 12 Q The $69 million base rate increase?
l 13 , i res.
l O[. #' Would it also be corr ~ ;t that you impute 14 Q or allocate a portion of the requested base rate increase to 15 l
non-jurisdictional operations to bring the rate of return of 16 77} this group of customers to equivalency with the system average 18 ; rate of return so as to eliminate any subs'dization effect?
i l ;9 h A Yes. This is consistent with what we have done in prior proceedings.
20[
Q New I would like to refer you to Met-Ed
~1[,
9 '
Exhibits C-1, page 1 and C-3, page 5, the comparable exhibits 23 ) and pages for Met-Ed. Do you have it?
i:
q A Yes.
V C. ,.
.,5 S Q Am I correct that the system average rate ,
- a l I
nean:sren s nansHat, mc. - a7 tr. wesw1 Low Avc - Hanntsat;nc. PA. 7tta i
_ _ _ . __ .._ _ _ -__ o .._
carter-crocs 711 3
9
; of return shcwn on page 5 of Exhibit c-3 for Met-Ed is 10.61 g
(' ;! percent?
t 3 A That is correct.
4; Q Also the return indicated on page 5 of c-3 for non-jurisdictional operations appears to be 5 755 5:l 6l percent, is that true?
l 7l A That is correct.
i aj Q Would it be correct that in order to 9, arrive at a rate of return of 10.61 percent, the total system r
10 j for non-jurisdictional operations, it would be necessary to 3
11 f allocate a portion of the requested $76.5 million base rate i
12 l increase in excess of -- I believe you have $26,973 which was allocated to Met-Ed and appears on page 1 of c-l?
( 13 l 1_) A Yes, the $26,973 does appear in c-1, i
15; Q That was not the entire question.
I 16l A I realize that.
17 Q It would be necessary to allocate a greater 18 ' portion of the $76.5 million base rate increase, would it 19 not, than the some $27,000 in order to bring the non-N 20 jurisdictional up to 10.61 total system, wouldn't it?
21 < A If your desire was to br.4.ng the non-juricdictional to that return, the answer is yes.
22 -
23 9" Q Well, in essence to avoid subsidization 24 h of the non-jurisdictional by the jurisdictional. g U n 25 !! A If I could expand my previous answer as to 1
3 ffjt2 vormB ACH & M ARSH AL. INC. - 2" N. %GG:CVALLOW AVE. - HARMS 3UM. ?A.
- a Carter-cross 712
,! why we did not do that.
*I p 3 The non-jurisdictional business of 3
!MetropolitanEdisonCompanyforthecooperativos,thatis, the rural electric cooperatives and the municipal resale 4l 5 customers, with the exception of one customer, were imputed 6j a system return equal to the 10.61 percent.
l The one exception is the Borough of 7 !
I Middletown. This has come forth in previous cases but I 8{:
believe it needs stated again.
9l 10 l In Middlotown there is a contract that was t
11 negotiated back around the turn of the century in which for-12 , ever and a day at Middletown's option, predecessors to Met-Ed 13 ; agree to supply energy to Middletown borough at the rate of V
O(-
p one cent per kilowatt hour.
15: We have attempted in FERC proceedings to 16l have that contract overruled. My recollection is that there 17 , were two cases that were utilized as a basis for this, and I
18: in the case in which I participated, although I was not a i !
19 witness, there was a case known as the Sierra case and also i
20j. the Mobile case, we attempted to present evidence before the 21 FPC indicating good reasons why that contract should not be 22 verturned.
I 23l We did not successfully persuade the FPC in this matter insofar as they had determined that the effect gg l
Vb a 23 q of any increase in revenue necessary to bring the business to l uoamca a w.smu.. me. - a n. toexvm. ow w=. - MARRISSWRG. P A. PF112
Q %
Carter <rc2s 713 0
a requested level of return in that case would have had a 1{
{ 2 de minimis effect on a por share basis, earnings per share. h Incamuch na Met-Ed is now not realizing any 3
4 earnings per share to speak of, any increase in revenues 5 f there could have an infinite effect on their earnings per 1
6;. share.
l l 7, but having tried the logical ecurses of f
8 I action available to us and sitting squarely faced with this I
9f contract which is cancelable only at Middletown's request, i
10h I asked myself t,he question that you are now asking: should 11 {
wo impute a full rate of return to those customers or should we do something different?
12; We have proposed somet.hing a little
{ 13 ;
14[
different, namely, what we propose is as follows:
13 i We calculated the revenue deficiency for 16' Middletown from our cost of service and then that deficiency 17 in revenues was spread bacI: to all the remaining customers 13 ; including the non-jurisdictional customers on a mill per 19 kilowatt hour basis and the resultant is that we split Off the dollars that you sec cn C-1 that we referenced earlier.
20 s Q Have you concluded your enswer?
37
?
A Yes.
22 t
Q The result in substance of this absorption U
, j of the revenue deficiency from Middletown by non-juricdictonal AkA y[ a and jurisdictional custemera would in essence be a subsidiza i
h 4 l A
M GHROACM Q M AR CH At.. INC. ~ 27 M.1.&OKWILLOW AVE. - H a H9tSSURG PA. 17112
- s e.
Carter-cross 7g I
tion of Middletown by the other ratepaycrs, wouldn't it?
2, A In effect, by all ratepayers, both
;, jurisdictional and ncn-jurisdictional except for Middletown.
4j Q Perhaps you can reply to this new or in i
- 5) the form of a data request. Could you provide for the 6l record the amount of the additional revenues to be assi6ned i
7! to the non-jurisdictional operations, cpecifically I suppose i
8f Middictewn, and the computation which will bring the rate of 9 return of non-jurisdictional operations to the system average 10 ; of 10.61 percent?
11 A We have made that eniculation. I thought I had it in some of my work papers but I do not have the 12l h{ 13 specifics.
14 It is in the magnitude of $15 million to 13 $1.6 million, if you were to impute a full return to '
?
15 '. Middletown as an individual customer.
17 ' Q Ycu are saying $1.5 million to $1.6 million
.1 13 lI of the base rate increase would have to be assigned to l
l !
l 19 I Middictcwn rather than the --
l 20,i A If we were to overturn the centract of 21, Middictcwn and bring them up to a levelized return it would 22 take about a million and a half plus a few dollars.
23 Q That tfould bring it to the 10.61 percent i ..
24; total system?
25i A Yes, I
17112
^
*:CHRB \CM 1 MAR FMA%. lNO. - 27 N. 'iO:;XWILbCW AVE " !4 ART!!98URG. PA.
- -)
--- - - - - - - - - - - --- - - - **- %~
carter-croas 715
, MR. SUFFIAN: Thank you, Mr. Ccrter. That 1
is all I have.
THE ADMINISTRATFIE LAW JUEGE: Anything 3l further?
4f MR. BARASCH: Not at this time, Your Honor.
5 o
- THE ADMIliISTRATIVE IAU JULGE: Is it the
,,, desire of counsel then that the hearin63 ccheduled for i
G, temorrow and the next day be canceled?
9 MR. SUFFIAN: Yes.
i THE ADMINISTRATIVE LAW JUEGE: Very trell, 10 ) !
? we will adjourn now till November the 25th. I 11 - i 12 ; ..
( ,
(The hearing was adjourned at 4:40 o'cicek p.m.)
14 l 15
- i 10 17' 18 19 !
ti
, 20 ,
l -
l q b
I 21 ;il
)
l 22 3 e
23 8
p t 3 25;i
- cosacres e,. .v.w.su,s rue. - 7 t-4. user.vnu.o ci Avr. - uARm s u:to. r A. 3 17t12
I 1
s 'e -
0-
}
n 1j u(-
2 ll' .
--oCo--
3I I
4 41 g
I hereby certify that the proceedings and 3 ;'
, l evidence are contained fully and accurately in the notes 6i taken by me during the hearing of the within cause, and
?i that this is a true and correct transcript cf the same.
j 8s 9 1 MOHRBACH & MARSHAL, INC.
10 4
11 By - L2. r>1 ae f s y a r,a r. o,HAna 12 !
l O:-' ul Br/ LDEBORAH
'~ ~
2 k' ; ~
i R. HIC E 14
///f fd "O >
, 16 ll ,,
17 )1 18 !
19' (The foregoing certification of this transcript 20l, does no'; apply to any reproduction of the came by any meana
!i 31]unlessunderthedirectcontroland/orsupervisionofthe il 22[1 certifying reporter.)
23 7 w
?o;m saca r.s M A t3 MAL WO. - 27 M.1.4CT.vt.?.OY. AVE.- U tRRt3DtHtC. PA. 0 M 12
. . . - ~ ~ , . - _ . -
Quarterly Financial Statements o l September 30,1980 l I
ME/PN Exhibit No. E-5-2 Witness: J. C. Graham (
l l
AVAILABLE UPON REC.UEST l O General Public Utilities Corporation i
100 Interpace Parkway, Parsippany, N.J. 07054 e (201) 263-6500 Jersey Central Power & Light Company Metropolitan Edison Company Pennsylvania Electric Company hese statemerrs are not furnished in connection with any offering of securities or for the purpose of
[romoting or inPuencing the sale or purchase or securities.
ting to $154 n illion since Af ay G 1979, go solely to customers, but have reduen!
the borrowings that the System would otherwise Third Quarter Report to Stockholders 1980 ,
base been required to make.
l The major, coal-firn!, minemouth stations in
! which the CPU System companies participate To the Stockholders with other utilities achieval superior performance during the third quarter and added Fourth Quarter Dividend Omitted ME/PN Exhibit No. E-6-2 neady $5 rmllion more in energy cost savings. The lloard of Directors of General Public tiitness: J. C. Graham
> In New Jersey, the burning of natural gas at Utilities Corporation, in order to continue to gp ,
s cash resources in the
( JCP&l.s S,ayreville station has saved more than wake of the hlarch 23.1979 accident at h
=
$15 nullion for the Company s customers over the
- l. last 15 months, when the use of gas rather than T b WieIh dI idly a k I heavy fuel oil began. At the Company's Gilbert Station, a new natural gas pipeline will achieve
"*** #' O I" "*.
mi comnwn stak
#"d N
~ h. D NMYP further savm, gs.
j i
In July, the System reached an agreement with the other members of the Pennsylvania-New tmtil the severe fina-the CPU System sig facing it does [NM '.
*f '
' Q@' IO'i
~
Jersey-hlaryland Interemmection ( PJhl) for an not expa t tinat the t k to ruume common :
,p;,
interim amendment of the PJhl power pooling .
I I
agreement. That amendment, which was '
approved by the Federal Energy llegulatory Quartery Eamings D>
Commission on October 1,19SO and became effective that day, reduces the price of energy Net income for the t inilli n, down 59 pa {to 0.5 I milh,on
! Ivirchased by the GPU System from other PJhl reported for the thir U arnmgs t per share for the thi :ents, i
j members. Since most of the energy available from them would be produced by oil-firn!
generation. it is not anticipated that the CPU comparnt with 42 cs In the second quarte last year. ,"% -
i System will make substantial purchases reported a loss of 14 g 3 only -
from them unless coal-firal generation from quarterly loss in the ,
other utilities is not available. Earnings continue s@o eted by }g; - ,4 ,
- the removal of the o y .I costs of l'
(4
/ y' j / the Three hii!< Islan asc rates k[f.q of GPU's subsidiaria ecover I W. C. Kuhns these costs for Thil i September 30 resulti
- er ended income y
;.h'E[. g.a ,
i about SS million, . Tl-Chairman and Chief Executive O$ccr November 24,1980 Thue costs Eor T511 rr share.
'ed F_
< Atomic Safety and I.icensing Ihard conducts a from base rates in th f1979. hearing on the re-start of Three Stde idand Unit 1.
i Earnings improvei . ntingin
! At Ic/t is chairman Iran Smith, un ASE.B attorney, l Afay of $60 million annually of interim rate relief Dr. Walter Jordan, retired nucicar scientist and -
j to CPU's subsidiary, Jersey Central Power &
; General Put>lic Utilities professor, and Dr. I.inda I.itde, an cm ironmental Light Company (JCP&I,) and about 5 cents per conudtunt. Page 5. !
i 100 Interpace Particay j Parsippany, Newicucy trio 31 share from increased sales of electricity during the third quarter, were more than offset by Unit 1 (the undamagal unit), the effects of a
! ry informatior. sexWiders may contact: the cessation, effective April 1,1950, of credits three-month strike, settled in Septernber,
! corporate secretary's Department, stacwider Irelation, to income for the carrying costs of funds at GPU s subsidiary, Pennsylvania Ehctric i l Icointerpace Partu ay associated with the Forked Iliver nuclear Company ( Penelec), and other increases ;
! Pouippany, New Jerscu 07054 project, increased expenditures at Thfl in operating costs.
j (201)263-6600 '
I I i
.. .=
Me t-Ed Exhibit No. E-28
! Witness: J. G. Grahar.
! Page 1 of 2 Metropolitan Edison Company Revised Short-Term Debt Forecast for 1981 Connarison of Assumptions with MI/PM Statement E
($ Hillions)
ME/PN Statement E ME Exhibit No. E-28 Construc tion, Payroll and $ 171 $ 165 Other O&M Deferred TMI-2 Clean-up $ 17 $ -
Less Insurance Proceeds IMI-1 Return to D211 Power July 1981 January 1982 Production Available Short-Term Credit $ 105 " Liquid As se ts"*
Permanent Capital None None
%J Assuced Base Rate TMI-1 Base Rates None Increase s Restored 7/81 l Energy Cost Recovery Sufficient to amortize Same as Statement E i deferred energy balance by year-end 1981 l
s
- Reficcts the Setepober 5,1980 letter frem the Revolving Credit Banks which allows borrowing for Met-Ed at a icvel that equals its deferred energy bal-l atee plus uranium pledge ($20 million) plus pledge of customer accounts I receivable (approximately $20 million) but not to exceed $105 million.
i
() .
f 9
MET-ED: SHORT-TERM DEBT U/0 RATE RELIEF 140 1 I i l i l I I I I i l 130 -
120 -
g 110 f100 R.C.A. LIMIT L -- -..
I 90 -
0 -
H 80 - -
D 70 -
0 .
L 60 -
L -
A 50 -
R -
S -
40 - -
SHORT-TERM DEST m :c =
30 -
-
- v' o
.. e a G 's i OM 20 - -
uma m
O ** M 10
- 5 N C.4 P-I I I I I I I I I I I I 0 E-JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC O"
;-----------------------------1ggg---------------------------; 0 jj M*
O W M D I l 3 M os
o e Met-Ed Exhibit E-29 Witness: J. G. Graham O
METROPOLITAN EDISON COMPANY (Docket No. R-80051196)
Consumer Advocate Interrogatory Num'b er 105:
* " 1 05 . Provide for both (1) the individual investors and (2) institu-tional investors categories, the names of the largest 5,10, and 25 shareholders and the number of shares they own."
Response
As of September 30, 1980, in the aggregate the five (5) individual share- , holders with the largest ownership of GPU's commen stock own 181,200 shares, ranging from 52,000 to 24,000 shares; the ten (10) individual shareholders with the largest ownership of GPU's ~ common stock own 287,200 shares, ranging f rom 52,000 to 20,000; and the twenty-five (25) individual shareholders with the largest ownership of GPU's common stock own 531,1 04 shares, ranging f rom 52,000 to 13,5 00. The holdings of CPU's twenty-five largest individual () common stockholders constitute less than 1% of CPU's outstanding common stock. The names of GPU's common stockholders have not been public informa-tion in the past. GPU believes it has a responsibility to maintain the confidentiality of its shareholders, particulary in light of the questionable relevance of the inquiry to the subject rate proceedings. As of September 30, 1980, in the aggregate the five (5) institutional share-holders, defined to be all shareholders excluding registered individual shareholders, with the largest ownership of CPU's common stock own 17,305,615-shares. The single largest institutional holder included above is a depository account primarily for nominee accounts of individuals and groups holding about 14.6 million shares. Also included in the above is GPU's Dividend Reinvestment Plan account for all its stockholders constituting about 1.1 million shares. As of September 30, 1980, in the aggregate the ten (10) and twenty-five (25) institutional shareholders with the largest ownership of GPU's common held 18,757,886 shares and 19,796,283 shares, respectively. The names of GPU common stockholders have not been public information in.the past. GPU believes it has a responsibility to maintain the confidentiality of its shareholders, particularly in light of the questionable relevance of the inquiry to the subject rate proceedings. O l-
a Met-Ed Exhibit E 3,0 Witness: J. G. Graham Page 1 of 2 METROPOLITAN EDISON COMPANY (Docket No. R-80051196) Consumer Advocate Interrogatory Number 104: *
- "1 04. Provide the percentage breakdown of the stock ownership '
of GPU with regard to (1) institutional investors and (2) individual shareholders."
Response
1 Page 2 attached provides an analysis of CPU's common stock ownership at 9/30/80 segregating individual shareholders and their respective shares owned frow a series of other ownership classes. l l l 0
. s.
l
** Page 2 of 2
' ~
~
O i e GENERAL PUBLIC UTITITIES CORPORATION '
- SELECTED CLASS ANALYSIS OF STOCKHOLDERS
~ -
CLASS STOCKHOLDERS 7. OF 7OTAL SHARES 7. OF TUTAL
~ Banks & Nominees 1,149 .72 21,392,193 34.90
~ '
Brokers 86 .05 548,176 .90 Charitable Institutions 582 . 37 216,914 .35 Companies, Corporations, 1,204 .76 995,346 1.62 Edtcation 1 titutions 50 .03~ 33,'715 .06' Individuals 154,999 97.46- 37,414,031 61.04
~
Insurance Co=panies 32 .02 36,623 .06 Investment Co=panies 52 .03 22,363 .04 Pension & Profit Sharing '885 .56 "632.367 1.03 Total Stockholders 159,039 100.00 Total Shares 61,291,728 100.00 S e 6 6 9 e 6 e !O
~
e G
Iet-Ed Exhibit :In. J-5 Witness: H. M. Dieckr.p Re: R-80051196 Metropolitan Edisen Company Letter of F. J. Smith, Senior Vice President of Metropolitan Edison Company, dated l l December 17, 1980 to PennsyJ m:? t Public' Utility Co=mincion. l t
- O
I Metropolitan Edison Company kI , - f y') Post Office Box 542 Reading Pennsylvania 19640 215 929-3601 Writer *: Direct Dia! Number December 17, 1980 Chairman Susan M. Shanaman Commissioner Michael Johnson Commissioner James H. Cawley Commissioner Linda C. Taliaferro Pennsylvania P'ublic Utility Commission P. O. Box 3265 Harrisburg, Pennsylvania 17120
Dear Chairman and Commissioners:
My letter of Septem'oer 12, 1930 informed you of the cut-tailments in expenditures for operating and maintenance ex-pense and construction necessary for Met-Ed to be able to remain within the credit available through April of 1981. Updates of October 13 and November 14 provided a monthly I)
/ status of the Met-Ed situation through the end of October.
It is the purpose o'f this letter to provide a similar report reflecting the status through the end of November. We will continue to provide a monthly report until the critical cash constraints relieved. which have caused these curtailments have been The September 12 letter forecast a net short term debt requirement of $89.0 million at November 30, 1980. The j actual net bank debt on that date was $65.4 million. A l summary of the major variances from the forecast is shown below: Short-Term Debt Forecast @ 11/30/80 $ 89.0 -
, Delayed FIT Settlement Delayed USDOE Payment (1.7)
Decreased Energy Expense (1.4) ! Increased Revenues (9.8) (.6) ' Accelerated Insurance Recovery (5.0) Other Miscellaneous .2 Short-Term Debt Actual @ 11/30/80 $ ~70.7 (With Provision for 12/1/80 Bond -"~ Maturity) l v Metropol. tan Ed: son Company is a Member of the General Pubhc Utilities System l
December 17, 1980 The $65.4 million compares with the limit of Met-Ed's credit under the revolving credit agreement of $98 million at the er.d of November. The limit decreased to about $93 mil-lion as of December 12, 1980 (which includes approximately
$20 million of additional credit available pursuant to a pledge of accounts receivable).
The majority of the variations through the end of November are, as was true in October and November, the result of dif-ferences in the timing of various expenditures and receipts. The delayed settlement of the Federal Income Taxes will occur this month. The extension of the payment to USDOE for enrich-ment services will eventually have to be paid. With respect to the decreased energy expense of $9.8 .nillion, $5.8 million of this is a true lower cost of energy which has resulted in a lower deferred energy balance. This, under the revolving credit agreement level applicable to Met-Ed, reduces credit available; it does not produce net cash available for the electric system. (This lower experienced energy cost, inci-dentally, is one of the factors which has made possible Met-Ed's filing to reduce slightly the 1981 energy cost rate.) The remaining amount, $4.0 million results from lower cost and levels of inventories. The increased revenues do improve
~g cash to the extent they are not offset by negative variances qj in the future, such as those caused by weather. It should be noted that the figure for this item was larger in October and November and has come closer to budget at this time.
The forecast O&M and construction expenditures are about on plan. Actual Met-Ed employment and forecast attrition will provide some savings over the next few months, but out-standing storm expenses and the Portland outage may offset these savings. The Met-Ed level of employment has been reduced by a combination of attrition, lay-off and transfers to a total (exclusive of TMI) of 1,891 at November 30. The forecast level, before reductions, was 1,991 for year end 1980.
- The realignment of activities at TMI-2 continues in ac-cordance with the September 12 plan. Expenditures a t TMI-2 since the accident total $99.8 million, of which $87.0 mil-lion has been deferred for insurance recovery and $12.8 mil-lion has been charged to " normal" O&M. These expenditures l
December 17, 1980 reflect a reduction in November 1980 of $2.5 million from budget resulting from the overall stepdown in clean-up activ-ity. This savings is slightly ahead of that scheduled in the September 12 letter. As of November 30, property damage in-surance recovery aggregates $77.6 million. (All quantitities are Met-Ed's 50% share). On November 13, GPU reached an agreement with American Nuclear Insurers / Mutual Atomic Energy Reinsurance Pool (property insurance carriers for TMI) which will allow recovery of insurance proceeds on an accelerated basis. This agreement will allow GPU's operating subsidiaries to recover money for covered' expenditures on a current basis until the coverage is depleted. This more favorable insurance recovery will be reflected in future forecasts. On November 13, 19E0 we filed with the Pennsylvania De-partment of Revenue a request for extension of time in which to make the payment of the final installment of the 1^80 Gross Receipts tax ($6 million) and the tentative pap'c. i of the 1981 Gross Receipts tax ($17 million) both of shicn are curre6tly due in April 1981. The request for extene. ion was denied on November 24, 1980. A copy of the letter denyimy this request is attached. v The company is completina the 1981 budgets and indica-tions are that additional operation and maintenance expen-ditures improved may beposition. cash required which may offset the current slightly The deficiency still will grow to about $30 million at year end 1981 absent changes in rates and/or credit. Copies of this letter have been sent to all parties con-cerned re Docket No. R-80051196. Respectfully yours, use F J. Smith Sr. Vice President Ida Attachments i O)
\_
I I 1 i
G CO!.!!.iONWEALTH OF PENNSYLVANI A 4~ D.,Y' 3 - DEPARTi1ENT OF HEVENUE 3.Q
=g -{
- e .g .
L1 H AWilLRRY SOUAHE g . - ! H AH HisnU R G. PA.17I2 7 M W5 +, cr.aut v 2,tc t rany t;ovember 24, 1980 m re 7 U m a Harry Rubin, Esquire Krekstein, Rubin and Landay P.O. Eox 800 Harrisburg, Pennsylvania 17108
Dear Mr. Rubin:
This letter is in response to your letter of nover.ber 13, 1980 wherein you point out certain financial difficulties of Metropolitan Edison Cor pany. You request an extension of time for the company to file certain reports and to pay the dollar amounts indicated, namely: s 1980 Gross Receipts Tax Report Tontative 1981 Gross Receipts Tax Report Your letter does not specify for how many days beyond the April 15,1981 due date the request is made, but you do express an ex-pectation that a granted request would relieve tietropolitan Edison from penalty for late filing or late payment, but would not avoid the payment of statutory interest with the delayed payment. You cite as authority for the Department to grant a request for at least a 60 day extension Fiscal Code 72 P.S. {704 and Tax Reform Code Article IV, Part III {405,
- 72. P. S. {7405, which Part is incorporated into the Utilities Gross Receipts Tax at Article XI, Part II, $1102, 72 P.S. 8102.
I regret that while I am sympathetic to the financial dif fi-culties, the Department must give the same negative answer as was given to your letter of April 7,1980 on this subject. Both sections 704 and 405 refer to applications for extension being made on a form prescribed by the Department. It should be noted that since as far back as 1977 the Department's extension request form (RCT-872 1-77, now FIV-788 (10-79)] has set out certain requirements for an extension application for filing an annual renort stating the extension is valid only if the company com-plies with the following: (1) the amount of tax extimated due for the . year to be reported is paid by the original due date,and (2) the current year combined tentative report is filed by the due date and tax payments are made as required. Therefore Metropolitan Edison may apply for an extension of its 1980 Gross Receipts Tax Report if it files and meets the conditions of REV-788, but not under the terms contemplated in your letter.
llarry Rubin, Psquire Noversber 24, 1990 O The reason why the form does not provide.for an application for extension of time to file the Tentative 1981 Gross Receipts Tax Report (or any other tentative report) is that the Tax R2 form Code does not pro-vide for an extension of time for other Lh.in an " annual report". The Fiscal Code predates the provisions of Title 72 which require tentative reports and paiments; those new provisions now appear at Article XII of the Tax Reform Code. TRC Article XII (" General Pro-visions") contains }1202.1(a), 72 P.S. {8202.l(a), which is entitled
" Prepayment of Tax". Specifically this requires that taxpayers, on or before April 15, "shall report annually and psy on account of the tax due for the current year." Section 1202.l(b) spells out the computation for Gross Receipts Tax. Section 1202 1(c) J npoces an ad:litional 10 per-cent tax on underpayments. While numerous Articles of the Tax Reform Code (including Article XI which imposes the Utilities Gross Receipts Tax) incorporate by reference certain of the procedural parts of Article I V, including Section 405 dealing with extension of time "for filing any annual report", Article XII does not do so.
The Legislature in Section 1202 of the Tax Reform Code has nandaded timely prepayment of tax and in wmed stiff consequences for non-compliance. Apparently the reason for this provision was to assure early receipt of a substantial portion of a tax which constitutes revenue for (-]/ x_ the Commonwealth. Significantly, nowhere in the Tax Reform Code is there a provision specifically permitting the Department to extend the time for making a prepaynent. That is why the " Gross Receipts Tax - Tentative Report" form (RCT-100 ( 2 -79)) spells out at Instruction 2: a no extensi_on of time is granted for the filing of tentative reports". (Emphasis in the original.) The Department does not consider that Fiscal Code section 704 is authority to grant a 60 day extension of time to file a tentative tax return imposed under Tax Reform Code section 1202.1. The basis for this conclusion is first that section 12021(a) starts out with the language "Notwithstanding the provisions of this act, or any other state tax law to the contrary" the payments of tentative tax are to be paid on April 15. Secondly, whereas the time for filing the annual returns of various taxes may, by incorpor,ating Article IV, Part III, section 405, on proper appli-cation, be extended for 60 days and whereas TRC section 405 ' tracks' Fiscal Code section 704(a), there is no comparable carry-ovpr of Article IV's extension of time to Article XII which deals with tentative taxes and the dates tentative taxes are due. Thirdly, the Tax Reform Code is
- designed to be read as a unit and the Legislature is presumed to intend that the entire statute (that is the entire Tax Reform Code) is effective O
!!a rry Pubin, i:r,qu i.re .1 - t:overber 2/,, 2980 ,
according to its terns. 1 Pa. C.S. $1922. It is illogical to believe that the Leginlatur e s.mld have alla.md rq.eci fic CD day extencion lanp: age to exir.t , t hrot.yh incorporat ion by refer n. o, in various At t icles of the Tar. Refom Code ant! not put t he nano ext.ent; inn lan.psage in Art.icle XII but ne ve r the lc u n c.spect Piccal Code sect-Lon 704 to allow such an extencion. I regret that we cannot help your client throujh .i ts finan :ial difficulties, but I ar.1 advined we have no choice. Very truly yours,
,1)(1 yW"
/
, d 7V4ub9 Mbo r t M . "a t:,on Deputy Secretary for Taxation es l
t e l
DISTRIBlTFION LIST: O Pennsylvania Public Utility Comission North G Comonwealth Sts. P. O. Box 3265 Harrisburg, PA 17120
- Ihe Honorable Joseph P. Matuschak
- Mr. W. P. 'Ihierfelder, Secretag
- Steven A. McClaren, Esq.
- Bohdan R. Pankiw, Esq.
hhurice A. Frater, Esq. McNees, Wallace 6 Nurick Richard Kirschner, Esq. P. O. Box 1166 1429 Walnut St. Harrisburg, PA 17108 Philadelphia, PA 19102 Gerald S. Gornish, Esq. Stephen A. George, Esq. Wolf, Block,Schorr, Solis-Cohen Buchanan, Ingersol, Rotewald, Kyle 4 Buerger 12th Floor, Packard Building 57th Floor, 600 Grant St. Philadelphia, PA 19102 Pittsburgh, PA 15219 Bernard Ryan, Esq. Dechert, Price G Rhoads Robert Jude Jenison 800 N. 'Ihird St. R. D. 1, Box 280-6 Harrisburg, PA 17102 Wellsville, PA 17365 Roland Morris, Esq. Kenneth A. Wise, Esq. O o". O. Box 1003ee. ">rris a "ecksner P 213A N. Front St. iierriseers. "^ 272oo Harrisburg, PA 1710S Office of the Consumer Advocate Strawberry Square, 14th Floor - Walnut G Fourth Sts. Harrisburg, PA 17120
- David M. Barasch, Esq.
- Craig R. Burgraff, Esq.
Mr. John F. Aheame, Chaiman United States Nuclear Regulatog Comission Washington, DC 20355 Samuel B. Russell, Esq. Ryan, Russell G McConaghy 530 Penn Square Center-P. O. Box 699 Reading, PA 19603
t
. I Met-Ed Exhibit I-30 !
Witness: B. H. Cherry
,O METROPOLITAN EDISON COMPANY Docket No. R-80051196 Response to Interrogatory No. 6 of the Rate Structure Interrogatories of the Office of Consumer Advocate.
Question: Provide two (2) copies of any studies and/or workpapers supporting system energy growth estimates which bear upon Met-Ed's future capacity needs. Reference is to Statement I. Answer: Referring to Statement I, two forecasts are referenced, the 1980 Corporate Energy ar.d Load Forecast, October,1979 and the April, 1980 forecast. The latter did not result in the issuance of a formal report. The system energy estimates, or NSR's, on a year-by-year basis from the April, 1980 forecast are given in Exhibit I-23. The work papers supporting the forecasts are voluminous, constitute part of the day-to-day work files, are in several (' ) locations, and are in part stored on computer. The work papers l will be made available on reasonable notice where they reside at Metropolitan Edison Company, 2800 Pottsville Pike, Reading, Pennsylvania and GPU Service Corporation, 100 Interpace Parkway, Parsippany, New Jersey. l l
*/
S I l [
l 1 Met Ed Exhibit: I-31 WACncpo; E, H. Chtrry METROPOLITAN EDISON COMPANY { Docket No. R-80051196 l Response to Interrogatory No. 34 of the Rate Structure Interrogatories of the Office of Consumer Advocate. Question: With reference to page 9, Statement I, please explain why the peak loads of each rate class were summed to get the Company's peak load without taking into consideration the diversity be-l tween classes similar to that between operating companies. What was the source of the load factors used to determine each customer class' peak load based on forecasted energy? What relationship exists between the forecast of energy discussed on this page, and the energy requirement and sales used to de-velop the energy allocation factors? What is the purpose of ; the calculation which is discussed on this page relative to determination of GPU peak load forecast? Is the purpose to assign capacity and energy costs to the three operating com-panies? If the answer is yes, please provide workpapers used in developing the class, company and system loads discussed. l Answer: In the development of the Company's peak load forecasts, con-sideration was given to the diversity between classes. The
;' peak load methodology utilizes the concept of accounting for contribution to the Company's peak by rate class. It is the class demand at time of the Company's peak which is used, and this demand is not necessarily the peak demand for the class.
Using this methodology, which accounts for class demand at time of the Company's peak, it is not necessary to apply diversity
. in order to get the Company's peak demand.
The class contribution to the Company's demand and load factors were derived from metered demand studies conducted by the Com-l pany. l The historical sales along with the class demand at time of the Company's peak were used to calculate the appropriate class load factor. The same historical energy data was used as one input to the energy sales forecast discussed on page 9 of Statement I. The purpose of the calculation is to derive GPU's system peak load forecasts which are used for capacity planning. O
- -w, w ,,---e m =- ,,--e , , ,m-e - -, -r-p---- ,e,-----.. --v, --*m* =w w w e.-- -y -+ ,y, , -s w}}