ML20003B529
| ML20003B529 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 09/22/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML20003B456 | List: |
| References | |
| NUDOCS 8102120352 | |
| Download: ML20003B529 (164) | |
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7ennsylvania Fu*clic Utility
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Investigatien into a requesbed $7C 3 i
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c' Prehearine conference.
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3. tion of the Ccm ission against Metropolitan Edison Compan~" at, e
3 a-Sco51196.
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In that connaction. we have eig.ht complaints f
i i
-), filed in connection with that request.
Is there any objection
' of counsel, or any party to consolidation of the cocplaints i
s w1 mta cne :.nvesti~ation croceedin. ?
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USSmL :
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15 j MR, McCLAREN:
Could we have cn identification!
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of those complaints?
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.1, i
ij MR. McCLAREN:
Could we have just a moment, C
7, Your Honor, before you rule?
3 Could we determine, Your Honor, whether the 3
4.jcomplaintsofDavidC.Thomsen,Mr.JenisonandIbelieveMr.
'4 1
3:; Kehr, are complaints on behalf of ratepayers?
Do they in j
1 3i fact assert that?
1i
?l MR. RUSSETI:
May we go off the record a
?
$dmoment?
?
- , l THE ADMINISTRATIVE LAW JUDGE
Yes, let's go 4,
.c off the record.
- n 4,
g3 (Discussion off the record.)
34)
MR. McCLAREN:
The staff will not raise I
i3 objection to the consolidation of those complaints.
The.nk
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,9 ; you, Your Honor.
I i
5 13 J THE ADMINISTRATIVE LAW JUDG3:
Very well.
It I
<,1 is indicated to us that there may be other complaints filed
__)
I
.l in this mat,ter.
There appear to be no objections.
The
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y3i complaints tnat :I:ay nereafter be filed in thic matter will 4
g 9 be consolidated with the rate proceeding.
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- c 1 In addition, we hs.ve received acte correspondence I
- .. ; fros counsel for Citibc.nh and Chenical Er.nk in -(nich 'chev
~
have indicated they filed c. retition to intervene in zhe extraordinary rate proceeding and they ; mated clarification
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uhether or not granting of that petition carried over into L.
f 4
,;j the rate proceeding.
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- 0 44*M bI O W "lE ~ h*A*hE33UEG' UE ITIIE l
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.; j It was our intention at that time that the f
1, I
- j intervention was to include the e.
- :traordinary rate proceeding
..m s, and also the general rate inveetigar, ion proceeding.
3 If there cre no objections,.te will state on f
h I
~.. the record that the intervention of Citibank, ii.A., agent, I
I 4
i' and Chemical, co-agent are permitted to intervene in accord-!
f
'I l
ance with their.n.etition.
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.4 i i
1f MR. MORRIS:
I would like to object for the
.i 2 i record, sir, i
a.
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THE ADMINISTFMIE LA'i JUDGE:
Icu object?
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,3j MR. MORRIS:
For the record, sir, yes.
i 4
nj THE ADMINISTRATIVE LAW JUEC-E:
The objection
}
4 13 j is overruled and the Citibank and the Chetlical Bank are g'
4 4
'. 4
- permitted to intervene in this proceeding.
I quess there ic soce.:isunderstanding.
There!
vac another petition :o intsrvene,chich by tha title sesas i
. Luce coth..etropolu an.:..,ison and Pennsylvan;.a r..3c trie:,
7 to ulc.
M.
1 1
- .2. ; but frcs car readine of the petition seems directed onl- ' o J c the proceeding of the Fennsylvania Electric.
_: t MR. RUSSELL :
That is the two hospitals.
b THE ADMINISTEATI'7E IEi JL*EGE:
Yec; naa hospital.
Is Mr. Karrisan here' s,
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' in the cCption.
There ar9 s epar?.43 PStiticCE DC int 3rv i:n6.
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t 34 desire to intervene in this proceeding?
,3, p
- j MR. KERRIGAU
There will be a separate V
5 3jpetitionfiledinthiscase,YourHonor.
I 4j THE ADILTlESTRATIVE LAW JUDGE:
Ycu will have 1
3 'j a separate petition?
l l
5 V MR. IERRIGAN:
Yes, Ycur Honor.
3,
?j THE AD!mIISTRATIVE LAW JUDGE:
We trill rule a ) on it when you file it.
Lat's go off the record a minute.
14gj (Diccussion off the record.)
.i
.1
- ) j THE ADMI
- iISTRATIVE LAW JUDGE:
Mr. Prater 1
9ij indicated that he will present testimony on rate structure
-3 i
23 and related issues.
You ha7e one witness, Mr. Frater?
4 I
i
- .; a MR. FRATER
Yes, Your Honor.
O4 1
J
.;; i THE ADMUESTRATIVE LAW JUDGE:
Very well.
MR. MORRIS:
I believe you :hould have, sir,
- a; c subnission on behalf of Victaulic and other industrial i
. and residential ratepayers.
Is that not before you?
We
)
l' 73 5 did prepare a statement.
i e
I U'
THE AD!m!ISTRATIVE LAW JUDGE:
Did you submit it this morning?
t NR. KELLY:
Yes, I handed it to the reporter.
.c THE ADMINISTRATIVE LAW JUDGE:
Ua stand l
,,7;; corracted.
We had not received it.
Tin reporter has it.
Ver/ well, is there any other submission cr p),
m
_Jfwilltherehasucmissions?
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i mm.e m.s:u.t. um. - cr u. :+1m. ew vez. - t:7.monno, v mm
- 3 Mr. Morris, I did not have a chance to read your memorandum.
Do yon intend to call any witnesses?
I4 MR. ACRRIS:
Yes, sir, one is named in there s
s i
4 j and there may be a supporting witners whom we 'aave not yet l
s 33 identified.
le 1,
'; j MR. GORNISE:
Ycur Honor. I apologize for 7>j bein6 late.
The crain broke do.fn this morning frca 1
3' Philadelphia.
I ao Gerald Gornish representing the Citibank 93 and Chemical 2ank.
t IO I do have a chort submission.
h.
1c.,j We have not idantified any issues at this j
i 1
13s point.
We think the other parties will, but we cay very i
I i
5 D
well present testimony of the two vice-presidents who i
t 14 i testified at the entraordinary rate relief cace, Messrs.
a
,I
. 3 j Gillham and Kron, on an:7 issues that tay be relevant in t
i i the case.
THE ADMINISI'B.aTTIE 7.A'.T JUDGE:
Do yea have 10 4 a submission?
2 I
- O.
MR. GOREISH:
Tes, I do.
l THE ADMINISTRATIVE IJJ JUDGE:
Do counsel 1
have c.ny desire te fils discovery proceedings'?
I thinic the t
Constner Adveca.te has already submitted a first issue of l
i 3-interro;;atoriec.
Do other cor.nsel have any disco'.i ny cattarc!
g J
NR. EARASCH:
The Censumar Advocc.te hcs filed w a v.r 2 : m uw.. mc. - :r u we :n..cn vr - n w =v=
v m
0 s
1 ( one set of interrogatories and we will anticipate that either i
O
-. !, throush informa1 discover 7 or fereher interroactories we W111-3 3 l be tr; ring to attempt to set more information from the company.
8 1
4 MR. FRATER:
Tour Ecnor, we intend to file i
Sj interrogatories and data requests in this proceeding.
i 4!
THE ALMINISTRATIVE LAW JUDGE:
How much time a
U 74 do counsel desire to file discovery?
Now we undnrstand that i
I
,],
there may be some matters that you may need data requests as o
1 9 j the case progresses, as we develop the testimony, but what j
i
(
20 0 we are interested in now is the preliminary discovery.
1 11 :
MR. MORRIS :
Your Honor, in connection with 1
13 3 that time frame, Victatlic has requested, and did so on the l
i C) 23 j record of the emergency hearing, certain material from Met-i
(
i 14 i Ed which it has not received, and the extent of additional t
i
?
. 3 f caterial will depend on when it receives the.t.
!5 ]
I don't believe there is a need to further
'i 7'3 formalise that request, but if Mr. Russell tells ne he t
!3 ) we.nto it formalized, I will.
f i
19 j HR. BUSSELL:
I think I would be happy to j
i i
Ys !. have it clarified, becz.use the request made et the hearings, !
il l so far as we can see, tras responded to.
':'here w3.s a sequence
- I i
22 j of further correspondence and every time a neu piece of j
h 11; correspondence cane in, the request for data shifted to
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3-something else.
l 2i THE ADMINISTRATIVE LAli JUDGE:
I think I i
i
,mnus :. nn s-4.u ec. - = r.w:ve v;a avr. - m m eons..u. m w.
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1 i
- j received a copy of your subsequent, correspondence where you l
g' 4
3 indicated that the resuonse was not comniate or did nob ful-I e). fill your desires, Hr. Morris.
l J
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4f HR. MORRIS:
Well, sir,t7 hat I au requesting a
1 l
3]isthestudywhichMr.Dieckampdescribedontherecord. If l 43jMr.RussellneedsfurtherclarificationonthisIwilldoso n
1 7 l itnediately.
I thought it was rather clear and the kind of e
S j report any compny of that sort would have, f
4 i
l l
-}
THE ADMINISTRATIVE LAW JUDGE:
Suppose you i
i e.3jclarify that.
l
, 1 I
s MR. RUSSELL:
We had several convercations on
-- i 1
- ,.1 the telephone and identified what it was we were to submit.
)
1 i
1.3 Tae indication was, yes, that is what was wanted and we cent 4
1
- ,jit.
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.,3 j MR.1DRBIS :
Are you taliting abcut a conversa,:
.,, tion with me?
I i
7
- j MR. RUSSELL
With your office, l
i
. s3,)
MR. MORRIS :
The oni.f thing you sent me tras g.q a source and application statement without identification.
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That ',Jas not a lon2 range study of the sort that Mr. Dieclw.ap -
i MR. RU5 SELL:
That is precisely what yoi:r j
3 ; office said you wanted and we sent it to you.
l MR. MORRIS :
If 30, we w?re in error and I 6pologir g
THE ADMIIIISTRATIVE Law JUDG2:
Suppose you a
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I 1{clarifytherequestsothatMr.Russellmayunderstand i
2 ! e:tactly tinct ycu want.
3-MR. PAMtIW:
Your Honor, ::te.y I suggest a 1
4j tentative schedule for the conduct of this case?
i 3k THE ADMINISTPATIVE LAW J'JDGE:
Yes.
I want i
5ltotakeupacouplsotherpreliminary=ntterswithregardto a
i
?]i discovery first.
i.
- q 3?
We will direct all,urties to submit any data, 1
a 9 3 any papers, or any submissions in this cetter to all tha J
l 20 J active parties in this proceeding and to any other parties 11 ;[ who :uay desire such or take a request for such data or such i
4 12 ? suba:issions in this matter.
/" N
'()
13 Y MR. KORRIS:
327 I ask for clarification of s
i
.W j just one thing, sir?
The issue of consolidation of this and il
- S d the other complaint, the docitet number of which I den t have ;
r
- i
'.5{ in front of ce, is still an open onc.
Will that be ccVered j
s 1
(?; as well?
N 3i THE ADIENISTRATD2 IXT JTlDGE:
Will th9.t be i
19.: covered where?
5 C]
LiR. KORRIS :
May the active parties in this I
- 1 hcve subriccions in the complaint proceeding Vnich is new l
3 t
?.; q under revieir for consolidation by you?
e i
THE ADMIIIISTPATLT IA:i JUDGE:
Your appearance 3 i
O't, )
-. J are in both cases.
There are two separs.te appearsnces here. ;
13jThai: will e.pply to both caseo.
t
=. - = -::.. = - =n
.w
..n. - ~=~. v..
n.
11
)
1
,8 ij How soon, Mr. Iiussell, can you respond to i
3 ! interrogatories that are filed?
h i
5i MR. RUSSELL:
That is one of the subjects I s
?
$j wanted to discuss infortally with some of the people that 4
- 3. have subaitted them already.
64 h h' ave an estitc.te that one of the interrogatc ries 7 j will take six un ~._onths to respond to,
,i oq, So I wculd say how soon we respond is a 4
i function of the reasonableness of the interrogatoricc.
l y
19 ]
We have no interest in dela'fing the etter, j
I' 11 j We want to get them responded to as soon as we possibly can. f
.4 b)'
I THE ADMIITISTRAnv1 LAN JUDGE:
We will direct ;
a 13 'j the ecmpe.ny or any of the parties to whom interrogatories areig J
t
'^ j directed, if they have c.ny objectionc to the interroga. tories,
.3s to an.ke those :')jections within 10 days fres receipt.
k 2.i NR. RUSSELL:
We :r.:.11 endeavor to discucs i
i
.71 them inforcally with the parties that subaitted thec in the 3
l 1
l 3 j first instance, to see if they can be resolved.
If not, we i
1 9 j will m he the fora l objections.
l l
i I
Dj THE ADMI:TISTRATIVE LAW JULGE:
We hesitate to i
?
put E. time limit on response to interrogatories, depending
^ ~
on the nature of them.
We will direct thct the interrogr. tories j
' be responded to within 20 dr.ys, and if thare is some objection or aone raason for a further extension of time, the p?.rty g
~.9 ! uill raquest an extension of the period of tir.2e to submit a.:w.v.m s :n.w:.. ::.m. - a : u re : w ms -
.u nr e m. re. mt
12 ii
~]answerstotheinterrogatories.
7- )
MR. BURGRAFF:
Is that calendar days, Your I
3 J Honor?
3
.f5j THE ADMINISTRATIVE LAW JUDGE:
Calendar days.
1 i
1 54 NR. EURGRAFF:
And the same applies to the d
6 j 10-day period for ob.jection, calendar days?
7,]
THE ADMINISTRATIVE LAW JUDGE:
Yes.
What 3ddocounselsuggestastothetimeofhearin6sinthis
!i
.l:stter?
Mr. Pankiw, you --
1 1^ i!
MR. PANKIW:
Well, Your Honor, I had tentativel, y 1
.~.ii considered the end of the suspension period and the time 9
1
'.3 5 required for each of the intervals, and, allowing four weeks 1
0 21forthecoma1etionofdiscover7deforewehesinthehearinas i
';1
] would be the first element, then that would take us to a
.J( October the 20th.
l i
1 e
- 3j At thc.t time we would begin the hearings and i
i 1j that would cover a period of appro:cicately 11 weeks.
Withinthose11weekswewouldhaveave.ilablef 7.'
'.3 !} fcur weeks for the cross-e:camination of the company's witnes es, ii IC l two weeks for a hiatus between the Ocmpanyts case and all i
other complainantst cases, three wacks for the crcss -
l i
'2 j e7 amination of Trial Staff, Consumer Advocate and other t
' ') ' -ritaccses, and another tJo week.3 at the end for rebuttal OQ
'. or arrf other activities needed to wind up the hearing stage
'31 of the cass.
- o u~u
- 4 :. :uz.an:.t m. ~ M n. ' 3=m1* '. W k:3 ~ Mm3M9
?^.
1M
13
.?
)
-.1 That would bring us to January 5,1901.
i 3{
Allowing four weelts for briefing wculd bring g
't
~ j us to February 2.
j t
Allowing four weeks for Your Honor to write t
4:j the reconmended decision wculd bring us to March the 2nd.
3 At that point there uculd be fully eight 7 j weeks rocaining before the end of the Gaspansion period
.I l
3 :. during which the Commission would reach its decision in this l l
1 matter.
7 1
1 THE AEMINISTRATIVE LAW JiEGE:
We would like
_. 9 )
j to have the hearings initiated as soon as possible, and if I
u :- 4 there is acce testimeny that could be submitted prior to the ll I
y,
..a i J
i
[
i time of the discovery period we would telcome that.
ih i
.1 Mr. Russell, do you have any --
l y,
~,
i i
E. RiJ3 SELL :
The basic testinony in support l
g a
f
-,3 of the filing we.s filed with the filing and has been in the parties' hands non for some weeks, so it see=3 to me that 4
4 4
a cross-exa::d.nstien with respect to any number of the aspects l
.g i of it --
l 3,, ;
1 t
1 y,i THE AD:GHISTRATI'/E LAW JiEC-E:
Let ne put it I
j this way, Mr. Russell, Teu have certain ec pany witnesssa
,..a, the.t are available almost anytice.
There is no sense 1:'
i 3
i raiting until the time of the conclusion of the interrcgatory' j
discore.7.f period to keep those witnesaas un:vaile. bis.
In my opinion us could have these witnesces w.veg.,. i., ex.. n:.s. - =r e uwx= ucw a=. - um vno. n.
m=-
i
-. * = -
a-m a
A w-14 a
i j cross-exar.ined, at least partially, before the discovery
-t V
) period is concluded, and then you can sub: nit those witnesacs,
.g g l especially the conpany witnesses, for further cross-examinatij)n.
ai 3j Is thers any objection to that?
,-- )
MR. RUSSELL:
Well, if history is any index,
.l discovery will be going on through the entire course of the n h hearinEs.
So discovery and hearings are not mutually
- 3
'l n.j inconsistent.
1 l
e THE ADMINISTRATIVE LW JUDGE:
It would not
~
- j f
. t inconvenience your witnesses to at least begin some of the
.3 i
] testimony in this case and some of the cross-examination,
.u.
-s with'ethe understanding that further cross-examination would c
J.6 d h
., j he permitted bv the parties.
l O
~
i d
We would like to get started way befcre i
. l. October 20th as suggested by Cc= mission counsel.
.a 3..'
MR. PANKIW:
Your Honor, it has becn our t>t i
j a
exnerience that cross-examination of the company's witnesses l J
i
._]
is a lot more efficient and effective after the completica aj
.., ' of the discovery.
yj We could take care of that witness in one j
i i
',,j 3itting rather than having to bring that witness tack for
.i I
furthercross-examination based upon data requests that have l,
, ; been recently received.
ThE ADMINISTRATIVE LAW JUDGE:
W e.:..L, you nave nU a lot of the testimony that has already been submitted to yori,
.3
,.9 i
t
.;oM A3o*f.M 4 M ?.R 5"rii1.* ?!!C ~ L
?* V* C A'W 'A'h
~'*~
M M*d' - * ; W* -
15 t
k}and on the basis of that testimony na think a large portion
}
t i
} of your cross-exa:aination wculd be in ordor, beaed on that
.,- ni i
1 testitony, and if you trant further clarification as a result 3
I I of your discovery, no see no ressen uhy you should not have
. 3 i1. the opportunity to have those witnesses recalled, aad 3fespeciallyifMr.Russellwouldproceedfirstwithhis 4
4
.;; company witncases.
4 I
aj I agree that as far as the rate of return i
4 0
- j uitnesses and other specialized expert witnesses your l
3 j position may be correct.
But as to the company witnesses, f
s i
,Ii I think we should preceed at least partially with whatever l
J s
i
, # cross-axauination would be warranted by that testimony.
f m1 i
i I don't think ua should wait.
I am not going g g3
.1 g.j to Malt until the discovery period is over before we initiate; a
1
- .4 testimony in this proceeding.
~~ !
2 F2. RU3S.:7_L :
Could I cake a suggestion?
,2 I have no quarrel with reducing the four-week period seasuhs.t.
i'
,i to start hearings.
I think at least several weeks uculd be J
1
. c..i helpful because one of the other itats we were going to l
i
.,i suggest is that us have as many informal conferencea as can 1
j be scheduled profitably to provide factual data that the g
-3 i parties. ant that would obviate the necessity for intar-t i
-.)
rogatories or data requests, and whica icu.a.d eliminata the i
necessity of cross-excnination solely uith respect to g
deteruining factual mittar.
- .ta 'GIA C** 1 W O O H O L. *.?!". ~ U 1 **S C*M~ U*'
' V ~h ~ D MC E. *'*-
WM-~~~**'~
J
16 i
1 So I would think that several weaks would be l
t g
0 a helpful to get that precess, as well as succe of the for=al G
i j
5.4 discovery, out of the way.
1 4.
But I agree with you that the 2Cth of October 3 d is certainly far into the future.
s 6[3 MR. BARASCH:
your Honor, if the Consumar Advocate
? I could throw his two cents in., ue appreciate the company's f
- 3. suggestion of informal discovery and we hope to oblige him n
9 )in that regard.
l 9
1 t
10 j THE ADMIEST3ATIVE IE4 JUDCE:
We would l
1 i
i Iljencourageanyinformaldiscussionsandcollaterationasfar j
i
'2 as seeks ng data that any of the pitrties desire.
I s
t 1.1 )
MR. 3ARASCH:
My concern, Your Honor, from cur 1
l M i experience is that if we start the cross-examination too early s
1 13 we will certainly be able to fill the days with transcript IJip6.ges, but the cross-examination vill become more discovery i
1 I
l 17 j oriented rather than to the point and could be a waste of a
{
i l
i
'3jlot of people:3 time in the sense that it could be dealt with,
i a
i I
l 19imoreefficientlyalongthelinesofwhatMr.??.ntiwhadto i
i K(say.
l 2 ;!
I would offer that from cur prelimine.ry review i
";;. ; of tha list of witnesses that there are two uf tnesses tnat J
j
'3 j perhaps we could be in good position to ts.ks care of before
, s
..:the 20th, Eut I don't know how much bafore tha 2Cth because I l
U lt wculd depend upon what we can work out in the way of
M'MJAT# C 81 AE3MN'.e D E
- U
- N=
EN" *
- IY
' ~
' O
. c
- e..
. ; discovery.
These would be Mr. Garland and Mr. Cherry, they 4
e 3
would appear to be witnesses that could be taken up relativel-
.,)earlyintheprocacding.
~
i, 3j
! uould also,just throw out for the sake of i
l
..-jargumentthatperhapswecouldstipulatetooriginalcoat
}
?
l in this case nad da away with the need to go through a lot l
1 i
,.3,of cross-e.xcmination on trended figures and whatnot.
j
~.
t'
- l THE ADMINISTRATTIE LAW JUDGE
If ;on can i
3 1
, i stitulate a lot more in this case ne could conclude it in t
3 e... i, accordance with Mr. McClaren's requent for it to be expeditedf a
t MR. uARASCH:
I mention the cria;inal cost
..a I
}matterbecauseitissomethingthathasbeenstipulatedto I
.e.,
in other rate prcceedings r:cently.
1 4,
THE ADMINISTRATIVE Laid J1DGE:
v?he.t is the
., ~,
. ; position of counsel as to tying in these two rate cases as l
2 t
to the hearing titte within each weak?
4 MR. EURGRAFF:
Frc; our discussione es.rlier 4
' I believe Mr. F.cssell he.s a point
'.s to any tastimony or 2-?
t l cross-excmination on cc con areas.
t Resever, when one starts to get into acn-
~;
it cor.cen cr-2as between the companies twould seam to ce we W:uld m
I:orhaps have tha sane witness available back to back ene i
day to the ns.xt day, de one coupany one day, one cocpan:.'
the caxt day, that i::isht be a : ay of a.ppros:hing ib.
.B I sculd hesitate to try.snd cross one sentlecah aa m.2: :,. 3w.. me.
- 7 ::. : cr.:. =w
- m. - m sa m. m-
-n
.... = =
a 18 c--
,i
- i in n.on-comcon areas with tuo companies at the same time.
l 1
1 0
- j1aoa'ttaiaxtas*o=1a1eeato vroeuetive recera at 11-g, )
THE ADMINISTRATIVE LAll JUDGE:
Mr. Russell, 4
4 j do you have any comment on that?
3l MR. RUSSELL:
The question is scheduling of I
S I
6 hearing dates for the respective companies in a given Heek?
nf THE ADMINISTRATIVE LAW JUDGE:
That is what 1
i 3j I am concerned about.
There are only so tany days in the j
i i
pjweek.
What is your suggestion as to treatment of these both,
4 gg cases at the same time?
MR. RUSSELL:
Well, is it your desire to have
.u.
l hearings every week?
.;.3 3
1 u
THE ADMI?CS TRAE LAIT JUDGE:
We are going to have to.
I thought we would be confrontedi 4
i g j with that necessity.
So are there any alternatives other p{thaneneormoredaysforonecc=panyinoneweekandone t
- 3 j or more days for the other company in the sans week, or, in l
i
.y. the alternative, hearings for Met-Ed one week 3.nd Penelec
., the next week?
Are those the two alternatives we arc dis-4 11 cussing?
n THE ADMIHISTRATIVE LM7 TODGE:
That is what
~s;
.,i_
- 3 3 I threu out here a fan cements ago. yes.
What does Cc mission Q
staff feel as to whether we should have alternata we.e'is for 9
jg; the two cases or have a couple days in one and a couple days {
s j
? Q:C.3 A 3'*:
.4 ./.'".S - EM L. II10. ~ SY 1 b EOOl'k *T I E?I* ~ IAM EI'D'IO* N#**
I7I#3
19
+
- J in the same week?
.h I f, liR. McCLAKEN:
I think, Your Hcnor, it is i
? j difficult to anticipate, but it appears thst alternative
?
A days within the aans week has the most promise of saving time, 1
3j If we he.'re a witness on a particular subject 4
o 0 j from the company that week, the;- can be present that week j
k
?O for both companies on separate days,.ind try to mesh the
,i
- a. ej cross-examination.
i
,f 9"-
I really thinit it is going to be difficult ta
'.Oi do no catter what.
i i
'l !
THE ADMINISTRAny;c, LAW JUDGE:
Let's take a
?t 13'f10-minatarececa, a e.
u (Short recess. )
j 1:
4 i
~. l 9 THE ADMINISTRATIVE M T TJUGE:
We vill initially set dates for the hearing in this proceedics on I
t 7j Getobar 27, 28 and 29 and on novetioer 12,13 and 14.
1
\\
l
'.2 j The other dates I tentioned vill carry over 1
~ ? j to this af ternoon's proceeding.
t 4
4
,0]
Is there anything further?
l P.:
NH. BA?J.SCH:
Ye, Your Ecnor, on a related r]
.M. tter.
In W.aw of what Wa have bean talking a'cout off tha a
racerd in terms of scheduling all thase hearings, c/
~*
cbservation is that perhaps - I don't want to create an g
T undue burden for the actuany - but perhaps we could callspse.
- m a.,.:, -. nn: =.
.r : u nv:.c. w :
.x - -w.:v:=.v.,:.
wm-
.u; 2
20 I
i 1 j the time period for objectin.g to interrogatories and respond- !
2 i ing to interrogatories, since Your Honor has already indicated.
1 0
3 g that if there is a' need for a further extension that would E
be considered.
3y My own experience -- and if Mr. Russell does 4
4 Jl not agree I hope he.till clarify it -- is that basically you 7
generally have interrogatories that are not that difficult A
a 3j to compile which can be answered readily quickly, and then a
i
?jsomethattakesometime.
The ones that take some time can i
10 l be dealt rith thrcugh extensions, if necessary.
l l
s 21 ?
My auggestion would be five working days for 12 ' objectiDd to interrogatories and 10 working days for respond-;
l
(]
13 [ ing, and if it is inappropriate or i=possible to respond, f
.i M i then have there be a means of getting sore time, rather than i a
I
!.Sjgiving20daysandthenendingupbeinglessable;cusethel 4
i
6-,
avs.11able ti=e between now and the first day of r.arings to 4
J t? j pr, pure your case and linit the scope of cross.
.i 10,f THE ADMIIII.STRATIVE LAW JUDGE:
Mr. Russell, l
- 25) do you have any objections to th0.t?
1
< 0 !i liR. RUSSELL:
Yes, I do.
It is a suggestion
. that can be made very nicely by somebody who does not bear
?.;[, the burden of respondin
'? !nterroEatories.
o i
75 d Eut on behalf of the Respondent, when you j
't
. lock c.t the dozens that have alread:y been ecning in here, J
~. 3 w2 got the things, try to ano,17se which witness is going to f
5 E
w m eu e ur,euu
.m. - = v. tc= =:m =*
- n. - mn:nm.
s-s :n
21
=
i
- ! respond to them, whether the rattare can be responded to f
I
- };fithinareasonabletimeornot,whethertheareasaresubjectg I
.t.. areas that really a not the Respondent's ecse and the
.i s
2 g
I Respondent does not have any obligation i:o Ocmply with the 3
requesta, and u.:erefore make ob;Jections.
er
-1 a.
<3 j I think the tima frame that hcs been ae by i
j a
i
<; ; Your Honor is a tight one as it is and I think this other j
i 3j suggestica :could juct amplify the need for applications for e
i p 1 e:ttensions, et cetera.
i 4
)
4 a
10 j THE.WEESTRATIVE LW JUDGE:
Well, ne have l
t 2
.t
.q.,i some other preliminar'f catters in ccnnection with the complaiht 3
}
n j that we have to give counsel time to take care of, and ue are i
12}goingtoletthematterremainasitwas.
I
- .,; l Any other suggestions or questicas in this i
'! =atter?
1 i
y.
IIR. 2AF.ASCH:
Your Honor, there is one r
.v. 9... natter I uculd bring to your attention, which is that our 7
1 g ' office -- and I assume the Cocuission ac well -- is probably !
i
)
- 1 in receipt of several hundred requesta from mcabers of the 1
- ,; pu'olic regarding scheduling of hearing
- -- I au not sure 3; ' uhat acrt of hearings -- in York and in Reading, and I don't '
' knou whether we have to deal with that in terns of the dates a.-
.3 ' thct have been scheduled so far.
THE ADIGILSTRATIVE LAW JUDGE:
Youaretalking.g about ?cnnsylvania. Electric.
o.;
.ww a w.w.tu = e. - sr n. wouviu:.n vc - uww.wa.
r>.
nc
~aa i
l 2'
MR. S RASCH:
No, I was talking a~ocat 5
s 2)MetropolitanEdison,YourHonor.
1 4
3i THE ADMI?TISTRATIVE LAW JUDGE:
Metropolitan 4
'.j Edicen in Reading?
i')
MR. EARASCH:
Rerding and York, Your Honor.
o!
THE ADMINIUTRATIVE MW J1FJGE:
I think we 4
l 7
he.ve receivea 'equests for York.
l s
S{
MR. BARASCH:
I just more note that for the
[
i 9 ; record than anything else.
s
'C 1 THE ADMINISTRATIVE LAW JUDGE:
We will i
4 t
.U / consider that aspect, not so much in Met-Ed an in Pennsylvania 1
12, Elcetric.
?ennsylvania Electric rent all the way froa 2rie J
.,1 m
(Q
<a ; down to Johnstown to the Scranton area.
There we probably J
'4 i trill have to = ale a little sweep of cete of those areas, 13 But we cannot vary thoss areas as much ac we l h
15i previcusly would because of the curtailment in expenses that'
'l T -l the Cornission is subject to at the present ti:ae.
j i
i3i But we will consider feading and York.
2 I
19 1 Mr. Russell, do.fou have any suggestiona as i
?in to those areas?
- 5 MR. RUSSEL:
I uculd say so far as the i
I i
~
J. 2 < Respondent is concerned it has no problem inhaving her. rings i
in those areas if the Corr!.ssion can work it out.
It W.11 O
cive veov1e in those are== an orrortunitz to de weerd =nd :
f
^3 thinh ' tent come of their feelings, and if it is possible, ww-
..=u:
- m. - a x.
eer:c. on mx.
< =mw>m. n mn
?
2 >s
.I,
.I there is no probles as far as the Respondent is concerned.
^
1 4
2)
If it is not poasible --
g
\\
.5 '
THE ADMIITI5IRATTIE LNi JUDGE:
We will take i
1 4 j this under concideration as to subsequent hearing dates.
I
-1 1
.3], Is there anything further?
1 33 MR. RUSSELL:
Items for the prehearing l
af 77 conference?
2 c
9j IHE ADIEiISTEATIVE I.AW JUDGE:
Yes.
l 1
i 3i MR. RUSS h :
aet-Ed he.3 already marked for i
I'2 I identifice. tion a great body of its initial testimony and o
f l' i exhibits.
Would you want un to --
1 J
15 j THE ADHINISTRATIVE LAW JUDGE:
I think ycu s
13 have a couple that yea presented here this morning.
2.6 Mt. RUSSEL:
Tes, I ut.a going to say,, could
..;i we ark those for identificatien?
.i 3$
THE ADMIEISTRATIVE I AW JiDGE:
Yes.
s 5
1
^j MR. RUE 3ZLL:
We ha.ve hr.nded the reporter e
i 10 i thre2 copies of dccuments which we ask i:o have c.arited for i
,s 9
identification ar Met-Ed Exhibit E-21-2 and E-25; and elac 4
d N
wa have cubsitted a corrected enhibit, D-1.
The D-1 y
T' ] originally Outritted Jas in error and had nothing to do I
i with Mr. Seligson's testimony, and this is the corrected e
i i
- p_i, THE ADMIliISTRAI'IVE EAU JUDGE:
'Ter/ well,
,g ii those will 'oa a:arked.
w:-s. - -
- m... me. - r..u cen..: -
r.-
mu:uac. n
,u: -
gh i
1
- j (Met-Ed Exhibit E-21-2, document entitled 1
Petition For Second Amendnent of Securitica j
g(-)w
..j Certificate, was produced and marked for j
'j identification.
'31 Met-Ed Exhibit E-25, letter dated September j
4
,f, !
12, 1980 to Chair:an Susan M. Shanaman from
}
Floyd J. Smith,.rith attachments, was produced 3j and marked for identification.
J 1
g Met.-Ed E :hibit D-1, latter dated April 20, 1979 to Mr. William o. Kuhns, was produced l
wi and marked for identification.)
l d
4 4
4 7}
MR. RUSSELL:
I bring to the attention of the 4
_4n.j parties that the Rider D which is attached to Exhibit E-25 l
.3 i
.; has been filed by Respondent in the normal fashion in which 4 /.
33 j a tariff change is filed, namely, to become effective on
()
) 60 days notice, which neuld make it effective November 14.
l q.
l
- .; E It has been filed with the Commission in that form.
j The Respondent has also filed with the i
- n
\\
I 1
t
,~4, Commission a request for permissica to file thic exhibit a
1 y,,jtobecomeeffectiveonlessthan60daysnotics.
3j So the two alternatiies are before the
{
1 I
,,7jCcamission,thenorec160-daynoticefilingandwiththa j
gg request-to becomo effective in less than 60 days notice.
1 i
THE ADMITi.STRATP/E LAFT JUDGE:
Very wc11.
..u -
'l MR. RUSSELL:
With respect to the distribution!
,.3
.i
.i of the testimony and exhibits from this point forward, if pasd
' n*
()
histcry is any indication, th~ere will 'ce a number of persons i
~
- g, who file conplaints and then never appear t any proceeding. !
1J r,: ce + e 4 1 m 4 u ta:=. - :: et. t.oce.%t.*w.- n. - u meet;.rt, n.
171tc.
l
25 2
THE ADMINISTRATIVE LAW JUDGE:
I previously f
..; stated that all exhibits or all writings or data submissions e
i;
.:1 were to be served upon all theF.ctive parties and upon other
<1 4
I
,1
,m rties i
.4 I
a!
LE. RUSSELL:
I as corry, upon request --
i 1
THE ADMINISTRATTIE LAW JUDGE:
Upon request.
~.I i.
3 MR. RUSSELL:
All right, fine.
A tatter of n
y J
,7 j infor~a. tion.
Respondent will be distributing this morning s 4 copies of responses to various of the staff rate structure I,
- t j
.j interrogatories.
We arc not taking thes exhibits. but we l
< are just advising Your Honor that we Will distribute them.
..s 3.:
i x,, 3 THE ADMINISTRATIVE LAW JUtGE:
You can respond) f i
..,.d If the other parties desire to file them as exhibits, cark
~~ l
- h
,.~ j them and file them as exhi~oits, that will be their res;.,onsibility.
1
,4 MR. RUSSI '.,:
I believe that is all that we
?
-L' q
J
,, ' have.
l i
I
... l HR. McCLAREN:
Your Honor,tfith respect to
.\\ ;
I l
stipulations, may we have an off-the-record discussion?
i 4
,i.
Tr'E ADMINIST]ATIVE LAW JUDGE:
Yss.
l l
,,- J (Discussion off the record.)
i
..a, 1
i MR. McCLARDI:
Based on our off-the-record
.)
1.
4 discussion, Your Ecnor, the strff would propose a stipuistion.
i to the effect that Metropolitan 2dison Companf s rate base in this rata proceeding be deteninsd cn an original cost j
O l
basis.
., y
. :. e ; >a s s t ' -
UWAL. IN C. - 07 TJ. " 0 %%" k 3'.'
S - ' '3tEO * *% E S-III72
S5 3
1 THE ADMINISTRATIVE LAW JUDGE:
Will the other l
1...
l 3
parties express their consent or disagraene!:t with that
. istipulation?
i 4]
MR. EARA3CH:
I neuld just =cdify it to say adthe point being that the fair value would be assumed to be
-il
.:)originalcost.
4 1
7}
MR. McCIAREN:
I would agree with that.
y
.a.5 THE ADMINISTRATIVE LW JUrGE:
Mr. Russell?
l
~>
4 i
o" MR. RUSSELL:
We have no objection in proceed :
-t 1
10 ) ing with an originc1 cost rate base, j
I v
~~ l THE ADMINISTRATIVE LAW JUDGE:
Very well.
l g
Will the other parties make an e:tprescion on the record?
13 MR ECRRIS:
I have no ob;fection, sir, f, }
HR. GORNI5H:
I have no objaction, sir.
a, i
f
- }
NR. W.ATER:
I agree to the stipulation.
l 4
26.;,
MR. JENISON:
No obfection, Your Honor.
i 6
- y THE ADMIESTRATIVE LAU JUDGE:
Itappsarsthen!
i 43 j that there are no objections to that stipulation and we will i i
..p J proceed en that basis, Mr. McClaren.
j 7
I j
Ucw is there anything further?
[
g Ii t
y.
(no response.)
1
,, j THE OMINISTRATDi2 LAW JUDGE:
Very well, we
[
. ~..
1 1
i 33 will nou adjourn in this proceeding t-ith the understanding t
that
?. preceeding in cennection with this rate prcceeding pJ
,g ] is to ha heard between 1:CC and 2:C0 0: clock.
(The hearing recessed at 11:140 o' clock a.c.
l
.:.mc. a > u m :u n c. - n n. u a anu.r:.. - n.r~um:na. g.s) rma
27 4
l 1j Before l
2' THE PENNSYLVAHIA PUBLIC UTILITY COMIESSION 1
5i
--oCo-~
1
<+jIn re:
.R-80051196. etc. - Pennsylvania Public Utilitv
?
Commission, et al. vs. Metropolitan Edisen 3
Company.
Investigation into e, requested $76.5 million annual rate increase.
53
'i Hearing.
7<
3 :j
--oCo--
lj Stenographic report of hearing held in 9
Hearing Room No. 1, North Office Building, Harrisburg, Pennsylvania, lo i l
- Monday, nj September 22, 1980
- l at 1:15 o' clock p.m.
J.e,1 l
ij
--oCo--
13 "
JCSEPH P. MATUSCHAK, ADMINISTRAT_r/E LAW JUDGE h
--c00--
Ta )
) SE70P2:
15 ii SUSAN M. SHANAMAU, Chairman
^5 ]
LINDA TALIAFERRO, Commissioner MICHAEL JOHNS 0?i, Com:nissioner
'? i JAMES CAWLEY, Commis sioner 10,' APPEARANCE 3:
19 :
RYAli, RUSEELL & McCONAGHEY l
1 330 Penn Square Center 20d P. O. Box 699 Reading, Pennsylvania 19603 21 By:
SAMUEL B. RUSS.5T.J.,, ESQUIPS t
W. EDWIN CGDEU, ESQUIRE 23 1 ALAN IECHAEL SELTZER, ESQUIRE 1
For - Metropolitan Edison Ccapany 7:
[
1
"~
s.,
t
'C : '* :",.). C H * ! P. "t S P A L. I.' C. - 07 Pli LOCKW:Lk?W A VC. ~ MATtNt33U3G, PA.
t?'ti
[
i 23 1
1fAPPEARANCES:
(Continued) l O
i 23 STEVEN A. McCLAREN, ESQUIRE f
Deputy Chief Counsel 3f EDWARD MUNCE, ESQUIRE J
Assistant Ccunsel 4!
B0HDAN R. PANKIW ESQUIRE 3
)
P. O. Box 3265 5l Harrisburg, Pennsylvania
- 120
}
For - Cocunission Trial Staff 0!
)
DAVID BARaSCH, ESQUIRE 7
CPAIG BURGRAFF, ESQUIPI ASHLEY SCHANNAUER, ESQUIRE O
1425 Strauberry Square 9]
Harrisburg, ?ennsylvania 17013 i
5 For - Office of Consumer Advoca3e 10 -
DECHERT, PRICE & RHOADS
[
800 North Third Street l
11 l Harrisburg, Pennsylvania 17102 l
l By:
GARY L. JAMES, ESQUIRE 1
o l
'10 For - Bethlehem Steel l
O ut u=u=ES, n aACE & NuaIC=
l l
q P. O. Eox 1166 14 1 Harrisburg, Pennsylvania 17108 l
j By:
MAURICE A. FRATER, ESQUIRE i
1 15 '
For - St. Regis Paper Company i
}
GERALD GORRIGE, ESQUIRE 16 d; 12th 71cor, Packard Eu11 ding l!
Philadelphia, Pennsylvania 19102 I? !l For - Citibank, N.A.. Agent and j
Chemical Eank, Co-Agent 18 :]
E0BERT JUDE JENISON 19 R. D. #1, Eox S80-6 ji Wellsville, Pennsylvania 17365 20 i For - Pro se
~
a 3
al) l1 22 1 i
ui i
\\
}
190 4
J, i
l 0
a: - He5m 3 P^-
- m 2 --
exe. vex s.v.usuu me. - a et l
l
29 t
i t
i J. ]
--oco.
2 AFTERECCH SESSICH Nh 1
1 31
--oco--
4 43 (The hearing resumed at 1:15 o ' clock e.a. )
l n<
s i.
ZHE.iLi!INISTRAT'VE LAW JUDGE:
This is the time C4 i and c lace s et for the further hearing u.,
the reatter of the 5%
. Pennsylvania Public Utility Commission versus Me tropolita n 1
a1
- a
, -l Edis on Company at Docket No. R-60051196.
w1 Under date of Septen.* er 18 the Ccm=ission had l o
., 4, t
1 j issued a prehearing statement snd orcer, the order reading as4 i
.,.)follows:
2 l
mj 1.
That Metrocolitan Edison Company cease and '
1
-- 4
) desist frcm using any onerating revenues for uninsured clean-f
- -. s 3
,up and re3coration cost.
i 1
As 2.
That the ;ie trorolitan Edis on OcTma n;-
i f
cresent evidence during the courte o f the rate investigation l
. /4 2 that R-80051196 showing precisely how it has s.ent the
! 3 ".
] revenues it has collected oursuant to our Mr.y 23, 1980 crier 5,-
o
- at I79ChC308 uherein we permitted a 7.4 mill kilowatt hour
'O !
t t
surcharge for the recovery of the deferred energy balance.
F.,
j 3
That the Metroaclitan Edison Cecr.any b i* i
.' orovide evidence in the ccurse cf the rs.te investige. tion at j
'R-80051196 identiryins the anounts disbursed for the aca-
!h
^;s:
ine ured clean-up ana rea ccra tion ecs ts s.b the Three :lile Islan5
~:
~
I
- o m.... _
rv..m
- -- = o m.u.o w
- n. - se rov a s..'.. n:r i
l
. _.. _ =
30
- 1. - -
- 3lfacilitysinceMay 28, 1979 to date and the anticioated 2 3 expenses for such purposes for the next three years.
3 i
4.
Tnat Metropolitan Edison Company identify.
35 f
4, durirt; the course of the rate investigation at R-8005119o s
9 3 l precisely,ne source of the revenues it has utilized for the 1
6 clean-up of the Three Mile Island facilities since June 19, 4
l 7
1979 and precisely the source of the revenues it intends to 9,
utilize to clean uo and restore the facilities during 1981.
9 5.
'Ihat Metropolitan Edison comuany and the J
10 Commission's Trial Staff is directed, and all other oarties 1
l g3latR-80051196 are requested to resoond with suecific J
33 i infornation regarding the impact on their coerations of the 4
9.
)
1,3,. Metrocclitan Edison Ocmpany's crocosed service cutbac!ts a
f.
- 4,f indicated in the September 12, 1990 letter and recommend i,
...-);s aporcuriate action.
i 4.
- d h Mr. Russell?
i 1
p4 HR. RUSSELL:
If Your Honor please, there are,
2 1
l
- g 'l several asuects of the September 18 crder which are of i
19 ; concern to us, and I think wt would like to-take this
- I 20foccasion, if it is cermissible, to inform the Commission as I
t 31" to seme of the oroblens we see associated with the order.
f It is my understanding thst if a nything is l
33 i
I 33; to be to identified, it is the desire that it'be in the formj cf sworn tes timony to go into. the reccrd, and if that is the !
)
j i
I case, we would prcocsa to address, first of all, the first l
g!
2
')
-o:m,a, n:asm. ms - a n.
cca :.w.rv v:=. - uamwac. :..u mm i
l l
..i
3 11 r..a_c_~..C. _le c '.c..IIc__t a v. - d i r e e b
't 1 n t 1
2 item of the ordar, namel, che cease and desist g
7,! section, and identify, as we are bes t able' c in this cha rt
. notice, :he problems chat we see associated with cea.-11ance 9
--x with that section of the crier.
9
.e ',
THE.AR4HISTiiATIVE LAW JUD3E:
You ma..r cres ent,I s
y t
9 4 any evidence you desire which will be a matter of record.
a 4
3j MR. RUSSELL:
All right, considerin::; the fact j i
m1. that it is a very brcad and comolex issue coverin:; uninsured !
4 j cisan-u; and restcration in the aggregate, wa had crocosed t
J r
,4 to have Mr. Arnold testify, and with him Eiessrs. Clark and
.s s a.
J Hovey rhc can rerhaos fill in sone of the scecific details I
-a wj I
A in thair carticular areas of excertise and cesconsibility.
.a. c 1 i
k D
-fr ;,
So I call Messrs. Arnold, Clark s:'.d Hovey.
.e i
ROBERT C. ARNOLD 5
FMILIP OT.ARX n
A GALE HOVEY> called as witnesses on behalf of 4.,
.a
- p l htrarolitan Ediscn Ccm any, having been duly sworn according; i
o law, iere examined and testified as fcilows:
I
~
a m.,,,,, p
..our denor, 4,: i con,te nat.e a u
a rm.. :
t comment 2.0 this.Nnc t ur e, we are in receict this acrnir4 of 13th order.cf the Ccccission which cente. ins the the SauteM ar
. 2.i five orderins:: caragrarbs you referred cc, and while the t
- *~. L f C:~ T. ~.W M 9P'J**G. ""."
W
- 1..
- w. e.3.c : 1 Mir.cHAL.*v<*
.- ~ -
~
___,.._,A r ne Id-Cla r k-Ec Vey-d ir e c t 32 a
i
)
} Consumer Advocate believes all r. hose matters are very i
i 2
/~g 3
i
(,j
- gimportantmattersthatYourHonorshould look at and the t
3l Commission should consider in the trial of this case, we are 1 I
i I
e3fatalittlebitofa1cssastobeingat any resconcive 5e posture to direct testimony when we basically have had about i
Y S.1 an hour's notice or an hour and a half's notice of the fact 7 j we were going to be taking testi=ony here on these issues.
s i
3)
We had read those ordering raragrachs and I
9-assumed these matters would be incorporated.into c'he regular i
e s
i 20 ; trial of this case at which time we would have an entertunity!
1' gg ) to evaluate the testimony and resrond in sorce coherent i
t 4
13 ;
f ashio n.
13 I don't know what intelligent examination 3
y,.3 1 could possibly be done of these witnesses or intercosition j
7,5 3 of objections if scme of this testimony is inapprocriate.
/
3
- 31 THE ADMINISTRATIVE LAW JUDGE
Youmaydesirel 3
f 1
I s,7 j to file a restonse at any other time.
Let's get to the meat y;
of tha thing and see what the connany has to say first.
19 4 MR. MORRIS:
Your Honor, Mr. Morris, the 1
}
- cj industrial and residential ratecayers would simply like to i
3; )1 take the same costure and reserve any right to cross-i 1
j
- [jexaminationinresponsesincewewerenotawarethatthis
{
1 i
- .jI testimony would be taken today.
"*dE ADM7.NISTRATIVE U.h* JUEGE:
Let*? see what y'
the comoany has to say.
4
- 1wn w: a : mew me. - x r. : onw:v.an n=. - n mmnuna. n. m=
I
kn.al d-C laf.t-Hov ey-dirs e t
==
33 i
t l
?:
?roceed and h,ve each t<itness id e ntified.
I 1
~ k-h 4
i f
3?
DIRECT EXAliINAMCU 1
4 3 3Y 19.. RUSSELL:
}
.5 )
Q Firs t of all, Mr. A rnold., would you state your ;
.1 1
3jnaneand adoress, by whom you are em.-loyed, ind in what l
4 J
,i
'; i cacacity, t
3j A
(Arnold) My name is Robert C. Arnold.
My G
business address is 100 Inte rsrace P Arkway, Farsinuany, New i
i 10 j Jersey.
I am ecoloyed by the GPU Service Corcoration and I
~
11 3
- am also an of ficer of the Metrcoolitan Edison Cemnany and j
i i
?
12 the Jersey Central Power and Light Coacany, i
13 My assignment within the GPU sys tem is as M ]i head of all nuclear activities teithin the r,ystem including i
l
- i
- 3 ', resconsibility for the everall manazement of the Tnree Mile
- I i
'.5 5 Island Unit 2 recovery effort.
l
.J '
Q Mr. Clark, c.cu'ed you orcvide the councercart? '
l l
- C l A
(Clark) My name is Philip Clark.
My business,
I 19 '. address is 100 Interspace Parkway, Parsicoany, New Jersey.
l O '- I e.s employed by the GPU Service Corcoration buc I am also t?
an office of Metrocolitan Edison Ccapany and Jersey Centra'.
Power and Lighc.
~'
'S My :csition la that of Ceuuty to Mr. Arnold,
I Q
?lr. EcVey, could you provide the ccuntercert? !
.',.3 A
(Hovey) My name is C-ale Hovay.
I ac Director '
i
. n w2 2 : n.rm :a =.
e. c = w_:.1:< ei. - :-u.u 4 2 m....,, : n __. -
_m._.__
i A rnaM m 3 ea y.m y nireet 34 i
l' i
1 y of Taree Mile Island-2.
I am remonsible for clean-uu
('
2 4 activities at TMI-2, rencrting do Mr. Arnold.
5 L
z l
3h My business address is Post Office Box 480, i
4 j Middletown, Pennsylvania.
1 3
I am also an officer of Metropolitan Edison D
3
{
5 j and I amj employed by the General Public Utilities Service i
i
?[ Corporation.
]
i 3k Q
Perhaus, Mr. Arncid, we will s
- art of f with c
i 1
i
.t i
9jyou.
Could you give us a general statement as you see it as-10 of this point of the impact which the first caragraph of the 12 September 18th order in this proceeding, namely the cease j
1.3 j and desist order, has uoan the clean-up and restoration i
2 j
131 situation at Three Mile Island?
la A
(Arnold) Yes, sir.
I think it is orobably 4
..3 1 cecessary, in order to provide scoe context for our ccoments i
i l
2d ; this afternoon, to identify what we understand to be the
~
I 17 ; menni.ng of ecme of the language within that order.
i i
3l, Fi.rst of all, it is my assumrtion that tha 4
liijwords,oceratingrevenues,meanallrevenuesfrca i
i 001 Metropolitan Edison Company customers, and that clean-oc and 1
- .i reatcration costs are thoce ccsts associated with any.
o i
n ] activities which atteapt to or are directed toward the clean-j s
9 t.3j up of the c.ontamination that was released within the clant
,1
- .., follotting I
- he accident on Unit 2, ths t restoration costs have!
03: to do with efforts that are extended to orovide for the
~
<answ 1 w wx
,:m. - a v. ueenn we m. - unsv.u. n.
m e.
w-wwe-v-,-er--+---*=--ev,e,w, w + v +
-nm -w rw
-eww+--t-+vs.-e-+rv+
w w-v www+ww ermr-ev----verr-'e--r--.ee*
we--,-
- w w,--
3 emvw--+ - -, -
w-
ev-
,-'r--w--
-*+e
- w e
A cr o l.3_.0. lar 4. ik._'. =.f...D i. t e.t-i'5 l-i
.'..' eventual return to service of the Liic scacifically.
..I t
O$
I woula like tc tee just a coucle of ninutes h 1
i s 'l and talk about how we gener.lly categorize our activities.
4 I
e i
e
'Je would ace then fal;in,e into four general t.
~
. categories, with the distinction sometimes as no which i
I 1
1 4 3 category a particular effort wculd be classified being setae- !
l
.1
.] what arbitrary.
l 2
,1 g
Ij We have activitias s.t Three lille Island that f
i
- i, are equivalent to the normal operaticn and maintenance c ! efforts at an opera ting plant.
Ve have activities thit we consider to be
'- l aaintenance of public health and safe ty and which, because of;
.4 the accident, are over and above those ef forts tha; would be !g A 1 ii! required for rcutine oreration and maintenance, even though
-.; ; in many cases they are essentie.117 +.he cane type of effort, i
i i
4
~ cut the level or the extent of them is lnfluenced by the t's e t that we had an accident at the clanc.
we consider clean-ce activu.iec co,e cnose c
re-that are directed at the / collecticn, the immobilization of 9'
the i'ic31cn products relessed from the cor's oy the accident.
'de conside r res tere. tic:: ecats ;c be che 1
activities th a t a.re direc:ed at nahir.g the 911nt again a'/a3 '.aDle f er se rVic9 End are OVir and SDcV6 the ef' fort 5 CO N.i.GGain it Safe Cr to cleen ic Op.
23 I think chat the najor reason '.;e needed to
- 3:.ic.s. ncv.s. n c. - :- ". :. 3 c ' C. W. '
1't. --
wams. % rim
. =
- =-
A r r.c id -Clar'.. EcVey-dir ec t 96 _.
)
1lhavesomeopportunityforpresentationthisaftarnconisthat.
I T
i 3 j it is very important that we have a correct understanding of b
3 l the Ocamission's intent in prohibiting use of operating 1
j 4j revenues for uninsured clean-up costs, because we are not i
a 3
1 3 ) completely confident that we do have the proper understanding l 4
6 f of what that is intended to do, and we also think it is 7l important to identify that if the interpretation that is to i
3 { be put on that terminology is equivalent to the way which we
-}
N 3 have been using it over the last year and a half, then this
?
10 prchibition would cause us to stop sone activities which we i
11,
believe are required by the Nuclear Regulatory Commission for!
l I
13, us to conduct, and it would also require us to stop other
.1
(])
13 activites which we believe are essential for the icng-term i
1 4 ;t protection of public health and safety.
16 1 I think that it is important for the Commissign i
i fid to realize that because of these uncertainties we have not i
a e
17 ) as yet stcpced any specific activities beyond the amount 1
.J;I which we had indicated in our submittal to the Public Utility; c.9 j Ccomission on September 12th.
I SO j BY THE ADMINISTRATIVE LAW JUDGE:
i r,1 )
Can you take each one cf these items in the j
i 23 j or.?sr and rescond to them?
Are you on number two now?
4 13 '
A (Arnold) Ho, I am still talking on number
()
one, Your Honor, and it is principally number ene that this i
i i
i
.sa panel is intended to address.
i 4
innr:ce, n:2.7sxAs. rt:c. - 2r !!. t.ect.va Low xn. - F.Wisuv?.8. P'--
m W.
.-_.. -._c n.a_l.a...C. l a. a. _- rin..v..w. - d i r e c t_
~17 A
e 1i I wculo lice to clarify or identify that if we '
3
.I lgg 3
were to intercret Item No. 1 of the Cccaission's order on 1
i 3 M cease and desisting frca using ocerating revenues for i
l i
." l' uninsured clean-up and restoration ecsts, we wculd have to i
5{'sccoactiviciesrightnowthatwehaveunderwaythatwethinkj l
a f
1 0j are critical to the long-term health and safety of the aublic,J l
7 3 inasmuch as they would 1acact on the timing of accomolishing
,i-
- } bhe clean-uc.
l i
i 0
l 9i Iiou there are also soms scecifis where wa i
=
1 10 would be immediately put into conflict with Nuclear j
i U.i Regulatory Ccamission orders, and cerhacs one of those wculd ;
t
.12 be worthwhile oroviding as an exacole.
l
..c
' o 'i In the clean-up activities to date one effort !g iW
'4 i was the deccatamination of the water that was collected in i
~
l
- 3) the auxiliary building and fuel handling building in t.he t
' 3 i months af ter the accidecc --
I i
'.7 j Q
The Commission has not asked for any 13 1 exclacation on that.
The Ccamission hcs sp ecifically issued '
19 2 an order to cease and desist the unentendec cuerating l
a e
a
- ' revenues for uninsured clean-uo and ree tcration.
tie would I
s t
5.
li?.a you to reach the ceint of what hts been the company's
'. ?
acci-ities in accordance with Itecs 2, 3, et cetera of the Order, and if you ant tc elabo rate sf t er ths.c MR. RUSSELL:
Well, if Your Hotar. lease --
THE CHA.31AN:
Your Ecccr, if I might terhus
-..: m zs w. a w -u r.m.- r
- == :=:n tn -
- .n nszuns,
m-a n>
A rnold -Clark -Ho't ey-di re c t 28 1
1 make a statement, if it 1.3 all righc dth you, the pur:ose of 3 4 having the meeting today and the cresentation tocay was as 3
t b
3 a a result of the announced service cutbacks made by the l'
I i
4 j company, I believe Friday almost two weeks ago or a week and 3.
a half ago, the 12th.
As the Cccmission then said in its 3 >I September 18th crder, we find any kind of proposed service 3
7 3 cutback to be an extremely important matter, i
G We were not attempting to take anything-i 1
y particularly out of order in the eense of presenting the i
10 :l parties here with any kind of surcrise.
1 4
t 11 l The Commission feels it is important to hear I
1 l
i 4
j 13 j frca you the proposed service cutbacks, and to any extent 13 ;
that the order issued September 18th would imraact upcn what 1
14 i service cutbacks you are intending to implement.
\\
15 ;
It is not the purucse here today to have a 15 3 discussion in the greatest detail of hcw you sre going to
.i i
l
?!
comply er whether or nct you have
- any questiens en the i
i l
i id i Sectember 18th order.
Obviously that can be he.ndled through l t
l
!I* j other more appropriate legal measures.
t RO ;
MR. RUSSELL:
If the Commission pleas e, ;
I al b guess the guidelines with respect to what was to trcnspire i
l i'
32 j this af ternoon have been scmewhat confused in the trans-l UT mission and'so on.
3
- +
! wculd like, if pcssible, to hcVe Mr. Arnold
.13 ;4 finish briefly what he - has in his area, to 2 ring to the I
u W3* 9"1CH & *.iATE.!/.*
503. ~ 0" % I.944*.'A* W AVL ~ '4E3:38 t!UG. "%
- Tita
~
A rno ld -Clar r.-Mc V ey-d ir ec t 39
=
h 1
I attention of the Ccenission the very serioua problems that i
Met-Ed and the other co-owners of 'fii? are confronted with in (g) 3 1
3 j this order, and in the light of that, I think to make an t
.,t
- aopropriate motion, or if ycu want it in writing we can file
-1 0g it in writing, with resoect to either the stay, the
$aj clarification, tP ' amendment, or possible rescission of the 4
7j cease and desist portien of the order, because it has some i
5 very sericus ramifications associated with it.
4 I
dl THE CHAIRMAN:
'de ll that, as you recognize, 3
4 10 I
.3 mos t properly handled in some so-t of written form.
I Li j NR. RUSSELL:
May we have just a few core
.I i
13 j minutes to have Mr. Arnold finish up the identification of j
1
,,4
's one or two of the items which makes this cease and desist gg 2
14 4 portion of the order iacessible to live with without I
l 1; l violating some provision of state or federal law?
I M;
THE ACCNISTRATIVE TEJ JUEGE:
t/ccy shortly.
l 27 ' BY MR. RUSSELL:
f.
iC i Q
All right, would ycu finish the e xample?
- d A
(A rnold) Perhaps not croviding a full i
)
N3 explanation as to the specifics of it, we were ordered by j
1 i
E' the Haclear Regulatory Ccamissica, in con. junction with the L'.
use of the Epicore II systeu in the clean-uo of that l
au::Lliary bull.dicg crder to solidity i:ha resin materials that
^
us used in the ecurse cf that claan-up.
gg 2'
The sclidificacion requires enginaering and i
- !OM.1 S?. 3?C
- l t A 4 W.8 b. U18' ~ *7 kOCIN *lk'- Y " " Y I' ~ I U ** I"'f 5'J 7 0* *
- 171 *E'
A rnold-Cla ck-Hova v-direc t 40
)
i 1
1jdevelopmentworkwhichisnotcoveredbyinsuranceaswe
("T 2)i currently would understand the position of the insurance i
(,j 3 l carriers, and therefore we would have to stop that effort 1
4 i as we would understand Iten 1 and that would be in dirset 3 3 violation of the NRC's order to proceed expediticusly with i
-D that solidification.
~.
^$
Y That specific example carries thrcugh q
1 at essentially all of the efforts hat we have at Three Mile i
I a
Island directed toward clean-co, and that is, that the i
IO j engineering portions of the work which must be done in order j l
11,
to provide the Nuclear Regulatoy Commission with the 13 information upon which they can make decisions is act
(])
13 covered by insurance, and we are concerned as to whether the 14 [ intent is to stop all that work.
.4 0
13 j The imolication of it might be, for examnle, 1
id, thau the Bechtel Corporatica that we have brought octo the i
4 4
l 17 4 site and is under contract tc assist in this effort would l
4 i
i
!Ol have to be concletely demobilizad, and that total effort i
1 l
19 I stopoed, because it is all in the nature of work which is i
i i
'i i
00.; very likely not covered by insurance.
i
'j A specific = %rcle woulc be the saucort of il the Nuclear Regulatory Commission's effort to finalize the M i pregranmatic environmental incact sta. tenent which is ist 2ad I
i
[)
't~
in draft form for comment.
i j
M THE ADMIN 2STMT17E LAN JUDGE:
I think it 5
mnw< z ::.~.
=c.
n::. - e u. mz ::zt.n ms. - wnnwwm. v.
w:n
41 A r n_.o..l_?. -C l_a__r x..H_av e. y-d i re c t - - - -.
=.
,?
, 4.
j would be core appropriace for the ecmpany to responc to that ti
,8 4]inwritingandreciteallthedifficultiesofceecingthat gg f
.I b E portion of the order.
Will foc er.pand now on the other 4,
i 4
6 3 portion of the crder?
j i
-y i
e]
MR. RUSSELL:
The first one is the only one i
I s
9 l
C3 these witnesses are cresented to rescond to.
If I may have t'
a, 7 f, just one further question of Mr. Arnold.
cN l
"1 3Y MR. RUSSELL:
l I
2r j
Q Mr. Arnold, de Met-Ed and the other owners f
,. q of Three Mile Island have uresently outstanding and uncaid i
~
i e
I 11 ; any 'oills with respect to costs that are uninsured clean-up i
,i
,i sn*j or restoration costs?
t, i
s
.-2 3
A (Arnold) Yes, sir,
'.2 do.
A3 4
s 24 MR. RUSSELL:
I guess that is all we have.
f i
23 ;
liR. McCLAREN:
Your Honor. I would like to u' suggest soceching at this tcir.
related to che subjsec area.
4 It occurs to the staff that the Comreissica's t
t 1
~
l I
'A ' order was not without intent to cease scme operations et
'3 Three Liile Island Unit No. 2 and that it was fores eeable
~C that that night bring this coroany into non-ccarliarce trith its operating license.
J In order for the 'Jonsission to croc.erly l
'l consider that macter I thini. we should hav, from the ecmnany
, a detailed statement in writing of what scacific actions it il feels it uill have to cease ar.d t; hat acasequences it sees,
1 1
- a;c:::.rt : t c s n A*.. m:. ~ ". 3 M- * ;7
'n ~
'M'm%
P'-
'W-
- - ^
t
A rnold-Clark-Hovey-direc t.
42 2
d E#i so that the Commission will then be able to determine 1:
()
9 exactly what it is it has required of the company and 1
3 [ whether there is merit to the company's request to be 71 4 j relieved of some of the requirements.
3 But until we know the scecific actions, we i
63 have at best conjecture.
,E 7l THE ADMINISTRATIVE LAW JUEGE:
That is what "5
m:
'l I just said.
We think tha.t would be more appropriate to 1
4 i
9 respond in writing as to the effect the difficulty has in J
EO] meeting that requirement.
j El.
Now, Mr. Russell, do you have scmeone to 21 testify as to the provisions of Item 2 in the order?
1
- k MR. RUSSELL
May we have just a second?
Thej
(~]s
)
s-E4j Eespondent calls Mr. F. J. Smith.
13 j 2
{
10 }
FLOYD J. SMITH, called as a witness en
,i 1/.4 behalf of Metropolitan Edison Ccmpany, having been duly i
i 13 j sworn according to law, was examined and testified as a
03 j follows:
l
%eI I
i l
1 i
517 4 DIRECT EXAMINATION It ! BY MR. RUSSELL:-
t i
i l
- 3 >;
Q Will you state your name and acdress please?,
1 i
1 i
i l
'il A
I am Floyd J. Smith.
My business address is
}
' 3,'
100 Parkway Boulevard in Parsippany, New Jersey.
j mum :. :=ca.. we.
.-x wm
-w.r um. - w.mm. ?.. :m, a
l l
l
[
Smith-direct 43 ii
?j Q
By whom are ycu ecclcyed and in what capacity?
4 1
A I'm emoloyed by GPU Service Company as a flh 1
1 3jVicePresidentofAdministration,and in addition, hold the j
.i
.i
? i posicion at Met-Ed of Senior Vice President and Resident j
3 Manager.
0 Q
Mr. ' Smith, I show you a document which has L
J I
? j been marked for identification as E-25 Did you sign and i
2 1
transmit that letter to the Cecmission*
i
-t A
Yes, I did.
- j 4
10 $
Q Could you describe brie.'ly, Mr. Smith, the i
i 114 effects of and the status of imclementation of the cutbacks l
1 13=! to which you make reference in this letter, Exhibit E-25?
1 A
I believe the imcacts of the reductions jgg 13.j
.s 91 outlined in that letter were made a part of the attachments 1
i 15 s' to that let te r.
i i
4 1
is j As to the status, let ce step back to the l'! ' oeriod when we were in hearing for the emergency or interim
+
13 l rate relief.
At that time iien-Ed, coiacident with that i
i lEl' filing, obviously made alternative nlans in the event the j
1 n
.w~ y filing was successful or unsuccessful.
'il !
Unfortunately, the effort being unsuccessful, j i
12. we then ismediately out into creration certain of these i
33 plans, all of which are cutlined in the Sectamber 12th letter and reiterated in the OcInissionic crder of Sauteuber gg
^d { 13, namely, the reduction cf its ccal inventories, 2
.:.m ateu 3 un aa.c - :=. - 27 s.
c=uv_: ra, we. - m.,n'a en. n :m:
Smith-direct 44
?
i E
instructions have been lasued to begin to reduce its coal
()
3 inventories to a level of 25 days; certain transmission J
3 $ substation construction projects have been slowed or cansed; 4
w l the deferring or the conversion of oil turbines to gas work I
i has also been stoo, ped -~
,1 BY COMMISSIONER JOHNSON:
~
4
,$".s Q
Can you rereat that last?
i I
a O
A The deferment of the conversion of oil turbines 9-to gas operation has been stopred -- I'm sorry -- they have 10 been deferred, not stooned.
The reduction of clanned work i
Eil originally scheduled at Portland and Titus in the spring of i
^~,a l
q 1979 has been put on hold.
4 l
l (])
All of those, I believe, while they will have II A: an impact en service at Met-Ed, do not violate the order to 1
19 ),- the extent that it would of tt gselves provide unacceptable
...i lo i levels of service.
+
il l
17 j The last item, the reduction of its a
I 18 production, administrative and general perscnnel by some 4
19 j 700 jobs was to take place today and it is still awaiting
~>?
l j our instructions to do so.
4 It is my belief that once that has taken AE j ulace, that very definitely within one to two months service-
.e; 3-will deteriorate to new customers.
~
I I do not belle're that we will have a serious
'v, I'
t 3
' deterioration of service to existing customers by that
- ownsAca 2 nne :s. ! r=. - 27 x. t semat w r/L - **
- a P.tr3 w o. ?.-
- 7 tc J
w Tre.
w r se-
+
- - - =
Smith-cirect h5 1i
- iaction.
Until at least the Rider D to our tariff, which was e
1 1:
2)submittedlastweek, is addressed, new customers would not h
4 3 $be denied service, would not be required to come up with up-a i
1 i
n
+yfronttoney, if you will, but because of the lack of work j
3
,? force, would obviously have to stand in line until the
)
J C d appropriate resources, both monetary and physical resources, 4
J 7jmanpewer,areavailable.
I 3"
I believe that is the status to date.
}
7 'f MR. RUSSELL:
I believe that is all se have I
3 4
^0 ;' c f Mr. Smith at this nlme.
i
.t I
-4. BY THE ADCNISTRATIVE IAW JUEGE:
j.
i i
i eA
^4 l Q
Have you reviewed the testitony that was t
1 i
U given in the extraordinary rate orcceeding, Mr. Smith?
M A
Yes, sir, I have.
l
,.i 13 Q
Was it not testified in that ;roceeding chat
.i i
io i if the extraordinary rate relief was not *<rsnted, the i
l.
U personnel would be reduced about 40 duricg the next 12 o j nontha?
Did you review that test 1=cr.y?
I A
A I don't recall the nu=ber 40.
I recall the i
,0j number closer to 1000.
l Q
The testimony of Mr. Dieckau; as to the
~i A'-
1000 I believe indiented that at least seven or eight hundred of that wr.3 te b s f or cles.n-uc cur:os es., wr.s that not true?
Isn * ; that what his r estimet:y said that cut of g
l 0-that 1C00 accroxietitely 700 or SCO vere to be reduced frcm I
. ma:n m,c... :.:. - n
..ser-u.u-x::. - u.nnz :n. n.
- w.
l
_ Smith-direct 4o J
9 3 ) the clean-un eersonnel?
4
(~
4 o
A Sir, I would have to review that testimony.
~
l 3 3 My recollection is that a portion of the number of f
+a1 acoroximately 350 at TMI-2 and auoreximately 280 at THI-l i
i.l U l,. would indeed be involved in the clean-un alus several 4
6J h 3
undred others at Met-Ed.
e 7 {.
Q Did you also review the testimony of Net-Ed a2
" j as cf May 1980 that the comrany has sufficient eersonnel to 1
1>i coerate its service in an efficient manner or>crds to that 1C effect?
s 11 A
I don't recall that specifically, sir, but it i
13 j is my belief that we understand that that is our duty and we 13
()
propose to maintain that level to the best of our ability.
A4 )
Q This 700 emuloyees that you intend to dismiss
'i 13 j or lay off, are those service eersonnel or are they clean-uo J
l 16.]oersonne19 I
-- i l
<t; A
Accroxitately 200 are service eersonnel I
3 10jthinkifItakethattermproperly, the remainder are related;,
19 ]i
^
to priraarily clean-ur and other work at the island.
1 20)
Q Did you review the testimony in the extra-31.;! ordinary rate proceedin5 that the comp &ny had sufficient cash
)
22$ flow to take care of its operating axpenses until i
A3japproximatelyApril 15, 1981?
i 24i A
Yes, sir, I did, anc it was in that centext i
l
~.
13 3 that I wrote the subsequent letter of Sectember 12th with nonum a :wsvx.. n:e. - = n. :.num: x.v w=. - nwsesun n.
wu:
l l
Smith-direct 47
'1 1 j its attachreents, 'oecause of additional knowledge gained, morel ll 3
up-t o-da te information, actual coste. through August, which
$]J updated Mr. Dieckamo's testimony, ani that review indicated 2
4] that unless we had receivec the accounts receivable which C
_. 4 3 y this Commission did grant last week, we would unable to meet 3
I o Q our obligations in October and November time frame.
1
- i f
7l Further, it shows that we are still in a
'aj deficit mode beginning in May of 1981.
?.
Ei I would coint out, sir, that in addition, in l
4 20 j April, the deficit is, as forecast, only aceroximately I
t i
11 j $h million.
I must also add that the assumutions made for 1
10 that forecast may or may not prove to be as optimistic as I 13 j would hooe them to be, particularly in the area of revenues.
ggg
.,. 1 I
+7 Q
Was it the purucse of cutbacks that you 16 j refer to for the purcose of meeting the scme $24 million tax i
Ed i costs in April?
Was the ;urpose of the cutbacks so that jou !
1 I
17. uculd have the money to take care of that tax pcyment in l
}
i.
u> ; April of 1931?
i l
I? l A
I believe the tax caycent is only one of a
,;0 ] number of cbligations to be met in that time frame and the i
1 1
Ol' curcose of the --
i 1
22 Q
That was the big item that the courany had j
f C l oresanted?
{
f gg A
Yes, sir,
?.i j Q
That they had a some $2h million tax rayment f
.wmuw e :a:msne-. u.:c. - w n.. ccmcw m - ;'amma n-
' r. ;-*-
Smith-dirset 48 4i*
1lAcril15,1981.
Wa s it your incentien to cut back at this I
3 time so that the courany wculd be able financially te meet 3
that tax cayuent in Antil of 1981?
Was that the curpose of 4j the cutback?
I
]
A I am afraid, sir, that if I reduced Met-Ed 's
'4
,4
- j ncn-LII payroll, for instance, to zero today, that that would
,E
" } be insufficient dollars to meet that M4 million tax payment
. i..
l alone, j
9)
So it is not solely aimed at obtaining funds 2
for that tax payment.
Obviously, it will helo.
11 '
4 Frankly, we have difficulty in seeing the t
y
'l nature of the emergency now and the cutbacks now in view of
- l 3 4
} the testimony of the comcacy witnesses.in the extraordinary
'I A
1
,,j rate croceeding that if the extraordinsry rate allowance is j
i a,
not made that the company would be forced to cut bsch by j
i
?
lil attrition aperoximately 40 emuloyees in the next 12 months.
!~
l
. _., a
- 31 How what has created the change frem the testimony in that
?
I i
- n
,' proceeding to now?
i I
-v 1
?
2-3 MR. RUSSULL:
In fairness to the witness - yo u -
,,j
" c are quoting Mr. Nev',an's testimony?-
l i
-'31 "
THE A12INISTRATIVE LAW JUDGE:
Yes.
t II MR. RUSSELL:
Mr. Newton was talking about che cutcacks in his area of oceracions alone not=the ccarany
' - i as a whole.
1 i
i 4;
THE ADMINISTRATIVE LAW JUEGE:
I will. direct o::mmt :. :uu.% u:a. - u :: t.ewim.t w m. - iteoxvro. n. mm
,,~-.m..
--.m.-
- w. m w
-r-
.,,,v,
5=1Ch-ci:ect n_...
4
^
i i
1)thequestionthencoMr. Smith.
l 1
3 j' BY THE AC:ITNISTRATIVE LAW JUEGE:
t
.5
- C Uhat areas of coeration are you talking about l i
4 1 when you are talking about these 700 couloyees everall or l
l'.3 the 200 and some ecoloyees that you refer tc as service i
i 1
sv s employees?
I l
g J l
j A
The 700 is an overall figure for total Met-Ed l 2
+
3.:
i including 'DII.
The 2CCpolus are service personnel that J
i 9,
include T&D cersonnel which I think was referred to by l
i i
0j-Mr. Newton.
There are also croduccion ocwer clant cersonnel,:
4 s
El}accountingcersonnei., other derartmente related to the a
?
23 I business which are basically related to the sel / ice 1
operation directly or indirectly,
... j i
n.
I believe Mr. Dieckamp reinted out quita 4
3{clearlyinhistestimonythat without the extraordinary ra ce '
-6l relief the co=rany woM 6 indeed has to do baaics.lly what t
i c71 cy letter of September 12th initiated and which we are abcut,
a>-
at the comen:.
t a
Q
! believe his tes ticony cresuccesed that if
.1
~
che extraordinary rate relief nas not granted, that cacse
~~c
^
's,
things would hwe to be done in order to meet the tax
'i payment thac.ms due in Anril. c f '.C31 and also that out of a
th? ;housand Ind s cme.nu h,yee s ths.t he centionec than could hav e cc be fur" cushed, laid off, she as,joricy, at leas; 6CC, E
of thos e, were connecced with the res toration or clean-ur.
- n.=.um n,um
- c.
.v n. u c w.ur.-
- =. -- e..m u u m a..,:. x :-
Saith-direct 50 3
E A
I believe the latter is correct, sir, and my J
. ()
3'.
numbers still hold.
'dhile we have chosen not to go the full 3
- route of 1000, our Phase II plan would indeed oick un the i
3 i
j i
4:j additional, perhaps some more,
- )
3j It is our belief that cutting back the 200 at U
'5 ! Met-Ed service, the other apuroximately 500, shall I call 7 i them non-service or TMI related personnel, is absolutely 5
I 0 l, necessary in order for us to insure being alive through at i
.i 4
l 9:
least hopefully the end of the existing rate case.
.O i
Beyond that I think both my testimony, or my
'.1 s j
exhibit or letter and prior testimony exclains quite clearly j
d
<3 j that we do not believe that we will be in a positive mode em ~,
O
"# ; after April.
A* ]{
Q Is it your t: timony that those cutbacks are l
1 13l needed at the cresent ;ime in view cf the resources of the l
i
- s3.l1 comnany at this time?
j
... i.
-i1 A
A bsciut ely,. yes, sir.
1 10 Q
'4here does that cut you on Acril 15, 1981?
j t
II' 3 A
At April 30, if all of our sssumutions and f
i L
30fourforecastsareasclearaswehonetheywillbe,we k
i i
- 11. 4 would still be some $4 million in the black.
i 52 2 Q
How much?
l 1
03 4 A
Approximately S4 millien.
I would have to i
()
look at the number exactly.
-.i
{
"2 j Q
s that Arril of 1981?
.iONft 2 AEM ; MA7 FM AL. F;;C. - 27 72. LCCC".%% 4'# N.*T. - MARAtSEURG. :5A.
- 71*C
Saith-direct i
51 5
I
?
?
1h 6
A April of 1981, yes, sir.
a 3
Q If you caid all the taxes you would still be I
4 4
4 3 4 $4 million in the black?
~
9j A
Yes, sir.
4 i
l' e
2.j Q
Caesn't that cresucocse the cronesition that j
t D. i your cutbacks now itre geared to producing revenues so that t
a u.jyouwillbeabletonakethat 324 million tax enyment in
(
"j April?
I e
i i
- j A
The total cutcacks, the total adjuctments i
t 50)thatwehaveaddressed, yes, sir, chat is correct, not just j
io 4
11 j the layoffs.
The layoffs in addition to the other reductions.
I i
.. a, together uroduce some $34 million.
i 44 I
i 3
,ll 13 'j Q
So what I asked you sometiae before was that 3
'4 } your cutbacks, the overall cutbacks, were crocosed in order 4
'. 3 ' that you would have sufficient coney in April of 1981 to meer
.0 } your tax payment?
i
~7-A Well, since 1 am not a qualified accountant; 76~ I assume that that would be an assucction.
-'j Q
Well, it was testified in the crevious case M; that scue $2h million taxes had to 'ce caid on April 13, 1981 al. j and that the ecmaany would not 'ae able to nay that without
.01 ' this 335 million extraordinary rate relief.
,f e s, sir.
4 a
Q Now you are indicacing that ifthesecuttac':a;lll 23 are made the ccapany would not only be able tc esy the uc.m ur :===u
. m e. - ur - :.== co sr: n =. -
.a~s um. n n m --
Saith-direct
$2 4
2
$24 cillion in Acril of 1G81 but would also be M million 1
0 2lintheb1ecx.
So mevbe er thinkins is wrons, but the way I e
3}viewitthen,isthat these cutbacks are raade for the t
a d
4 g purpose of croviding funds so that you will be able to make a
S the tax Dayment in 1981.
I
.. h Cy MR. BUSSELL:
If Your Honor please, we have 4
7 j.! Mr. Graham here who can, I think, resucnd in a lit tle raore 6
i 6 l detail on the financial projections, which we can put on 1
I 9)next, and perhaps clarify that for you.
y i
Your Honor, I have a clarifying j
11 ;] queation --
13 MR. MORRIS:
I have one or two, too, Your 1
13
- Honor, Q
a 14 h MR. BARASCH:
If I could, simple, not really a
1 13 j cross-examination.
I believe Mr. Smith responded, you said 3
16 the cc=rany would be $4 million in the black, and I think --
l 17 3 there may be some question about whether we are talking b
l 18 '. about earnings or talking about their credit line.
-. t 27 i MR. RUSSELL:
I think the latter is l
D)
THE WITNESS:
I think it is the latter, not
.1 i
1 l
316 in the black as perhaps the accountants might look at it cc 0; j the books of the comesny.
~3 MR. MORRIS:
May I ask one question to (G) 3.
further clarify that?
3
- dbM3 kfee$ b NA.N 4
- b*
1
. -:. i r a c ;
- 7
.:c
- - -.. - -... ~..
s a
mr e
n
.u..
. ;.s e..R y
.v 4
0 Do the "igures -shich you ha se given us.,
h I
- ir. Smith, include the acaumption that the referred dividend!.
4 will be Daid in the acount of 31C.23% CCO during the ceu c3 e f
I 3
o f the.'7es.r?
4 f
MR.. RUSS ELL :
Tha'.
3 on an annual basis.
i, a
f MR. MORRIS:
On an annual 'casis.
l l
6 MR. RUSSELL:
STe ll, let 's go cr:e by one.
Arel I
J you t11 king abouc the dividend on October 1st?
MR. MORRIS:
Well, he ga'ze us fig;ures as 0?
l 4
April so I was assumirg on a quarterly basis of accroximately i
,i24 32 5C0,000.
3 f
'.3 1 21R. RUSSELL:
I thini: that is s
- estion you coule direct to :ir. Gr tham who rould have T. ore er eci ics and could rescend to --
- 1R. MORihS :
I thin!: ic
_a i= c e r,an c t'u c the Oc.rais.cion undere tands 'that he cecnd cy in the 'ola ck in thir
.,,,.,m.,...
,.,h _t., -n L,,1..x e e~
- p..,,. e-s,
- Le,. o f' m
.I >w c. a.a.
44 4
2 e.
MR. RUSSELL:
It is not an incoc:e i ts. s:Mt ca.m.
Ic is a 'oalance sheet tern, I think.
'iR, ':iORRIS :
One or.her ques 1.icn for 2. 3. r '. i'i Ca t iO n.
2 9.* hat 3 yc 4 Yill :1 }.s c c3 fC le
'.o s i'/ e
- ':1-'
~~
C JIQ P i, ',' De P e [ 9 ).' P 9 d O ir O T E hS"1 -- 'h3 7"le t'1gd El.nual PG CI '. l e c,,0
'. oOS lentionAC ln Y'2.r aG_, r n..i s is S r
-, c ',
0 '. ': P v
o d '[
3 3., e I e 'c. e [ q dI' orc 3 0 5
[.
L u.r:
, a:s v: a.
r.
'r=--
Smith-cirect 4
.. j i.
THE WITHESS:
I would have to look at our
,, j$
C" detailed sheets, but fly recollection is that they should be 3 $, in the order of, I be lieve, $17,000.
^
n
., a
- j MR. MORRIS:
Cr if you took cdds on B20,000 1
3 +as an outside figure you would be talking about $4 million a.
6' year?
4 9.A a
THE WITNESS:
If the arithmetic is correct, 5)yes, j
t O 't MR. MORRIS:
Thani. ifou.
{
t
)
4
-dj THE ACMINISTRATIVE LAW JUDGE:
Does the 1
l 11]Commissionhaveanyquestions?
12 j BY THE CHAIRMAN:
4 O
13 !
e vou refer to the service vereonnet cuteecks.
- 4. 1) Are these supervisory or non-supervisory people?
4 A
Yes, ma am, they are both.
..e 1..
10 j q
Do you have a breakdova, I mean like l
i 17japproximatelyhowmanyofeach?
i i
.i 16 i A
I don't have the numbers.
The breakdown, m~ j because of the area that is related to, particularly T&D l
t
)
n :l> Services, I believe the percentage may well be approximately :
i 6d 3 j 60 percent hourly weekly and 30 percent supervisory or staff,.!
i l
J2. l e t c e tera.
I f
n' It is essentially or aearly the er.isting i
D j percentage of thos.e types of folks already on the payroll.
j e
Q Are you saying that basically your company I
1 4
nun
..:.n
-=... n
.. w==. - n.wwm. n...
m w.
Smith-direct 55 1 $ would be ccaposed of -- if we could use those two terms --
ti 5
40 percent supervisory and 60 percenb non-supervisory?
ggg P
3]
A Yes.
The term supervisory, you understand, 1
d, includes staff as well as canagerial types.
3 Q
Okay, define what you mee-by staff.
6]
A Let.se further explain.
-I gt._3 I would 4
?j be more apt to categorize them as exempt and non-exempt u
G ) personnel rather than just managerial and hands-on workers, i
1 9]
Q Well, you are going to have to go further.
1 10 j I don't know what you mean by exempt and non-exempt.
What j
11 1 I mean by that might be a totally different thing.
1i 12 ::
A I refer to the term used under the uzge and 1
13 hour1.50463e-4 days <br />0.00361 hours <br />2.149471e-5 weeks <br />4.9465e-6 months <br /> laws of exempt and non-ex';gc from overtime by law.
g W
14,k I see ther'
- still a doubt flickering in 1.5 j a few eyes.
The non-exempt, the non-managerial staff types I
a 16 would be cocposed of both bargaining and non-bargaining
.i Jf hourly and weekly paid people as opposed to the other group IG.
which are the conthly paid or salaried types.
i? )
Q You reference a Phace 2 plan.
When does
- i 1
20!:
that 20 into effect?
l 1
+
- 1 21 1 A
Hopefully never, but it is in our plan that 1
1 22 ]s if the cuts and the assumptions, together with the current j
i 7.01 reductiono are inaccurate, a further recuction zay have t
2.:.
to take place at some future point in tine.
j
^5g I don't have a specific date in mind.
It a
H 10MnEACF * ?.t A.*. SH AL.1NC. ~ 07 M. LOOK'?!NLMY AVE.- MART!SB tJAG. ?A.
17112
3cith-direct 36 I
wouldte my hope that that would never have to take place.
[
3 Q
That wculd consist of what, additional servieg 4
'l 3{
cutbacks?
i f i A
I would expect it would be soaa additional 3 ;3 service cutbacks.
I would expect perhaps the same ratic
\\
6l between service and TMI as in the current case.
n
?3 Q
To what extent -- and perhaps you are not d
e a e3 the correct witness. and if ycu are not, I could be referred n
a 9) to the appropriate witness -- to what extent, let's assume 10 you complied with the Ccamission's order of Septe=ber 18th, 11 l what effect does that have upcn taking available toney which
- f a
,, y sight not otherwise be available in terms of what your 14 o
., j;'
planned service cutbacks are?
(s 1-2 a
1 A
Well, first I have every intent of complying 15 )
with the Co==ission's order, at least to the extent thst I I
i 16 L have a payroll to be able to meet come April.
I assume a
4 a
17 k there would be other appropriate legal ceans to address 3
16 $
between new and that point.
il 19 l The cutbacks starting now will, we believe, j
i LO )1 allow this company to prd' vide reasonable service through 4
21l April.
The fact of the cattcP is that if the Commission J..
22 3 shculd not permit the issuance or allow us co go forward n
r 23 l with our planned Rider D to our tariff, anc saculd ve choose; 1
f~
(
2.g not to lay pecple off, we would indeed have scme 200 people 2f' s on the payroll with little to do because materials are F
d
't 0 H'12.40M L E4 AP SHAL, IF30. - 27 f f. LOOT'**LLOW "M.-
MA RM100 V?. 3. P A.
17812
Saith-direcb 57 k
, j already being slowed down, and I would expect well before 4
u
- j April those caterials would not be available for connection. (l)
- f e!
Q I am not sure but I don't think that answers
~n 4
1 4l the question that I asked, 5
A I an sorry.
3 1
1 3)
Q To the extent, and when you comply with the a
~ d Commission's order of September 18th, which says cease and 1
il 3>
desist from using any moneys that you are currently receiving 9t from operating revenues to pay for clean-up and restoration, to 4
1 4
79 what extent -- and it seemed that from what we could read it 4
__3 J in the record that/Was developed in the extraordinary rate t
33 j relief request there were moneys, perhaps as much as $25 J
33 million through April of 1981 that were so being utilised --
gg I
ng )
to what extent does that affect the proposed cutcacks?
.4 J
1 In other words, aren't you freeing up some
..x. q a
.. g a money that otherwise was not available?
l i
17 A
If there is $25 million available from what- ;
I g1 ever other sources, yes, matam, that could be and woulc be i
l
- ,9 j used to reduce the icpact of the reductions that we named
- o; in my letter.
37]
I am not aware to date in our investigation J
that such dollars are available.
3;
-3 l Ff THE ADMIUISIRATIVE LAW JUDGE:
{
- t i
j Q
I believe it was indicated that approximately ggg
?? million uculd be spent on clean-up this year and approxi-i
'4 W.!!iSEtJ R 3. % 4 **1 ' 2
S mith-direct 58 a
13 mately $17 million next year.
New if you have $7 million
(-
3l that would be freed, as the Chairman has indicated would i
3I be freed, from clean-up costs and applied to ycur service 4 $ and maintenance costs, shouldn't that reduce the necessity I
a 5?
of some of these cutbacks that you are referring to?
6,l A
If it can be shown, if we do indeed have those 1
7 dollars available for non-clean-up because it is deemed that 1
S!
reduction in the island activity would not inpose a health i
9:
and safety or other impact --
l 10
- Q Well, did the company consider that in the 11 p cutback program?
h 12 ~
A Yes, sir, we did.
()
13 Q
How did you consider it if you non indicate 1
14 !
if it was there you may not have to cut back to the extent lt 15if that you had proposed?
i l e.j A
Sir, I must point out that in our prudent i
17 ]
. judgment as management the costs allocated to TMI are those 1
'? l necessary to maintain the island, I believe as Mr. Arnold 3
19 p had previously pointed out, in an appropriate level of I
20 readiness or clean-up or whatever the appropriate term is, 21; and with those assumptions, the total dollars available, 22 all things considered were allocated the way we put them 0
'S together in my letter.
(~)5 22j Now if it should be shown that indeed the j
9 i
(
i Zi ;l clean-up program could be reduced so that Met-Ed could
.souwen a w.em. w=. - = m ue=.v.vu w w= - mms =uc n
'm=
+
Smith-direct 59 4
j receive an additional 37 millien, I would be very happy to 1
3; apply these 57 cillion or $20 million. if that cuch were ggg i
,I' available, so that we could bring back the reductions that
-]
- we have started to take and plan to continue to take today
,59 1J and tomorrow.
x-J I
33 Q
Does your cutback presuppose you would have J
7 f to continue the same rate of clean-up out of your cperating g,
revenues that ycu are using not?
4 e]
A That was my assumption until receipt of the 1
3g j order on the 18th, yes, sir.
As I guess we pointed out
- 1 11 j earlier, the clarity of that order is not completely under-I 7,3 j stood, and we will be obligated to understand that, cf course.
- 3 (
3Y THE CHAIR'SII:
g 4
W
,, 4 Q
Just one more follow-up and that is to the i
- s. e 1 extent that youutilized the money to pay additional moneys 1
4
- g]
to the bank, have you developed an understanding of wnat 1
4
.,. i the bank's response might be as far as your credit worthinesa c
-,J with the banks?
,.-o 4 4
so I A
I den 3t believe I am qualified to answer
~~ ;
\\
?
20q that.
I would request tnat we --
l e,3 THE CHAIRMAIi:
Mr. Ru; sell, if you can keep s.
3 the questien on file --
1 es 8
.i MR RUSSELL:
Mr. Graham 1111 be here and
- _x.
c.
t
,a put on in just a minute and can respond to thr.t I believe.
.. : :3 COMMISSIONER JOHNSCH:
I have a question, a 4
t
. eames t vanes.u : ::. - n n. i.aca nu.cw Ave. - u m:,aunc..sa.
- s u
=
Smith-direct 60 1.h y series of small questions.
k Q
BY COMMISSIONER JOHUSON:
l' 3 (:
Q Do I understand, as it has been testified to r.
4 ', here by the company, that the reduction of personnel total: Lng i
some 700 all told was made necessary by this Commission's 3
6i refusal to grant the compe.ny's requesa for emerEency rate 7u relief in the amount of $35 million, is that correct?
3-A Yes, sir, it is.
I hesitate to put it in i
9l quite that category because I believe that circumstances 10 l leading from barch through that last decision all played a i
l s.;. ;4 part in that.
d 12 #
But, yes, sir, that was the last decision 1
p 13g that affected our judgment.
d g
y Q
Well, your letter of September 12th was 15 i predicated upon what develop =ent?
?
16l A
My letter of the 12th came about --
1;;l?
Q Announcing the reduction and so on.
s
?
IS '
A Yes, sir.
19 [
q Was predicated upon what happening, what
- t 10fcircumstance?
Was it not the refusal of this Commission to i
21i grant the extraordinary rate relief?
i.
A Yes, it was.
3; 23 Q
It was.
How let me ask you this further p) 3,,, " question.
You are familiar with the Cormission's order at h
V'
~ E September 18th?
e c:
q
";OMitDACM & f fAasMAL. !!!C. - 27 !J.1.QC,0.YtbbCW AVE. " M ARRIC3 W'tG PA.
17110
Smith-direct 61 I
d A
Yes, sir.
3 1
Q Does that in any way have an impact upon the llk 3
company's ability to retain employment or must it continue 1
4]tocarrycuttheinitialorder?
3i What I am asking you in effect is, has this d
6 company been utilizing any portion of that revenue contained I
7' in car order at Paragraph 2, the 7.4 mill surcharge for the i
8 recovery of the deferred energy balance?
Has any of that 9, been utilised?
10 -
MR. RUSSELL:
I think this is a question 1
11 Mr. Graham, who has the financial projection data, could 12 ! resolve.
I' den't think Mr. Smith can respond to that.
IS ',
COMMISSIONER JOHNSON:
Counsel, the impressior g 14 now before me, and perhaps before the Ocamission, is one of 13 confusion.
What prompted --
16-MR. RUSSELL:
Well, if you think you are i
4
- 17) confused,Iaskyoutothinkwhatweareafterreceiving IC this September 18th order.
19 )i COMMISSIONER JOHESON:
Mr. Russell, I tcould IC]notdothistoyou.
I ask you not to do it to me and I hope d
21i we can have that understanding.
.l 22 j MR. RUSSELL:
Proceed.
1 4
I2 00bNISSIONER JOHNSON:
I ask your witness, 2A. or I as's you, what was the September 12th announcement lll I.3; predicated upon?
t
?CH A c a,C:t S :t' A R SMt.L. IM O. - 07 N. LOCKWILLO*.S AVE,- H AR '4153 UR G.
- A.
17t!Z
Smith-direct 62 4.,
11 MR. RUSSELL:
Tne witness has so testified.
4
' O ii V
2 j that the detonating factor was the Commission's order in the i
n 3
extraordinary rate relief applicatien.
- 4. !
C0!GIISSIONER JO9NSON:
The September 18th f
P 5[ order,didthathaveanimpactupontheemploymentsituation?
6@i MR. RUSSELL:
Mr. Smith:s letter was September.
4 7i the 12th and set forth the emplownent picture as they saw it.
I 2j COMMISSIONER JOHUSON:
And now I an asking 9" whether or not the September 18th order had an impact upon 10 ' your ability to employ people to render service.
11 MR. RUSSELL:
New that Mr. Smith has had an 1
12]opportunitytoanalyzethatandmakeanewJudgmentheis 1
1
_)
13 certainly free to testify.
14 s COMMISSIONER JOHNSON:
The question recurs 15 !
then, Mr. Smith,
i 15 1 THE iiITNESS :
I understand the question, 1
1 17.3 Commissioner.
To the best of my 1mouledge, as best as we a
i 18 can interpret the order. the reductions are still necessary, 19 the cutbacks in personnel appear to be, and we are indeed 4
i 30, reviewing that.
It is the reason that we did not So forward 4,
1 31 i this corning at 8:00 o' clock with the intend?d layoff notices n)
Until We have some clarification we probably
- t 1
7,3j will hold that in ebeyance.
O ca the =ther esae or 'a**> ve c ="o* nola 33:
off indefinitely or we will have no other alternative but to i i
l d
173ft
^
Smith-direct 63 0
1.i go bankrupt, I suppose, which I assume none of us uould uant 1
]
3, to have happen.
g 4
I-BY CO?DiISSICHER JOHliSON:
4 4i Q
I don 8 t know, Mr. Smith, whether your answer i
5 " is really responsive.
What I gather from your answer is that 6l this has created a ne> condition which you will have to 7
analyze and study; is that correct?
S A
Yes, sir.
9.
Q, I don't quite understand why that should be.
H 10.4 I can understand the conpany's position as declared, articulated 11 in your letter of September 12th.
The absence of that $35 4
.j 10 1 million makes it necessary for the ccupany to lay off 700 1
13 people, 5GO cn the island, 200 connected with service, g
4
'i4 ]
A Yes, sir.
1 13 $
Q How does our order of September 18th further 16)createproblemsforthecompany?
Ca.n you answer that?
In 1
't I
i 17 j Uhat specific ways?
1 J.S J A
The problem ts I see it -- and perhaps I an A
19 not as e.ble to articulate it as well as one or two of our 20l other witnesses, but let me try -- is that the order if taken 21 lI literally would indeed force the ccapany to be in violatica a
22 y of a federal requirement, which I assume there are appropriata il
^2 j means to challenge ths.t.
l M
Q For wha.t reason, sir?
g 221 A
But if upheld -- and the island uare, letts i
l
~.!O M*t3.* OH & ?i A 9 5 -:,4 L, I:10. - 27.*t. LOOTNILLOW AVI. "
c' t R R IS 3 t "l G. P A.
17t?2 -
Smith-direct Eh r
1 1
1 any completely stcrped, if chat were possible -- that impact I
3 would indeed allow me to restore not only all 700 jobs but t
3d also the other reductions contemplated in my letter of 4.i September 12th.
It is that uncertainty, however, sir, that i
4 3lIamnotyet--
l
.J D
Q Can' you explain to me, Mr. Smith, what you 7fmeanbyrestoringthe700 jobs?
Where?
'3 )I (No response.)
1 99 SY THE CHAIRMAN:
10 Q
Wouldn't it be correct you uculd not need 11 ' tne money for 500 jobs because you are indicating that 500 l
12 jobs would be furloughed at the island?
i O
13 '.
a some or enose verhens wou1d act, e maaorit7 3
14 of those would not be needed.
Perhaps some of those may i
13.l well be needed a.t the island in order to =aintain certain a
161 services that we are still obligated to perform.
4 17
- Certainly a large majority of those, ycu are 18! correct, would not have to go.
d 19,l 3Y CO!.EIISSICITER JOHNSON:
i l
20 i Q
Wouldn:t that be in violation of this order d
a 21 j of the 18th?
i 22 1 A
To retain those?
1 1
23 j Q
No, to sp end any retspayer aumt, mone:Is, i
f 1
(g3 14 j revenues for the uninsured clean-up and restoration.
l i
23]
A I am not sure, and the reason I say that is 71CMRDAOM Ed M,u s;#AL, INC - 17 Pf; LOCKWILLOW AVE. " li AMM1$EUP,7. PA.
17111 F
g.
y
Smith-direct 65 e
t
'4 1 ) that some of those people who could perhaps Se engagad in t
2 work that is insured, but if the island were closed --
ll) 4 3 5 Q
If it is insured and you expect reimbursement 4 9, from the insurance company, that cancels out any obligation
!onthenartoftheratepayerstopaythatparticularsum,is 5s 4
6,11 that correct?
1 7l A
That is correct.
2 00 COEIISSIONER JOHNSON:.I hope, Mr. Russell, 3
9 f you vill have witnesses who can perhaps clarify this.
10 MR. RUSSELL:
We had Mr. Arnold and two others i
4 11 { here to clarify Three Mile Island matters at the outset and 12 $ they were very restricted in the scope of their testimony.
4 6
13 :
MR. MORRIS :
Mrs. Shanaman, before this ggg d
14 ) witness leaves the stand I would like to address a suggestion J
'i 15 i to the Cccmission in the form of a motion.
May I do so now?
J i
16' THE CHAIRMAN:
You can.
I have a couple i
17 'j other questions.
Zut you address it to the Judge.
l
?
i i
1S MR. MORRIS:
Sir, my motion is that the 5
e 19 ] preferred dividend, which I understand will next be paid on 1
20 ] or about October 1st, form a mcdification of the September l
n 21 ISth order of the Cornission and that this company be
'i t2 ] instructed to cease and desist the payment of that dividend, 23 because available in that dividend on an annual basis are 2 3 $10 millien, more than enough to offset ell of theamployment ggg 25j costs, and that is not an item which should be paid, not-
[
l
171t?.
Smith-direct 66 4
j
- 7. ' withstanding the laycffs of employees necessary for service.
O d
2g It is not an act of bankruptcy, it is not 3
a default, it is the axpenditure of Ioney for dit/idends in 4} the face of laying off employees, some 200, and it would t
4 S
permit the hiring of more, and I think it is equally as 1
6 important that the Coc=11ssion put that on a cease and desist t
- 7) basis, and perhaps even more important that it order that i
~
G than that it order the cessation of all expenditures on TMI, 1
9l It simply will not withstand analysis on the s
3 10 basis of this rate proceedin.3 that that dividend be paid and i
service be cut back.
il lI 12 )
I would appreciate it if you would take that O
13 under edvisement.
14 !l THE AD:ENISTRATIVE LAW JUDGE:
Yes.
I want 15!
to ask the witness another question.
- 4 15 j 3Y THE ADMINISTRAw/t; LAW JUDGE:
1 1*/ '
C, Mr. Smith, are you indicating that because
{
18 J of the danial of the extraordinary rate relief that the compady 3
a 19 ] requested that the company is nca going to operate its system 20 ;, in an inadequate manner to its custcmers?
4 1
21]
Is that the conclusien the company has reached, J
27, j that because of the denial of the $35 million extraordins.ry n
23 f, rata r21ief, the company -is going to operate in an inadequate;,
ob)
?4 i :nanner and render inadequate service to its customers?
I 2 I MR. RUSSELL:
I would say, if Your Honor j
2 2c:muca a msm me. - :7 m u. wmu.sw we. - asamnuac. % i7 m i
Smith-dirset 67 d
1 1 j pl(ace, this is a conclusory question, asks for a conclusien.
a 2
I think I have no o'ojections to asking what 81 s
~. j; level cf adequacy the service will be under the cuttacks.
2 4
THE ADMINISTRATIVE LAW JUDGE:
Well, let me 3j ask it this way.
6 EY THE ADMINISTRATIVE LAW JUDGE:
7 Q
Is the service that the company proposes
- 3 ;
to render under its cutback procedure, in your opinion, a
9' adequate service for the company's custocers?
1 A
Sir, it is my opinion that the service Met-10 j
- t 11j Ed has been forced to render since 1974 or 1975 has not been i
i 12i adequate in my opinion.
The record indicates, and the 13 -
Commission's citation of a year or so ago would indicate g
14 l that perhaps it still is adequate.
Customers are getting I
153 served, not in as timely a fashion as I would have them n
1 161 served, not in as timely a fashion I believe that all 4
17 concerned would have, but acceptable perhaps in t.he judgcent 18 taken in looking at the dollars expended.
b 19; I think continued operation at even the level 20 j prior to what I am presupposing would happen with the September 1
21 12th letter is improper.
22 j However, because it is a judgment as to how
'l 23 ) many dolicr3 produces exactly uhat level of cervice, end I
g a 4, adequate is a sub;Jective term, I believe that even with the i
7)reductionstheservicewillbeadequate.
I am not sure that :
3
.:canne:4 a mesnt.. me. - a m a:rmt.uw m - nam:nc. m 2 7t u
l Smith-direct o8
?
I8; the customers will fall in love uith it.
2 Q
Is it coincidental that the exact range of l
I.!cutbackswouldapproximate$35million?
4 !
A The total reductions?
Yes, sir.
1 i
5i q
Is it coincidental to the fact that that is f
6; the exact amount of extraordinary rate relief that was denied?
l 7,'
A I don't believe I would call it coincidental.
r 8l. I think it is just further proof of all the testimony that 9
has been given in foregoing cases, including the. extraordinary 10 3 rate relief, that those are the dollars that are forecast, 11l now updated and fine tuned a little bit more, were deemed
)
12 ^ necessary as indicated in sr. Dieckampis previous testimony.
i O
13 !
I aca't taina tuet 13 a coinciaeace-r taian
[
1 l
14 that is just further proof that our figures were reasonably l
15-accurate in the first case.
16 {
Q Mr. Smith, if the revenues that were being n
i 1
17n spent by the company for clenn-up purposes approximated $2 h
18 ] million. a month, at least to that extent revenues were necessary 19i to ceet that expense and that was part of the $35 million 1
20; requirement the company had, if you freeze that $2 million 21-a conth, if you take that out, should your cutback be less 22 than the $35 million that you propose?
23 ll A
Yes, sir.
It was indeed our intent,;fnile il O
u!notperbpsclerinmyletter,thatintheeventofavail-l 25 able relief in whatever form, we would expect to return to -.
171?2
Scith-direct 69 1 il I hesitate to use the word normal because I don't think
'i 2
today's activity is quite nor=al -- but to use that term,
!g 5, 2 return in the reverse order that we had listed the --
4' Q
Lat's reverse it, then.
Is it your proposition 3, then that you need these cutbacks so that you have that same I
6' amount of money to srpend on clean-up at THI that you had 7: proposed in the first instance?
S A
That is not my intent.
My intent is to --
3 1
9[
Q Is it the company's intent?
Ynen they made i
- 10. the cutback proposal, you indicated that you did not have the 11 ; order of September the 18th to cease and desist clean-up of 12 TMI.
How when that proposal was first made, did the company 13, intend that the cutbacks were necessar-y so that thecame 3
14 / amount of money could be used for clean-up that it has been using and has planned to use?
15 ;i' I
1A 1 A
I am sorry, I did not follow that.
I s.m not 17 y sure to :icat you are leading, i
IS J Q
You will admit that the company has been a
19,
using some money from the revenues to pay the ecsts of clean-10r up over and above the insurable portion.
213 A
I believe that is true because there are
- 1 22:
discreticnary dollars over and above required by the --
i T.3 I Q
When the cutback propam was proposed, did t
't.
i the company still assume it would spend that saae amount of
^2[ money en clean-uo that it had been spending and planned to j
2 I
in:33 Acu n M/itsML. inc. - 27 N. LOC 4* NILL 3W AVE - M*R!JTJMG. % 1711:
Smith-direct 70
- i s'
I spend?
'l 23 A
No, sir, I think included in our cutback was 1
e 3i indeed a reduction of expenditures at the island.
1.
4j Q
If you did the.t, then, uhy is the cutback 5Iapproximatelythesamea=cuntasthe$35millionextra-6' ordinary rate relief that was refused?
7(
MR. 3USSELL:
If Your Honor please, I think i
3; this is a misleading assumption because the $35 million extra-9l ordinary rate relief was $35 million on an annual basis.
The lo- $32.3 million shown in Attachment 5 to the letter is not on 11 ' an annual basis, that is the savings to be achieved from 12. October through April of 1981.
They are not comparable Q
13 figures.
V i
14 i THE ADMINISTRATIVE LAW JUDGE:
Very well.
15jAnythingfurther?
15lI 4
MR. n'UiSELL:
And that attachment shons 17,' specifically, as Mr. Smith pointed out, a $13.6 million 4
- ' 8 reduction in the clean-up progra= before insure.nce.
19 '
THE CHAIRMAN:
Just one additional matter, 20j and if you cannot answer it =aybe you could provide an answer.
3 214 I think part of the problem that at least I d
.T,2l am having, if not my fellow Commissioners, and we can talk 6
23E about exempt versus non-eneopt and we can talk about cupervisory 21.] versus non-supervisory, and you reference to the fact that fi 23 3 these cuts would not affect service to existing custccers at S
f.20Mf!3AC:! (n f4AR$14 Ab. (MG. - 17 N. LOCK *.Vitt.OW AVL = H A RRi30 L*:t fi. P A.
17112
Smith-direct 71 4
{
1 1
1 one point you said but to nett custcmers, perhaps if we had I
some sort of laying out of what the functions of the personnel h 3
3 j being furicughed are, what functions the.t they provided are f
4}; going to be taken up by personnel still remaining, sete sort i
3 l of delineation, we could better understand the raferences in 5 } the statement that you are c:aking to us.
?l.
I am having a difficulty taking from the 9'I general, which are the statements that you are making, down 9: to the specific.
10,
THE WITNESS :
We can provide it, yes, ca aa, r
il l THE ADMINISTRATIVE I.AW JUDGE:
Do you have 1
- 12) another witness, Mr. Russell?
1 13 j MR. EURG8AFF:
I wculd like to take Hr. Saith ' g i
14j for one or two questions, if I could.
I
'l 13 : EY MR. EURGP.AFF:
a t
16 '
Q Mr. Smith, I believe you ade a statenent a i
I l
17 ;! feu minutes ago to the effect that if there were funds the.t l
l l
i 18 j would becoce available based upon the Cecnission s September l r
l
}
}
19 4 18, 1980 order concerning uninsured clean-up expenditu es, j
20, that the cocpany's firsu priority in obt/iating the necessity
)
31j for these various planned reductions in servica, or in O&H, l
22] that type of thing, would be in the inverse order as you 3
I "3 ! presanted then in your September 12th latter, is that correct?
l ig A
That is correct.
i 25 i Q
So then your first priority would be to not
- a acy n :.s um. m e. - a s. t ueu r.-
xv:.- u.n.= s wa c. n.
mu
Smith-direct 72 1
0 1
reduce your transmission and distribution capital expenditures l
r
,i to half their current level, c.nd c.m I correct in assuming 3'lthatwouldmeanyouwouldnothavetoreducetheworkforce 4
by the esticated 100 jobs if indeed $3.8 million uas made 5
available because of the September 13th order?
r 6
g ygg,gg7, 7f Q
An I also correct tha b the second priority i
0f would be the necessity not to reduce below current budget
[
f 9[ 1evels 0131 and capito.1 expenditures other than transmission 10 [ and distribution with the need not to eliminate another 200 F
11 jobs, is that correct?
II I A
That is correct.
13 f Q
And that would be if you acquired enough M,! cash to support $1.1 million which you have earmarked as a 15 savings from those cuts?
16 A
That is correct.
17 MR.SURGRAN:
Tnat is all I have.
Mr.
10 '
Barasch might have a question.
1 Bf MR. BARASCH:
20' Q
A couple questions for clarification 31i purposes, Mr. Smith.
There was some questioning before from 22 Commissioner Jchnson about the impact of the September 18th 23-order.
You are aware, sir, that the Cotzission has several
(
i 34j orders of September 18th, are younot?
3 i
25.1 A
Yes.
McHREACH & L' AP.3HA L. IMO. - 27 M. LOC: W:Lt.SW AVE. - M ARR133URG. **A.
17882 1,
~
~'
3ECAT-T: rect
~
(,3 i
i i
1)
MR. RUSSELL:
Several orders?
l 2j MR. SARASCH:
There are several orders from 3]thisCo=missionissuedonSeptember18th.
4 MR. RUSSELL:
Ch, I see, you mean apart from 1
1 5 4the prehearing order?
6' MR. EARASCH:
Aside froc the prehearing order.
7i I don't think it was clear at the time uhat you were respond-Of ing to.
?
B'I HR. EARASCH:
10.
Q If I could go to the securities certificate 11 ecdification, certainly you wculd not characterica the II. codification of that order to allow for the banks to get IS. further collateral as being an event that encouraged the llh 14 l necessity to have these cute, wou3 you?
15 A
No, indeed.
In fact it did indeed all:n ce IS l to put into cffect only the reductions that we had contemplatdd, I.
s
.",. if the Cctrission had not indeed grantad the accounta payable; i
isjpledge,Iaanotsurewhat further acticns we would have been 19' forced to take because that is a much closer 'ime frame so c
1,
?,0j that had no implication.
4 3; i Q
But from a simplistic peint cf view, if the 22fcollateralwasworth$20tillionitwouldhaveputyou$20 4
'?.0 } million 'fors a off, is that correct?
i i
A That is correct, and that j20 aillion was j
O
?
3.2 included in ny assumptions in ty letter of Septaaber 12th.
1 i
l l
f
- O;mO tC11 s
?.* A.7 SM AL. !?It = 17 PL LeCG.'iLLOW AVL - M Wtt 3 GUC G. A t7!?O l
l l
Saith-direct 74 0
1 1j Q
So then When you were answering Commissioner 2
2 $ Johnson s questions you were referring to the consequences of r
I 3 f the statements in the prehearing order regarding the paycent 4
of uninsured clean-up costs and you are not in any means
- 5) making any comment about other orders that were issued on 6i that date, were you?'
i
'z A
No, indeed.
2i 4
Now, are you also aware of the fact that on i
9: September 18th there was a modification proposed by Commissioner Jchnson regarding further exploration by this 10 lA li [
Ccmmission of the cessation of depreciation on TMI-l and 2, 12 are you aware of that, sir?
()
13 A
Yes, sir.
E4 !
Q Now in terms of our earlier discussion i
4 15 ) regarding the company being in the black or not being in.
1 16 !} the black -- and I use the term in quotes -- What would the i
1 17? impact of ceasing depreciation on TMI-1 and 2 have upon, in 16 the first instance, the company's en:ninga position, and in
- 19) tha second instance, on the company's cash position in i
20 l raf:~.'ence to the revolving credit agreement?
21 A
I at this point don't know the impact of that 22 We have that under investigation and perhaps Mr. Graham has 23 the answer to that at this tima.
J
)
1 am not sure if he has finished his --
1
.e4 s
I 0
Q Lat me clarify my question.
I am not interested f.!O::R E A O*1 1 M.iR 5*l AL. !MC. ~ 07 N. L3C:CWELOW AV3. - H ARR!SSURG. PA, 17ft2
Smith-direct 75 r
J I 3in dollar terms.
I am talking about conceptually speaking.
I
~2
'4ould the ces::ation of depreciation expense 3,j on TMI-l and 2 have a positive effect upon the earnings 4* position of this company as best you understand it?
5b A
I don't believe that gives us cash.
t6' Q
I understand that.
I as trying to take the
?
question one point at a time.
In terms of on earnings, it 8{ would have a positive impact upon the company's position, 9f correct?
s Ic A
D11tially I believe it might --
11 MR. RUSSELL:
I wculd suggest that this is
,4 I
12 something that is more appropriately directed to Mr. Graham 13 l Who will be the next witness here.
He is the financial man, g Mf treasurer, who can respond to those specifics, 13 MR. BARASCH:
Let me ask the second half of I
161 the que tion.
If the uitness or counsel doesn't think he
)
17 ;l should ancver it I will leave it at that.
1 IS BY MR. 3AFitSCH:
.I f
13,!
Q Would the cessation of depreciation expense
'i l
20:!haveanypositiveeffectuponthecompany:scashpositioninl 1
4 2
311 ter:23 of the revolving credit agreement?
1 22 a MR. RUSS U. :
I think that is something Mr.
l 23 Graham has covercd concistently in these proceedings, tha 2, l tatter of the credit agreements, g
13 :
MR. BARASCH:
I have nothing further at the i
.mme se, a w asn t. me. - r N. tmmttow Ave - s^nais >n s. >=^. 17112
(
i Smith-direct 76 I!
moment.
.I i
2> SY THE CHAIRMAN:
l j
3 Q
Did I understand the witness correctly to say i.
4j that in the September 12th letter one of the assumptions you 3
included in that was that the Commission would allow the f
6l pledging of the accounts receivable?
?t A
I was presumptuous in making that assumption I
3, when we made the September 12th, yes, ma'am.
9l THE ADMINISTRATIVE LAW JUDGE:
Do ycu have 10 another witness, Mr. Russell?
t l
l 11 MR. RUSSELL:
All right, thank you, Mr. Smith.
12 Mr. Graham?
l 13 :
Eefore having Mr. Graham take the stand there i
14 is a motion that the Commission consider an order to cease 13l and desist the payment of dividends.
Does the Commission 16 want to have some response to that?
17 THE CHAIRMAN:
It is before the Judge.
l d
j 13 I!
THE ADMINISTRATIVE LA'J JUDGE:
The motion i
19 l has been made and noted of record.
At least either I or the h
2O [d Commission will reserve ruling.
t u
21!
MR. RUSSELL:
I uould just like to state for l
22i the record to the extent there is any consideration going to d
i 23 f be given to that motion, that before any decision be made l
l (~)%
24!; that the Respondent be given an opportunity to state its
\\_
?
35 views with respect to it.
1 acus.ww, :unsut. me. - a n. te-swtt ew ^ve. - HA tais2uac. n irit:
77 6
3 1j MR, MORRIS :
The difficulty posed by Mr.
2 Russell is, of course, that that date is nearly upon us, sir, ggg 3[ so a ruling would have to be relatively prompt, and I think i
4 / it is absolutely required.
3, COMMISSIONER JOHNSON:
You will agree that 6
6' we have to preserve the due process rights of the Respondent?
?!
MR. MORRIS :
Well, there are no due process 8; rights of receipt of those dividends.
There is no requirement 9
for a hearinE any more than there was a due process right in 10 the matter of the order issued on September 18th with respect 11, to cessation of those payments, and those rights have been 12,
satisfied as of the mocent.
1 13 THE ADMINISTRATIVE LAW JUDGE:
'clell, Mr.
O 14 Russell, you may respond promptly in response to that motion.
)
15.
MR. RUSSELL:
Well, first of all, there has 16 been a declaracico of a dividend with respect to the October 1
17i lst dividend.
It is now e liability of Met-Ed to pay.
1 15 -
The thought that is implicit in the motion 1
19 that the failure to declare and pay simplistically involves 1
20 !
only that and no other consequences, is, I think, very badly 3
1 31 i mistaken.
22 To the e7. tent the Ocamission wants to get j
'2;1 into any evidence with respect to this, we would be very t
i
- .. happy to put in testimony showing the potential consequences 1
33~ in the financial picture of any such failure to declare and pay.
- 6 i'
?3HN1ACM a St A nsM A:
!MO. - M M. %DCWVILLOW AYE. - M ARR138 tJc 3. PA 1711 t
78 il 1
The problem here is the need of dollars for a
() -
2 f various purposes and the assumption is that with each quarter 3fdividendsnotdeclaredandpaidMet-Edcanpickup$2hmillior 4
4 and it would be $2t million ahead, we respectfully suggest 5
that when all of the ratifications of the failure to make 6
such declaration and payment are taken into account, the I
7.
company may very likely end up short of dollars rather than I
Gl $2d million ahead because of the vendor credit and all of the 9
other kinds of credit problems that the failure to pay could 1
10 ;l produce.
11]
This was something that was considered at J
t t
12 i very great length and very seriously before any declaration I!O 2'!"^*"^**-
1 49 ;r ao I would cay to the extent that the 15 i Ccmaission wants to consider that, we would most assuredly I.
3 16!
like to put in scme testimony to show what all the adverse I):
17 consequences would be of the failure to declare and pay the 18 :
dividend.
It 19 MR. McCLAREN:
Your Honor, the staff would 1
20 l oppose that motion for the reason stated by the company and i
1 21 for the add'itional reason we think it is unnecessary for the a
22 3 Commission to take such action, and after the ccapany's e
d
^3 y presentation I would like to make a staff response to this
' (}
%s' whole satter and indicate in specific detail why I think the
- i 25 J elimination of such a dividend is unnecessary.
1
'50PTt3CH. L LI A't SM AL. !l8~-. - n l4. r.cG:<W:LL OW AVE. - HAP.MISSUSG. PA.
17112
79 J
i 2g M3. MORRIS :
I, of course, would like to 1
2 respond to those, Your Honor, at scne. juncture.
The same g
arguments, of course, are made with respect to common dividend {i 3
i 4
when there is some chance of not paying them, and in this case i
5] they are not paid with consequent effect to the company, and 6l I regard them as highly specious.
7l If the staff, on the other hand, as I believe 85 the staff will suggest, can save the jobs under the para-2 graphs not in TMI D and E, then, of course, perhaps considera 20 tion might be given to the dividend.
11 But there is no excuse for service cuts and a
12 Job cuts when an unrequired dividend is paid.
13 THE ADMINISTRATIVE LAN JUDGE:
Do you have O
14 - a witness?
]
15 4
'i i
16 l JOHN G. GRAHAM, called as a witness on 'cehalf 1
17: of Metropolitan Edison Company, having been duly sworn accord-
'a 13 ing to law, was examined and testified as follows :
4 1
19 h i
20d MR. EURGRAFF:
Excuse me, Ycur Honor, before 21; we go ahead, is Mr. Graham testifying as to a general over-A 22] view of the September 16th order and various questions in i
23 that regard. or are we now offering him in regard to Mr.
i a
f
- 4 l Morris ' motion?
I arc not sura what is going on.
i 23)
THE ADMINISTRATIVE LAW Ji)DGE:
We cre hearing h
- !O M M E A CM &.
- A ?t HAL. I?!C. - 07 . LO C;U='e%L 7# AVE.
- HAPftI38UIi3. P A-IFTIE
80
- l; him new in regard to the Commissionis order.
ootat18stonsa 3onasoa:
8e9te= der 18th-O
.- h
,[
THE ADMINISTRATIVE LAW JUDGE:
September 18th order.
- i, t
MR. BURGRAFF:
Is it possible to get some 3;
6f guidance from the Bench as to what the direction of this exercise is?
7 :.
I take it from Mr. Morris 8 motion that he g
views this exercise as making some type of an attempt or the Commission is looking into the matter of service reductions A0
! and where thirty-five extra million dollars may or rcay not 1A ;
M come from to prevent this occurrence.
Quite frankly, the Consumer Advocate, we O
,3 1
t have not been apprised of the purpose of what we are doing
.;A :
here and I think we are becoming very confused as to exactly 15!
what we are trying to accomplish here and what the actual I
focus of this --
17 j THh ADMINISTRATIVE LAW JUDGE:
We have noted iG l, the motion on record anc tre have reser 'ed decision on that.
^
We now want to specifically deal with the matters in the 21 j September 18th order.
_ ll MR EURGRAFF:
I would reserve the right for 3
u.j 23 j us to respond as well to Mr. Morris' motion in however canner se are going to do it.
J 25' a
uom,eu u m,m. me. - = n. wow..uw m. - unmwa. n.
w=
Graham-direct 81 1
1 1]
DIRECT EXAMINATION g
2 BY MR. RUSSELL:
4 3 E Q
Will you state your name and address and t
d 4iemployment capacity?
L A
John G. Graham, 100 Interpace Parkway, 5l i
6 '. Paraippany, New Jersey.
I am Treasurer of General Public 7i Utilities Corporation and Vice-President and Treasurer of 4
3 GPU Service Company by whom I am employed.
9, Q
Mr. Graham, could you identify any financial 10 consequences that the September 18, 1980 order has added to
- the situation which obtained following the denial of Het-Ed's 13 request for extraordinary rate relief which then led to Mr.
13 Sraith's letter of September 12th?
ggg TodothatIbelieverequiressomeexplanatioh 3.4 )
A 4
13i of where we were financially that required writing the letter a
16 of September 12th, and while it is very new to us, I can give,,
17fsomeinsightsintotheeffectuponthefinancialprogramof 1Gj the September 16th letter.
19.,
I have prepared a brief exhibit that presents 20' the financial picture that is contained in Mr. Smith's letter 31 in graphic form and I think if that is distributed I can use 4
22 :; that as the basis for explaining where we were at least before 4
2.-y the September 18th order was issued.
lg
%]
MR. RUSSELL:
If Your Honor please, I have J3 l handed to the reporter three copies of a three-page exhibit yenuca c unsm. me. - ::. s.ocxwr.: ow rec. - n=nosuno..%
5:n:
Grahso-direct 82 1l which I ask to have marked for identification as Met-Ed i
A 2' Exhibit E-26.
V 3;
THE ADMINISTRATIVE LAW JUDGE:
It may be so i
4l marked.
E i
6j (Met-Ed Exhibit No. E-26, document beginning i
Met-Ed:
Short-Term Debt Outstanding and 7i Credit Available, was produced and marked l
for identification.)
S!
t 9.
SY MR. RUSSELL:
10 j Q
Mr. Graham, I chow you the docu=ent which has 11 been marked as Met-Ed Exhibit E-26.
Was this prepared by you 12 or under your supervision?
13 -
A It was.
14 {
Q Would you please explain it in connecticn with 15jyourtestimonyyouareabouttogive?
16l A
Yes, sir.
Referring to the sheet that has i
17 i two. lines on it, one dotted line and one solid line, this is i
18,
a graph of short-term debt starting from tcday through the 191f end of 1981 together with a projection of the short-tera 20.
credit debt that became available to the company as a result i
21 of the Commissients order.
22 [
The top line is the short-term debt, goes 22 from about ?83 =1111cn today to approximately $125 million 1
29fattheendof1981.
O 25f A very similar exhibit was presented in the k
- tCM1tCACM L RIARSME INC.
- 27 fL %CC:tW'.:.I.OW AVE. - HAftrt13SURO. PA.
1?t t a s
.a
.o
.- - m m m e-=m
= ~ - - -
Grahom-direct 83 0
4 interim case.
The numbers are slightly different because 2 j these numbers change slightly every time we go through an i
1
! iteration of our forecasting precess.
- 7 In the interim case the short-term credit i
9, line that was available was a straight line at $1c5 million.
3 6!
The Commission will remember that at the time 7j of the order in May the tanks were making available to Met-Ed 3 i $125 million in short-term credit.
By letter to the company in the middle of o
9, I
May, in anticipation of the May 23rd order, that was reduced 10 11 ' to $105 million.
As a result of the Commission's decision not 12 :
13 l to grant interim relief, the banking group switched its basis O g, to only being willing to lend money to Met-Ed a ainst liquid I
4 assets which they defined as the balance
.ae deferred 13
~ table to the pledged nuclear 16-energy account, an amour fuel, and if permis sion is received from both this Commission 17 18 'y z.nd from the SEC, a pledge of accounts receivable.
The first graph is simply the dotted line 19 i 20[showingtheshort-termcreditavailablefromthedeferred energy account plus the $20 million for the pledged nuclear n,
22 j fuel.
3 23 f At the end of 1981 there is a gap of i
i i
approxicately $100 million between the two lines.
- 9.,.,
I might say that when we were presenting the 23 H A M.9tS BUa 3. P A.
17812 McW:'cAcM & M AM SH AL. tMC. - 27 N. CSC:? WILLOW AVI. -
Graham-direct 8 14 i
1j interim case for $35 million, the way that that was designed 2; in essence was to get enough revenues between September 1 and i
3l
!&y 1, or April 15, that would allow us to reach the April 4! line on the short-term debt exhibit with $105 million of I
5i credit, and that is where the $35 million came from.
6 The'second page of the exhibit simply adds t
7l to the short-term credit $20 million representing the addi-8l tional credit from the pledde of accounts receivable.
The 9i effect of that is to give Met-Ed enough credit to meet its 10 l short-term debt requirecents through approximately March of 11 next year.
At that time the short-term debt line turns up i
12 j significantly because of the state tax payment that becomes lO ui due in Apr11.
I 14 i The third page reflects the reductions in 15 I expenriitures that are contained in Mr. Smith 8 3 letter of I
16l September 12.
What happens there is that at the point in I
1 17
, April or May when the tax payment is ride, we have reduced 18,
expenditures enough to be able to live within the available l
19 I credit, but very soon thereafter we run out of credit, in i
2G fact the next month, and by the end of the year we are still 21 some $30 million to $31 million short, and our belief is 22; that that can only be filled in by the completion of the L
23 l pending rate proceeding.
l 24 The amount of reductions contained in Mr.
25 l Smith:' letter was designed to make it possible to meet our
?!cHRD ACH & MARSHAL. INC. - 27 N. LOOKWILLOW AVE. - HAMRLSBURG. PA.
17112 l
Graham-direct 85 1, obligations next May, recognizing that we would not be able 1 ?to meet our obligations beyond that point without ecmpletien,lll l
3* of the rate case.
The rate case is scheduled to be completed 4
at about that time.
)
3'g I might say that these three graphs are fully J
6 consistent with Mr. Smith's attachments that have all of the
}
? ! numbers on them that show the amounts of credit available and 8
the ascunt of short-term debt.
- 'ith respect to the September 18th order, 9'
n 10 one of the changes that is found in Mr. Smith's lettar is 11pthat the annual level of expenditures at Three Mile Island 12 Unit 2 is reduced from approximately $100 million a year to 13 approximately 450 million a year, in other words, cut inhalf.ggg 11 14 j That can be seen en Attachment h, page 2, 15 where in the middle there is a line that is called Reduction i
Id In TMI-2 Clean-Up Program.
At the end of December 1981 the t
J i
17dreductionsare$24.8million.
$24.8 millicn is half of the i!
18 t! annual reduction because Mat-Ed owns half the plant.
A I:
19 e COMMISSIOER JOHNSON:
Excuse me, Mr. Graham.
20 h Are you referring to exhibits which were offered in the 1
21lrecentlyconcludedproceedingbeforeJudgeMatuschak?
22 l THE WITNESS:
No, Ccumissioner, I am referring k
23 y to Mr. Smith's letter of September 12.
4 1
24,
MR. RUSSELL:
That was Er.hibit E-25 which g
23fwasdistributedthismorning.
l
c HRi3 4cM a.*AM SMAL. I?fC. - 27 fl. w?'"Y'YIL: OW AVE ~ M AR 4t SDu rtG. 94
??ft:
Graham-direct 86 1f THE WITNZSS:
Now it is important to recognise, 3
as is set forth in that letter, that while the expenditures t
3j are reduced on an annual basis for the whole plant by $50 t
4 million, the net improvement in tin cash positten is not as 5
big because one has to anticipate less collection of insurance 6!
proceeds that would have been represented by the dollars that
)
7I would have been spent.
i8j On a cash basis the improvement is only 9' about $7 million or $8 million for Met-Ed at the end of 3
10 1981.
i 11 '
The quest _an now becomes:
hou does the 12 planned expenditure of $50 million that was expected in O
i enis letter or sevte= der 18tn tecome en asea dv the co==1==to =
3 14 3 order of September 18th?
15i And it was at this point that Mr. Arnold, i
16 i Mr. Clark and Mr. Hovey were explaining their difficulty in I
17 ) understanding exactly what is meant by what they can and I
i 18 '.
cf.nnot do.
19 On a very preliminary basis they said that 20 if there is nothing spent other than that which has to be 21i done at a very minimum to maintain the public health and v
22 3 safety, the dollars are in the thirties of millions.
I O
l 23 l don't know exactly where that is but it is probably between O
2+l*so"nd*=o=1111on.
25y on top of that, there are orders from the F10NR3 ACH a ? tait 9HA! tilC. - 27 ?!.1.3CKW1LLOW AVE. - l4ARRISBURG. P A.
17112
.l
Graham-direct 86-A
~
3 r
1j NRC that they believe they must comply with in order ':o be
- 7. f,in compliance with federal law and not violate the regulations h 3
of the Nuclear Regulatory Cor::nission.
l 4
They are trying to take a look at how many 3l more dollars that means in order to do things such as what 6 ' Mr. Arnold was expla'ining that the NRC says they must solidify 7l the residue that was the outfall of cleaning the water in G
Epicore II.
i 9,
I 10 (Transcript continues on Page 87.)
i 11 ;
12 j 13 3 g
f 14
- 15 i 16 l
17 h i
18 '
l 19 fi l
20 i
i hk mk u,
k b
25 ]
4
?'cHR E ACH S MAP SMAL. f? C. - 07 ?I. f.DC%W:!.L3W A 'v 2. " HAMP.!SBUR G. P A 17tf2
Graham 87 4
i li New I don't know exactly how much below l
(])'
2 f $50 million on an ann':al basis we may be able to go as a 3 ; result of the September 18th order.
4 n the first place, we have only had the order I
i 5 a for four days, and in the second place, frankly, there are 5 g very difficult problems of how we ccuply with this I
l 7l commission's mandate but att11 comply with the requirements l
N
{
G l of federal law, and that is the quandary that Mr. Arnold was i
9 explaining earlier.
d 10 '
When we understand that better, we will be 1
11 able to replace the $50 million number with scme other 12 number I assume it will be somewhat lower.
1 13 We will then have to offset that by Icwer
{)
14 j anticipated insurance excenditures and then divide it in l
,6 if { half because half of it belongs to Met-Ed.
?
15 1 That is the number that would have an effect 1
17.! uron short-term debt at the end of December 1981 for 13 {
Hetropolitan Edison Company.
19 ]
We will do that, but frankly, it will take 3
l 20 4 some time to get an understanding of exactly what this I
)
Si l Commission intends and expects that we will do and what it ist M
4 22 j that federal law intends and expects that we vill do.
I 23 j That will bring some change to this, and a3 ii a
t
{}
2.;.
Mr. Smith said, if'we can,- if we have mere dollars available '
23] because they are not spent at the island, we will try to
- I emucu a :.wxus txs. - rr x. c.ncmu.ovi wr. - wumsauno. n.
m in
-e c-e -,--
-,,y--+-
,.-m-
=.-
+ - -.
, - - + - - - -
-+-
w--
Orahas 88
=
4 a l spend them on the electric system aasuming they can be made I
I available to us.
gg l
3 BY MR. RUSS ELL:
4 4
.u 9)
Q Mr. Graham, could you just clarify briefly the d
35 impset on Met-Ed's cash flow of cutting back on exoenditures C 3 a t Ti4I, including the insurance offset?
8 4
I Mr. Smith's letter and his forecast,f 4
7j A
Yes, sir.
I 8 ) Exhibit E-25, anticina ted scending $50 million 9 year.
9 4
l 2l Let 's say th9t as a result of the Commission's ;
j i
10:] order that could go to 140 million a year.
Let me say that l
I j
'1jthat is just an example until one understands better what f
a f
IIl it is that we must do to comply with the Commission's order a
)
I3 l but not violate the Atomic Energy Act.
1 am not sure we enn i
!e 14 focus on a number.
i
'6 If it were $10 million, cffset against that i
i 16' would be some reduction in insurance croceeds, and I don't I
t 17I kncy exe.ctly what that number would be, it would depend uron ;
j 13 2 what activities were eliminated.
I id i Let's say that 60 nercent cf it would have 2C(beenrecovered in insurance proceeds.
That would leava f
3 l
i Li j 14 million in sa rings in cash.
Het-Ed owns half the c 19nt,
23, That means that ilet-Ed would save 32 million.
Z' A nother way of looking at it is if one looks 1J ; 9t my exhibit, you would reduce the $125 millien line at che i
23 $ end of 1981 to $123 million.
I r enew a m, s~m_. me. - n ". t.ee<mu.ov avz. - wm nu.~s. m.
-ne
O rrih:m 89 T
I What I am trying to say is that because we
$ have cut $50 million out of the clean-up effort at Unit ?,
3 and then we get down to the coint that anything more that we 1
4 f cut is offset by insurance, and because Het-Ed owns half the 5 f, plant, there will not be tremendous numbers of additional 0I k
ollars that will be saved.
d
'I t j
Had we not already cut 350 millten out before G
the September 18th order was entered, then you would see a 9
very significant change such as that which is secwn in the Nl attachment to Mr. Smith's letter, Exhibit E-25.
l 11 i MR. RUSSELL:
I believe that is all we have l*., i4 of Mr. Graham.
i 13 l
I'If BY THE ADMINISTRATIVE LAW JUDG5:
)
13 )1 i
Q Mr. Graham, how many emuloyees are cresently a
Ds used in restoration and clean-up of TMI?
U A
I don't know.
I believe Mr. Clark is att11 1G here and I think he may be able to give you an answer to 1.? j that question.
N i I might say, however, that I think very, very 21 few are involved in restoration.
I think that thero are 1
U large numbers in'/olved in clean-up.
.l n< q But the definition of that term is a very j
a M
Q important one in answering that question.
- -> j Q
Regardless of what term you use, how eany-vens.e 2 unonu us. - n v. uew.mi..w Ave. - wmnuno. n.
um
-=-.-_
iraham 90 e
Jt I l emuloyees are cresently u3ed in T:!I-1 and TMI-2?
i n
A I think Mr. Clark can answer those questions. lll 3l 35 Q
' dill you ascertain from him?
l i :i.
A Mr. Clark was sworn te a witness.
Perhacs a
5 ) we could join me.
,1 00 THE ' A DMI.NISTRATIVE LA'd JUIGE:
Mr. Cla rk,
b 7 j will you?
You can just sit there with Mr. Gr9 ham.
3 3]
How many employees are chysically emoloyeed j
9 i at TMI-1 and TilI-2 in whatever capacity you call it,
- 1 10 j restoration, clean-up, whatever you cay call it?
11 '
MR. CLARK :
In order to give you a precise
~
12 i number, sir, I would have to look it up.
1 13 [
THE ADMINISTRATIVE LAW JUDGE:
Iamnotaakingg i
14 '
for 9 precise number.
You can tell me whether it is a 15 thousand, two thousand, 1500 or whatever.
O I
16 }
At TMI-2 I would estimate of the l
I?
order of 500 and TMI-l I would estimate of the order of 400 l
l 10 j employees of the company or of the system.
l I
15 l THE ADMINISTRATIVE LAW JUCGE:
900 emotoyees. I 1
1 MR. C LARK :
Now that is emnioyees.
It does 7.0 1
J I
31 l not include contractors or other ceonie working on those 4
.3I] units but who are not employees o" the system.
l e
'?'
THE ADMINISTRATIVE U,W JUDGE:
Those are 1
1 ;. t cc=pany emcloyees?
.",3 lt MR. CLARK :
The numbers a gave you are
..%M*B AOJ4 & t1 A?! IM AL. ";c. - 27 l ' M "!NLOW AVE ~ NA M SU'J M. M.
f 71 M
I Graham 91 T~
9 1
company employees, yes, sir.
O 2:
MR. e^RASca:
Your sonor, e eterifstne i
3 question.
Is that GPU company or Metropolitan Edison Comoany?
1 4l THE ADMINISTRATIVE LAW JUDGE:
It is both U
5 because Met-Ed has half of that number then.
I mean Met-Ed 0*
owns half of 24I-l and 2.
i 7l MR. CLARK :
The majority of the oeople working 3 l on 'IMI are in fact employees of Metrocolitan Edison Company.
9 k The numbers I gave you also included a number of GPU Service 3
10 0 Corporation emoloyees and cerhaps a few other system i
11 ;
emp loyees.
12 !
But they are mostly Metropolitan Edison Q
13 employees, some service corporation emulayees.
14 {
THE ADMINISTRATIVE LAW JUDGE:
Well, if Met-Ed 13 $ owns 50 percent of 24I-1 and 2, then Met-Ed 's obligation d
Mi would be balf?
17 ?
MR. CLARK:
Yes, sir, half of the cost would I
i o j go to Metropolitan Edison.
I
.1 19 l COMMISSIONER JOHNSON:
Regardless of whose l
9 l
20:
employees they are, Met-Ed or GPU7 M li MR. CLARK:
Yes, sir.
- 1 1
22 y THE ADMINISTRATIVE LAW JUDGE:
The cost of
?
23 employment of some of : hose people wculd be paid out Of i
- 24. J insurance proceeds?
75l MR. CLARK:
Yes, sir.
I a mucx a uusaw. me. - ar :r.. weamu.= m. - we ww.mc. m.
tmc
Graham 92 d
1:
THE ADMINISTRATIVE LAW JUDGE:
Mr. Dicekamp, X
I "!
I believe, in the extraordinary rate proceeding indicated 34 that some 700 or 800 Met-Ed employeas would have to be 4) reduced on the TMI effort.
5)
MR. CLARK :
I do not believe that is correct,
'r 6
sir.
I believe the testimony was that 700 people would have j
1 7!
to be laid off but that the majority -- and it has been our 1
'3 i hope that cerhaps all of those on the TMI -- would be from 9
contractors rather than from employees.
j 10' MR RUSSELL:
I think Mr. Dieckame's i
11 I terminology was so many jobs distinguished between ecmcany 12 l employees and contractor emnloyees.
13 k THE AT111NISTRATIVE LAW JUDGE:
I see, very lh 34 well.
15 l BY TdE AD'1INI3TRATIVE LAW JUEGE:
3 I
10 ;
Q A ll right, Mr. Graham, the extraordinary rate !
I 27 i]proceeding requested $35 million in extraordinary rate s
E6 relief.
Now that was at an annual rate, is that correct?
19 A
Yes, sir.
20 )
Q So that from September the 1st to the end of a
~31 i April the amount recovered by the comeany under that I
'i i
?2 j petition would a= cunt to 335 million, wouldn't it?
l
'dl A
No, it was abo'It half that, about $17 million,!
1 L f d sad as I recall, if you added that to the $105 million or h
,.w credit that we then had available, thal got you up to
'4 0 H**S AC1f f., ! U D &l4 Ab. I?tC. ~ 27 M. '.ec.!WtLLCW
.*.YT. - ;4 A.at etf C OLJ'tc. ? A.
17112
~
._- ~
haham 93 A
1; $1 to 2 million, and I think we were projecting that our O
2! neede or credit in aer11 were aust ebout thee nu=ber.
I 3l Q
About $17 million would have been received 4 f by the end of April.
New under your cutback proeedure, d
5 l though, by the end of April you are indicating that you cut
,'l i
- , back $3!* million, almost $35 million?
?[I A
Tha t is right, beca us e --
e:
i Q
Didn't you perceive that your actual need was 9
closer to $50 million?
4 10 )
A Our needs were not.
What you are lenving cut i
11,!
of the equation is that the Commission's action created a 23 confidence crisis within the banking group, and they went 13 from allowing Met-Ed to lean us $105 million, to the uoint 14 where they are giving us only a declining amount, of credit, U ) which is going from about t90 million today to about I
H 16
$29 million at the end or December 1981.
't 17 3
.On top of that, if we get permission to
'l 13 plcdge the accounts receivable, they will give as another 19 j
$20 million.
204 That is why on my Exhibit E-26 the dotted h
31j line declines so rapidly, whereas that line used to be 9 flat l 4
i
- 32) line.
U[
Frankly, Your Honor, I think that is the j
O
,jotecetue"eeaot ee9uetets commuuicetea or oaaerstoos ta I3I the interim aonlication.
l L
mnua w.amt me. - er n. s.esumu.ow w:. - manwaux, n.
m :2
3rahoo 9 14 i
i 1-I tried to explain that we did not know that l
$105 million would be there, and on Sectember 5 the banks g
3 ! informed us that $105 million would not be there.
4 'h Q
Well, the bank indicated to you at that time,
_a 3 ! at the hearing on that cetition, that the $105 million would 2
0 ] be reduced in any event, whether the $35 million wa s granted ;
7 f or not.
"m A
They said that the $105 million would be 3
reduced less with interim relief.
I 10 l Q
Yes, but they said it rould be reduced to L
Ul some extent whether any relief was granted or not.
i Ui A
Yes.
And let me say two things about that.
l a
13 '
First of all, we believe that we could have 4 M
negotiated witn them an amount that would have been i
a3 sufficient to deal with the troblem in the spring without 1
6 16 i making si6nificant cuts in our coerations, although 17 l
nrobably some cuts would have been required, j
l I
13 l In addition to that, the statetent by the
'h f
l 10 0 banks that that would heccen was first told to us in i
l e0 connection with the preparation of their testimony in the 5
j 31 interim case.
We had not been informed of that before that i
12 4 time.
6 M
MR. BARASCH:
I have a couple questions if I l
Mi could oreliminarily.
i w
1 8
v mucx a >:s.ms. inc. - xr n. tacmu.ow wr. - tw.awo,.. m.:n l
Graham c3 i
i 1
BY MR. BARASCH:
k
,Q 2
Q Mr. Graham, a little eallier this afternoon I V
i 3 j was trying to ask Mr. Smith some questions that he kicked h
4} g over to you --
I 5g COMMISSIONER JOHNSON:
We can't hear you, sir.
4 6f THE CHAIRMAN:
Sceak up.
? <s.
MR. BARASCH:
I am sorry.
I' I
8l COMMISSIONER JOHNSON:
Do you have a f
9!
microphone there?
i 10 y MR. BARASCH:
No, but I will sneak louder.
11 THE CHAIRMAN:
We knew you had it in you.
i 12] BY MR. BARASCH:
i 13 l Q
Mr. Graham, assuming for the sake of agrument S
.14 that Metropolitan Edison and GPU could cease booking 15 q decreciation on 'IMI-l and 2, is it safe to say -- let me 16 rechrase that.-- would such a cessation of depreciation t
17 ;
expense have any impact upon the cash flow of Metrocolitan i
18 t Edison vis-a-vis the revolving credit agreement?
19 A
I don't believe so, but to give you a full 2G $ answer I would like to give some explanation of it.
t 31 As you know, changing depreciation does act l
02 / change cash.
It would change reported earnings, assuming i
M"fthattheresconsibleaccountingofficescouldacceotthis f
g 2:; j Commission's order in that regard and the FERC has U
i I,3 d significant things to say in tha t regard.
IAOFfr.E 40M & MAR SK.'sL. I.C. - 27 M. LOGIIWfI LOW AYT. - H.C.".f35UR3. FA.
17113
Graham 90 3
2 1l The question would be whether the banking G
3 3 group would perceive a change in decreciation as the kind of ggg 3
a favorable event that would lead them to have more 3
0j confidence in the future of the comoany.
1 5,
I hate to talk them out of something, but I C' -
don't know why they would.
9 d
7l The Commission has refused to give us
'l 6
revenues for decreciation.
>y Essentially what the banks would see is that 4
10 l we would be expected to keen those assets on the books.
1 11 j There is great ambiguity in their mind as to the Commission's 15 !
intention with respect to the recoverability of the TMI i
12
-* ] investment, anyway.
14 And for the Commission to say, let's make your i
15$earningsbiggerbyputtingthatquestionoffawhile, 1
16j frankly, in my mind, is unlikely to get them to give us more 4
'ljcredit.
'l 16 BY MR. BARAS CH:
ti
--4
!> i Q
That was not where I was headed with my IC' j question.
Just put simply, unless there was some other 7
31!consequencefromthebanks, some other intervening event,
l 32 ] the cessation of depreciation expense by your ccmcany would
'3Il have no impact whatsoever uoon cash, it certainly wculd not 1
4
!a ; helo your cash position.
.j
'3j A
It would do nothing to cash.
{
A meu a e :anxv.:.. nr=. - a n. e.e :ew <.~ x s. - nm.uom. n.
mn
oraham 97
}
1 i Q
That is right, it would not have any effect o
,i
" 3 up'on whether or not you are, quotes, in the black, in terms 3,l of your credit line, would it?
4, A
I don't know what that term means.
i 3;
Q Well, that is the term that came up when i
0 Mr. Smith was being crossed.
I think it means staying within 7f the credit line whatever the credit line would be.
It would O j have no impact on that at all, right?
9 A
Unless it changed the amount of credit that 10 was available.
11 !
Q Assuming the amount of credit stays the same,
.i U b it is not going to affect anything?
'\\
13 !
A Tnat is correct.
h 14,
Q But it would have a potentially positive l
13)impactonyourearnings,onthecaperearningscosition, 1
i i
10 3 correct?
.73 A
If accepted and acceptable by the accounting 2
13 ) profession, it would increase recorted earnings.
J I
19 h Q
Fine.
20 A
But we are not issuing securitias and the 31.-
only question is whether an increase in reported earnin65 l
3 l
1 22 l gives the banks a level of credit.
My judgment is that it
- I M!wouldnot.
}
i t
O I
\\._./
24 ].
Q Now a few minutes ago, Mr. hafer distributed j
.4 25t some graphs that you were testifyir.g from.
4 McMRSACM 1 MAftSMA1, FtN2. - 27 M. LCCIN/fLLOY! AVE. - 14APtftiseUft& % 17112 l
3rahsm 93 1
5 11 MR. BARASCH:
Mr. Russell, they were not lg 2
marked at Exhibits --
3 MR. RUSSELL:
They were marked for 4 f identification as Met-Ed Exhibit E-26.
5 MR BARASCH:
The whole three-page package?
5k MR. RUSS ELL:
Yes.
7fBYMR.BARASCH:
3[
Q If I could refer you to E-26 for a minute, J
9 Mr. Graham, under any of those exhibits, what assumrtion is 10 made in those exhibits regarding the return to service of i
11 a TMI-l?
i 12 h A
It is. assumed that TMI-l returns to service in 13 the middle of next year.
<st 14 Q
July of 1981?
1 15 }
A Yes, sir, i
15 )
Q So if I were to take a look at the various i
17 j gaps between the available funds and credit lines, they l
i is l would all be greater if TMI-l does not return in July of I
- 52next year?
l
'i 2Oj A
Could you repeat the question, Mr. Barasch?
.i
'31 1 Q
Taking a look at the various lines of credit i
1 1
22 versus debt shown on those three pages, the gao would be a l
I f.; > greater gap than aopears here if TMI-l in fact returns later l
33 than July 1 so this assumes a return of July 1 and anything i
i 25., af ter July 1 would make ~ every single one of these gaps look 1
w-se a ausac nic. - :s. i.owu u.m ws. - mmsww. :v-tme -
i I
3rahsm 99 b
1fworse,isthatcorrect?
O E
d 3j A
Yes, sir.
I was' confused because of the use 1
5goftheword,creditline.
l
?yl The short-term debt requirements would be G
53 increased somewhat if TMI-l is not returned to service.
N 6I In the case of Met-Ed it is about $2 million I
7!
a month or so that would increase the credit requirements, b
8 l assuming that the recovery of energy cost is kept even, and 3
1 9 f of course, decending upon what the rate making action of the 10 ;
Con: mission is next spring when the pending rate case is i
11 l completed.
1 13 {
Q Referring to that next rate case, that leada 13
{;
to my next question.
If I were to look, for example, at the 14 f third page of that three-page exhibit, you have a line that 15 shows short-term debt with reductions and then a dotted line 16:
that shows short-term credit with receivable uledge.
i 17 'f Now I gather, assuming the company implements 13 h its proposed cuts, that solid line i nat runs across i
19 relatively constant after April of 1981, tailing down 20!
slightly to the right at approximately $90 millien level --
1 314 do you see that, sir?
3 22 f A
There is a line at $75 million at the end of 23 i 1981.
The black line showing the reduction, the one that is
()
24 f termed short-term debt with reduction.
25)
Q I am having trouble reading the grauh.
I
!ACH5tSACH & MARS *4At ftfC. - M PL t.4CKW1 LOW AVI. - HARRISEUMO. PA.
17112
Grahara 100 s
7 i
1l A
I am sorry.
Yes, sir, I see that line.
1 isbasicallywhereyourdebtrequirements{ll 2j Q
That 3
Would be with the scheduled reductions, correct?
.s 4$
A Yes, sir.
3l Q
Now taking a look at the dotted line that lies J
d ' underneath that and slopes down to about the $40 million t
7l range, that represents the amount of credit you excect to G
have in the latter part of 1981, assuming the banks stay 3
9 j with you, and the accounts receivable pledge?
l i
i 10 <
A Yes, sir, and assuming that as a result of i
9 11 $ any rate order that would be granted the banks do not feel i
a 13 j more ccafortable and therefore extend more credit.
In other i
13 words, if things stay as they are that is where that line 14 j goes.
1
_.5 5 Q
now that you have tied it to the rate case, 16] What level of rate relief is imolicit then in that grach?
27 j A
All that I have done is out EfI-l back in at a
16 } the level it was removed on July 1.
Other than that I have j 19 5 assumed no rate relief.
i 20 l In other words, the assumntion here is that j
i 21:1 T:C-1 -- I am sorry, my teonle are correcting me -- va
'l
?2 j factored all base rates out of this including HE-1 base 1
1 13' rates.
i 9'
There is no base rate relief in either of tne ;g
^
,W i
75 ;. black lines.
3 i
1 M ar. SM AL. fif 3. " 27 ". 'JWNSW M* ~
>% W M N N-13'I ?1 A
-WOHNSA4C
Oraham 101-a 4
i If Q
Either the solid black line or the dotted l
i 3
black line, is that what you are saying?
l 3,{
A That is right.
I should correct something I
.)
4 j said earlier to you, Mr. Barasch.
If TMI-1 does not return, l 5
3 l the black line stays the same, assuming that the recovery of f 5
6 energy expense is kept current.
j 7j You had said if TMI-1 does not come back, all i
?
i 3
these lines go up, and I agreed with you.
j q
Q Well, let me correct that.
That wasn't the go? question.
I am talking about the gao between the solid line j l
gg ;
and the dotted line, whether the gap iner eases or not.
Thati
. ig '
was the question, not whether a particular line goes up or j
13 l down.
If you want to try and give me another answer --
l I
24 [
A The gap does not increase or decrease as a 13,$ result of the non-return of Unit 1.
g l
0 i
n4 Q
Assuming that. full cost recovery continues?
i i
17 j A
That is correct.
i i
i 13 y Q
Turn your attention.just to one last area for!
4 13l the moment, to the insurance issue.
I believe in the i
i t
?;0 i extraordinary rate relief proceedings we discussed the whole i k
l n ] question of an attempt by Metropolitan Edison and GPU to get '
i I
3j ;} T2C-2 declared e. total loss.
Do you remember that, 9
23iHr. Graham?
.f 3
t 9
5 A
I talked about a constructive total loss i
34 i
2; f within the meaning of the policy, such that we would oe abl'e 1
woH=uusu a :</. se.AL rNc. - w n. Loc 4Wrt:.sw es - P.awascuna. PA.
tr:tc -
G raham 102 1 } to set up a firm schedule for the recovery of the remaining 4
k t
n' g
2 insurance dollars, 1'
3 Q
My question is, I believe at that tice some i
6.] sort of request had been made of the insurance carrier and o
e 3
no return communication had yet been forthecming.
Dc you 4:s i
dj know where you stand now in terms of Settingthatdeclarationl 4
C
?1 by the insurance carrier?
5s A
I don't think that accurately characterizes r
]
9d my testimony at that time.
I think I said that I intended
)
l K $ tc u1scuss that with the carriers.
.1 1
4 n1 I have ananpointment in the first week in j
i r
4 i
n j October with the carriers to discuss several insurance issues!
4 i
a 13. relating to Three Mile Island, and that is one of the items l
M J that we intend to present at that time.
E i
i 15 Q
Oo I understand your insurance recovery f
16 process correctly, let 's say you have a hundrec' dollars e
i l
74 vo rth of extenses out at the island; you have to exnend thac t
l 10 ' money today and then send the raid invoice to the inarance l
l l
9' carrier who then gives you some piece of that is than i
3 Cr; c o rrec t ?
4 I
g A
No sir.
It is a much more como. lex bic.;er operation than that.
l At the end of every month all o f the dollnes that. have been spent at the island are audiue? and Nvia,ed 2
sud categorized ay a group the a 'te have within the accpc.ny 1
-O:02.:7:,
55.-' C': AL. :t: C. - T M.
'.O T ??ki 'i' A7L ~ M "s.UI C'.'": %
??..
- 71:
.... ~._ -.
Grahan 103 i
1' that consists of some of my neople from the insurance side,
()
2 sone people who understand what is being done at the island 3
from a technical side, and some accounting types.
4 They then present that material to a groun 3i from the insurance carriers who go through the same kind of 6
an exercise.
l 7
Every three months those groups sit down with 1
6' their principals and negotiate and agree what was covered, 9j what was not covered, and settle upon an amount of dollars i
10 i that will be allowed in that period of time.
I 11 l What we have done for forecasting purposes is 12 use the kind of percentage that has come out of that to look
()
13 at what will happen into the future.
14 Q
But put simply, the company is expending 13l dollars currently, and it is on some time delay, as you just i
16' described, budgeting for a receipt of a portion of that i
17 t amount on a relatively current basis?
18 A
That is.right, i
19l Q
But only a portion of it?
t 20!
A Only a portion of it because not everything 31 N is insured.
l 22 Q
Or either is not insured or you don't know 23!
whether it is going to be insured, but, in either event, you
)
()
24j cannot assume you are going to recover a hundred percent of 25j every invoice that you send out from the insurance carrier?
M9HR2ACH & MAR 5 MAL. INC. - 2F W LOCKW11. LOW AVL - MARRISCUftG. PA.
17713L
[
GFaham Ytf4 Ef A
No, rather than thinking in terms of invoices,
- j at the rate of $5 million a year a t the 1sicnd, a big tortion i
3l of that is wha t would be ca lled ordinary oper9 ting a nd 4j maintenance expense.
3l Q
Which is not recovered?
5 0
A.
That is not insured, bec9use the idea of a 7f property insurance policy is they pay you for what is extra,
t 3 f a nd, very f ra nkly,. hat is one of the things that gives us i
9 j very great concern about the September 18th order.
We don't i
10 : know where that number of dollars that is in the thirties 1
11 of millions of dollars a year falls as regards Paragraph 1 13 l of the Ccmmission's order.
13 k Q
I am.iust trying to make this relatively llh 19 j simple so that I understand what your situa tion is with 1
15 ;) insurance.
9 16 d As you lay out dollars today to your va ricus J
17 creditors for cayment fo r clea n-un, you don't know ex9atly l
18 l wha t portion of those. dollars a re going to be ultima tely 1
19 l recoverable from your insurance carrier, do you?
i 20{
A No, that is correct.
8 l
21' Q
And you are recovering something less tha n t
1 22 ( current on that basis, correct ?
n 23 0 A
Yes.
l I'
24A Q
Now the difference between the amount of 23 i money you a re expending and paying to your creditors, and 1-
.... wen a manswAt. exe. - r x.
eens.ow xes. - wawsoiuns. pr. :2sta
G raham 105 P
i 1
the amount o f money you are receiving from your insurance O
2r arriers on a time detay.
here is the money for that comins c
1 3I from?
Tnat is being financed, isn't it?
l 4i A
It is being financed and cur only source of 1
3 h funds is the banking group, so it is being financed out of 6
those dollars.
7l But I might say that up until now that lag i
8' 'has not produced a very big number of dollars that are being 9
financed.
10 !
MR. BARASCH:
Thank you.
I have nothing else 11 I at the moment.
i 12 j BY THE CHAIRMAN:.
13 q
I have a couple questions.
You twice referred 14 l to the bank's actions as being eitner a confidence crisis in
(
15 h the Commission or a failure of the Commissio n to grant l.
16!
extraordinary rate relief and therefore the banks have 17 '
decided to take the action they did.
18 Isn't it really more accurate to state thst 19 the banks took the action they did because they are now 20 aware that what they read as the Commission's intent within I
21 the May 23 order, which is that they get some of the money i
22 back, that you would be collecting through that deferred fuel 23i surcharge over and above what you owe them on a month to i
24 month basis, was not occuring, and, frankly, isn't it a1so 23faccuratetostatethat even had the Commissicn granted that i
~
.MOMR9 Ac4 e id AMsMAL. INC. - T/ N. LotW/11.CW AYL - MARRISSUINS. PA.
ffM2
Graham 106 h
1 S35 million in extraordinary rate relief, it would not have 2
incroved the comrany's earnings to a coint where the banks i
3 J could say there is an improved earnings ricture?
4 A
Not in my view.
I disagree with both state-3 l ments you heve mede, Comissioner.
In the first place, 1
6 l $35 millien 2 /ea r would h9ve tnken Met-Ed from losing about 1
7 E $9 million on an annual b, sis to the point that Met-Ed would 3l have been earning about five or six millic,n dollars a yea r i
e 9 ) on an annual basis.
10 So from the point of view of a banker, funding 11 ] into a losing company is a very, very difficult matter.
n 12 f I agree with you that it would not have 1
13 improved earnings to the point that we would have two times l
like!@
14 l coverage and access to long-ters debt markets and things "4
13{ that, but it would have gene a long way to get rid of them 16 *i having to fund a deficit.
j 1
s Second of all --
17 j 1
18 ]
Q The deferred fuel.
l 4
2 19 4 A
Yes.
I don't know how to say this without i,
20 ! appearing tco critical of the Commission, and I understand j
I 21 your problems as much as I think you understand ours.
If l
221 you go back to the May order, th e b anks s(w, in my view, 4 23 ; very positive decision of the Commissica to keep Met-Ed in i
241 business, and a verv positiv.: decision to a llow the i
,G 25i recovery of the deferred enargy very quickly.
l
- 2 acuacAcx a aAnsur r:c=.
1; n. t.oesvr.uow Av:. - HAnmssuno. n.
tme
Graham 107 1
On the other hand, they saw $27 million taken nV 2
away from earning power.
They saw the a ttachments to the 3); Staff 8s exhibits tha t said that the Staff seemed' to agree i
4) that there was on the non 'IMI plant twenty four or twenty 5!
five million of rate relief that they had no difficultywith.
6 And, frankly, the big question that the l
~7! bankers kept asking is: why did they give you so much for i
8I deferred energy and hurt you so much on that $24 million or 9
$25 million?
Why didn't they just give you the energy over 10 ;
four. years and at least not put you in a losing position?
i 11 !
What we kept saying to the banks was: hold on, i
12 l we will do what we can.
I
(
13.,
- A nd, frankly, the interim application was our I
~
14 l s econd bite a t the apple.
13 l Q
So you are saying that in all instances 16i getting money back over a longer period of time would have i
17 '
been more beneficial, that instead we should have allowed
\\
18 you to recover over four or five years instead of over 19j L8 months?
20i A
Tied with the ducision to put Met-Ed in a loss.
31' position, yes, and that is a very strange thing to say.
22i But I can't emphasize how hard it'is for a 23 group of banks, some of which are relatively small O
24l institutions where the directors read the newspapers all the v
4, g
25!I time, for that group to stay with us when we have been put l
sewasca a unsw inc. - ar n. i.oexwiu.ow Ave. - wAnaissirea. PA.
svi t -
GYaham EUs 4
i
)
1l into an absolute loss position, we are losing money cvery day, i
O 1* And that is the basic problem.
1 h1 If we were just holding even, I think it would 3
4 have been different.
i 5 ! BY 'IHE ADMIllISTRATIVE LAW JUDGE:
0i Q
Mr. Graham, wasn't one of the objections the i
7f banks had when their witness testified at the extraordinary l
l
'3 i rate relief case was that the deferred energy that Met-Ed was t
9 collecting, which they assumed and they were given to IO understand would be used to reduce the short-term debt, was 11 l not in fact used to reduce the short-term debt, so that the 12 [ company was dissipating those assets upon which the bank had i
~
13 made the loans, was dissipating those assets for other A4 purposes?
Wasn't that one of the big items that the 15l witnesses for the banks testified in that case?
You were i
IC' h, he re p re s ent.
17 !
A Very clearly that is what was happening.
I i
i l
18 j see it a little bit differently.
What is happening is that l
'l 19 ) I cannot pay off the loans because I am losing money every l
I 203 month.
I am trading that loan as being a loan to fun.
I i
El{
deferred energy to become a loan to fund a deficit.
j a
l 22 j Now there are other things going on --
l l
il 23 l Q
You were not paying back the short-term debt l
24~
because some of that money was used on the TMI.
25 A
Very little of it, Judge.
b
- u. mom e. msm r>m. - = n. t.os::wu.i..w xn:. - mmesm. n.
m ia n
Graham 109 1
Q You estimated $7 million to the end of this 1
21 year and $17 million next year.
3 A
The $7 million to the end of this year is a 4
little over one month's recovery of deferred energy.
5 Remember, we are collecting that deferred energy at the ra te 6
of approximately five or more million dollars a month.
7 The big place where that money is going is 8
to fund the deficit of the company and to serve the electric 9l system in construction on the transmission and distribution i
10 [ side and the C&M expenses associated with the transmission i
11 }
and distribution.
That is where the money is going.
12 C0141ISSIONER JOHNSON:
Judge, may I ask a j
13l question?
14
. THE Arl4INIS'IRATIVE LAW JUDGE:
Proceed.
I 15 l BY COM4ISSIONER JOHNSON:
16 Q
Mr. Graham, is it not a fact that during the y
17 ':) Ehase 2 proceedings the ccmpany proposed to the Commissio t
i 18 '
that it favorably consider giving the company the right to.
19
^
recover the deferred energy cost over a five year period, 20 amortized over that period, is that correct, or is it four 21' years?
Four' or five years.
22 f A
I don't recall tnat.
I thought thu Staff 23 !
picked four or five years.
I thought we picked something 1
2 24 like l'4 months, representing the period over which we had 25 h accumulated it.
E
- .ios tBACH 3 MARSMAL. INC - 37 M.' LOCKW!LLOW AYE. - MAARie8URG. PA.
17f12
Graham 110 3
1f I think also it is very important to recognize t
I 2
that in making the recommendatit.n we did, we were arguing i
9 3 l' that 'IMI-l should not be reduced from rate base which 4,
reduced our revenues by $27 million.
3,f I don't mean to be critical of the Commission,
,0 G
because the fast renovery of deferred energy, given the 7 j TMI-1 decision, was a prerequisite for survival.
?
Of Q
A fast recovery?
9:
A Yes, sir.
10 l Q
You are ree'overing what?
I 11 l A
The deferrr:d energy, cash.
12 !
Q The deferred energy debt.
Why is that a debt?
13 )
A Because ve had onid for the fuel 'out had not O
14 been permitted to bill it to our custcmers.
13 (
Q You had paid for the fuel?
Out of what funds?!
1
't6 !
A Out of funds borrowed from the banks.
17 '
Q I see, funds borrowed from the banks.
When i
la this Commission at your request permitted you to recover the 4
i 19 3 deferred energy cost over scme 18 months instead of a longer I
20 i period as had been proposed -- I thought it was 'oy the 21 g company but ycn say it was not -- 18 months -- it was, was D
22 3 it not, in response to your request to permit you to pay a
23 off the deferred energy debts?
j 24:
A The answer is yes, but there have been a lot a
G
- 35) of things that have happened since that time.
Ptm ACH & Mast 9FAL. MC. - 17 & LOCMYl5LLOW AYZ. - HARMIStVRG. P A ! 711 ?.
.~.
Graham 111 r
I Q
Uell, wait a moment.
Just a coment, sir.
Do 2 l you not. regard the Commission's action as a response 3g request to be given this money to pay off the deferred t
4l energy debt?
i 3!
A No.
l 6
Q Then why did you ask it?
7 A
Commissioner, I regard --
1-8 Q
It was not, I am sure, an effort to mislead
- 9). the Com=ission.
i 10 "
A Commissioner, we asked in that proceeding to 11 {
keep TMI-l in rate base.
We also asked for amortization of i
12 l the deferreti energy over some period of time.
1 0
13 !
The commiseioa toox Txr-1 out of rete dese.
1
.14 f The simple fact is that without an amortization such as 1
15 p 18 months we would not be here todsy to talk about! it.
16l Now I don't know how to characterize that as 17 having been in response to our request or not.
I do know 18 !
that the removal of TMI-l was not in response to our 19 request, and it is that event that caused the most l
20l significant change in the willingness of the banking group q
319 to stay with the company.
0 22:
Q How much of a loss in revenue did the 23.4 company suffer as a result of that action by the Commission?
i hs 24 f A
$27 million a year.
25!
Q Can you tell this Commission now how much at i
E MeHM3ACH #s FJ A8tSMAL. tNC. - 27 N. OCCT.*/RLOW AVE. - 14Attttl3S'J8tG, PA.
T71 Mt
Graham 112 1
that time the deferred energy debt vas?
2 A
About 689 million.
I 3
q About $89 million, equated in terms of months i
4, A
It is about 15 million a month, Ccmmissioner.
5l Q
About $5 =illion a month, MO million a year?
i 0'
A That is right.
7 Q
More than twice that amount.
I put to you, O
can you tell this Commission how much to d.ite you have raid I
9h anybody on the account entitled Deferred Energy Debt?
?
10.
A I have reduced the loans of Met-Ed from --
11 Q
For this account I am talking about, only I
i 13 l this account.
t 13 A
There is no such account.
There is no tagged g 34Iaccount from the banks that says deferred energy, 3
15 j Commissioner, 16f Q
But you have an item called that?
i.
17 l A
Yes, sir, and I have paid down --
l 18 f Q
And that item is pervasive throughout your 19 evidence and testimony and arread all over the record, a
203
} $89 million.
21' Now you are telling me that that ceases to 22 l exist and is wrapped up and emulsified with other short-term, j
-,cJ] lorg-term debts, all debts the com any has --
t 24 A
I'm sorry, Commissioner, I don' t understand 23 the point of your questi*n.
2 I
- . omuw a m.mm :nc. - sr w. smauew m. - memov s. % ma
7 Graham til i
1:
Q All right, let me ask a very simple question O
2i and then 1 w111 be done.
01d the comoeny feet that ebe 3
Commission at that. time had recognized a procosal or demand 4l made by the crepany in providing you with the ability to o,y i5i off $89 million in 18 months instead of some longer period of 6
time?
7l A
What I saw, Commissioner, was the allowance I
8! of $89 million of revenues over 18 months.
I knew that I 9:
would not be able to pay down my bank debts because of the 10 l reduction in our base rates and because of the fact we were i
11 [ going into a recession at that time, and a lot of things 12 !
were changing that were putting the company in a much more' O
23 !dire 1 cutt voettion-14 l Q
I see.
Now, Mr. Graham, did not the 15 j Commission also provide you with an opoortunity to add to 16.'
your billings 3.4 mills in order to meet the current costs 17 '
of eriergy that you had to buy?
P 18 A
Yes, sir.
We were allowed to go current on 19 1) energy and collect thedeferred energy balance over 18 months. i 20; Q
And, Mr. Graham, how much was it that the 1
21)
Commission permitted you to add to the billings at-the i
22 !
outset of the proceeding, the Phase 2?
l 23 [
A Well, nothing at the outset.
I do remember i
O 24 j in February that we were allowed to add 6.9 mills, I believe.
25f Q
That was really at the outset because this
- 4.anucw e, unmu rue. - a n t.e:cym.t..w me. - namsaums m. m ez
avsham 114 I
l j Commission, I think, undertook the formal hea rings in mid-S.i January and so forth, right?
And I stumbled along oresiding 1
2. for three or four weeks until Susan came along.
That was at 9
4 the beginning.
6.9 mills equals what?
3 5 i A
$55 million a year.
3 0f Q
And ' add to that $89 million.
d
?I
'j A
Did you want me to add those two together?
i 31 Q
Yes.
You are the financial man.
- 9fj A
On an annual basis I believe they come cut to 4
10!about $115 million.
E
'l j Q
Because eighty nine is much longer --
1 II f eighteen months instead of -- (sic)
I A
Yes, sir.
ll I4 Q
And then add 3.4 mills?
3 ;i 1
A I think that would be about another 325 t
4 20
$ million, about 140.
.i
'7 i j
Q I think it is more than that.
What do you b
IO' come to?
I I
A 140, I think.
I
~cl I
Q Well, now, do you want to add what the g
" j)
Ccamission gave you,iust about seven months before in l
,3 l
-* ' Phase 1 fer purchased power?
j 1
3
# j A
I don't think there was very much of 1 net 3
- jg) addition because there was some $49 million or $52 million
..a
# 3 taken away at the same' tima uo>ma4,9 a u,= ens n:e. - :ri n. i.xcur_ taw w:. - >uws una. of m rz
I Grahnm 115 il i
1, Q
You never got it.
You never really got it.
()
2l You cancelled it while it was in mid-air.
l 3!
A But that did not reduce the cost, 4!
Commissioner, that it was intended to recognize.
In fact I
$f those costs are still there today.
6l Q
That is true, but I am talking about the 7!
millage for energy.
It was what?
8i A
My recollection is about $50 million.
9l Q
Fif ty five is what we have calculated it to 1
10 t be.
Let's say 52.5, right?
11 l A
I would accept that figure.
i 12 j Q
Add that to your 140.
13 !
A That is 192 5 r3
%-)
\\
14 I Q
Now, do you mean with-the right to collect l
15 g $192 million -- and I submit to you even if you say this i
16!
very quic kly, that is a hell of a lot of money --
17 l A
I agree with you, that is a hell of a lot of 18!
money.
N 19 TriE ADMINISTRATIVE LAW JUEGE:
All right, W
20 a let 's take a ten-minute recess.
j 21l (Short recess) 22 JOHN G. GRAHAM, resumed.
23;
' DIE ADMINISTRATIVE LAW JUEGE:
I believe l
i 4
24 Commissioner Johnson was interrogating the witness.
l
{}
25;
-.m a uu-a me. - er n. :.o emu.ow Av. -====. n.
- sms, l
Graham 116 1
1 ) SY CCMMISSIONEfi JOHUSON:
2f Q
Mr. Graham, was there a perception on the carti I
L t
3I of the company, to your knowledge, after our May order of 1
4 this year, that there was an expectation on the part of the 5[ company that the deferred debt, purchased power, would be 6l reducad in accordance with 'the flow of income in proportion 7
to the millage that we had approved for that purpose?
O A
Commissioner, my exhibit in that proceeding 9
showed a projection of short-term debt that would, to a large 10[ extent, track the reduction in deferred energy.
11 i It was in that time frame, if I may, that the 13 I company saw the recession developing and knew that the i
13 pro jections of sales that we had been making would not be g
14;,there to prcduce the underlying revenues that we had 13l expected.
l 16 A So I fully understand why it is that you saw I
17 f a projection of short-term debt and an amortization of l
l 18 y deferred energy that tracked one another.
l 19 {
Q This was your evidence.
4 20; A
A-96, my exhibit.
21]
Q Yes, sir, and we talked about it at some 22 length, didn't we?
23!
A Yes, sir, and I agree that the Commission saw !
i i
I I
24 evidence that that was happening.
Things have changed quite g 25 a bit since that time.
womia.um a unsum xm. - u x. tece. r.ow m. - mwsw,.4. m mia l
Graham 117 I
e 1i Q
Assuming that they did change -- and I believe 1
('
2 j they did -- they-did -- was not the comeany aware of a 3
responsibility on its cart to come to the Commission and say, 4 P, Commission, you have allocated for the ournose of recovering i
5[ from the ratepayers this amount for deferred energy costs 6
but because of these things that are haopening now, we are 7 ) not going to be able to do it that way.
8 A
I believe, Commissioner, that the annual i
9l review with the Commission has j a it financial material that 10 i attempted to bring that very point out, and I do think that i
11 i we tried to make that information available to the Coanission 12 Of course, unfortunately, because of where we 13 l are -- we got the Commission's ord3r in May -- we saw that O
i 14 ) we had.to file again by July or so and made the filing, I l3 believe, at the end of July, so it was not a very long time 1
16-frame between when we got the Commission's order and when it l
17 l was that we knew that it was not going to work that way.
l l
18 h Q
Are you telling me that by these events the 1
l 19 !
Commicsion should have assumed that you would not be able to 20{
carry out this obligation in the manner in which the 21:
Commission had expected that you would?
i 22 i A
I am sorry, sir, I don't understand the 23 j thrust of your question, i
i a
243 Q
You are saying that in your financial review i
- p()
'l i
25 there is enough information there to indicate that you would '
MeHMBAW & N Ait9 MAL. fMC. - M M4 LOCTNNLOWf AVI.
- H A3tRISBU:k2. P L.
17112
Graham 118 1i not be able to do it.
That means that we had to assume from 3
the material you give us, g
3l Secondly, you filed shortly af ter the 4;
conclusion of Phase 2, you filed a proceeding for rate h
3 relief, is that not so?
6 A
Yes, sir.
I 7 g Q
And you say that by our having received this i
Ofweshouldhaveassumed,weshouldhaveknownthatyouwere 9 I not going to be able to repay the deferred debt on a 10 schedule which the Commission had expected you would by 12 i granting you the millage that we did for that purpose in 12 l 18 months time; you say we should have understood that?
l 13 A
Well, Commissioner, my understanding is that g 14 i the fact that our short-term debt would not go down was 13,
quite explicitly addressed in the annual review with the 16 i Commission and that was just a few weeks af ter the 17,
Commission 's order.
18,1 Q
You mean there is something in that review --
j 1
i 19 3 which I don't recall -- which says specifically this l
I I
20 ) $89 million which we owe, the company owes, because of
- l 31 j having accumulated debts in connection with the purchase 1
i 22, of replacement power, is not going to be able to be repaid 333 in accordance with the Commission's exrectations?
J 24 i A
I believe that is quite exrlicit in th?.t I
23 material, Commissioner, j
McHR3A C"4 & M4MSMAL. h';G. - 37 % LCC *WRLOW /WE. - N A 9R1330PA. PA.
1711:'.
G raham 119 I
1l Q
I submit to you that maybe it is a conclusion L
2 that you can reach, but I don't really recall that it says j
3l that.
I 4{
In any event, in the proceedings involving I
3y the emergency or extraordinary rate relief, $35 million, I i
6lreadthetranscript,andIreadthebankstestifyingthat 7
they had expected to receive from i.12 company an amount in 8
repayment of the deferred account, but that those payments.
i 9i were not forthcoming.
I believe that this is correct.
Do 10 you challenge that?
11 }
A I think.it is true that they expected an l
12 l amortization of their debts essentially at the same time that 1
' 13 !
the deferred energy account was amortized.
I don't think l
14 !
that they ever expected that the two would be exactly the 1
15 l same or that the day that all the deferred energy was 9
16 L amortized we we old owe them zero.
17 f Q
I have two questions.
Has any of this money 18 { been utilized -- I'm talking about the millage -- has any of H
19 ;
it been utilized for clean-up or restoration of Three Mile 20!
Island?
21 A
The money received since the May order?
22i Q
Yes.
I 23!
A The answer to that is that at the end of 1
2 m
24.!I September the deferred account for Three Mile Island will be C
{
25!
no larger than it was at the time we received the order in l
u.unen a na=sm me. - m x. c 4wiu.ow Av - m.w
. m.
mu
Graham 120 r-1 9
1il June.
3 h
^
3l Q
Say that again, please.
3Q A
The deferred account for the Three Mile I
That 4 j Island clean-up will be no larger than it was in June.
1 5!
1., because in this carticular ceriod, June, July, August,
! September, we have been quite successful in negotiating the 6 k r
7 i insurance settlements.
j
.t 8D But I cannot say to you that as we go forward IO h that same situation will be exactly there all the time, i
10 '
Q Mr. Graham, I am not a banker --
j i
t i
t 11 9 A
Neither am I,
- sir, 12 Q
And I think that you have to really help me
.i.
10 i in a much more direct, simpler fashion than your words, g
I e
24' A
Let me try it this way, Ccmiaissionei 15 Q
Wait a minute, just let me ask it my way i
I 15j again.
Did or did you not during the period ending Mny to i
1 17 p date utilize, allocate any of the funds which trere made l
1G.j available for payment of debt occasioned by cerlacement 19 power?
- I A
Did I use c.ny of that for the clean-uo?
30) i.
9 31l Q
Yes.
22)
A No.
n 2? '
Q Uot at a11?
i g
.3i A
Uc.
03 Q
Then why dida:t the banks get rece?
m,1 -
v:.:m :n e, iun sw m=. - a n.1.c cc::r. c :i nr. - n.-m ae m. p.t t
Graham 121 1 y[
A They have.
i
()
2 l Q
They have?
Why did they say that they did not?
3 A
They did not say that they did not.
Their l
4j debt has gone down since the time or the order.
i 5;
Q You are lumping all of this, right?
E 6l A
There is only one debt, Commissioner, it is i
l 7I what I owe the banks, $83 million today.
That debt was 8l higher. at that time.
I 9!
It is not that it has not gone down, it is I
j l
l 10 '
that it will not continue to go down as we look into the i
11 l future.
I 12 j Q
I see. I want to congratulate you. You have out-13
[
muscled me and you leave me speechless.
i 14 l A
Commissioner, I really don't mean to and let
]
i l
15 l me see if I can go through what happened since ve increased 16 the rates in June, becs.use I think that is a useful thing to 17 ) have an understanding of.
3 18 ;
The ra'tes went up, so that we are current en i
19l energy.
The rates also went up by about 15 million a month, 20j so in June, July, August, and September I got $20 million t'
l 21 for the deferred energy account, i
l, 22:
The rates also went down for Three Mile i
I 23 5 Island Unit 1 and that is about $2 millicn a month.
So there 4
24 is $3 million that went away.
{~s}
25]
The difference between 20 and 8 is 12.
D wee.am a aumu. me. - a x. wermt. cow ave. - xAnarse.a
% irste i
tWsMam W@
t 1l My debt to the banks actually went down by C
3 about eight or nine million dollars in that time, I don't i
G 3
remember the exact number, and what has happened is that we 4 [ have paid down some debts but we have also spent quite a bit 5l of money co serve our customers, money that is spent to hook i
6l up new customers, to reinforce the transmission sys tem, the 7
distribution system, all the things that every electric 3;
company does.
i 9 I The difficulty is that as we go forward we 10 l cannot pay down the loans any longer.
We need more money.
I 11 l We are in a loss position by about $12 million a year.
i 12 i To get in a position that we would just be 13 i even is about twice that because of the tax effect, about O
14
$24 million a year, and that would go a long way toward both 13f reducing the amount that we need frem the bsnks and cutting 16i the banks at ease.
17 That is what the interim was all about.
4 4
18 j Q
Excepting it was $35 millien, not $24 million.
I 19 y A
Sure, but I picked $24 million because that i
20l was the number that was in the Staff's testimony, as I 21 recall, in the May proceeding, and, you know, they may 22; calculate a number one way, we may do it another way, but 23 I the principle remains the same.
i 24,f CC?SIISSIONER JOHNSOU:
I have no further I
25; questions and I thank you very much for your indulgence.
I t
MetiMEAG94 3.1Ar.s*4AL. fMC. - 27 N. LeceCWrLt.f?W 47T. - HA;titlS9wa0. PA.
871t2
(
Graham 123 0
1 BY COFD4ISSIONER CAWLEY:
()
2 Q
Mr. Grahtm, aren't you saying that the banks 3 l don't have as much collateral available to them -- is that I
4 !
what you are saying -- and therefore they have lowered the 5
5 credit level?
6 A
It is partially a ma tter of collateral but I 7i look at it this way.
Before their letter on September 5 --
3l and I don't believe that has been marked as an exhibit yet --
i 9i they were not just lending against particular assets, they 1
10 l were lending money to the business in anticipation of the i
11 l fact that they had a going concern that would eventually be I
12 l able to pay them off, i
13 With the rejection of the interim apolication 14 !' they switched bases and they said, hey, we want collateral 1
15 !. and we will only lend against collateral, and they defined 16l that as three things in this situation:
the accounts 17 i receivable, the uranium, and the deferred energy account.
4 2
18 ;
Now the deferred energy account is not i
19 I collateral in the sense that it is pledged to them as a 20!
perfected security interest but it is collateral in the i
I 21; sense that Commissioner Johnson was discussing it; the banks 4
1 l
22, see it as a source of funds that this Commission has 23 h recognized as one that should be made available to the 14 company.
So in that sense it is collateral.
{;
35; I can agree with you, they don't have enough I
neunua < s usw.u.. sue. - a n.
esuvnu.ew xvs. - :vameenm. n. mn
Graham 194 it 1l collateral available to them, but I think the more fundamental i
^
3 thing was the change frcm lending to a business to lending g 3 l against assets.
4 Q
I think you stated tha t you have not used any 5
of the money toward clean-up, is that what you said?
6f A
That is correct.
My insurance recoveries in l
7) that period have been greater than the expenditures.
8 Q
But from here on out or very soon you are 9l going to need this money for clenn-up, is that it?
?
10 l A
Yes, unless we can cut the clean-up to such I
11 l a level that it is either something that is less than the i
13 ! insurance or equal to the insurance or there.is some other i
13 ' source.
O 14 '
Q Is there any doubt in your mind what this 13lCc=missionmeantinJune1979whenitsaidnoclean-upcosts 4
163 would be paid by ratepayers and it reiterated that statement 17.] in May of' this year and we said it again on Seatember 8?
i 15 f A
There was doubt in my mind as to the meaning 4
19 l in the May 23 order, Ccmmissioner, and that is because of 1
1 20 3 the re ference to being insured and insurable, and I did not i
31] know just what was meant as to the very significant dollars i
I 1
1 22 that wotAd exceed the insurance that was available to the 4
23jccmpanybeforetheaccident.
1 J
t 241 I also go back to the fact that there had beenj O 23 a witness in that case who had explicitly testified thet the
17t 9 7.
Graham 125 l,
1 ' company should be ordered to charge all of the clean-up to fexpensecurrentlyandthattestimonywasnotpickedupbythe
]
3 3, Commission as the basis for its decision.
I 4f I also saw the fact that if we had to charge 5
those dollars to income currently, that would have a very, 6l Very significant imoact upon the ability of both Met-Ed and 7
Penelee to finance in the next several years, and because it S[wasnotanissueinthecase,wehadnotrequestedany 9;
dollars, I assume that the Commission wanted to at least 10 leave an opening so that it would not destroy the ability to 1
11 l sell bonds.
12 l So, yes, there was a question in my mind, n
13 I might say thet that question was g
i 14 sufficiently valid that our auditors have also seen an 15 ) ambiguity there.
I don't know how they will feel about the 1
16fSeptember18thorder.
I 17 i Q
Do you feel you are able, despite our l
l l
1S !' Sectember 18th order, to use Jersey Central or Penelee money 19 [ for clean-up?
l 20l A
In excess of their 25 rercent interest?
I
)
l l
21 f can't imagine that they could fund more than their share of 22 the clean-up.
3 l
23 4 Q
I mean anything.
Isn't it clear to you what 3
24j this Commission -- what we are trying to do?
Do you think 3
25 a there is any chance at all that we are going to get any 3
if uans.cu a :.m.m
.we. - n u. toexwu.on m. - mm wys, n ma l
Grahem 176 i
i 1i sympathy without the bordars of Pcnnsylvania if we show any k
, f inclination to allow clean-up costs to be paid by ratecayers?
o 3!
We are with the ecmpany on this.
Our l
4 position is the same as yours, and I think we are working in i
3!
the same direction, at least I thought we were.
I i
6, A
I am sorry, Commissioner, I just don't know i
I 7l how to respond to that.
8 Q
Let me ask you this.
If it comes down to a 9
question of can clean-up at Three Mile Island proceed, can 10 l we use ratepayer money or must we close down, what do you i
i 11 (
think this Commission's position on that is?
?
13j A
I believe, my understanding is that you 13 l would "close down."
My difficulty is that the Atomic h
14 ). Energy Act says that we cannot close down and the Nuclear 13 l Regulatory Commission says that we cannot cicae down.
I 16 Q
Well, this is exactly why we realize you are 17 !,
-cetween a rock and a hard place.
We realize you are in a 4
183 difficult position.
But we are in a position of having to 19 l order the bills be paid by ratepayers and the federal l
b I
20.j government is in a pocition of taking care of a nuclear 4
213 facility.
3 22 j Now we intend to do our job and I thought the!
-1 53 4 company was with as when it took the position the federal l
Lf g government must take care of its part of the bargain.
I
,'>l A
We are with you, Commissioner an we would j
3
=
vomum a mu% we. - a n. ummuow ave. - u.wns tma l
G raham 127 f
i ii very much encourage the federal government or the industry or 1 Iboth to participate in the job.
3 We do not-have the luxury of being able to 4 f assume that if that does not occur there is someone else 3,there.
'Ihe simple fact of the matter is we are the only 6I people that are there if that does not happen.
1 I
7i Q
Is there any way at all that you can run 1
8,, Metropolitan Edison Company with Three Mile Island divorced I
9!
from the rest of its operations?
In other words --
i 10 l A
On the grounds of extreme cruelty?
11,
Q On whatever grounds.
Can you run the rest of 12 7 your company and come to this Cocizission and say, we need to 13 run the rest of Met-Ed?
.14 f A
I don't think so.
Tne simple fact, however i
13 l unpleasant it may be to any of us, is that Met-Ed owns half 16 of the facility, both Unit 1 and Unit 2, and has legal 17l obligations that follow with that ownership, both as a la matter of federal law snd as a : natter of the obligations to 19 ;
the security holders and obligations under various state
~
20j environmental licenses that have been issued, and all kinds i
21 it of obligations.
I 22,
I don't think we can lock at this'as if we 4
23 ! are two separate businesses and one group will take care of (l
2<t one side of it and pay for that, unless we can define and 25 l know that there is a someone else there for the other piece 9I wearmaAeu a :om m,tt.,
nc. - 27 IL LocmyH.Lovt Avs. - M4aniscuac, n tm
n.,w-#
lor 1l of the business.
2 Tne simple fact of the matter is, for h
r I
3j instance, that the capital costs associated with tne ur.it, 1
- 4) the interest on the debt, there is no place where it says i
5l this is for Three Mile Island and this is for en electric i6j pole.in the street.
7j What it says is that it is for all of the 8
assets of Met-Ed.
9, I recognise what you are trying to do, and I 10 l think we v.ery much are with you in that regard; but I t!on't 11 l think we can take the last step of saying, if it does not 12 {
work, that it is not on our heads.
It is on our heads.
I 13 { think that is our problem.
g i
14,
BY COE4ISSIONER JOHNSON:
1 13 -
Q Do you automatically assume that the rate-15 payers share that burden with you?
l 17 ;
A The ratepayers received a very significant h
l 18 J benefit from the operation of Unit 1 and will continue to
?
\\
19 i receive that benefit, and in the case of Jersey Central we l
20 l add Oyster Creek to that, i
1 l
111 I think a part of that means that over time i
i 22; the ratepayers will have to pay if no one else do;s.
j J
23 That is not a tremendous amount of money.
It,
- i l
l 3-f]canbefinanced.
It can be allowed over a long period of 1
4 35j time.
It would not mean another step increase in Met-Ed's rewp3Act & MA;tsttAL. It:c. - 27 N. LOCWfLL FN AVE. " H AR PJ 2 EU RG. PA-
~7872
Graham 129 l
1f bills.
2l I don't think we have anyplace else to look.
I 3
Q But to the ratepayer?
g 4,
A If the federal government does not come V
i 5l through or if the inlustry does not come through or if our 6f suit against B&W coes not produce significant money, we have 7 l no place else.
t 8, BY THE AI24INISTRATIVE IAW JUDGE:
1 9f Q
Mr. Graham, what security, what collateral do i
10 l the banks have for the $83 million loan?
What collateral do 11 l they have?
I 12 l A
They have a pledge of uranium representing 1
13 ;
about a million and a quarter pounds of uranium.
s i
14 Q
What does that mean?
13l A
The market value for uranium today is about 16! $30 a pound, so it has a market value of about $40 million.
I 17 i Q
How much?
18,
A
$40 million.
19i Q
All right.
i 20!
A They have bonds of Metropolitan Edison 3
21l Company of $53 million.
They do not view that as collateral i
22:
against which they will allow us to borrow because there is l
l l
23, no market for those securities.
,?
,q 24[
Essentially, all those securities would do is
)
l 233 give them some improved position in the event of a 0
2 MOMMSACM ar MA8tSHAL. FMC. - 27 f(. LOhMCW AVE. - 14 M M ts S U MG PA.
1 71;7.
I
Graham 130 1 l reorganization.
2f They have a pledge or a guarantee of the
^
3 debt by GPU and they have a pledge of the common stock of the 4
three operating companies in support of that guarantee.
5l Q
What does that total?
6))
A They have put a value on all of that of i7j
$20 million, i
3 BY COMlISSIONER JOHNSON:
i 9l Q
Of how much?
10 I A
$20 million.
I 11 i BY THE ADIENIS'IRATIVE LAW JUDGE:
12 Q
No, give me the amount that you were told of 13 I those specific items.
You said $40 million on uranium --
b
.h s
.14 i A
Ho, it has a market value of about $40 million.
15 )
I was disappointed that they would only assign a 50 percent 16 j.value to that.
I was hoping that it would be higher.
i 17 j Q
Don't give me their assignment, just give me l
18 i the value of the collateral that they have.
1 A
$40 million --
19 !
l 20; Q
$40 million on uranium?
i 31 A
Yes, sir.
4
$50 million on stock?
22 3 d
23I; A
No, $53 million of bonds but that is the face,
t
,i l
1 i
l 24 : amount of those bonds.
t 26J Q
Okay, now what else?
What else was it you l
MSWMcH & M ARSW1 WC. - M M.1.DCN1 M.WE. " HAAR W U16. M.
Imt
Grnham 111 4
~
t i
enumerated?
$21 million --
O 2!
^
$21 =tttion --
suer acee av oru.
3 Q
All right, and $21 million more from the 4
pledge?
(
5!
A They don't have that yet.
I 6l Q
What else did you enumerate?
L f7j A
A guarantee by GPU backed up by a pledge of Gfthecommonstockofthethreeoperatingcompanies.
9(
Q With all that collateral are you stating that 4
10 f the bank is reducing your credit then to $20 million?
I 11 i A
Well, when you say with all that ecllateral, 12 you imply your own answer to it, Judge.
They view it as not 13 being that much collateral, and if you would like I can
.14I ~ explain why that is, i
15j Q
And they also consider that not as collateral 16.- but as an asset of the company that was supporting their i
17, loan, the $89 million in deferred energy costs?
18i A
Yes, sir, but they.do not have a security 19 :
interest in that.
20, THE ADiINISTRATIVE LAW JUDGE:
Anythirq 21i further?
l i
22h BY COMMISSIONER JOHNSON:
23 J Q
You mean notwithstanding the action of the i
l i
24 Commission?
25.:
A They will receive a security interest in the MOMRSACH & M.AR9tL1L. INC. ~ *7 N. !.Q CWNtL1,0W AVI. - MARRIS SURG, PA.
t71?3
Graham 192 1
1 l accounts receivable if the SSC approves.
They have not i
~'
2 asked for a security interest in the deferred energy and we g 3
have not given them one.
4 Q
What is it that they have asked for in terms 5 l of dollars?
6 A
Well, in that sense, yes, they have asked for 7,
it.
They associate their loans with that asset.
As that 3
ass at goes down, so must the loans.
Now in that sense they 1
9l have collateralized --
1 i
10 l Q
As the asset goes down your obligations go 11 down.
12,i I view it the other way, Commissioner.
I see A
13, my obligatica as being harder because I have to pay them the g
l W
yl coney.
I have to find some place to get the money to pay i
35 them.
16!
Q You better sweet talk them a little better 17j than you have been doing.
13 A
I apologize.
19I THE ADENISTRATIVE LAW JUDGE:
Commissioner 20j Taliaferro?
21f COMMISSIONER TALIAFERRO:
Yes, Your Ecnor.
I 23; have one question, and a ecmment, I think.
I have been i
I 23l sitting here listening for the answer to this, and if it has
'k1 baen given, chen excuse :ce.
,4a e
2g I also have a coc:nent to what I have heard MOMR3 AM? E MAR 5FAL. rt;<L ~ Y1 PL teCW!LLMY AVL " }fAJt 4W3U1NE. PA.
17811
Graham 133 I
1 over and over again from the.ccmpany about what the intent 2
was on the 18th, and I was always taught that you start off 3 ' with the plain meaning of words within the four corners of 4
the page, and I might suggest that that might be the approach 3
to our September 18th order.
1 6
I would like to knew that if we just picked 7
the date June 1980, what was the deferred energy balance as 3 ; of that date and what was the outstanding short-term debt fbalanceasofthatdateforMet-EdandPenelec,andifwer 9
i 10 l were to pick a later date, let's say December of 1980, what 11 j do you project to be the balances in those two accounts, 12 ; and if one is being reduced slower than the other, would you 13 please provide an explanation of why?
O i
14 That is all I would like to know, so I can i
15 j find where the difference in the money is going.
16i THE WITNESS:
At the end of December 1980 we 17 project a short-term debt balance of $99 million.
If we do 18 all of the cutbacks that were set fcrth in the September 12th 19 l letter, that would be reduced by $26 million.
20t i
I might say that I am reading from 21 Mr. Smith's letter of September 1 which is E-25 That 22f would leave a revised outstanding short-term thot of t
23
$73 million.
2.$ !
We projected a deferred energy balance at the lO 25! end of 1980 of $39 million.
The difference is $13 million.
E
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Graham 134 If I don't have the exact numbers befor.; me, but 2
at the end of June the deferred energy balance was just about(
)
3 l the $89 million number we have talked about and short-term d
4i debt was about $90 million.
t 5f Let me make sure those numbers are 0: approximately correct.
7 I can give you some more orecise figures.
S ! Short-term debt at the end of June was.394 million.
The 1
9 deferred energy account at the end of June was $86 million.
10 [ So at the end of June there was about an $8 million 11 difference between deferred energy and short-term debt.
I 12 f By the end of the year, with the cuts we 13 f project, that will have increased from $8 million to about g
1 14 ! $13 million.
Without the cuts that we project, that would 15 [ have increased to about $40 million.
i 16 h There are diff erent ways of looking at why n
17 has that spread opened up.
From the banks ' perspective I 16 3 think they would say that ~we are.5pending money on other 19l things such as the electric system, to build plant, hook 20 up customers, such as the operating and maintenance expense u
i 21 that we spent, and that they, instead of funding short-term 22 debt for deferred energy, would be funding partly deferred h
13l)energyandpartlylong-termassets.
24 From my perspectiva, Commissioner, the way I g
13' look at it, is that in that period frem June to December i
MCMRBACM 3 MAR SMAt. INC. - 27 K t.CCMWRLOW AVE. - M ARMis 3 UrtG. PA.
17112
G raham 195 J
l i
1l Met -Ed will have lost about $9 million-and the way I look l
3 at it is that the banks are funding that deficit instead of O-3 us having the cash from earnings that would allow us to pay 4i down the loans.
I 3,
I think it is a matter of perspective as to 6
what it is that is causing that increase.
i 7l With the reductions that cre set forth in i
Sl Mr. Smith 's letter, E-25, it would be very dif ficult to find 9: any dollars being used to fund the clean-up.
~
p 10 l Maybe it is, you know, a very small amount, a l
11 l million dollars, two million, but, you know, there is a lead 1
12 l and a lag associated with the insurance recoveries that goes 13 on from time to time.
lO i
14 j If it would be useful I would be happy to 15 i make up a little exhibit that would take your June 30th debt
}
r t
16 and deferred energy and our projection at December and show 17 them, and try to account for the differences.
13 :
COMMISSIONER TALIAFERRO :
Yes, I wculd 19 :
appreciate that.
?
20i THE WITNESS:
Surely.
21 THE AD1IMISTRATIVE LAW JUDGE:
Does the 2I Chairman have some questions?
i 23, CCMMISSIONER JOHNSON:
I have one further 24i question.
.. V(G 7,5 i l
y.-
. umm im. - a m twemu.=w we. - mmavae. m ima l
l
.,y
mMaitys 13o n
9 1 9 BY COMMISSIONER JOHNSON:
1 I
Q Mr. Graham, I think you did testify that the
(['-
2 i
3l
- ompany was in a loss position partly because of reduced i
4 l sales to the ratepayers.
5 A
Yes, sir.
1 6,
Q If you had reduced sales, less utilization of 7 l this energy, did you not at the same time experience a 8, reduction in the need to purchase replacement power?
9 A
Yes, sir.
10 Q
To what extent does that reduction in the need i
11 l for purchased power balance with the reduction in sales to i
12 i ratepayers?
13 l A
The sales have you end up on a net basis with
.14 less cash, when the sales go down, and that is particularly 1
15 l. true now that the Commission has allowed us to be current on 16 the collection of energy expense.
f 17t But what is happening is that all of the 13 l millage that is allowed in the base rates for depreciation 39 j and taxes and interest and operating expense and all those 20 things is not received and what happens in the short run is 21, that you end up with less cash in the coffers as a result of t,
gg { sales going down.
i 33[
Q You are not suggesting, Mr. Graham, are you, that if you had a reduction in sales equivalent to uTl 25;
$10 million a year, that you would have a $10 =illion loss?
stoHM3AOM & M.A*tS14A1., Pf(C. - 27 M. l.GCMWEI.SW AVE.~ M ARRiset/M1, PA.
17112
. _. ~
Graham 137 il A
I'm sorry, I'm not cure what you mean.
We i
p 3l would have less than that as a loss in cach.
We would not d
i 3l have experienced a loss in cash of $10 million.
But there 4l would be a significant loss in cash.
I The fact that we would not have to purchase C' !
the energy would not be offset by the loss of the base 3
7 revenues.
8 Q
You have been saying to us that your total 9 h cost for providing service is equal to or may perhaps even t
10 { exceed the revenue you receive for such kilowatts.
I got 11 that distinct impression here today.
12 i A
I'm sorry, the total costs are less than what i
13 J we received from ratepayers?
I'm sorry.
O 14 Q
That your total costs of providing the j
i 15 i service exceed that which you get back from the ratepayers?
16 A
Yes, sir, we are losing money.
We are in a i
17 j loss position.
18i Q
Therefore, if you have a reduction in the l
I l9 ;
amount of sales, you should have a great reduction in the 20' amcunt of expense.
- 31 A
No, sir, because most of our costs are fixed 22!
costs.
The plant is still there, the wires are still there, j
33 all of those thin 6s are still there.
Unlike a manufacturing 24il company, we have so much invested, and the capital costs g
V tl 35 j associated with them go on whether or not the sales are there,,
MMSACH & DIAR 3MR. fMC. - M M. WCICWM.t.OW AVC. - HARRISgWrte, PA.
1711;t l
Graham 198 i
1 Q
Well, if you deny that it is going to cost I[g you -- that your ccsts or the bottom line in that particular g n
i 3 l area would not show a greater reduction in expense than 4l income, if that is not the cas2, would you at least say that 5kO, it is a stand-off?
5 A
No,. sir.
Commissioner, let me ssy this --
7' q
I tell you what you have to explain to me.
8 l You have to explain' to me why a cost of providing service 9f which is greater than the income you receive for providing f that service does not diminish in a condition where your 10 11 llsales drop, requiring a similar drop in purchases.
I 12 A
But you are defining it as a similar drop in 13 purchases.
Remember, if I sell --
.14 l Q,
Well,1cok, if you sell a million kilowatts
- 3) less, then you have a !tlillion kilowatts less to buy.
Is i
16,l that an over-simplification?
17 l A
Very much so.
i 18 l Q
This you better explain.
19 f A
Every time I sell a kilowatt hour '. sell it 20l for about --
i 21 Q
No, we are not talking about costs.
'de a r e 22; talking about kilowatts now.
23' A
I sell a kilowett hour to a customer for about i
24' six cents.
I agree with you that I don't have to buy the 23l purchased power to support c'aat, but that is only about MeHR3AC}t & M ARSH AL. tMC. - 27 Pl. LCCXY ILLOW AV2. - MAMtssynd. P A.
17192
= - -.... - - -. - -
Graham 139 I
1
- two and a half cents out of that six cents, all the rest of 1
O g
it, the three nd a h if cents, is the money that is 3, provided in base rates to service the capito2., the 4
depreciation, the interest on the debt, the operating and 5
maintenance expense for the work force.
5{
It is the loss of that base revenue in a 7
recessionary period that impacts upon our cash and that is 8
much less than offset by the purchased pcwer.
9l Q
You don't persuade me, Mr. Graham.
When you i
10 l purchase this power you are paying some other company that 11 produced it, not only their fuel costs but all their y,3[associatedcosts--
13 A
Oh, no, Commissioner.
All I am paying is 14 l fuel plus perhaps a small demand part of the charge.
- That, I
t 15.
compared with the base revenues, is not enough to offset the i
13l
' loss in cash frem the reduction in sales.
17 Q
You mean ycu can buy power that cheaply?
l A
I can buy power that I would not define as 18 l l
l 19 )
cheap that it is mostly just the fuel component; but when I 20 sell electricity to my customers I have to charge them for l
I i
21 fuel, for all of the capital expense associated with all the 22 f P ant that is in service, the depreciation of that plant, l
the taxes, all of those other things, and that is all the 23'.
?
part that is in base rates, and the loss of that revenues 25; much more than offsets the savings in fuel.
3
%:CHRBActi & S1A.'tSMAL, FMC. - 27 N. LOCKWILLCW AVE. - MA."tRisetJR3, PA, 17:12
Graham 140 1
1 Q
Isn't that same cost experienced by the
'~'
3 company that produces the energy and sells it to you?
{
}
3j A
No, all they are selling it to me for is the 4i fuel plus the incremental maintenance associated with the 5j production of that kilowatt hour.
6l Q
And what do they do with their other costs 7 f that are incidental to the generation of this power?
6l-A Those are reflected in the rates that they 9
charge to their customers for the plant and everything else 10 j that --
11 i q
You mean their customers have to pay a 13 penalty for providing your company with power?
13 {
A No.
14 Q
That is what you sre saying.
i 15; A
No, it isn' t, not in the lea st.
In fact 16 f there is quite a benefit to their customers from selling us I? j: power.
ISI i
19 [
20E 51r 22 -
?!
23 4
k
'a 2S a 0
u.s..acaa u.m me.
.,. x. tee n u ew m - w a m m. % m2
Graham 141 I
I 1j THE CHAIRMAN:
I guess the only one thought, 2
that is sort of rhetorical, Mr. Graham, to leave you with, is l
3j to build a little bit upon what Co:cmissioner Taliaferro said, I
4j and that 13, I have heard a lot of saying I don 8t know what l
5l the Commission really aeant, and a lot of trying to second-1 6
guess; if you start with the basic words on the page, have l
l 7l you thought about what response you are going to have?
Take 1
8 the words on the page for what they mean.
9l!
THE WITNEbd:
I am sorry.
i 10 !
THE CHAIRMAN:
It is more rhetorical than 11 L requiring a' response at this point.
?,
12 l MR. MORRIS :
I want to understand one thing L
Q 13 '
Mr. Graham said in the course of answering questions to Mr.
.1 4 Cawley and Mr. Johnson.
15 i BY MR. MORRIS:
i 16' Q
Mr. Graham, ycu were discussing in rather 17.
general terms the fact that your expenses and your income l
18 created a.:.oss position for the company.
In making those 19 statements you referred to the phrase, on the facilities 20 serving the public'.
31f I simply want to be clear on one thing.
In 22 ) the expenses which you include in determining that you have 7,3 a loss in that equation, are you including, one, all of the O
24?1atere=*eaaserviceore11oryourcenst12 25[
A Yes.
MOHRDACH & MARSHAL. INC.
.*7 F4 LOC 10.*/LLow AVE. - HARRISBURG. PA.
17112 -
Graha:
142 1
Q Yes, you are.
In other words, were you able (mf 2
to attribute capital to Three Mile Island as invested, that e
gg) 3 I would be included in that expense figure?
f 4 !
A Yes, the income statement that an investor S[ sees --
6j Q
And.do you include in that figure, when you l
7) arrive at that loss, the expenses of what you consider normal i
S,' maintenance of Three Mile Island?
And I use that phrase as i
9 3 distinguished from clean-up and restoration.
10 ;
A No, but there is an a=ount that is being i
11/ charged to incoce.
The sy tem of accounts has some current 12 cost being charged to income and some being deferred.
But 13 l I would not characterize that as an amount that I would call a
W 14 '
normal C&M, necessarily.
.h 15 F Q
Well, you carry a line item, 532, for 16 h maintenance of nuclear power in the ordinary course.
I 17 l assure that includes some attributes of Three Mile Island Ni 18 ;j or perhaps I am wrong.
1 19 f A
I don't know what you are referring to.
20l Q
I am referring to yeur O&M statement.
Isn't 21l that the line iten you use or is that one of your --
i I
M3. RUSSELL:
Will you at least give the 22 i 1
23 witness the benefit of what you are referring to ao he can 3
)
14} take a look at it?
0 1
- sa Il
?tOHRE ACH & M AK 3HAL. INC. - 27 N. LOCK'#1 LOW AVE. - if ARRIS3UR G. PA.
f7112
Graham gg 7
1 1l BY MR. MORRIS :
O 2!
Q 1 em referring to your sxhibit 3-1, your 3
l Ordi expense.
Well, I will ask it more generically.
I didn't 4l mean to take a lot of time.
5i Are there O&M expenses other than clean-up 6,.and restoration which you carry with your expense when you 7
make the equation that you are having a loss?
8l A
There are expenses at the island that are 9l being charged to income, that is one of the items that produce s 10 the loss position for Met-Ed.
11 l Q
This is the last question, from an accounting 12 i standpoint if you were able to attribute to Three Mile Island Q
13 [ for any purpose, clean-up, restoration or ordinary maintenance,
I 14,'
the borrowing of short-term money, the interest on that would I
13 be treated as a general expense, would it not?
16{
A I don't know what a general expense is.
17 l Q
Well, it would be treated as an expense in i
18l that equation you made in saying that the company had a loss.
I 19 f A
It would be charged to income the same as all i
20f short-term debt is charged to income.
21i Q
And that in turn was one of the factors that 22l you would have refevred to when you said you were experiencing i
23he. loss?
t O-24.'
^
we11, vo" ere tue oae wao cre tea e w7sotae*1ca1 23 that I did some borrowing and then you attributed it to my a
___m-...
Graham igg I
1j statement that I did some borrowing for the island and then
-Is 2iyou attributed it to my statement that Met-Ed is incurring a lll loss and I am not sure that I follow you.
3 l
4 Q
It should not be too hard to follow, Mr.
5l Graham.
What I am saying --
i 6l A
Well, then I apologize, sir.
7!
Q
-- is that you used the words, a loss, on i
8;! your operations of facil.ities in the public service, and I 9i suggest to you that some of the items --
t i
10 t A
I did not say that and the record will not 11 l show --
12 f Q
I thought that.is what you said.
If I am 13 f wrong I stand corrected.
But you used the phrase, in the g
1 14 public service.
Let me put it the other way.
In making 15f that statement you did not strip out the facilities which i
16l you do have which are in the public service and exclude all 17 costs including costs of capital attributable to facilities 18hnotinthepublicservice?
19 i A
In making what statement?
20' Q
In making the statement to the Commission 31 that you are experiencing a loss.
i 22;
/.
I agree, the company is experiencing a loss b
23f on its total operations.
,_4 Q
Have you made -- I am sorry, last question,
^
9 25{Isaidthelastonewasthelastquestion--haveyoumade I
nosac4ca a unsut, m=. - a s. couwu.ew Ave. - waamsaunc. n.
ni t:
Graham 145 1
that calculation, that is, stripped out the facilities which 2
are not in the public service?
3 A
What do you mean by facilities that are not 4
in the public service?
5 Q
Three Nile Island.
I 6
A Have I allocated TMI-1 and TMI-2 out of the 7.
total operation of the company?
8 !
Q Yes.
I am curious as to whether you taade 9[ that analysis.
10 A
I think that is on Exhibit B-1.
i 11 Q
No, that is out of the rate base but not out 12 of the costs.
13 ;
A I. think it is also shown on the income side.
14 ;
Q No, because you have treated as a charge 13; your total capital service charges and expenses.
16:
A I don' t think that is true.
I think we i
t 17 I deducted the dollars from the rate base, i
18 i Q
Not the interest.
If that is true, perhaps I
I 19 you can show it to me, and if so, I stand corrected.
t 20l MR. RUSSELL:
You are showing the witness 21 th e --
l 22{
MR. MORRIS:
Exhibit B-1, sir, i
23l MR. RUSSELL:. Which is not sponsored by him.
I p
24l MR. Mor(RIS:
He said that that appeared in v
I 25,i this exhibit.
If I have the wrong exhibit, so be it.
I NCHRDACH 3 M ARSMAL. t'ic. - 27 N. t;OCKWfLLGW AVE. - HARR1ssuRG. PA.
17112 7
Graham 146 l
1!
THE WITNESS :
On Exhibit B-1, Part 2, page 1, rm lll 2
there is the elimination of TMI-2 from the rate base.
On the 3 ( next page there is the elimination of TMI-l from the rate base.
4; BY MR. MORRIS:
5 Q
And wnere is the debt service on Part 2, 6
l page 2 of B-l?
7 A
Well it is in the calculation of the rate of I
8! return which includes this interest on the debt that is i
9! invested in that facility.
I 10 :
Q I see, but in making your statement which you 11 l made to the Commission concerning a loss, you nevertheless 12 : attributed the service of all capital, at least the interest 13 ' service on all the capital, as an expense?
ggg 14 l A
I took the company as a uncle, the entire l
13: company is in a loss position.
16!
MR. MORRIS :
I think I understand.
Thank you 1
17 ;j BY THE ADMINISTRATIVE LAW JUDGE:
13 h Q
Mr. Graham, there is one item that I don't i
19 f think anybody has responded to, and that is what impact are 20 ) the cutbacks that are proposed, the Commission wanted to know h
21; what would be the impact on the operation of Metropolitan i
22[
Edison's proposed service to its customers.
I t
23i A
I thought that Mr. Smith addressed that, and 4
24 perhaps Mr. Russell should respond.
I am not the person who ggg 23 can describe the extra time that it will take to connect new f.fCHRE ACH S ltfARSHAL. !NC. - 27 N. LOCKWILL3W AVE.- H AA ft tSBUP.'G. Pa.
17t12 I
Graham 1147 jl customers or things like the length of outages following 1
o O
!etor==ortaatxiador1=rectorom--
2 3f Q
I am speaking in general terms.
What would l
4l be a general impact, in what areas?
I 5l MR. RUSSELL:
Mr. Smith is still here and he 1
6 is the witness who 1-s in the operations area, so I would say 7
if you weuld care to have him --
8 THE ADMINISTRATIVE LAW JUDGE:
All right, we i9j will hear from him.
10 MR. RUSSELL:
?~. haps I could help clarify 11 l the point quickly.
Mr. Smith, could you review briefly the t
12 l substance of Attachment 5 of Supplement 1 of Met-Ed Exhibit i
13 E-25 in terms of impact which the cutbacks would have on 14 !
service.
I 15I MR. SMITH:
In Supplement 1, Attachment 5, 16, the coal inventory level reduction will have a minimal impact 17 l on service immediately, and in the event of an anticipated l
18 i coal strike, or in the event of an extreme cold weather 19 l period which could be expected during a winter, it is possibl e i
20i that one or both units, one or both stations, Portland and i
21l Titus, may be shut down, which would result in an increase in t
22l purchased power from Met-Ed.
23 [
To the extent that that is purchased at a i
Pi 24[ cost greater than we would produce, that would impact the v
25!
customer.
l0 MCHRBAC14 & M ARs*4AL. tNC. - 27 N. LOCMWILt.0W AVE. - HARRISBURG. PA.
17112
Graham ygg i
I 1i Reduction in tools and equipment capital 2
budget really means minimal impact on the customer directly, ggg 3
It will impact on the efficiency of the company.
It is hard 4 i to measure in dollars and cents impact directly on the t
5l customer.
6 The delay in load management Master Plan 7l program I think has a pretty obvious impact over the long 8l term.
What it really means is that we would delay the i
9l application of the proposed Master Plan that we had submitted 10 ;
to the Commission with subsequent inability to reduce usage i
p
'a 11 ;
in the future.
12 l Reduction in the service corporation 13 expenditures, it is kind of the same as the coal pile 14 !
reduction.
15!
The deferral of T1D ccnstruction projects 16f and purchases, again the impact this has is over a long-term 17 { period whereby system reinforcements which are necessary to 18 maintain a constant level of service to the company would not i
19[
be Inde and the impact, therefore, would probably not be r
20j immediate, but because of similar reductions over the past 21:l five or six years we believe that in the near term this could 22j cause increased outages to the customers because of over '
23 loaded lines or substations and their facilities.
24 Deferral of combustisn turbine outages also 25{
does not have an immediate impact.
Its major impact will be L
F1C HRB ACH & MAnsM AL. INC. - 27 N. LOCK'YRL3W AVE. - H AARISSURG, PA.
17112
[
Graham igg._
l 1
in costs.
If those outages are not taken on a timely basis 2
and deferred, the likelihood of additional maintenance will l
3 become evident, or perhaps a breakdown of that unit, which l
4 would then cause an additional cost to the company and to the 3
ratepayer.
6 Reddction in the TMI-2 clean-up program in 7
and of itself is not directly impacting the customer except 8l to the extent that it delays the clean-up, and whatever impact I
9!
that has on health and safety, which I am not appropriately 10 prepared to answer.
I think Mr. Arnold has to answer that 11 l direct impact.
12 l The reduction in fossil generation capital O
13 i expeaditures, suca a tue coaversioa or certeta cc=dustioa i
.14 l turbines from oil to gas, both have the impact of postponing 13 ;fthe reducti.3n in fuel costs to the customer, t
16l Reduction in generating station O&M expenditu*es,
[
17' this is planned maintenance expenditures, here again we would i
18 not anticipate an inmediate direct impact, but again, when 19 I you reduce an already small maintenance budget by an additional I
1 206 amount it stands to reason things will break down, and over-l 21i time will increase when that happens, and the cost to the i
22l cuntomer will ultimately go up.
23 Reduction of scheduled generating station
("h V
24 y outages at Titus and Portland, exactly the same thing.
!l l
25 !'
Other O&M expense reduction, which does l
i l
McMR3ACM S M ARSHAL. INC. - 27 N. LOCKWILk3W AVE. - MARR!$8URC. PA.
17152 I
l
Grahan 150 h
1l involve the layoff of certain production, power plant and l
2 general personnel, A&G personnel, are all directly ralated Ilh to the reductions.
In the load management program it will 3
4l reduce the ability of the company to respond to customer i
5l complaints.
The energy conservation program would be lessened t
t 6, because there would 'not be folks there to take care of it, 7! and therefore reduce their overall ability to meet the i
S {information needs of the business and will have some impact 9I on the customer directly.
IC )
The last one, reduction in T&D construction i
11 ! expenses, very obviously with less linemen, less engineering I
12 { force to provide the appropriate work orders for such linemen, 13 any storm outage will be lengthened.
We now have 300 linemen ggg
.14 } and if we wind up with 200 linemen or 250 linemen, that means l
15 l that many less people can respond to any emergency, whether 16 k it is storm or car-pole accident or whatever.
That has an 17 impact on the customer.
l 1
IS '
I think those summarize the areas of reductiora I
19,
THE ADMINI"TRATIVE LAW JUDGE:
Very well, is 20fthereanythingfurtheryouhavetooffer,Mr. Russell?
l
?
31 MR. RUSSELL:
I think Mr. Smith is the last i
22i witness.
I would like to make a motien for the record before 23 we conclude this phase, and that is on the basis of the 24 testimony of the several witnesses this afternoon Met-Ed ggg 23! would make a motion on the record that the Commission stay 1
b l
t.soHR3ACM
- 4 f *AILSH AL, INC. - ?.5 N. LOCKWRL G'N AVE. - }iAltrtf SSURG, ?A.
1711 p
,-e-p om
-,o4 n-.,--e-owpe-=
-+=+e
-9 mg.gy er.
l 151 i
1l the effect of Ordering Paragraph 1 of the Order of Septemer m
U 2! 18, 1980 for a period of two weeks from today or until
~
3 October 6, 1980.
4 The reason for making the motion is that that 5
period of time would provide us with an opportunity to present 6
to the Commission specific requests for clarification and 7
possible modification of that section, because as it stands 8'
now we cannot see how we can comply with that section of the 9
order without violating federal law and regulations and 10 without possible violation of Pennsylvania law, including 11 !
the Pennsylvania Public Utility Code, including more 12-specifically the obligation under Section 1501 to provide C) 13 safe facilities.
34 THE ADMINISTPATIVE LAW JUDGE:
That is i
15[
directed to the Commission.
The Commission is not in public 16l session as such in this proceeding.
We are presiding in this 17 matter.
We would suggest that, Mr. Russell, you submit in i
18 j writing 'four motion for proper treatment by the Ccemission 19 t at a regular public meeting.
20 Mr. Russell, if you wish you may submit it 21}
to us and we will submit it to the commission so that at the i
22l next public meeting they would ha d.Le to take a position en i
23' that.
24l Is there anything further; i
25l MR. McCLAREN:
Ycur Honor, the staff would MOHRUACH & M AR SHAL. tNO. - 27 N. LOCICWILLOW AVE. " H ARRISSURG, Ps 17112
., - -. ~..
1 59 RI 1jlikeanopportunitytostateitsposition.
~
2 THE ADMINISTRATIVE LAW JUDGE:
Very well.
g 3i MR. McCLAREN:
What we have had here today 1.
I 4
and what we have understood to be the purpose of the Cc=missic a 3 ' hearing was to permit the company to respond to the September 6
18th order and we would like to state our position for the t
7j benefit of the Commission.
8 !
The staff understands the thrust of the l
9 Commission's September 18 prehearing statement and order to i
10 be that this Commission has asserted direct control over the 11 ; expenditures of Metropolitan Edison Company with respect to 12 Three FEle Island.
This direct control of expenditures is i
13 grounded upon two basic premises.
14 [
One, that the costs of clean-up and de-15i contamination of TMI-2 are not now and will not be in the 16; future recoverable from ratepayers, t
17 Two, that in light of Met-Ed2s present i
18 financial circumstances, the expend'ture of current funds 19 for TMI-2 clean-up and decontamination in excess of existing 20 insurance coverage adversely affects the provision of i
21felectricpublicutilityserviceandthereforethreatensthe 1
23l health,safetyandwelfareofPennsylvaniacitizens.
23, As such, the Ccamission's action is factually 2i.( sound, legally defensible and clearly in the public interest.
25 ll In any ordinary circumstance this Commission 3'
T4C HT*.U ACH te MAR SMAL. !MC. ~ 07 N. f.OC.CW1'. LOW AVC. - F*AR P13 5UP.G. PA.
1711:
e.
.we.cre+-
153 i
1 [ could not assert that the expenditure of current funds for a a
p Q,
2 disallowed purpose would threaten the health and safety of l
3q Pennsylvania citizens.
In any ordinary circumstance the
)
4' net result of the disallowance of any expense actually 5
incurred is at most only a reduction in the utility's achieved 6
equity return.
l 7
Thus, normally it is appropriate to allow 8l utility management the discretion to incur expenses which 9
are not recoverable through rates.
Io,
Met-Ed'c circumstances, however, are not 11 l ordinary.
Met-Ed has no equity return nor is there any i
12 !
reason to expect the present bank group to extend credit
\\
, (3 13 i for the clean-up of a plant which may never return to service NJ j
.14 I Thus the expenditure of current funds to I
i 15 TE-2 clean-up has an immediate effect on Met-Ed's ability 16 f to provide adequate, reliable electric public utility service, il 17 [
For those reasons, the prosecutory staff t
i 18 f takes the position that ;he expenditure by Met-Ed of current i
l 19 ! funds in excess of insurance coverage for the clean-up and i
i l
I l
20i decontacination of TMI-2 is not in the public interest.
i 31 f This is not, hewever, by itself a complete i
22l position because the denial of funds for TMI-2 could delay l
23.l a prompt and safe return to service of TMI-1.
]
24 [
This Commission determined in 16s May 23rd i
25j order at Docket I-7904o308 that Net-Ed should continue to b
MORRB ACH & MARSHAL. WC. - 27 M. LCCXWMOW AVE. - MRESBUM. PA.
171t2
154 r
- I operate as a public utility and should remain financially I'
viable.
2 i
Consistent with that determination, the
-#I 4lprosecutorystaffinthisproceedingwilladvecatearevenue i
i requironent for Met-Ed sufficient to assure Met-Ed's financial 3
6l viabilicy until TMI-l returns to service and to rate base.
i ei TMI-l is not now in service and its return i
3l date is uncertain.
Therefore, it should not be included 9l presently in rate base and its costs should not be charged a
10ftoratepayers.
11 l However, the ultimate return of TMI-l is i probable.
TMI-l has a very good operating record, it is i
12 13 proven economical generation, and its return to service is h
,,4 h crucial to Met-Ed:s long-term financial viability.
!I 3
154 For these reasons, the prosecutory staff 16 ). takes the position that the prompt safe return to service of I
17 TMI-1 is in the public interest.
I 13 4 Toward that end we will advocate a cessation d
19 l of depreciation accruals on that unit while it is out of l
20: service; we will seek a Cornission commitment to full rate 21 treatment of TMI-l costs upon the return of that unit to ed 22 1 service; and if need/by Met-Ed, we will support current 3
7.3 ) rate treatment of expenditures necessary to return TAI-l to f
y service.
.;5 ]
In short. staff cakes the position that the i
. iC HR" A CH & M AR s HAL. fit - 27 22. LO C A*N'.LLO W A V O. - W A2Rja3CRG. PA.
17112
__s 155 1
expenditure of current funds by Met-Ed for the clean-up and N
2 decontamination of Unit 2 in excess of insurance coverage is 3 ; not in the public interest, that the prompt safe return to i
4 ' service of TMI-1 is in the public interest, and to the extent i
5 ' possible this Commission should foster that return; and three, 6 l that Met-Ed should be permitted to charge rates presently 7l which are adequate to maintain its financial viability.
I S!
Given that position of the staff, we want to l
9l state, at least for now, and we anticipate you may want these 10 l in writing, three motions.
11 First, with respect to the Commission's i
12 ! concern that ratepayer funds not be used for TMI-2 clean-up, 13 I that the Commission should -- and we so move that the 14 ! Commission direct the Respondent forthwith to present a I
15j detailed list of its expenses at TMI-2, the purpose of those i
16!
expenses and its expected consequence if those moneys are not 17i spent for those purposes.
18; It is only with that specific information 1
19 f we think this Comission can provide any further interpretation 20 ',
of its order, can determine exactly what consequences it 21; wishes to flow from that order, and it is only with those i
12jspecificfactsthatanylegalchallengetotheCommission's
$ jurisdiction could be resolved, 23 d
O 24i rhe second motion we wom1d maxe 1e with a
25 respect to the Comissica 's concern that service to existing McHRB ACM & MARSMAL. LNC. - 27 W LOOKWu.LGW AVE. - HARRIS 8tJAG. PA.
17112 I
156 5
1 ratepayers not deteriorate.
We take the position that there 2
should be no deterioration, no substantial deterioration of ggg 3[ service to existing ratepayers.
l 4!
Toward that end, we would move that the 5l Commission direct the Respondent to present financial i
6l ' projections, as it has so far, without the reduction of some 7( 200 eaplekees related to transmission and distribution 8
expenses.
9i We further have a specific concern that the f
10 j level of the company's ability to respond to storm outages is 11 i unacceptable at present, l
12 '
In conjunction with that we would move that i
13 j the company's filing of a tariff to reduce the level of new I
l 14 i. service connections be suspended and investigated and is consolidated with this proceeding for determination of 16:
whether, in light of other actions that are being ordered 17,,by the Commission, it wishes to have that level of service 18 connections reduced.
19 The third matter that we would raise is that 1
20j the staff helieves that it is important, in conjunction with i
21, the Commission's position that no moneys be spent for TMI-2, d
22y that this action not provide the NRC with reasons to delay 9
l 23 the start-up of TMI-1.
?
h We believe it is important for the Commission 14 h
25 y to take a positive aggressive position in the TMI-l restart nosaasm a suassau. mc. - 27 n. s.eer.nu.ew Avr. - senatsauna. m.
irtia l
l
157 I
hearings, to take the position that TMI-l should be started y
O.
I g
as promptly as possible, consistent with determining those.
short-term safety actions which the NRC has identified.
3 Those are the three matters that we would 4
raise with respect to the September 18th order.
3 6
THE ADMLVISTRATIVE LAW JUDGE:
Submit your 7
motion in writing, Mr. McClaren.
8 MR. McCLAREN:
We will.
t 9
THE ADMINISTRATIVE LAW JUDGE:
Does the 10 Consumer Advocate have any comment?
11[
MR. BARASCH:
Yes, Your Honor.
We.would not 12 at this time have any response to Mr. McClaren's suggestions, A5 -
13 J and hopefully what I am about to say will be taken in the 1.,L spirit in which it is offered.
We are becoming concerned 13 'and would like to receive some clarification, either from 13; Your Honor or from the full Commission, as to the role of the i
f I
17 staff in these proceedings.
I know that my comments come at the end of l
73; l
l 19 [ the day, but they are not in response to what Mr. McClaren 2[ has said, as a matter of fact, I had mentioned this to him l
21 earlier.
What I am concerned with is that last week, f
g 23l while this Commission was considering a whole host of TMI O-t O
2[ matters, I was sitting in the room and I see three counsel 23 sitting up here giving advice to the Commicsion on various i
MCf3R=Ac!i a MA*!MIE. INC. - 27 N. LC.WAC'# AVE - H3.:tM sRU;trt, ?A.1711
-.., ~,,, _.., _ _..., -
158 ll 1: matters, and now we have Mr. McClaren present in a prosecutoric 1 0
2[ role.
r j
3{
I would like some clarification as to what g
i specific actions the staff is playing advisory roles in and 4[l' 1
5 what roles they are playing prosecutory roles in, because it 6
is bccoming very difficult for us to understand what we are 7
dealing with here.
8 Now it may very well be, Mr. McClaren, that 9
there is no problem here at all, buo I would like some clarifi-10 cation from this Commission or frca the Administrative Law 11 Judge as to exactly what role the staff is playing in these O
12.
proceedings and what particular members of the staff are 13 playing in these proceedings, because we seem to be having M. a situation where somebody who started out advising this 15l Commission in previous proceedings is now prosecuting, and i
l.5 others who have previously prosecuted are now advising.
17; Now maybe it has all been very nicely split r
is off but I would like some clarification as to exactly how the loj staff is going to be conducting itself in these proceedings.
,0 !
THE ADMINISTRATIVE LAW JUDGE:
Well, the t
21 clarification is, when any member of the staff becomes involvea 5;
in a prosecutorial position in this proceeding, then he is DI divorced from advising the Commission as to that matter.
But because at one point in time that same J. [
I 23 staff member may have been advising the Commission, may have uo>mnen a wenn n:e. - = it t.ce.v::.:.ew.n - n.turcsu.e, nn. 7s 2:
159 i
i 1
been involved in another matter --
AV 2
MR. BARASCH:
I understand.
I am trying to
- 3) get clarification of where other matters cease and present 4'. matters begin.
The Commission did issue three orders last 3
week that are intimately connected with the proceeding we are 6
going forth with her.
7 THE ADMINISTRATIVE LAW JUDGE:
Had Mr. McClargn 3
been involved in those proceedings?
9l MR. BARASCH:
Well, I have asked Mr. McClaren i
10 to clarify the situation.
11 MR. McCLAREN:
Let me state, Your Honor, ll even though I don't think there is a reason for raising this U
concern here, but since it has been raised, let ute state ikbrieflywhatmyinvolvementhasbeenintheseproceedings.
3 13 !
In the Phase 1 and Phase 2 TMI proceedings IN at Docket 79Chc3c8 I was advisory counsel to thc Commission.
Il l?f Those proceedings ended with the order of May 23,198c.
i i
1b!
At the time of the filing of this company's U!. rate increase and its petition for extraordinary rate relief I
i I
2)f I contacted Mr. Russell to ask him if he would have c.n objectibn 21f.to my change of roles with the new proceeding starting up 2h from advisory to prosecutcry.
He stated that he did not as f
2 U long as I had no further advisory responsibilities with
(
I
)
2ij respect to any related matters.
__i 40 !
Following that, I have circulated memos I
t
. :30!!'47.1cM A man 3 MAL. !N;;..= 27 N. Lc=rvit.LC;'t AY2 - HAftnistt!nc, PA.17112 4
_n. -,_ __ _ _-___-____-________ -__ __- -_,. ~ _ _ _ _
160 l
1( internally through the Chief Ocunsel and through the Chairman
~
4 2-identifying my desire to function as prosecutory counsel and 3
divorcing myself entirely from any further advisory activitics 4
with the Commission with respect to any related matters.
5 Now the one matter which Mr. Barash raises 6
that was the subject of some comments by me as well as others 7-at last week's public meeting was the securities filing by 3'
the company.
9 We have traditionally and consistently dealt 10l with securities filings as separate from rate proceedings, it 11 was the subject of a separate report, and the recommendations U
of the staff had nothing to do directly with this proceeding.
O !
As to the affiliated interest filings and 14 as to this prehearing statement and order, I have had no U
advisory contact with the Commission.
I have treated those 15[ as related matters and I think that is a proper separation i
17! of functions in these proceedings, t
15 MR. EURGRAFF:
If I may ask one question.
13f Mr. McClaren, how do you view your role insofar as the i
20j company's complaint against the temporary rates?
21l MR. McCLAREN:
As prosecutory, as part of 22! these proceedings I have entered my appearance, i
0-THE ADMINISTRATIVE LAW JUDGE:
I don't know 24 whether the reporter is hearf ng you.
1S {u MR. McCU.REN:
As prosecutory.
Ihaveentered uw.m a w.na en. - muna. u.= m=. - w:m== n =m
f 161 h
1[ my appearance in these proceedings, one of the dockets of O
V 1
2 '. which is the complaint docket wherein the company has complained 3 j again3t the level of temporary rates.
1 4
I think, Your Honor, in this or any other 5
circumstance where a question may be raised as to whether 6
counsel or any member of the staff is performing the proper 7' function, it is incumbent upon the party that may raise an 8 ;- objection to do so promptly, because to delay otherwise would t
9 l-be unfair to all concerned.
i 10{
THE ADMINISTRATIVE LAW JUDGE:
Well, if
- 11. there is any question to be raised --
t lil MR. McCLAREN:
It is coming a little late now;
'AV' 13 -
THE AD!CNISTRATIVE LAW JUDGE:
It should be l
14I. raised now or very promptly.
15 MR. BURGRAFF:
If we do raise a question it i
16 will be done promptly and will be done in writing.
l I
17 THE ADMINISTRATIVE LAW JUDGE:
Well, you do 18 j it in writing and we will dispose of that matter at the il 19! appropriata time.
I 20W Is there anything further?
11;i MR. BURGRAFF:
In response, if we could, il i
2.U Your Honor, to what has transpired today, it is my understand-i i
23i ing that the company is going to submit a written motion to
")
2*r!. you concerning Paragraph 1 of the September 18th ordering 25f provision.
I take.it that Trial Staff is going to submit in wmwr a mnenAs mc. - =7 =. z.ce::w:t..ow s.m - rw.m:mno. n. m re
162 i.
3' writing its three motions which it has put on the record.
1 3 fj If that is the case, we have no comment on 1
1 3 L those motions at this time.
4j However, since we were not sure what this g
3lJ proceeding was going to be today, we reserve the right to I.
6.I respond likewise, i.e., in writing, and we will do that as A
7l quickly as we receive the written motions, so that if, indeed, i
S)[ anything is going to happen at the next public meeting, we i
9; will have our input in and we reserve that right.
10 ;
THE ADMINISTRATIVE LAW JUDGE:
We will give 11[ you the right to respond to any of the motions.
Mr. Morris, i
12l you submit your motion in writing, also.
13 MR. MORRIS :
I will, sir.
Thank you.
llk 14.
THE ADMINISTRATIVE MW JUDGE:
All the 13', motions will be distributed also by the parties so that they i
15: may have the opportunity to respond.
i 17, MR. MORRIS :
Is thi next public meeting i
1 19:
scheduled, sir?
19!
THE CHAIRMAN:
Every Thursday.
20.
MR. McCLAREN :
Is it the Commission's intent !
}
21 that the motions be submitted directly to the Commission or tol I
22 THE ADMINISTRATIVE LAW JUDGE:
I would l
23;}. suggest that the motion be made directly to the Commission
}
2} with a copy to us also.
2[
MR. McCLAREN:
All right, thank you, Your g
I nov.nen tu.cmt., me. - er v.1.==: r taw.v.c. - m.r.n=ma. n. m:.1
163 0t
- l Honor, o
i 2;
THE AD.'IINISTRATIVE L.UT JUDGE:
If there is i
3l nothing further, we will adjourn and reconvene in 10 minutes t
Ip for the Pennsylvania Electric preitearing conference, 5
6 (The hearing was adjourned at 5:17 o' clock p.m.)
?
9 10 iL f i
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.i MOSOACH & M.indM INC. - 27 M. Lo OTMI. LOW f.VC. - MRMO3!;nG..'.t "1 m
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1
__oco__
O 2
I hareby certify that the proceedings and 3
evidence.re contained fully and accurately in the notes 4
taken by cc on the hearing of the within cause before the 5
Pennsylvania Public Utility Com11ssion, and that this is a d
correct transcript of the same.
7 0
MOHRBACH & MARSHAL, INC.
O By "N
10
(/
Official Reporter 11 U
. REPORTED BY:
JAIES P. O'HARA Mohrbach & Marshal, Inc.
g4 27 Horth Lockwillow Avenue Harrisburg, Pennsylvania 17112 g
16 17 18 19 l
l 20 L' (Tne foregoing cortification of this transcript 21 does not apply to ar.y reprcdue:icn of the sne by any means
! unless under the direct control and/or supervision of the 33h certifying repcrter.)
I i
23!
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