ML20003B542
| ML20003B542 | |
| Person / Time | |
|---|---|
| Site: | Three Mile Island  |
| Issue date: | 12/09/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML20003B456 | List: |
| References | |
| NUDOCS 8102120374 | |
| Download: ML20003B542 (227) | |
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1l COMMONWEALTH OF PENNSYLVANIA :
I 2 PUBLIC UTILITY COMMISSION l 3 ------------------------X j 4 Pennsylvania Public Utility Commission :
Docket Nos.
versus Metropolitan Edison Company and ,.
I-79080320 l 5 Pennsylvania Electric Company, Respondents. :
- * * * *
- x 6
7 Operating agreement among Jersey Central : G-80060098 Power and Light Company, Metropolitan Edison :
8 Company, Pennsylvania Electric Company and :
l GPU Nuclear Corporation. : ,
,9 :
- * * * *
- X 10 :
Affiliated interest agreement between : G-80070101 i 11 *- - Metropolitan Edison Company- and -Pennsylvania : -
() 12
! Electric Company, relating to the proposed combined management of the two companies.
- l 13 * * * * *
- x l l
14 Petition of JARI, In'corporated, et al. for : P-80100242 -;
an injunction to enjoin. Pennsylvania Electric :- ..!
15 Company and Metropolitan Edison Company, and : !
for hearings. : ]
16 : 9 l ------- -------------- -x 17 Pages 522 through 749. Hearing Room Number 1 ,
la . North. Office Building 5
- Harri1Rnrrg ,~ienM' s yIvania j-
~
i 19 Tuesday, December 9, 1980 20 L Met, pursuant 'o' adjournment, at'9:07 a.m.
t t
21 BEFORE:
22 ,
EDWARD CASEY, Administrative Law Judge 23
(])
24 ,
l
- s '
slos iso 37d
1
=
f 522-Al i
i 1 APPEARANCES: g I
2 SAMUSL B. RUSSELL, Esquire ,
ALAli MICHAEL SELTZER, Esquire i 3 Ryan, Russell and McConaghy l P.O. Box 699 4 Reading, Pennsylvania 19603 (For Met-Ed and Penelec) 5 DENNIS S. SHILOBOD, Esquire 6 HOWARD F. MESSER, Esquire Strassburger, McKenna, Messer, 7 Shilobod and Gutnick j 3101 Grant Building l 8 Pittsburgh, Pennsylvania 15219 (For JARI, Incorporated)
, 9 t
IRA H. JOLLES, Esquire 10 '
Berlack, Israels and Liberman 26 Broadway j 11 New York, New York 10004 ,
(For General Public Utilities Corporation) :
12 i STEVEN A. MC CLAREN, Esquire 13 Deputy Chief Counsel P.O. Box 3265 l 14 Harrisburg, Pennsylvania 17120 :
(For PUC Trial Staff) ,
i 16 17
_o_ .
18 .
l 19 20 21 22 ,
23 l 24 1
25 COMMONWEALTH REPORTING COMPANY 47171 761 7150
6 523 i I
()
1 CONTENTS i
2 WITNESSES DIRECT CROSS REDIRECT RECROSS i
-~ ~~ t 3 F. Allen Donofrio ;
i 4 By Mr. Russell 532 !
5 By Mr. Shilobod 549 6 F. Allen Donofrio and --
William A. Verrochi (joint) '_
i 7
By Mr. Shilobod 567 a 678 f 9 By Mr. Messer 672 to William A. Verrochi --
. 11 By Mr. Messer 727 !
12 EXHIBITS -
i 13 ,
NUMBER FOR IDENTIFICATION IN EVIDENCE I4 i JARI ;
j 15 3 666 --
16 17 IS 19 20 4
21 22 ,
23 24 25
Irl 524
/
'v' 1 EEEEEEEEEEE 2 JUDGE CASEY: We are on the record. I won't 3 read the four captioned cases or the docket numbers since 4 we are all aware of those.
I 5 I would simply like to say that this is the 6 third in a series of evidentiary hearings that have been 7 scheduled in these consolidated cases.
8 Tomorrow morning we meet at 9:00, but unfortunately
- 9 we won't have the use of this room because the Commission, 10 as I understand it, will be using it for a public meeting.
,_s 11 I believe that the room -- and you will have to l
(' / 12 check me on this -- the room that we will be using is Room 13 503 of the Finance Building, which is directly across 14 Commonwealth Avenue from the North Office Building. I 15 understand that the accommodations are adequate for the i
l 16 number of people that we expect to appear. t I
L7 MR. RUSSELL: Is it 503?
18 JUDGE CASEY: I will double chegk that with MrS-1 i
10 Bentsel. If it is different from the number I have informed 20 you, I will tell you at the,end of the day.
21 At the close of yesterday's hearing, we were 22 also going to discuss a tentative day or two days during
[l 03 the week of December 15 in the event that we cannot complete l
24 the case by tomorrow afternoon.
f 25 I have had an opportunity to review my own schedule
1r2 525 O
3 for the week of December 15, and I see that I have a hearing 2
at 10:00 a.m. on Tuesday, December 16. During that week 3
I also have a hearing at 10:00 a.m. on Wednesday, December 17.
4 On Monday I have a dental appointment in the morning, and 5
I am just afraid it might delay me past the 10:00 hour. I 6
am not sure. On Thursday and Friday, apparently I am 7
unattached on those days.
3 I think in my notes yesterday, Mr. Russell, you 9
indicated that the 15th, 16th, 17th and 19th would be ,
i 10 acceptable. !
I 11 MR. RUSSELL: Thursday is the one day I don't 12 think I can get out of.
13 JUDGE CASEY: Thursday the 18th would be a 14 conflict?
15 MR. RUSSELL: Yes; and the 19th is a possibility.
JUDGE CASEY: The 16th, 17th and 18th then are l 16 ;
1 17 not good for Mr. Russell and myself, and Monday, if I knew !
18 what time I would get out of the dentist's chair, that would 19 be all right; but I think maybe the 19th on a Friday.
I 20 Mr. Shilobod and Mr. Messer, is that acceptable? i l
l 21 MR. MESSER: That is fine.
I 22 JUDGE CASEY: That might give us a few more days !
6 23 to set up the scheduling. ggg Mr. McClaren is not here this morning. I don't ',
24 25l know what his situation is, but if he personally is involved, !
e
Ir3 526~
f')
\/
1 maybe he can have Mr. Christianson or someone sit in for him.
2 MR. RUSSELL: As a matter of information, as long 3 as we are discussing the scheduling and so on, is JARI 4 contemplating having prepared written testimony or putting 5 on testimony orally? *-
6 MR. SHILOBOD: Written.
7 MR. RUSSELL: And you still contemplate the same 8
two witnesses?
9
. MR. SHILOBOD: Yes.
10 MR. JOLLES: When will we have that?
11 MR. MESSER: As soon as possible.
/") 12
(/ MR. JOLLES: Could ~you give me an idea of when 13 we would have it?
14 MR. SHILOBOD: We have to go through the examination 15 of the fellow from TB and A.
16 JUDGE CASEY: In other words, you have to see what I 17 the TB and A testimony will be tomorrow before you can get 18 together with your witnesses to prepare your case?
19 MR. SHILOBOD: Yes.
20 JUDGE CASEY: Prepared testimony has been f i
21 distributed from the respondent's side a day in advance 2
l
.or something of that nature; if you could have prepared j i '3
~
testimony available perhaps by Wednesday of next week.
^}
'~'
34 MR. SHILOBOD: I have not seen the draft of it yet. .
"5
~
I presume that we should be able to do it. It depends to
( COMMONWEALTH REPORTING COMPANY 17176 761 7150
l l 1r4 527 I i
some extent on how far we get along tomorrow, but I O
1 l 2 certainly would get it to you as fast as we can. I am very concerned over the time limitations place on us since l, 3
4 I think that the time limitation is more restrictive to us i
5 than it is to the company. ,.
6 MR. JOLLES: I don't understand that ccmment.
7 MR. RUSSELL: I don't know that any of us isn't 8
in a bind in this timetable that the Commission has imposed.
9 MR. SHILOBOD: I think that the time limitation ;
10 is for the convenience of the company rather than for the it convenience of us or the Commission. I think the company 12 has been wanting these regulatory bodies to act as fast ll 13 as possible, and I think the Commission is being responsive.
14 MR. RUSSELL: I am not prepared that I am going i
15 to characterize the Commission action in that way. l 16 JUDGE CASEY: You may be right. The only thing l 17 is that somewhere in the file in the reading materials, I is noted a recommendation -- I don',t know whether it emanated 19 from Theodore Barry and Associates -- to the effect that 20 once the affiliated interest contracts were filed, that they 21 hope that they could be implemented in three months' time:
22 a 90-day period.
23 Now whether the Commission in its order is trying 24 to accommodate the company or go along with Theodore Barry O
25 and Associates' suggestion, I am not prepared to say. I am COMMONWEALTH REPORTING COMPANY a717h 761 7150
1r5 528
() 3 hypothesizing that.
2 I would think in a real crunch, if the case is 3
hampered or jeopardized, that someone might get a brief 4
extension anyway. According to my timetable, I would 5
probably have to have my recommended decision in their hands 6
by January 19, which is a tall order.
7 MR. JOLLES: Your Honor, if Friday, the 19th is a the next hearing date and the only hearing date next week, 9 are we expecting the JARI witnesses to be put on on the 19th? i 1
10 MR. SHILOBOD: It depends on whether we complete !
3 11 the TB and A witness tomorrow.
12 JUDGE CASEY: Is there more than one witness? ,g
%_- j 33 Of course, you can't speak to that unle'ss the administrative t 14 staff is available; Mr. Morrison. Maybe I can contact them.
15 MR. SHILOBOD: There are three TB and A witnesses; g
I
( 16 Wicker and Shoemaker and Wheaton. 1 i
1 l 17 MR. JOLLES: I would hope that they would at least f i
18 be available on Friday on the event that you did complete 19 their cross-examination.
20 JUDGE CASEY: Who would be available?
21 MR. JOLLES: The JARI witnesses.
22 MR. SHILOBOD: I think if you get thrc' ugh thosh 23 three witnesses in two days, you are goidg to very lucky.
n
- i (_) 24 MR. JOLLES: Then what you are saying is that 25 we will certainly need more hearings after next Friday?
COMMoNWEAI.TH REPORTING COMPANY (7171 761 7150 ,
Ir6 529 l I 1
MR, SHILOBOD: I believe so.
2 MR. JOLLES: When do you believe that we could have 3 those hearing dates?
4 JUDGE CASEY: Again, I have been trying to take it 5 one step at a time. I don' t want to sched.ule too many. We 6 are getting into the Christmas period.
7 MR. JOLLES: That is why I am raising it.
s JUDGE CASEY: I am not planning on taking the day 9 before Christmas and the day after. I think Christmas is l l
10 on a Thursday. I don't think that there will be too much 1 11 going on -- maybe there will be -- during that week, but 12 perhaps the week between Christmas and New Year's we migh- h be able to schedule another one or two days. I can't 13 l i
14 give you a commitment on that until I check with the master l l
15 calendar in the Chief Judge's office. But before the end l 16 I of the day, we will explore one or two more days in addition l 17 to the 19th, December 19th. j 18 MR. SHILOBOD: If Your Honor please, if it appears ,
i 19 that we are going to go past next Friday, we have to consider l 20 that we are going to have to have briefs, and Your Honor I
l i
21 ~ has to have time for a decision; perhaps if it appears that 22 we have to go past next Friday, it might be a good idea 23 that perhaps we would present a petition to the Connission 24 in that time frame to ask --
25 JUDGE CASEY: I think whatever action is taken in comorrot.wn onrx.cswa asex)acs egg mgaigg
Ir7 530
() g that regard should be a concerted action and should involve 2 everybody, not that we would be asking for any lengthy 3 extension. It would appear dilatory on its face, but somethinc I i 4 could be elicited, perhaps 30. days or something like that.
5 So before the end of today, I will explore 6 the possibilities for hearing dates between Christmas 7 and New Year's, that week, and I will inform you of what a my schedule looks like, and then we will decide on Friday g perhaps, the 19th, whether we need to go to the Commission to for an extension of time.
! 11 Does that take care of the preliminaries this 1,~q' morning?
! 13 MR. MESSER: The only additional problem,'Your l
l 14 Honor, is that yesterday we were advised that this morning 15 we would receive a copy of the Penelec portion of the Boo:-
16 Allen Report. At this point in time we have not received j l
l 17 that report; and I believe it has been indicated to me
's privately this morning that it is their intention to produce 19 it sometime this morning.
20 It may be necessary, however, if we don' t get ,
21 the report today, to reschedule Mr. Verrochi to return on f 22 some further hearing date. Hopefully, we will have the s ,
, 23 report, and that will not be necessary. =
() 24 MR. RUSSELL: It was my understanding it was to 25 he delivered to us this morning by Mr. Kelley, and as scon as.
COMMONWEALTH REPORTING COMPANY 6717) 761-7150 l
Ire 531 1 it is here, we will turn it over to you. ggg 2 JUDGE CASEY: That is the best we can expect.
3 We will try to give you the opportunity before the day 4 is over to look at the report and use it for cross-examination.
5 MR. RUSSELL: I would say furthe,r if it is 6 that critical, I guess -- as I mentioned last week, it is 7 a public-document that has been filed here in the Commission's a cffice -- if it is critical to see, it can be found there 9 right now. ,
l 10 JUDGE CASEY: Is the Booz-Allen Report in segments :
11 depending on --
12 MR. RUSSELL: It is booklets for each company; the 13 operating companies, the service companies, etcetera, and G ;
i 14 we have gotten all of the pieces except the Penelec piece. l 15 JUDGE CASEY: And when it was filed with the I i
16 Commission, it was not all pulled together in a single item? :
17 MR. RUSSELL: It was in booklets that were prepared.
18 JUDGE CASEY: One more thing. Yesterday, Mr.
19 Verrochi and Mr. Donofrio were sworn in as witnesses. Mr.
20 Verrochi testified in response to cross-examination at 21 some length. Mr. Donofrio answered certain questions :hich 22 were peculiarly within his domain.
23 Mr. Verrochi is here again today. He is availah'_e, 24 if necessary; but Mr. Donofrio is the witness whom Mr. ggg 25 Shilobod desired to cross-examine; is that correct, Mr.
COMMONWEALTH REPORTING COMPANY f7171 761 7150 l__
1r9 532 7
U 1 Shilobod?
2 MR. SHILOBOD: Yes.
3 JUDGE CASEY: You may proceed when ready.
4 Whereupon, 5 F. ALLEN DONOFRIO '
6 having been duli sworn, testified as follows:
7 MR. RUSSELL: We have not identified the witness, 8 and we haven't had initial direct.
I 9 JUDGE CASEY: That is right; we haven't identified I 10 his prepared statement into the record at this point.
11 DIRECT EXAMINATION 12 BY MR. RUSSELL:
13 0 would you state your name and address, please, Mr.
14 Donofrio?
I 15 A My name is F. Allen Donofrio. I am the Comptroller 16 of Pennsylvania Electric Company. My business is 1001 17 Broad Street, Johnstown, Pennsylvania. 15907 is the zip.
18 Q Do you have before you a document which has
[
19 been marked for identification as Penelec/ Met-Ed Statement C?
20 A Yes, I do. ;
1 21 Q Was that prepared by you or under your supervision? !
i 22 , A Yes, it was. j t
23 Q Does this represent your prepared written x ! ,
24 testimony in this proceeding? !
25 A Yes, it does. !
CoMMoNWEAt.TH REPORTING COMPANY (7176 761 7150
Ir10 533 l
3 0 For the record, if I were tcday to ask you the 2 same questions that appear in that statement, would your 3 answers be the same?
4 A Yes, they would.
5 Q In your statement, I believe you make reference 6 to the proceedings to analyze and implement the combined 7 management plan with respect to Met-Ed and Penelec; is that a correct?
9 A Yes, it is.
i to Q Who was in charge of that analysis and implementa-l I
11 tion?
A Mr. Verrochi was.
12 l 13 ? Washeinchargeoftheanalysisandimplementatiodl l'
14 as far as Penelec was concerned? j 15 A He was in charge of the implementation of the is combined management, and that included the Penelec and 17 the Met-Ed piece.
Is Q Did the Met-Ed people, operating under Mr. Smith 19 function under Mr. Verrochi's supervision?
20 A Yes, they did.
21 Q In your statement, you used the terms " potential 22 cost savings" and " potential cost avoidance." Could -
23 for the record, identify briefly the distinction be: wee..
24 those two terms?
25 A What we have is a total savings with a potential O
COMMONWEALTH REPORTING COMPANY (7171 768-7150
1r11 534 O g of about $18 million. What happens is if you are at a 2 given base right now and the combination did not go through, 3 right from day one, the start, we would have to add the 4 potential of 205 jobs. This would start increasing our 5 expenses on an annualized rate of about $8 million from I
6 where.we are today; so that is from day one.
7 However, if the combination. is allowed to be 8 implemented and go in place, we believe from our present 9 base that we can reduce this by about $10 million, and to this has to do with the combination of management of Met-Ed 11 and Penelee as well es the reorganization of our divisions, 1
C 12 which would be possible by this combination of management.
13 The savings of the S10 million from today's 14 base would start, but would not be fully completed for 15 probably two to three years. We are talking about a l '
16 reduction of approximately 247 jobs. There would not be 17 a layoff. It would be by attrition.
. 18 Some of these jobs would be from day one because 19 we have started now not to fill jobs on a permanent basis.
l 20 As jobs become open, we are filling them on a temporary 21 basis or doing the present work on an overtime basis;.
22 so ,some of it will start right away. But, as I say, by the 23 time that the 247th job would not be on our payroll, it O. 24 may be two to three years. l 25 Now this is all planned under the present work i l
l i
COMMONWEALTH REPORTING COMPANY 4717) 761 7150
Ir12 535 1 scope either with or without the combination.
As additional l l 2 work duties are added, of course, personnel might be needed.
3 Q Do you have before you a document which has been 4 marked for identification as Penelec/ Met-Ed Exhibit 77 5 A Yes, I do. ,
6 Q Could you explain briefly what is represented on that 7 exhibit?
8 A Exhibit 7 reflects the potential cost savings from 9 a given base downward of $10 million. What this shows j t
to is the mix of employees that we would be talking about; 11 supervisory, exempt, clerical, the union and the total. It 12 breaks down the Penelec divisional, Met-Ed divisional, ;
13 reorganization and reduction as well as the corporate ll 14 combination. [
t 15 The first totals on there of the 73 for Penelec i 16 an 136 for Met-Ed would be the ones that I was talking ;
17 about over the next two to three years. The initial i 0
18 reduction of corporate combination, we are looking forward ,
19 to have that started about day one from when we can star 20 implementing our plan; The next 19 would be approximately 21 one year after that plan was implemented.
22 , The second half of this then takes those number 23 of employees and, in ef fect, puts dollars to them as to 24 what the potential cavings would be from this reduction 25 of employees; again, the same kind of break-out which Penelec COMMONWEAL.TH REPORTING COMPANY 1717' 761-7150
1r13 536 O 1 divisional employees, !!et-Ed and the corporate dollars 2 have been assigned. The assumptions are down at the bottom 3 of the page.
4 0 Mr. Donofrio, did you -- or if not you, who made 5 the estimates as to the possible reductionp or potential 6 reductions in numbers of employees reflected on Exhibit 77 7 A Mr. Verrochi was in charge of the implementation i
l 8 of the combination of management. He had set up a task 9 force in order to bring this all together for review purposes, to and I was the coordinator of that task force.
11 This task force consisted of Mr. Verrochi as 12 chairman of it, Mr. Ralph Conrad, Mr.Floyd Smith and myself.
13 Input on the divisional reorganizational numbers was initially 14 started by Mr. Wise, the present Vice-President of Operations 15 at Penelec, with the help and support of Mr. Henry Robidoux, ,
16 the Met-Ed Vice-President of Operations, and Mr. Smith, whom ,
17 would be the senior Vice-President in charge of the Penelec 18 and Met-Ed divisions upon completion of the combined 19 management and reorganization of divisions. ,
l 20 On the corporate combination, again, I was l
l 21 coordinato r. However, the various officers that were put i i
22 .in charge of the various functional areas came up with the !
23 staffing and the reporting requirements for each of their ,
.o l 24 particular functions. '
l !
- 25 They were reviewed by the task force, and the 19
- CoMMONWEAt.TH REPORTING COMP ANY (717) 761 71 $O l
1rl4 537 1 is a dif ferent number or a compilation of what would we 2 be looking at reorganized versus what we were in place as O
3 of January 1, 1980.
4 0 Were these reductions reviewed and approved by 5 Mr. Verrochi? ,
6 A Yes, they were.
7 Q What is the factual basis for the assumptions 8 that are reflected in the lower lefthand corner of Exhibit 7?
i 9 A The factual basis is on the assumptions down there; .
< l i
10 these are salaries in effect as of January 1, 1980 on an 11 annualized basis. It is the straight time salary.
12 What we did was looked at Penelec and the Met-Ed 13 on supervisory, and an average of the two came out to be llhi 14 about S32,000. We did the same for exempt, $23,000, and so on 15 down the line.
16 As far as the fringe benefits, materials and supplies, 17 transportation and miscellaneous, these are developed from 18 statistics mainly of both companies looked at the last ,
t to couple of years as to what these ratios were, in fact, at 20 both of the companies and we use these in our assumptions.
21 Q Would you describe briefly what is meant by :he 22 term " exempt" as you have used it on this exhibit?
23 A What this means is more ' cur less the professional 24 individuals, engineers, accountants, etcetera, that are 25 not in a supervisory capacity, and they are not in a O
COMMONWEALTH REPORTING COMPANY a717' 7617150
i 1
1rl5 538 i
! I i
' () t clerical capacity, which on this schedule is referred to as I
i 2 the "non-union non-exempt." ,
3 Q And the union personnel would be who?
4 A In Penelec's case, the ten there are the clerical, 5 the union personnel in one of our divisions. It is the 6 only division where the clerical function has been unionized; 7 .and Met-Ed is more or less the same thing.
8 Q Have you before you a document which has been ,
. 9 marked for identification as Penelec/ Met-Ed Exhibit 8? t i
to A I do. l 11 Q Was that prepared by you or under your supervision?
()
12 A It was.
1 13 Q And was Exhibit 7 likewise prepared by you or I
14 under your supervision? i i
15 A It was.
16 Q Could you explain briefly what is represented 17 on Exhibit 8?
18 A Exhibit 8 is the cost. avoidance savings -- that is ,
i :
I 19 potential -- if the combination is allowed to go through.
20 What we have here is a range at Penelec and Met-Ed of the 21 additional employees that would be needed in order to 22 bring the staff to the level needed in order to function 23 as independent companies, and we have broken that down
() 24 again on the same kind of categories of Supervisory, Exempt, 25 Non-Union /Non-Exempt, Union, and Total, and this range is l
COMMONWEALTH REPORTING COMPANY (7171 761 7150
Ir16 539 :
i 1 120 to the potential of 205 jobs which must be added. lg 2 Again, we have gone through the same on Exhibit 8 3 as we did on Exhibit 7 by now putting dollar figures on the l I
4 employee numbers. The assumptions are down on the bottom j 5 of the page. ,
s I will just briefly go through the assumptions.
7 We took a study of both companies, Met-Ed and Penelec s corporate staffs as of the beginning of the, year, and ,
9 the ratio of supervisors to exempt to the clerical was 10 one supervisor for every two exempt, for every two clerical. ;
11 We assume that that same kind of a ratio would be in the 1
12 future as it was in the present. That is for that first !
13 assumption.
0 1
i 14 The same salary assumpcions were used, as I 15 referred to on Exhibit 7, as well as adders or fringe 16 benefits, transportation, etcetera. l 17 Q Mr. Donofrio, you have indicated a range of l i
18 employee cost avoidance and dollar cost avoidance, but i I
19 you round off the figure which is the high side of the range.
20 Could you explain what the occasion was for that '
21 judgment? ,
22 ,
A On the cost avoidance, employee levels were 23 discussed. Without going into an exact charting and saying, 24 "This is one job, two jobs, three jobs, etcetera," it was {lg 25 looked at in terms of we know the appropriate level is about CoMMoNV/EALTH REPORTING COMPANY #717 761-7150
1rl7 540 i
() 1 50 to 75, as an example, in generation. Mr. Varrochi 2 discussed how this was done yesterday. It was done with 3 the functional heads as well as Mr. Smith, Mr. Verrochi, 4 etcetera.
5 What we are saying there is there's no ifs, I 6 ands'or buts that the minimum is 50. The potential is 75, 7 and the potential savings, we believe, are on the conservative 8 side.
9 ,
I believe that TB and A reflects in their report j i
10 that their independent review and analysis of this also !
11 so indicates. Again, this is the potential cost avoided 12 savings, and we believe it would be on the high side, and O 13 we would have to add.
. l I
14 Q Was the development of the estimates reflected on 15 Exhibit 8 carried out under the same supervisory arrangement !
I 16 that obtained with respect to Exhibit 7? :
i 17 A Yes, it was. !
i 18 Q Again, with respect to the possible achievement ;
I 19 of these potential cost avoidance savings, could you 20 describe the possible timing as you see it?
1 21 A Uell, when we say the achievement of these savings,
, 22 what this is is a cost avoidance or an avoidance of 23 additional expense that we would face.
() 24 In other words, if the combination does not go 25 through,as soon as these jobs are added right from day one COMMONWEALTH REPORTING COMPANY (7171 761 7150
. I 1r18 541 l l
1 that salary must be paid, and that then becomes an additiona 2 expense above and beyond where we are today. So the a potential $8 million really starts as soon as we start 4 adding these jobs.
5 Q Could you state whether or not you played any 6 role in connection with the preparation of what has been 7 described as the Blue Books, the Green Books and White 8 Books?
9 A Yes, I can.
10 0 All right. Would you describe for the information {
11 of the Commission and the Judge the background for the i i
12 development of the initial one of those colored documents?
I 13 A About January 4 of 1980 was the first time that 14 I was aware of, let's say, a combination of management. On ;
i 15 January 4 and January 5 Mr. Verrochi and myself had I i
16 discussed exactly what might be needed to start putting ;
17 this in place. In other words, you could talk a lot about :
t 18 it, but you had to have a document that everybody could see 9
13 in order to start going through iteration and getting it 20 down in black and white.
t 21 So what we discussed was exactly what kind cf information did we want to have in writing; and one of 22 l 23 l the things was to have the organizational setup and w;-
24 possibly would be reporting to whom.
25 The other thing was asking what kinds of employees COMMONWEALTH REPORTING COMPANY (717' 761-7150
Ir19 542
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() i are these? Are they officers, supervisory, exempt, 2 clerical, etcetera?
3 One of the other things we wanted was: what 4 would be the physical location of these employees; and
~
, 3 another thing was: what was the number of,, employees by 6 function that we were talking about?
7 Using that as the criteria, we started working a on developing what.was termed the " Blue Book.". This had input
. 9 frG4 Penelec. It has input from Met-Ed. It was coordinated to by myself mainly in order to make the formats all the 11 same so that eight or ten different individuals didn't ,
("N 12 get different formats, and I.kept it straight to that extent.
( .
13 The other thing that I did was to tie it into 14 the organization charts that were prepared by Met-Ed and 15 Penelec personnel departments, effective for January 1, 1980 l 18 levels.
s 17 What happened on this was that if individuals l
l 18 had given me only 50 employees when they really had 51, 19 what I did was pointed this out, and the Sist individual I
j 20 was put in here.
21 Again, it being an iterative process, we kept ,
I 22 it pretty confidential because the names might not necessarily 5
23 have started off where they were eventually to end up.
j
(\_/~% 24 This took quite a bit of time and preparation, ,
I i 25 and the planning draft is issued as of March 26, 1980.
l l
CoMMoNWEAt TH REPORTING COMPANY 17171 761 7150
i Ir20 543 i I
i 1
This was the company's anticipation of what the organization 2 would be. To my knowledge, the main points of the TB and A 3 had eventually pointed out to us they had not reviewed 4
up to this point in time. This was all a company document.
5 0 When you say "this point in time," you mean what?
s A About the time that the draft of March 26 or the 7 Blue Book was initiated and put out for distribution.
a Q Was March 26 the first edition, so to speak, of 9 the Blue Book? ,
10 A Yes, it was. During this time, as I say, from i i
11 January 4 and 5 up to this time, there was a lot of !
12 organizations' pape rwork . We would do one organization.
lll 13 Mr. Verrochi would review it. We would have it typed up, ,
1 14 proofed, etcetera, documented, and then eventually summarized.l I
15 Again, that was the aspects and the reasons !
16 for Blue Book. It wasn' t to package a management combination 17 to see what kind of cost avoidance there would be or cost :
f la cf the savings involved or anything being close to the 19 subject without documenting the fact as such.
20 We kind of all accepted the thing that by 21 consolidation and by combining the management and avoiding 22 duplication, that the savings was there. It was inevitabla 23 that savings would be there, and this document was.not at 24 this point in time addressing that savings question.
O 25 0 You mentioned TB and A. What input, if any, did COMMONWEALTH REPORTING COMPANY 4717 761-7150
l Ir21 544 1 TB and A have with respect to the first edition of the Blue 2 Book on March 26?
3 A In my aspect of it, they did not have any 4 participation. This was, in effect, a first document then 5 that they saw that had the company's ideas,and plans 6 physically put out in writing.
7 0 To the best of your knowledge, approximately when 8 did TB and A see this first draft of the Blue Book?
9 A It would be after March 26 and sometime during :
10 the month of April. The reason I say that is that I a
11 personally attended a meeting early in May at which TB and A, 12 Mr. Dieckamp and Mr. Kuhns and Mr. Verrochi and Mr. Smith 13 and Mr. Conrad, etcetera, were there that discussed two 14 of the potential problem areas or two things that they j 15 recognized in our document that they wanted to perceive; i
16 that in all of their looking at other utility companies 17 and their experience, that they wanted to point out to us that is there were two areas of concern, and that maybe by putting 19 it out on the table, that we would look at it and address ;
20 it and possibly change our organization.
21 What were the two areas that they had expressed Q l 22 concern about?
23 A The two areas were -- one was the materials ;
em k-) 24 management function reporting to the chief financial officer.)
25 They expressed some concern about having the chief financial COMMONWEALTH REPORTING COMPANY 17171 761 7150 ,
1r22 545 ,
i f
g of ficer, who was really watching the dollars, keeping l 2 everything at a minimum, and possibly by having the control ggg 3
of inventories under his direction might keep the inventories ! ,
t 4
at too low a level, which would run into like stock-outs 5
at a division level where the material would not be g available.
7 Again, just because they made this suggestion, g all of a sudden the company didn't say, "Yes, let's move !
9 it." We contacted 20 other companies to find out exactly 10 where the materials management function was in a reporting ,
it relationship, when it was there, where it had been before, 12 l if it had been recently changed, and why; and eventually I
13 after doing some of this and seeing that other companies i 14 indeed had expressed this concern and had not had the
- 5 function set up this way, we did change our original i
16 thinking on that aspect.
17 Q And did what with it?
l is A And moved the materials managment out from underneath 19 the chief financial officer.and set it up as reporting 20 directly to Mr. Verrochi as chief operating officer.
21 0 Was there a second area where TB and A had scme 22 sort of significant input?
23 A In our original proposal, we had the custoner side l
24 of the division area versus the line department operational 25 sidereportingonasinglestructureuptoaVice-President,ggg COMMONWEALTH REPORTING COMPANY 1717i 761-7150
. I 1r23 546 l 1
an individual Vice-President, and this was the same kind 2 of individual setup that was in place at our sister company 3 in New Jersey; Jersey Central Power and Light Company.
4 This was a change in concept for Penelec and 5 Met-Ed whom had individual division managers with the line 6 department and operations as well as the customer side 7 reporting to the division managers; then the division 8 managers, in effect, reporting up in the organizational 9 structure.
10 TB and A had pointed out that they had not seen 11 this at other companies, that what they had seen was the 12 kind of organization where the division manager actually O 13 was the manager in that particular division, and there was 14 no split functions; there was only one boss out there, and 15 they felt that that was a better way in remaining the 16 same as Penelec and-Met-Ed had been set up instead of 17 changing it. l l
18 Again, the company did not just accept that l.
I !
19 right of f the bat kind of thing. In fact, there was quite i 20 a bit of consternation and talk amongst the dif ferent i
21 officers, including Mr. Verrochi, as to exactly how would l 22 we set it up; could we really answer these kinds of questions: ;
l 23 were we positive in our mind that this was the way to go?
l .
I 24 Upon further review, what we did was, in ef fect, 25 set up a senior Vice-President who would report to Mr.
COMMoNWEAt.TH REPORTING COMP ANY (7171 761 7150
1r24 547 i
g Verrochi. He would have Vice-Presidents underneath him, 2 one with the customer services, which the division manager 3 would report to, as well as another Vice-President who 6
4 would have the engineering expertise on a corporate bases, 5 would give functional, technical direction out to the s divisions, and the division manager could spend more of his 7 time on customers, customer services instead of the technical j 8 functions, as well as a Vice-President of conservation and 9 load management, again an area that we are getting into that to we were going to put more expertise and really highlight it.
That is a wave of the future.
11 l 12 So with these changes, then we had updates of 13 what was originally the Blue Book, which eventually ended 14 up as a White Book.
15 What happened after this Blue Book was published, 16 we started splitting them. In other words, we wanted 17 eve rybody , all the officers, etcetera, to know what the I
18 l organization was looking like and the responsibilities and 19 roles of the dif ferent areas and functions. However, we 20 didn' t want all of the names still being published. So, in i
1 21 effect, we split it out.
22 l ,
We ended up with what is termed the Green Scok, i
23 { which shows the organization roles and responsibilities i
I .
24 with no names of individuals, and then we have the White Ecc 25 ' that interfaces with it that has all the names of the COMMONWEALTH REPORTING COMPANY 4717' 761 7150
f i .
Ir25 548 i
() 1 individuals in it; again, to keep on a confidential basis 2 because it is an iterative process, and once the names are 3 there, the person may or may not accept the job, may not 4 be there anymore, and we have kept it pretty confidential j t
5 for those reasons. ,,
l 6 MR. RUSSELL: Mr. Donofrio is available for 7 cross-examination.
8 JUDGE CASEY: First, Mr. Donofrio, could you j
, 9 give us the chronology of the various books starting with .
i 10 the Blue Book?
l il As I understand it, the Blue Book was prepared 12 and ready to be distributed somewhere around March 26 of i O 13 1980. Is that the date?
l 14 THE WITNESS: Yes, March 26, 1980 it was distributed.
15 JUDGE CASEY: And what followed the Blue Book; i 16 the Green Book? '
17 THE WITNESS: What happened is then we started i l
18 splitting them up.- We had a revision to the Blue Book as ,
19 of May 7, and then that was the origination of also the l
l first Green Book.
20 j ~
I 21 The Blue Book was then further updated on June 4.
1 l
l 22 That is the last revision. The Green Book has been last 23 updated on August 15. That was the last re vision .
n QS 24 JUDGE CASEY: How about the final? I think you 25 termed it the White Book.
I COMMONWEAL.TH REPORTING COMPANY 17171 761 7150
l 1r26 '
549 l
1 THE WITNESS: That is the eventual Blue Book O9 2 revision dated June 4. l 3 JUDGE CASEY: Mr. Shilobod, you may cross-examine 4
the witness.
5 MR. RUSSELL: If I may just interject one moment, 6
the Penelec portion of the Booz-Allen Report is at hand.
7 I am delivering it to Mr. Shilobod.
3 MR. SHILOBOD: Mr. Messer is out searching through
, 9 the files. It might take a few minutes, but I think maybe i
10 if we are going to try to get to Mr. Verrochi, it might it behoove us to take a few minutes and tell him that it is 12 here.
13 MR. RUSSELL: We can send someone down to find ;
14 him in the file room.
is CROSS-EXAMINATION l 16 , BY MR. SHILOBOD:
17 Q Mr. Donofrio, whenever you started to testify la this morning, you mentioned that there was a need to 19 l add 205 jobs starting today.
I 20 I
Do you have a breakdown of what those jobs would 21 be or what they would entail?
I
, JUDGE CASEY: That is if the management ccchination 22 l 1
23 agreement was not approved, you would find it necessary 24 i to add 205 jobs.
I I
25 i MR. SHILOBOD : Yes.
1 COMMONWEALTH REPORTING COMP ANY t717' 7617150
1r27 550 l
1 THE WITNESS: They are detailed on Exhibit 8.
2 BY MR. SHILOBOD:
3 0 You are saying that if the management combination 4 were not approved, 205 jobs as set forth on Exhibit 8 would 5 have to be instituted starting immediately.; is that correct?
6 A Yes, sir.
7 You indicate for Pennsylvania Electric that Q
a approximately 45 to 85 jobs would be needed starting today. f 8
Do you have a breakdown of what positions those are? l 10 A We do not. As I explained before, this was done 11 withtheVice-PresidentsofOperation;Mr.FloydSmithandMr.f.
. 12 Verrochi in discussing the needs of the dif ferent areas, 13 the potential jobs that would be needed, the 45 to 85 range I4 for Penelee as detailed on Exhibit 8. There was no exact is job description of these.
I I8 We had done our planning on the combination of l I
mantgement going ahead and had detailed the jobs that 18 would be necessary under the combined management. .
" Q Are you the witnesc that would have the knowledge i
20 to back up these figures of, the number of jobs needed as '
41
~
set forth on Exhihit 8, or is that for Mr. Verrochi?
l A I believe Mr. Verrochi is in charge of the i 93
~
implementation. This is a compilation of numbers, as I 24 i
mentioned before, of discussions with Mr. Verrochi and Mr.
5 Smith and various Vice-Presidents.
l COMMONWEAL.TH REPORTING COMPANY 1717 761 7150
I 1r38 551 i l
1 Q You had indicated that you were coordinator of I
2 this task force. What did you do?
3 A As I tried to mention before, what would happen 4 is each of the different officers would come up with their 5 organization. If they would do-it by themselves without s a coordinator, there would be different fo rma ts . I compilated 7 the numbers, had them all typed in the same thing, had a the same rationale, what was called a supervisor versus ,
t 9 exempt, etcetera. I summarized the numbers. I got ther ;
, i to all set and brought them in for the review. e t 11 I made sure that everybody was up to date as 12 far as what they were doing in September or August or la July'. I kept riding herd on it to bring it to completion.
14 0 So for putting these numbers together, all that 15 you did was gather information that other people gave you. ,
16 You didn' t look to see whether they were actually valid 17 or whether there were any other considerations to be given, j i
la or you didn' t check on their accuracy, i t
19 What you did was you gathered the information 20 that other people gave you, and you put them together.
21 A When you say " check on their accuracy," I will l
22 give you an example. Mr. Floyd Smith is a designated senior 23 Vice-President. He has different officers underneath him.
24 Those officers came up with theirs. He would review their l
l 25 organizations.
COMMONWEAL.TH REPORTING COMPANY s717' 761 7150
I a
ir29 552 i
! As far as my role, again I checked to make sure 2' that the starting point was the same. I set up controls 3 as to the number of superv' sors, the number of exempt, the 4 number of clerical, etcetera. I looked to see whether there i 5 was a reduction in staff versus any kind o.f increases in 6 there.
7 We had contemplated as an original goal that the 8 initial setup of the combined management, we would be ,
i 9 looking at a 10 percent reduction of all functions and j 10 departments that physically were relocated and combined i
together. That was an original goal, and that is the j 11 l i 12 development of the 19 individuals.
33 We are also are looking at one year after the 14 combination is put in place that by the time Penelec I
i 15 employees learn Met-Ed and Met-Ed learns Penelec, etcetera, i i
I 16 that we would look for the additional 10 percent or the
'li additional 19. I 18 Mr. Shilobod, can I interrupt for JUDGE CASEY:
19 I would like to put thic issue into focus a moment?
20 for me because it is very important to the case, and I l -
21 would like to lay some foundation for further cross-examina-tion on your part.
'3 I am going to ask Mr. Donofrio to look at P:;/ME
( O ~ 4 Exhibit 8, the lower lefthand corner, which is headed, 5 -
" Assumptions."
f i CoMMoNWEAt.TH REPORTING COMP ANY s717e 761-7150 t
t
1r30 !
553 1
1 Are you saying, number one, that between 50 and
- 75 employees would have to be added in the area of generation '
O 3 to the Met-Ed Company?
4 THE WITNESS: Yes, we are.
5 JUDGE CASEY: Are you saying that 25 to 50 employees 6 would have'to be added at Penelec for the T&D function?
7 THE WITNESS: Yes.
8 JUDGE CASEY: Conservation and load management .
9 between 20 and 30 at the combination of Met-Ed and Penelec?
I 10 l THE WITNESS: Yes, sir.
I i !
11 JUDGE CASEY: You don' t show any breakdown as 12 l to which company gets what. l 13 THE WITNESS: It would be split even; 10 tc 15 l
llI 14 ' for Penelec; 10 to 15 for Met-Ed.
15 JUDGE CASEY: Rate case load management; you l 16 would have to add 5 to 10 for Met-Ed and Penelec?
i 17 i THE WITNESS: Yes, sir. l 18 JUDGE CASEY: This is,without the combined manacement 19 agreement going into effect; is that correcr? !
20 THE WITNESS: Yes.
21 JUDGE CASEY: Policy and procedures: 5 to 10 people i
22 at (iet Ed? ;
23 THE WITNESS: Yes, sir. ,
24 I JUDGE CASEY: Mate rials management, 10 to 20 25 people at Met-Ed and Penelec?
O COMMONWEALTH REPORTING COMP ANY 717 761 7150 ,
i Ir31 554-i,
Yes, sir.
1 THE WITNESS: l 2 JUDGE CASEY: And finally, communications, 5 to 3 10 people,. Met-Ed and Penelec? l 4 THE WITNESS: Yes, sir.
5 JUDGE CASEY: You have labeled this, " Assumptions,"
6 and you give a low and a high figure in the lefthand colunn; 7 is that correct? -
a THE WITNESS: Yes, sir.
9 JUDGE CASEY: What are the assumptions based upon?
10 You have two operating utilities in Pennsylvania that {
l 11 apparently were functioning; if not at optimal efficiency, 12 they were going all right before the accident; is that ;
O.
I 13 correct?
I Before the accident, you say?
i 14 THE WITNESS:
15 JUDGE CASEY: Yes.
IG THE WITNESS: Yes.
t 17 JUDGE CASEY: Before the accident. The companies is apparently were at least in a regulatory sense doing their 19 jobs and doing it in a reasonably capable fashion; is that ,
20 right? ;
1
{ 21 THE WITNESS: To the best of my knowledge, yes, i
i .
22
. sir.. .
23 JUDGE CASEY: As a result of the accident, you l
24 have had a very serious financial crisis. I don' t know how
{
25 much attrition you have had, whether people have bailed out I
i i
COMMONWEAL.TH REPORTING COMPANY (717' 768 7150
(
1r32 555 I frcm their employment because of the accident; perhaps not.
2 But have you lost personnel in both companies 3 since the accident?
i 4 THE WITNESS: We have lost personnel more so I
5 at Meb- Ed for those reasons than Penelec.
i ;
6 JUDGE CASEY: More so. In a circumstance where
- you have been -- this is not my judgment, but it is the ;
a 8 udgment of a number of people -- that you might be on the g brink of insolvency or bankruptcy, you are considering this.
10 In such a climate, such an atmosphere, you are 11 considering adding as few as 120 people or as many as 205 12 people to the two utilities under those circumstances; is 13 that correct?
14 THE WITNESS: The assumptions being that these is added employees would fight for their priorities with the 16 others; again, based on cash restrictions or something co 17 that extent.
18 JUDGE CASEY: What do,you mean " fight for their 19 priorities with the others"? I don' t quite understand that.
20 THE WITNESS: All right. When you are adding 21 people and are going through layoffs, you have certain 22 constraints such as either cash financing, etcetera.
23 . What you would do is. set the limits of what you 24 can spend, and then you would set your priorities on what 25 you were going to spend that money on.
COMMONWEALTH REPORTING COMPANY 17171 761 7150
1r33 556 JUDGE CASEY: That is an accountant's observation.
( }' 1 2 What I am looking for is the rationale or the underlying 3 reason for expanding your payroll and your expenses at 4 a time where it seems to call for a. belt tightening situation.
5 THE WITNESS: What is is, Your Honor, is that 1.
6 given the work scope of having the combined management and 7 getting that same exact work done on an individual company i 8 basis, it would require potentially 205 additional jobs 9 in order to do that same work scope.
i 10 JUDGE CASEY: Without the combined management?
11 THE WITNESS: Yes.
12 JUDGE CASEY: So you are saying that from this day forward, without those 205 or the minimum of 120 people, s- 13 i 14 then Penelec and Met-Ed lack the capability to continue the 15 operations of the two utilities.
I 16 THE WITNESS: I don't think I am in a position f 17 to go that far to make that statement, no.
l 18 JUDGE CASEY: There has to be, I would think, some
- 19' justification from a management viewpoint, from an 1
l 20 operational viewpoint, from a financial viewpoint to con-21 template the additions.
j 22 Is your operation suffering because you don!t i t
23 have these people? - !
5 24 MR. RUSSELL: If Your Honor please, this is one
(
25 of the specific reasons why I had suggested yesterday that l COMMONWEALTH REPORTING COMPANY 47171 761 7150 l
t 1r34 57 1 Mr. Verrochi and Mr. Donofrio could take the stand at the k 2 same time because Mr. Verrochi is responsible for the a qualitative analysis of the requirements or calculation 4 of employee levels and so on.
3 Mr. Donofrio has quantified them in dollars and s so on and has done the legwork in terms of describing 7 for the group that has Leen functioning on this.
8 So I think your questioning is more in Mr. Verrochi's 9 area then it was in Mr. Donofrio's. ,
f a
10 JUDGE CASEY: Mr. Verrochi may join Mr. Donofrio. !
l 11 I am going to cease my questioning along these lines at !
i 4
12 this point and turn it back to Mr. Shilobod.
13 I will have additional questions of Mr. Donofrio 14 on the timetable and the setting up of the claimed organiza-15 tion and the new officers in combined management.
I 16 But I just wanted to make sure in the record that I 17 this breakdown t- what will happen in.your judgment, what i
is is necessary in the event that the combined management 19 , agreement is not approved by the Public Utility Commission?
20 l MR. RUSSELL: Your last question is in Mr.
21 Verrochi's area. Could we have him respond to it?
22 JUDGE CASEY: He can respond in place, if he 23 wishes, since he has already been sworn.
24 : MR. VERROCHI: I guess the simplest way that I 4h I
25 can address the question and the line of questioning of both COMMONWEALTH REPORTING COMPANY 4717) 761 7150
1r35 558 e
i you and Mr. Shilobed is, again, by example. If you take !
Q 1 2 a look at the assumed cost avoidance associated with say 3 the T&D function, we estimate 25 to 50 employees, a potential 4 savings of 25 to 50 employees if we combine the manage =ents 5 of Penelec and Met-Ed rather than having them separately.
l 6 Weestimatethatallofthosepebplewillhave 7 to be added to the Penelee payroll. We show none on the 8 Met-Ed because Met-Ed has a reasonably good staff at 9 headquart.ers to lend the necessary support under their i
10 existing way of operation as well as under the proposed ,
11 way of operating between scaff system headquarters and the 12 operating divisions. .,
O is r= the o>ee or re e1eo, we ere e tr1r 1e a-I 14 We have very little staff in place currently in Johnstown, ,
i 15 where Bob Wise is Vice-President.of Operations. [
16 Because of that inadequate staff, it would be
( 17 very di.f ficult for Bob Wise and his present staf f of pecple l 18 to lend the necessary headquarters support to the restructured!
19 divisions that we are contemplating as a result of the 20 combination and consolidation of divisions.
l i
21 JUDGE CASEY: We are not considering the 22 e combination, Mr. Verrochi. We are assuming that these 23 additional expenses would have to be incurred if there 24 was no combination of management or operating divisions 25 at Penelec and Met-Ed.
COMMoNWEAt.TH REPORTING COMP ANY - (717' 76 8 7150 l
Ir36 559 l 1
MR. VERROCHI: If Penelec stays alone, Your Honor -
2 I guess what we are trying to say that if Penelec stays alone,.
if Penelec thinks it is in the best interest of Penelec, 3 l 4
its customers, employees, and so forth, to restructure, for 5
example, the divisions; we want to go to eight operating 6
divisions, eliminate the district organizations, but not 7 the district facilities -- and I think we have described a that in some detail -- these eight new division headquarter l 9' staff located in the division areas would have additional 4
to managers, additional supervisors, additional people. Yhey 11 , would require direction and guidance, coordination, input 12 from a mirror image staff yet to be developed in Johnstown; g 13 and it is those 50 people tnat would have to be added in i i
t g4 order to for us to realize the benefits that we contemplate l 15 from the division restructuring.
16 JUDGE CASEY: Are they 50 new positions?
17 MR. VERROCHI: They would be 50 new positions. >
18 JUDGE CASEY: Additional new positions?
gg MR. VERROCHI: Yes.
20 JUDGE CASEY: And you feel the need to reorganize 21 i the divisions with or without the management combination?
22 MR. VERROCHI: Yes. We are operating under -hat 23 assumption.
24 JUDGE CASEY: And what would lead you to that 25 conclusion if Penelec, as we have heard all along -- and I COMMONWEALTH RE' PORTING COMPANY '717' 761 7150
Ir37 560 i
I certainly wouldn't dispute it -- is an efficient operating 2 utility with an accent on coal-fired generation?
3 MR. VERRACHI: I think that is exactly the point.
4 Obviously, Penelec is far from perfect. I would be the ;
I 5 first to admit and recognize that. ..
6 We are trying obviously to capitalize on our strengths and to correct our weaknesses.
7 We do happen to 8 have what we think to be a very excellent headquarters !
i
. 9 staff in generation, some 130 or more people who lend the f, 10 necessary support and guidance and help to tne generating ! ,
11 station staffs that we have. It is that kind of an !
I.
12 crganization that we like.
(~J}
~
. l 13 We are now trying to put that kind of an l l
14 organization in place in the operating divisions, kind l 15 of a parallel with profiting, if you will, from that good :
16 example in generation.
17 There has to be a certain amount of centralizatica -
's 18 and decentralization in power plants. The superintendent l f
19 of a power plant is, in essence, the captain of the ship i
20 at sea, so he has to have a good staff, and we have gone 21 a long way in recent years to increase the number and 22 quality and depth of the staf f in place at powe'r plants, l
l 23 so they are not too dependent upon headquarters simply ON/ 24 because power plants are getting too complex, and the world l
25 is getting more complex with regulations, and we have
! COMMONWEALTH REPORTING COMPANY (7171 768 7150
1r38 561 4
1 inflation. We have increased the number and quality and a breadth and depth of our staff in generation at Johnstown.
3 We have not undergone yet a similar evolution j 4 in the operations end of the business, and we think it 5 is timely for us to do that. , f 6 In order to do that, in order to improve that 7 relationship, we have to add people. We would have to i i
i 8 add people at headquarters in operations in Johnstown.
9 There would be some corresponding decrease in ,
to the number of personnel in the operating divisions. We j 11 are probably going from five divisions in 18 districts to 12 eight divisions and no districts per se, and if you shuffle gg 13 those numbers around, you do see that there is going to j l
14 be a personnel reduction there.
{
l 15 But in order to realize the personnel reduction '
16 in the field, we have to add some of those people, some !
17 of those numbers back in systems headquarters. ;
18 JUDGE CASEY: Without.the management combination, ;
i 19 if you do see that these additional people are necessary 20 to accommodate this shift in organization in your operating 21 divisions, but at the same time you see employees being 22 subtracted because of that reorganization, should you also 23 -- it is almost like double entry bookkeeping -- shouldn't 24 you also show where there are going to be economies effected, 25 decreases in the number of jobs in other areas?
COMMONWEALTH REPORTING COMPANY <717: 761 7150
1r39 562 f
I
() 1 MR. VERROCHI: Yes, and Mr. Donofrio, I think, l 2 tried to point out. If you go to Exhibit 7, he does 3 talk in terms of the combined management and the divisional 4 reorganization. reduction in numbers, and now we 5 are showing in Penelec's case an increase ,at corporate 6 headquarters. We would have to show an increase of 50.
7 What is the corresponding redu'c tion in Penelec -
a division re6rganization? Is that 73?
9 THE WITNESS: Sticking strictly with the T&D, yes. ;
i 10 MR. VE.TROCHI: So we are kind of playing a numbers !
If it sounds like it, Your Honor, I apologize. In I 11 game.
l 12 essence, the way I look at it is: look, we are going to
(}'
l 13 save 73 jobs or more. Is it 73? We are going to save 73 !
14 jobs at the division level, and if we didn't combine and j i
15 make use of Met-Ed's good corporate staff, we would have 16 to add 50 of those jobs back at Johnstown headquarters for 17 Penelec, so we would only have a net reduction of 23 people.
18 It would be a reduction. .
19 If, however, we combined with Met-Ed, we could 20 realize the full 73 reduction. So I guess that is about 21 as succinctly as I can put'it.
22 The way we propose to go'in the division operations
. 23 at Penelec would be a net reduction of 73 people. If we
(} 24 don't combine with Met-Ed, it would be a net reduction of 25 only 23.
COMMONWEALTH REPORTING COMPANY (7171 761 7150
l l
l 1r40 563 1 JUDGE CASEY: I harm one final question, and then 2 I am going to turn Mr. Donofrio back to Mr. Shilobod.
3 The exhibit with changes that are contemplated 4 here in Exhibit Number 8, is this something that was on 5 the drawing board, so to speak, for a numb,er of years? Is 6 it a substantive change which is compelled by management I 7 thinking over a long period of time, or is this, in effect, 8 what the GPU system perceives is a good response to the 9 regulators who are pressing the company and have been since 10 the TMI-2 accident in March of 1979?
11 MR. VERROCHI: I think if you look at Exhibit 8, 12 the total of 205 people, I think that two functions, namely h 13 generation and T&D, account for.in the case of generation 75, 14 in the case of T&D 50 125. So over half of the 205 come 15 from these two functions.
16 I think the ' ressing need in generation is --
17 and I think Herman talked about it, and I think I talked 18 about it yesterday -- is that Met-Ed has had stripped frem 19 it some fairly important people at the corporate headcuarters 20 whose responsibilities were involved in both the nuclear 21 and the coal-fired functions for very good and proper reascns:
22 the, higher priority was to have them focus all of their 23 l attention on nuclear. So Met-Ed now has a strio..ned 24 He should really fill that organization out.
organization.
25 So that is the 75 people thero'.
COMMONWEALTH REPORTING COMPANY #77 761 7150
i 1r41 564
() t The Penelec situation, the 50 comes about from ,
2 considerations which I have just described to you. It is l 3 hard for me to testify as to when exactly Penelec, if it 4
weren't for TMI and if it weren't for the pressing dates 5
to tell the Commission what our organization is planning to 6
do for the future, if it weren't for that, I ti? ink, in an 7 evolutionary way, we would certainly hope and expect to -
a reorganize our corporate and division organizations to .
I 9 the setup that we are currently contemplating. ,
i 10 In other words, we felt for a long time that 6 i
i 11 we were weak in Johnstown in supporting division operations.
We were letting the divisions go their separate ways. They j 12
(,
13 weren' t getting the guidance; they didn't have the cost 14 control or the budgeting; the attention to detail, if you 15 will, that we felt that we had achieved over the past ten l l
16 years in generation. -
So I think Penelec clearly -- I know I personally 17
{
l 18 have been spending a lot of time in trying to reorganize :
19 and restructure the way that we operated our divisions, and <
20 I won' t go into detail, but we have done an awful lot of ,
21 things along those lines, Your Honor. :
22 ,
The bottom line is that I think we need a better 23 sta ff at corpora'te headquarters to oversee and direct and
( ); 24 guide the division operations, and I think that we would j 25 be doing it anyway, and I think we would be doing it at ahcut COMMONWEAL.TH RCPORTING COMPANY (717' 761 7150
I 565 i 1r42 I this time frame.
2 JUDGE CASEY: But without the accident, the 3 timetable would have been substantially different.
4 MR. VERROCHI: Perhaps a little more relaxed.
5 JUDGE CASEY: Perhaps it wouldn't be a high 6 priority item.
7 MR. VERROCHI: Exactly. We have got 'an awful 8 lot of balls in the air at GPU. We recognize that some people 9 think we. may be trying to bite of f more than we can chew.
l 10 But some of these things really can' t wait. If we don't 11 combine, we really have to get humping at Met-Ed to add 12 to the generation division. :
. i 13 You are right; they are already strapped for gg)i 14 cash, and where are we going to find the money to do it? l t
15 But it is very important to keep those plants running.
16 JUDGE CASEY: One more encroachment on Mr. Shilobod:
1 17 yesterday I think you cited as a prime example of the ,
la need for combined management teams the experience with ,
i 19 Jersey Central and Jersey Power and Light, those two 20 atilities. .
21 MR. VERRCCHI: Yes.
JUDGE CASEY: And I think by way of justification 22 ll ,
23 for combining the management but not merging the conpanies, 24 you said that those two companies had functioned with the ,
25 combined management team for a period of 13 years COMMONWEALTH REPORTING COMPANY e717i 7617150 e t
Ir43 566
() I approximately, but eventually there was a true merger.
2 MR. VERROCHI: Yes.
3 JUDGE CASEY: What brought about the change in 4 circumstances that persuaded GPU management to merge the i
5 two companies after 13 years of functioning with the !
6 combined management?
I 7 MR. VERROCHI: Perhaps Mr. Donofrio can answer that.;
a I think the timing became right.
9 THE WITNESS: The timing and the size of the 10 companies. What happened was Jersey Central was a much 11 bigger company than Jersey Power and Light. They had 12 restrictions in there, if my memory serves me right, that O 13 the leftover company or the taken-over company couldn't 14 be more than 15 percent of the combined total after a merger.
- 15 As Jersey Central was-adding new plants, they le kept getting bigger and bigger in relationship to New Jersey, 17 and eventually they fit into the less than 15 percent, and 18 the merger could be accomplished.
19 Penelec and Met-Ed are much too big in comparison 20 to each other to contemplate at least in my foreseeable 21 future getting down to 15 percent.
l 22 JUDGE CASEY: All right, Mr. Shilobod.
f ,
- 23 MR. SHILOBOD: Your Honor, perhaps at'this time 24 Mr. Russell's recommendation that we have Mr. Verrochi
(;
25 available at the same time as Mr. Donofrio might be a good
! COMMONWEAL.TH RCPORTING COMPANY e717 761 7150
i :
1r44 567 I
> 1 idea. You have asked some questions. I have some questions 1
2 on Mr. Donofrio's documents.
3 JUDGE CASEY: If you would, Mr. Verrochi.
4 Whereupon, 5 WILLIAM A. VERROCHI ,
6l having previously been duly sworn, testified further as 7 follows:
S CROSS-EXAMINATION (Continued) 9 MR. SHILOBOD: Before I get to some questions 10 for Mr. Verrochi based upon his most recent statements, 11 Mr. Donofrio, you were saying before that whenever you 12 were looking at these figures and when you were fulfilling your obligation as a coordinator of the task force, there 13 l i 14 l was a goal of 10 percent in reduction of all functions 6
I 15 immediately and an additional 10 percent af ter one year.
16 Do you rec that testimony?
17 'vSS DONOFRIO: Yes, I do. This was cased 18 on the assunt . n that if in two different areas you had ,
19 a manager or a supervisor or they each had secretaries and 20 clerical functions, that by combining these two and 21 physically putting them under one location, the economies 22 of scale, you wouldn't need two managers, two superviscrs, 23 ' two secretaries, and we believe initially that the 10 24 percent reduction would meet the economies of scale. g 25 We really believe that we could have achieved the COMMONWEALTH REPORTING COMPANY #717 761 7 t SO
1r45 568 l
( )' 1 20 percent right off the bat. However, we do realize 1
2 that it would probably take a year and a delay in this l
3 20 percent savings by about half in order for Penelec i to become more familiar with Met-Ed.and Met-Ed to become 5 more familiar with Penelec to achieve that 20 percent 6 Savings.
7 MR. SHILOBOD: Would it be fair to say that a this reduction, namely the immediate 10 percent reduction ;
. 9 and the subsequent 10 percent reduction, that those ;
i 10 assumptions are the underlying bases for these calculatisns? :
I 11 WITNESS DONOFRIO: I wouldn't go that far. On
- 12 Exhibit Number 7 at the top, when we are talking about
\-)
13 employees for the corporate combination, the underlying 14 assumption of the 10 percent only gave rise to the 1.9 l 15 individuals. That is 19 out of 247, and the additional 10 ;
16 percent would be the 19 underneath that, which would make 17 that then a grand total of 38 out of 247. r 1
IS MR. SHILOBOD: You are saying that that is the ;
I 19 underlying assumption for the calculation of the potential 20 i cost savings of the corporate combination; is that correct?
21 WITNESS DONOFRIO: We are saying that that is 22 .how the 19 was developed. We also'take into consideration 23 that the realignment of the func'ional t duties, etcetera, A
(_j 24 let more work be done by the remaining 90 percent o f the 25 individuals.
COMMONWEALTH REPORTING COMPANY (717e 7617150
i l
l 1r46 569 I 1 MR. SHILOBOD: When did this assumption of 10 2 percent and 10 percent come into existence? Was that from ;
3 the very beginning? j 4 WITNESS DONOFRIO: To my recollection, yes. f 5 MR. SHILOBOD: After the acciden,t at TMI, did l 6 Penelec lay off employees?
7 WITNESS DONOFRIO: Yes, they did. I I
i 8 MR. SHILOBOD: How many?
9 WITNESS'DONOFRIO: 210.
10 WITNESS VERROCHI: It wasn't a layoff. It was 11 a workforce reduction.
12 WITNESS DONOFRIO: I am sorry. It wasn't all a lap %
13 It was a workforce reduction. Some of that was layof f. Much 14 of it was through attrition.
15 MR. SHILOBOD- Mas .there a prior practice of 16 reducing workforce at Penelec prior to the accident?
Ii WITNESS VERROCHI: Are you asking me?
18 MR. SHILOBOD: Yes. .
19 WITNESS VERROCHI: Penelec had a workforce 20 reduction in 1974, as I recall. I wasn't there at the cine.
91 Were you, Al?
22 . WITNESS DONOFRIO: I wasn't.
23 Neither one of us was there ,
WITNESS VERROCHI:
94
~
but that was the only prior major workforce reduction that
'5 I,am aware of; one in 1974 and one last year.
COMMONWEAL.TH REPORTING COMPANY 8717 768-7:50
1r47 ,
570
. 1 MR. SHILOBOD: When did the workforce reduction 2 occur last year; approximately when?
3 WITNESS DONOFRIO: I would say between June l 4 through September of 1979 time frame. l 5 MR. SHILOBOD: In what capacities were these 6 various individuals working as far as their job functions? l 7 Were they on the corporate level?
8 WITNESS DONOFRIO: Some of them were. ,
9 MR. SHILOBOD: How many of them were? ,
10 WITNESS DONOFRIO: There are exactly three parts i
t 11 of what happened. Taking Penelec as an example, we had j 6
12 an original budget workforce contemplated for the end of 13 the year 1979 of approximately 4,300 emoloyees. We did j
14 physically reduce the work scope. In other words, we cut l
~
i l
15 '
back our construction program, etcetera, after the accident 16 and had reduced the need for employees by about 100, and I
l then we went through about a five percent reduction ecross t
I{ ,
18 the board for the attrition, the layoff, the 210 that I l 19 just described before.
I 20 MR. SHILOBOD: Now simultaneous with the acciden:,
'l Mr. Verrochi, was a realization that the building prcgram 2'- was,nct necessary based upon the most current load fcrecast; 3
isn't that true?
'4 Yes, the construction of
~
WITNESS VERROCHI:
} 'S
~
f aciliti es ; yes, new' generating stations.
CcMMoNWEALTH REPORTING COMPANY #717 761 7150
1r48 571 i
i g, MR. SHILOBOD: And that would have had an impact 2 with respect to your concepts of the needed workforce at i
3 that time; isn't that true? '
4 WITNESS VERRCCHI: Yes, to the extent that 5 in generation stations, new generating stations were at l 6 that time primarily the responsibility of the GPU Service l
1 7 Corporation, so the delay or cancellation of a major j a generating unit, like Seward-7 or any other unit, would not 9 have any material effect on the number of people employed 10 by Penelec.
11 1 The place where the workforce reductions came 12 about as a result of a cutback in construction would be 13 ; more in the line department, transmission and distribution, lll 14 where some of that construction work, rebuilding old 15 facilities, adding transformers to a substation, at least 16 ! the engineering for it ano some of the construction supervi-I sion is done by Penelec employees, although the bulk of that, l
18 the bulk of the construction, has been done by outside 19 contractors.
t 20 The third area is that if you reduce the scope l
'I of maintenance in your line department, you can effect a 22 l reduction in supervisory and Nargaining unit people.
23 l MR. SHILOBOD: Was this done?
24 j NITNESS VERROCHI: Yes. We looked very closely --
h 25l and Al did an excellent job of coordinating that activity, I l
t COMMONWEALTH REPORTING COMPANY 67171 761-718!O
1r49 572
(} 1 might add -- we looked very closely at where our manpower 2 needs would be in supervisory, exempt, non-exempt, non-3 bargaining unit, bargaining unit people and tried to develop 4 and implement a workforce reduction plan that recognized 5 all of these factors. ..
6 So it was pretty much an across-the-board cutback.
~
We didn't single out any one department or any one type of 3 worker. I 9 MR. SHILOBOD: Was there any reduction of the i 10 maintenance of the system, or was this taken care of-by 11 a modest reorganization?
i 12 WITNESS VERRCCHI: .Yes. There was unfortunately -- !
O~- 13 and we had hoped it would be a temporary reduction. As a 14 matter o f fact., in some cases, I think we have built up since l 15 that time, br.t not very much.
1 f l
16 WITNESS DONOFRIO: Yes. j-i 1" WITNESS VERRCCHI: The workforce . reduction, we l 18 recognized, could have some long.-term harmful effects to our 19 gaintenance prog;ams.
i 20 For example, in addition to the workforce reduction, 21 we did cut back on expenditures on uutside contractors, and l .
22 .as a result we cut way back in tree trimming, and we know 4
23 that cutting back in tree trimming is not a good idea in i
the long run, but it is a damned good way to save money now.
() 24 25 If you need to save S1 million or $2 million, this is a very
(
4 COMMONWEALTH REPORTING COMPANY 17171 761-7150
(
1:50 573 l,
i quick way to do it. So we did cut back our budget in 2 tree trim [ing, and as we got confidence -- as we have been ll 3 regaining confidence since that layoff, since that cutback, 4 we have been restoring budget monies to things like tree 5 trimming, and too we have resumed in 1980 and will even 6 expand it in 1981 a rebuild program that we have been {.
7 contemplating in our old distribution facilities.
8 So I guess, Mr. Shilobod, you could characterize 9 the workforce reduction that Al talked about last year to as being a prudent step on the part of management since 11 ! we weren ' t exactly sure what the ripple effects on Penelec 12 were going to be as a result of the Three Mile Island accident.
13 But, to answer your question, we recognize that 14 when you cut back on maintenance -- we delayed, forexample,O l
15 some scheduled inspections, annual inspections, in our 16 major generating stations, and, of course, they are our 17 l life blood. But we knew that we were running some sort of 18 a risk. .
19 If you were planning to take a unit down for four 20 weeks in June of 1979, and you said, "Well, let's slip it 21 , until the first part of 1980," you run a slight risk that 1
22 ! that unit won't perform as well. It might break down T. ore 23 , frequently, and, as a matter of fact, it might prove to 24 be a bad idea; but it is a " calculated risk" that one has 1
25 to take. llh COMMONWEALTH REPORTING COMPANY #717, 761 7150
Ir51 574
() 1 So, sure, when you delay, when you cut back, you 2
do run so$e risks that the quality of service to your 3
customers will not be as good, and the performance from 4 your generating stations will not be as good.
5 I am' happy to say that we pretty much restored ,
6 our funding and our level of activity to where we feel that ,
7 it should be.
g MR. SHILOBOD: It is restored now?
9 WITNESS VERROCHI: I think it is now, yes. In 10 essence, we have a reasonably comforta'le b budgeting '80 11 and '81, as I think I testified yesterday.
12 MR. SHILOBCD: This assumption of the 10 percent O 13 immediate reduction, other than with. respect to the 38 i
14 employees under the corporate combination on Exhibit 7, -
15 did it exist as an underlying assumption for any of the
, is other calculations?
t 17 WITNESS DONOFRIO: No, it did not.
i -
18 MR. SHILOBOD: How many employees-were laid off
! 19 at Met-Ed at the time of the accident?
20 WITNESS DONOFRIO: I believe by attrition, it 21 was somewhere around 140.
( 22 MR. SHILOBOD: And with the restriction of credit 23 under the revolving credit agreement, were there additicnal 24 leyoffs at Met-Ed?
(
25 WITNESS DONOFRIO: I believe they are still under l
COMMONWEAL.TH REPORTING COMP ANY 4717: 761 7150
i l
Ir52 575 1 a hiring freeze. As attrition occurs, they have not been (g) 2 replacing various employees.
3 JUDGE CASEY: In what activity, Mr. Donofrio, or 4 was it across-the board also, did Met-Ed attrition rate ,
5 and subsequent layoffs occur? ;
6 WITNESS DONOFRIO: What has been happening, Your ,
I 7 Honor, is that the 140 after the accident were by attrition, s and as an individual left a certain functional area, he 9i was not replaced, and within Met-Ed there was a balancing 10 between the various functions.
11 They are still on that kind of thing today. Again, 12 they have a cash problem month to mon'th. They had gone 13 , through a first layoff, I believe, just before Thanksgiving 9
l 14 l or thereabouts. They are on a hold for a second one now ,
15 with a conte:' plated month to month review of their situation.
There is nothing scheduled for this month.
16 l 17 JUDGE CASEY: But the initial 140, were they o
IP ! involved in operations of the two generating stations at 19klThreeMileIsland, or were they from a variety of positions i
i 20 within the Met-Ed structure?
21 WITNESS DONOFRIO: A variety of positions within 22 the Mat-Ed structure.
23 ' JUDGE CASEY: Was there any accent on the generating 24 staff? ll 25 WITNESS DONOFRIO: It was mainly in the transmissicn COMMONWEALTH REPORTING COMPANY 1717 761-7150
-_ - =. .. , . - .
576 b
1r53 i
and distribution areas, not out in the divisions. It was 1
( not mainly on the generating staff.
2 JUDGE CASEY: Is that a coincidence. When you 3 ,
?
4 say " attrition," I usually think of it in terms of retire- ,
4 ments -- a combination of retirements, resignations. People 5
i get new positions. Was it something that was ordered by ,
6 I
7 management initially, or did it just happen? {
8 WITNESS DONOFRIO: It was planned.
9 JUDGE CASEY: It was planned?
10 WITNESS DONOFRIO: Yes.
11 MR. SHILOBOD: How many job reductions -- how 12 many employee reductions occurred at Met-Ed to date since
() 13 the accident through layoffs and through attrition?
14 WITNESS DONOFRIO: I do not have the numbers as ,
is of the date of the accident for Met-Ed with me.
i 16 MR. SHILOBOD: Do you have the numbers as to l 17 some particular date?
Is WITNESS DONOFRIO: I have actual December 31,
( 19 1979.
20 MR. SHILOBOD: What was the total reduction of 21 employees?
I 22 WITNESS DONOFRIO: The actual on hand, I have.
23 MR. SHILOBOD: Do you know what they were?
24 WITNESS DONOFRIO: 2,100.
25 WITNESS VERROCHI: Does that exclude Three Mila COMMONWEALTH REPORTING COMPANY - (7176 761 7150
1r54 -
577 !
I, 1
Island? Are we talking with or without Three Mile Island? l 2 WITNESS DONOFRIO: This excludes the TMI stations i
3 as well as any corporate group that would be strictly ;
4 nuclear.
5 MR. SHILOBOD: Do you know how many employees 6l you had in those capacities prior to that?
I 7
WITNESS DONOFRIO: I do not have those numbers, 8 no, sir. j 9
. i MR. SHILOEOD: Do you know, Mr. Verrechi? .
10 No, I don't. i UITNESS VERROCHI:
I 11 A1, you mentioned 2,100 in-house as of 12-79. l 12 WITNESS DON 1FRIO: Yes, sir.
I3 WITNESS VERROCHI: How many are in-house as of I4 today? Do we have that? i 15 i l WITNESS DONOFFIO: As of September 30, 1980, 1,994.
i 16 l WITNESS VERROCHI: And the number was exactly 1
2,100?
18 2,099.
WITNESS DONOFRIO:
I9 WITNESS VERRCCHI: And what is it now?
O 1,994.
WITNESS CONOFRIO:
'l WITNESS VERRCCHI: So it is a little over 100.
,, l
~~ j WITNESS DONOFRIO: That is through September.
'3 f MR. SHILOBOD: That is from December, 1979 through 4
September, 1980?
'5 WITNESS CONOFRIO:
Yes.
COMMONWEAL.TH REPORTING COMP ANY <717 7617150
l Ir55 57F l
l MR. SHILOBOD: There was a reduction of 105 1
O 1 employees? l 3 UITNESS DONOFRIO: Yes.
4 MR. SHILOBOD: And there was a reduction of 140 5 employees as a result of the layoff af ter Three Mile Island? l
\
l 6 WITNESS DONOFRIO: Yes, sir.
7 MR. SHILOBOD: Between the time when the accident s occurred at Three Mile Ilsand and the summer of 1979, there-9 were other losses due to attrition; is that correct?
10 WITNESS DONOFRIO: I believe so, yes.
11 MR. SHILOBOD: You have indicated that these l
i 12 job losses occurred in all capacities; is that correct?
13 WITNESS DONOFRIO: Yes, sir. ,
14 MR. SHILOBOD: What has been the effect of that 15 on the operations at Met-Ed? ,
16 WITNESS VERRCCHI: It has been harmful. Met-Ed --
17 I don't know if this is hearsay, Sam, but my understanding i
4 18 is that Met-Ed in its testimony. requesting extraordinary 19 rate relief pointed out the statistics on the quality of
(
20 service to its customers by district and division in' terms 21 of annual average customer outage hours per year and 22 showing that that trend had been going in the wrong directicn.
23 In other words, it had been increasing.significantly each I
24 year to the point where Met-Ed felt that it was a reflection w
25 on inadequate maintenance of the distribution and the COMMONWEALTH REPORTING COMPANY 17171 761 7150 .
1r56 579 ;
I i l !
I I tl underlying transmission facilities to serve its customers' 2i needs. -
i 3' They offered that -- and again we come to the ;
4 infamous tree trimming -- they claim -- and I think with ,
5 gcod justification -- that they have had inadequate budget t
6 for tree trimming,below what they should be. So they use l 7 these arguments; they use this evidence as argument for
) i 8' extraordinary rate relief.
9 We know in the generating stations -- as a matter l
10 of fact, Theodore Barry in its audit report points out that ,
I 11 Met-Ed's performance at its coal-fired generating stations --
I 12 j there are only two; there is Portland and Titus -- in recent i
13 I
years, the performance is measured by what we call the g 14 capacity factor, which is the number of kilowatt hours 15 actually generated by the stations each year versus what 16 the stations could have generated had they been running l
l 17 every hour of the day and night at full load, and the is capacity factors were low for both of these stations and i
19 l
I lower than EEI Edison Electric Institute -- who publishes They were below EEI 20 averages ll for those classes of units.
21 I averages.
l 22 ! So from the point of view of being below EEI 23 averages and from the point of view that the annual capacity 24 i
factors in both stations have a general downtrend, which, of 25 course, is wrong, and also recognizing that even with the COMMONWEALTH REPORTING COMP ANY >717i 761-7150
! 1r57 580 I
i 1 best of maintenance and the best of intention you can have .
2 bad luck at a generating station.
}
3 But, nevertheless, TB and A has concluded, as has i l
4 Met-Ed and we, that Met-Ed really should spend more' time
{
5 and effort in trying to rehabilitate, restore and to service i 6 Portland and Titus stations.
.i l
7 So, in these two areas, I guess you could -- both l 8 in quality of customer service outage hours per year and in 9 generating station capacity factors, Met-Ed's inadequate ,
+
- 10 funding has shown some harmful effects.
f 11 Again, at the risk of talking too long, some of 12 the good points, though, are Met-Ed continues to have very ,
13 goo'd reports from the PUC as to how it handles customer 14 inquiries and customer complaints and all that sort of 15 thing, so they are able to maintain adequate staffing l t
j 16 for that. So Met-Ed would benefit greatly from just a few i i
17 more bucks to fund some of these required programs, Mr. i
- e 18 Shilobod. i l
.F 19 MR. SHILOBOD: Mr. Verrochi, you indicated on i
20 your Exnibit Number 8 --
21 WITNESS VERROCHI: On mine or Mr. Donoficio's?
22 MR._SHILLOBOD: Mr. Dcnofrio's Exhibit'8 for the 23 assumptions that 25 to 50 employee, would be needed for s
24 transmission and distribution at Penelec if the management 25 combination were not approved.
CoMMcNWEAt.TH REPORTING COMPANY 87171 768 7150
I 1r58 581 i
I L
3l My understanding is that that need arises out lll
- of the division reorganization; is that correct?
2 3
WITNESS VERRCCHI: Yes, primarily from that.
MR. SHILOBOD: How many of those employees needed 4
under the conservation and load management arrangemen:
5 arise: out of the division reorganization?
6 WITNESS VERROCHI: I am not sure, Al. Are there 7 i i
3! any? I don't think any from that particular point, Mr.
}
g Shilobod.
I MR. SHILOBOD: Is that because that progran is 10 l I
a new program that is to be implemented?
- 11 l .
WIT:;ESS VERROCHI: Yes, with or without approval --
12 l i
I am not sure to what extent the 15 and'15 -- the 15 for llI 33 ;
Met-Ed and 15 for Penelec reflects our need to support 14 l I
- 3 'j the very ambitious ten-year Master Plan that we have talked is about.
i I think I understand from talking to the 1* ice-l 17 l i
Presidents involved at Met-Ed and Penelec and to Mr.
l l 18 ig Donofrio that the bulk of these people at corporate head-20 l quarters would be required even in the absence or in :he I
l 21 ,l delay of approval of a Master Plan -- we simply have 22 , identified a lot more things that we should be doing i.-
I I terms of conservation and load management plans and 23 l 24 implementation at the corporate level. llh 25 l MR. SHILOBCD: This is a new plan that was adcp;ed I
l CCMMONWEALTH REPORTING COMPANY 1717 751 7150
i Ir59 582 after the accident; is that correct? }
O 1
WITNESS VERROCHI: I guess it is just an increase '
2 3 in activity and level of activity in load conservation, load I
4 management and conservation which really started before i s the accident. ..
6 We started at Penelec and I think at Met-Ed --
1 I know at Met-Ed -- we started keeping track of the results a of our effort to persuade customers, primarily industrial .
9 and commercial customers, some residential, to conserve.
i' 10 I think we started collecting statistics going back to 1972, i
11 which, of course, preceded the accident and preceded the 9
12 Arab oil embargo; so I guess.you could say it has been an
(')
u 2
\_/ 13 evolution of activity. l 14 MR. SHILOBOD: But this program specifically now 15 is really a new program to intensify the conservation and ;
16 load management.
17 WITNESS VERROCHI: Fine. If you want to character-18 ize it that way, an additional program.
. 19 MR. SHILOBOD: And this is not a' part of past l
20 practices that were simply an ongoing. day-to-day normal 21 type of public utility operation at Met-Ed and Penelec, but 22 rather it is part of the new move to reduce needs in order 23 to avoid the need to construct.
24 WITNESS VERROCHI: Exactly.
25 MR. JOLLES: I think he has already answered the j
CoMMoNWEAt TH REPORTING COMPANY (717i 761 7150
1r60 583 i
1 question. I think what he has said is that it was a !
t 2 continuation of a program, and you are putting words in his h 3 mouth.
4 MR. SHILOBOD: Sir, I am cross-examining.
5 JUDGE CASEY: He agreed apparently, so the 6 record stands the way it is now. There is no objection.
7 MR. SHILOBO'D : With respect to the rate case 8 management, does Penelec presently have a rate case pending ,
9 before the Public Utility Commission?
1 10 WITNESS VERROCHI: Yes, it does. :
l 11 MR. SHILOBOD: Does Met-Ed presently have a case i
12 pending before the Public Utility Commission? ;
l 13 WITNESS VERRCCHI: Yes.
14 ' And both of those cases are being O !
MR. SHILOBOD:
I' 15 handled adequately by both companies, are they not?
16 WITNESS VERROCHI: I guess I would have to say yes, 17 sure; I hope they are. I hope we win. !
18 MR. SHILOBOD: Does the need for these 5 to 10 19 people arise. in any fashion out of the divisional 20 reorganization?
I UITNESS VERRCCHI: I don't think so, no.
21 l I
22 MR. SHILOBOD: With respect to the 5 to 10 people 23 needed for policies and procedures, specifically what is that?
24 I think Mr. Donofrio can WITNESS VERRCCHI:
25 answer that better than I, Mr. Shilobod. h CoMMoNWE ALTH REPORTING COMPANY 1717' 761 7150
pl 584 1 WITNESS DONOFRIO: This is a gredp that formally doct ;-
2 ments and prepares operating procedures and policies, etcetera ,
3 What has happened for both companies, Met-Ed and Penelec, is 4 that for whatever reasons that has been an activity that has 5 been dropped over the years. ,
6 Policies and procedures were dated in the 1940's and 7 the 1960'/. etcetera. Penelec started a group of approximately 8 ten individuals to bring their policies and procedures up to 9 date and document them and keep them up to date periodically, 10 annually.
J 11 Met-Ed has not been able to do that as yet. These 12 would be ten individuals needed now to duplicate this kind
- O 13 of steff thet eene1ec hee et nee-Ed, in order for xet-Ed to 14 be on the same equal footing with the policies and procedures 15 that are in place with Penelec.
16 On an individual go-it-alone basis, they would have 17 to add ten people. With the combined management, we would 18 hope to have most of the policies and procedures being only 19 one for both companies.
20 MR. SHILOBOD: Mr. Donofrio, can you tell me what 21 the materials management functions are?
22 ,
NITNESS DONOFRIO: In materials management, the 23 functions underneath what is termed " materials management" at '
24 both companies are the procurement of fuel, the purchasing 25 department for all purchases other than fuel, the contracts l 4
CoMMCNWEALTH REPORTING COMPANY 1717n 7617150
r- vva l
1 department to review and negotiate, etcetera, contracts for 2 maintenance as well as some operational; as well as inventor 3l management, and this includes all the storerooms, storekeepers; I
4 and receiving, etcetera. ,
5 MR. SHILOBOD: Are there any other functions? ,
I i
6 UITNESS VERROCHI: You mentioned stores, 7 WITNESS DONOFRIO: I believe that is all.
8 MR. SHILOBOD: What positions would the ten to 9 twenty people fill in the materials management function?
10 WITNESS DONOFRIO: These would be a~dditional jobs en i
11 i the corporate headquarters basis that would be required to i
12 do the same work scope on a stand-alone as can be done by the 13 reduced work force on a combined management basis.
14 MR. SHILOBOD: Mr. Verrochi, how many of th'ose ten 15 to twenty people are needed as a result of the divisional i
16 l reorganization?
17 WITNESS VERROCHI: I don't know.
18 A17 ,
19 UITNESS DONOFRIO: None to my knowledge.
l 20 WITNESS VERROCHI: Ue don't think any.
21 1 MR. SHILOBOD: Does Penelec presently handle its 22 i own, fuel procurement purchases and purchases of other materia's, _
i 23 i or is that handled through the GPU Service Company?
I i
24 i WITNESS DONOFRIO: Right now the fuel purchases as wel.
23 as regular purchases in contracting for Penelec is done by l
l COMMONWEALTH REPORTING COMPANY (7171 761 7150
I p3 586 i 1 Penelec. There is a fuels planning group of approximately
(}
i 2 five individuals located in the Service Corporation. That has.
i 3 nothing to do with this, but would be a change in responsi- 1 4 bility under Johnstown 'aus an excellence in gen 5 ration of coal 5 which would'be transferred and become under Penelec.
6 MR. SHILOBOD: And the contract department that 7 you referred to, what specifically is that; the legal 8 department? :
9 WITNESS DONOFRIO: No, sir; contract administrators.
I 10 '
MR. SHILOBOD: And this is contracts for purchases l
11 for contracts for construction, or both?
f 12 WITNESS DONOFRIO: ' It is for both.
(;/n 13 MR. SHILOBOD: Does Penelec still handle its own, ,
t I4 contracts administration? ,
15 WITNESS DONOFRIO: Yes. Penelec has a contracts 16 ~
administrator group for Penelec projects that are existing 17 projects and/or transmission and distribution.
18 MR. SHILOBOD: And the inventory management, I take I9 it that Penelec still does its own materials management; is l
20 that correct?
21 WITNESS DONOFRIO:,_ Yes, we have our own storerooms.
22 f .Yes, sir.
23 MR. SHILOBOD: And Penelec is presently 24
(~)
LJ handling the fuel procurement purchases, contract administration 25 and inventory management in an adequate fashion?
COMMONWEAt TH REPORTING COMPANY 17171 761 7150 i
l
p5 587 I WITNESS DONOFRIO: It is all according to what you mea 2 by " adequate fashion." We are contemplating and do have plar 3 to go ahead with a more mechanized system, a better projectioni 4 kind of system, keeping control over our inventories, a 1
5 minimum-maximum kind of system, etcetera; pnd in order to l l
8 s accomplish these goals and objectives that we have in these l
7 areas -- again, this is materials management -- there's the 8 ten to twenty additional jobs that we would need.
9 - However, we can accomplish all of these without'that 10 e.ddition if we are allowed to combine the managements.
11 MR. SHOLOBOD: Do you mean that there are plans for 12 a more mechanized system?
13 WITNESS DONOFRIO: y Wehaveph'sicallyplannedinoggg
!? ^
omate, to start t'o keep control on the inventories, 15 thh transmission and distribution of generating stations; we 16 are formulating storerooms in generating stations. We are l 17 putting more under the control of our inventory systems.
18 We are coming up with better methods, we hope, on 19 bulk purchases and keeping track of quality assurance, on 20 the receipts of merchandise, quality inspection, setting up l .
21 systems that tell when vendors don'-t ship on time, or if : hey 22 quote a date and when they don't and when they do, cuyer l ,
23 performance, etcetera. We have quite a few of those.
24 MR. SHILOBOD: Those functions are designed to 25 reduce the need for manpower?
COMMONWEALTH REPORTING COMPANY (717' 761-7150
p6 588 WITNESS DONOFRIO: Not to reduce the manpower.
(]) 1 It is t
2 to reduce forecasts of manpower. If you were going to set up 3
the systems and then physically do them manually, yes; we i
would have to add more if we didn' t do it mechanized.
5 MR. SHILOBOD: In all of those work duties that 6 you have mentioned, those are all handled by union employees 7
as a general rule; isn't that true?
8 'UITNESS DONOPRIO: At the corporate headquarters staff, 8
- there are no union employees.
10 Those duties that you mentioned are MR. SHILOPOD:
11 carried out by employees, not by corporate staf f?
12 MR. RUSSELL: Would you identify which duties?
13 MR. SHILOBOD: He talked about inspection, about l I4 He talked about storage. He listing what is in inventory.
15 talked about keeping track of what comes in and what goes out..
I 16 Is that done by cor'porate level people?
17 WITNESS DONOFRIO: T,he, physical receipt of inventorieb 18 is done at the individual storerooms. When you say they are 19 strictly union, that is not necessarily true. We are going .
I i
20 through with some union jobs now, looking for a redefinition t
21 of the duties and the classification, but also putting some !
of these jobs as, in ef fect, analyst jobs or mechanized >
'3 inventory control system jobs, which probably would not be union.
25 MR. SHILOBOD: Mculd they be clerical?
COMMONWEAL.TH REPORTING COMPANY 47171 761 7150 O
p7 589 1 WITNESS DONOFRIO: Idon'tkn6Wwhetheritwouldbdh
~
2 considered clerical as much as exempt.
3 MR. SHILOBOD: What is the difference between someone 4 who is exempt and someone who is clerical; I am not sure I 5 understand the distinction. ..
6 WITNESS DONOFRIO: " Exempt" in my eyes would be a l 7 professional background, or would not be subordinate, which .
8 would be clerical duties; just doing work that is under the 9 supervision of somebody else. He may not exactly be a super-10 visor; he may be called a storekeeper as such.
11 MR. SHILOBOD: So you are talking about people like 12 storekeepers and bookkeepers and so on; is that correct?
13 O
WITNESS DONOFRIO: It is the first time I have heard 14 the te rm " bookkeeper" today.
15 MR. SHILOBOD: I don't mean it as a negative 16 I didn't intend it to be.
connotation.
II Would that be a fair assessment?
I8 WITNESS DONOFRIO: I would characterize an individual out there as in charge of the storeroom.
20 WITNESS VERROCHI: Isn,t the fundamental -- my under-21 standing of " exempt" and "non-exempt" has to do with Wage and 22 Hour laws. The person whose job duties and pay scale and
'3 amount of supervision or lack thereof, who is not exempt frc:
overtime, is a non-exempt employee. I "5
~
If the person has high enough responsibilities so COMMONWEALTH REPORTING COMPANY 17171 761 7150
p8 590 ,
() I that you can characterize him or her as a supervisor or some-2 body is in a job type of position that we don't.have to pay j i
1 3 them time and one-half for overtime, then they are exempt frcm-4 the Wage and Hour.
5 I think that is the simplest connotation I can place i
6 on it.
7 JULGE CASEY: Mr. Donofrio, did I understand you to 8 say that in the materials management area and possibly in 9 communications that the company desires to automate these .
10 functions; in other words, have computers perform tasks th'at "
11 were once done by hand recordkeeping and posting? '
I 12 WITNESS . DO_NOFRIO : No. I said like in the materials' O 13 management function,whatwearetryingtodoistryingtoset!
14 up more controls over the inventories, and we are looking at
,t projections of our needs, etcetera, through some mechanized 15 16 system.
17 They are not systems that we have toda~y. The only is distinction that I was making about mechanized versus manual 19 is that if we went ahead with d manual system, there would be 20 even more employees that woul'd be needed.
31 WITNESS VERROCHI: Again, in our power plants we have 22 trependous quantities of inventories, you know, from very, 23 very large pieces of equipment, and very large equipment as
() 24 well as parts of equipment, shafts, bearings, pumps; and no 25 matter how carefully you design them, the inventory needs are COMMONWEALTH REPORTING COMPANY (7171 761 7150
p9 591 I fantastic, and we are talking about tens of millions of dolla .
2 We at Penelee are not as far advanced in the control 3 of that inventory as some other utilities are. We kind of 4 evolved to a point where we did not have storerooms and that 5 sort of thing. We are now trying to get into the modern era.
I 6 It is a tremendous work load, and that means, of course, that we 7 are putting physical facilities in place at the power plants l.
8 where such facilities don't exist.
9 We are also trying to develop or employ already 10 developed systems to make sure that we have better control of 11 our inventory, so we don't obviously have too much inventory 12 in place, so that we know where it is so that we can project 13 our needs so that we won' t run out of it during a major ll 14 outage when we have a lot of people at site, Your Honor.
15 So we are kind of in the early stages of development 16 la our power plants. Ne have kind of neglected them, so it is 17 a major work load.
18 MR. RUSSELL: Your Hon.or, would this be a reasonable 19 time for a morning break?
20 JUDGE CASEY: I think it would. I was going to wait 21 until 11:00, but I agree that now would be a good time.
, We will take a ten-minute recess.
3 (Recess.)
24 23 I!h COMMONWEALTH REPORTING COMPANY (717' 761 7150
r1 - 592 We are back on the record.
h['a T2,S1 1
JUDGE CASEY: ,
2 Mr. Shilobod?
f 3 Mr. Donofrio, continue with this MR. SHILOBOD:
4 analysis that we were talking about with exempt employees.
5 Mr. Verrochi gave some clarification. *-
6 These people carry out job functions in the sense of 7 doing work whether it is manual or control, but something 8
different from a supervisory role; isn't that true? i
~
9 WITNESS DONOFRIO: That is true.
10 MR. SHILOBOD: And that is the same as the people whd 11 '
are entitled non-union / non-exempt; isn' t that true?
12 WITNESS DONOFRIO: ~As'I t'ried,to explain what this U] 13 supervisory versus exempt versus non-union /non-exempt, this i
34 particular breakdown here is based on the exemption that the 15 end result, after adding 205 additional jobs, the breakout [
18 l would be in the same proportion as the corporate entity
(
I7
( breakout-wise at the beginning of 1980.
18 In other words, for each supervisor, there are two !
I exempt and two non-union /non-exempt.
O MR. SHILOBOD: .So , if I understand this correctly
~I then, what happened was there was a decision on how many 22 l supervisory changes would be made, and then there was a
'3
~
correlation with the number of exempt and non-exempt employees normally associated with that number to develop these; is that correct?
COMMONWEALTH REPORTING COMPANY t7171 761 7150 ,
a
r2 593-WITNESS DONOFRIO: No, sir; that is not correct.
O 1
2 Effective at the beginning of 1980 for the mixture of every 3 five employees physically on the corporate staffs of Met-Ed 4 and Penelec, their ratio is one supervisor for each two exempt, 5 for each two non-union /non-exempt. ,.
6 MR. SHILOBOD: Then what you are saying is the 7 opposite of what I said; is that correct; that there was a 8 determination of the change in the number of exempt /non-exempt 9 employees and then from that you extrapolated, based upon to histories, the determinant number of supervisors; is that l l
11 correct?
12 WITNESS DONOFRIO: .I think we are going around in 13 circles.
14 MR. SHILOBOD: The opposite of what 7 said before.
15 WITNESS DONOFRIO: It is a mixture, I believe, of l
16 what the actuality is. For every five employees physically on 17 the payroll, there is one supervisor, two exempt and two la non-exempt. That means for every additional five employees, l 19 we kept the same ratio that is actually there today of one ,
20 supervisor, two exempt, two non-exempt.
21 MR. SHILOBOD: Mr. Verrochi, you developed these l l
22 f igures . Am I correct in what I interpreted, namely that the 23 analysis was based upon the determination on the change in G
24 the number of exempt and non-exempt employeer; and then based ll!
25 l upon these ratios the associated number of needed supervisory I COMMONWEALTH REPORTING COMPANY t7th 7617150
r3 594 l
() 1 people were determined as on Exhibit Number 8?
2 WITNESS VERROCHI: No, Mr. Shilobod; I would go a 3 step further from what you said. I think it was more like th?
4 assumption was or the estimate was that we would save a 5 certain number of total people; let's say it's 50.
6 Then in order to try to put a cost estimate as to 7 what the payroll and fringe benefit and materials and supply a and transportation expenses would be, we tried to estimate of S those 50 people how many might be sup~ervisors, how many may be 10 exempt /non-exempt.
11 Al is trying to describe the breakdown of the 50 12 people so we could put some cost numbers on which are simply a
_(
\-) 13 reflection of the statistics in our present population.
14 So, it wasn't how many exempt or non-exempt; it was 15 how many total and what might be the distribution among them, 16 just a way of estimating.
17 MR. SHILOBOD: Then would I be correct in my 18 understanding that what there was was a determination of the 19 number of people?
20 WITNESS VERROCHI: Total nurher, yes, sir.
21
, MR. SHILOBOD: And then what you did was based upon l
i 22 .the, historical ratio of exempt /non-exempt and supervisory, j 23
, you created the breakdown?
( ,
(} 24 WITNESS VERROCHI: Yes,the salary so we could put
'5 the dollar figures on a little bit more precise, if you will,
. I I
COMMONWEALTH REPORTING COMPANY i717: 761 7150 l
r4 595 t'
I than just doing it on total numbers.
If there is this combined management, O
2 MR. SHILOBOD:
3 are any of the work duties that would otherwise be performed 4 through these 205 employees that would otherwise be needed, 5 would any of those duties not be done under the combined 6 management?
7 WITNESS VERROCHI: Did you say if we don't have a' 8 combined management would any of the duties that we would like 8
. to have done not be done?
10 MR. SHILOBOD: That it would take the 205 employees 11 to d o.
12 WITNESS VERROCHI: .Yes; to the extent that we don't I i . l 13 either add these 205 employees or take some or all of them h 14 from other functional groups and, if the priorities are high.
15 enough, put them in here; to the extent that we don't have 18 these people, some or all of_ the work would not be done; that 17 is true.
18 But to.do these, what you want to do MR. SHILOBOD:
18 with the combined management group, you are indicating that l
20 you would do the same work that would.otherwise take 164 21 exempt /non-exempt people to do; is that not true?
22 !
. WITNESS VERROCHI: The 164?
l 23 MR. SHILOBOD: That is 82 plus 82, the maximum at th$
i l ,4
, top of the page.
l 25 Yes; the answer is yes.
WITNESS VERROCHI:
ll COMMONWEALTH REPORTING COMPANY (7171 761-7150 .
r5 596
&)
(_ 1 MR. SHILOBOD: My difficulty, Mr. Verrochi, is that 2 if these people are essentially in the work force, they are 3 not supervisory people, and they only have eight hours a day 4 to do work, and they have certain work duties to perform, . :
5 whether it is keeping track of materials that are delivered- l
, t and the timeliness with which they are delivered, keeping '
6 l
7 track of purchases or whatever.
8 There is only so much time that they are going to 8 be able to expend in order to do the work.
. 10 Can you tell me how,by changing and putting a group ,
11 of fellows into Reading rather than Johnstown, you are going 12 to eliminate the eight hours.a. day for 164 people?
3 '
13 - WITNESS VERROCHI: Yes. We are still talking about 14 cost avoidance. We are still on Schedule 8; right?
15 MR. SHILOBOD: That's right. ,
16 WITNESS VERROCHI: You keep mentioning 164. It also 17 includes the 41 supervisory.
18 MR. SHILOBOD: I am presuming the supervisors' t
19 primary duty is to perform work with respect to the people that l
20 are otherwise on the line?
21 WITNESS VERROCHI: No; they are here to supervise 22 these people.
23 MR. SHILOBOD: That is correct.
24 WITNESS VERROCHI: Yes.
25 when you have a UITNESS DONOFRIO: Some of it is COMMONWEALTH REPORTING COMPANY t7171 761 7150
f r6 bin '
' t supervisor, he, in turn, has a secretary. There is duplicate 2 filing there where you have file cabinets to maintain, 3 duplicate correspondence.
4 If you have one at Penelec'and one at Met-Ed, that i i
5 clerical function wouldn' t necessarj.ly be tthere; the same l
6 under' exempt. It is avoiding duplication if you are only 7 doing it once.
8 WITNESS VERROCHI: I guess another way of saying it,
- 9 Mr. Shilobod, is Schedule 8, Exhibit 8 showing the effects of 10 not combining the management and saying that we estimate 205 11 more people to be required.
12 If we do combine the managements and the staffs at 13 corporate headquarters levels, therewillbeanamountofwarg 14 reduction. There will be a reduced amount of ef fort i 15 necessary, such that 205 people fewer will be able to do that 16 work.
17 We are eliminating work and, therefore, we will 18 eliminate the need for people to perform that work. As Al 19 points out, it is primarily duplicate effort and so forth.
20 MR. SHILOBOD: If you are eliminating work, then hcw 21 are these functions going to be carried out?
. WITNESS VERROCHI: Again, do you want to take a 23 functional area and'we will talk about that?
L 24 MR. SHILOBOD: Let's take control over whether or not there is timely deliverance of the various purchases.
COMMONWEALTH REPORTING COMP ANY 17171 761 7150
r7 598
( 1 WITNESS VERROCHI: Fine. .
2 MR. SHILOBOD: There is only so much time that one 3 individual can spend to police those purchases.
4 WITNESS VERROCHI: Let's say, for the sake of 5 argument that currently -- then again, this might be a poor 6 example -- let's say,for the sake of argument, Penelec 7 currently has one supervisor, one stenographer or clerk and
. 8 three people doing that kind of work and let's say that Met-Ed 9 has one, one and three. So, there are currently ten people -
l 10 doing that kind of work. Okay? j l
11 Now, if you put those ten people un the same office, 3 12 you don' t need ten people; you might be able to get by with ;
l 13 eight people or nine people or seven people, because, sure, 14 the workers are there, but you don' t need the same number of 15 supervisors. 4 16 There are many economies from having a bigger work i
17 force centralized than there are from having people spread.out 18 at every different location. There is just more efficiencies.
l 19 They complement each other. They help each other during times-i 20 of peak. They help answer the phone when the phone gets j
21 busy, but if there is only one person in the office, that is 22 all,he or she can do. So, that is the ten percent benefit, l ,
23 the ten percent work force reduction from combining two (Y
s/ 24 small groups.
25 If you look at each of these functional groups, like l
COMMONWEALTH REPORTING COMPANY (7171 761 7150
r8 599 1 materials management, and you take a look at where they are q g 2 deployed and what kinds of things they are doing, they are, 3 of course, subdivided into little work teams, each one of 4 which might have a supervisor dealing with three or four 5 people.
I l
l 6 So, it is combining these small groups into i
7 larger groups and capitalizing on the economies of scale 8 that come about from that kind of combination. The work still 8 has to be done. It's just a little less work; that's all. I 10 MR. SHILOBOD: You are saying that under the 11 combined management group, each of these companies is going to 12 maintain its own separate books; isn't that true?
13 WITNESS VERROCHI: But in materials management, we .
14 are not going to maintain a separate management of the 15 materials management effort and separate supervision. There ,
j 16 is going to be one set of managers and supervisors.
17 MR. SHILOBOD: There is going to have to be two sets 18 ef books kept? ,
1 l 18 WITNESS VERROCHI: Yes; and that is one of the ,
i l 20 reasons that you don't get as much reduction as you might {
21 otherwise anticipate from simply the combination. i 22 If we go back to Schedule'7, you will notice that -
23 we are only estimating a reductio'n of 38 people from the 1 (- ,
24 l corporate combination of management. gg 25 The reason for that is this: that currently Penelec COMMONWEALTH REPORTING COMPANY 1717 768 7150
- l .- . . . .
o
600' r9 I I,
O 1 has approximately --
2 MR. SHILOBOD: 38.
3 WITNESS VERROCHI: 19 and 19; currently, Penelec 4 has about 600 people at Johnstown at corporate headquarters, 5 and Met-Ed has roughly 500. I think those'are roughly the 6 numbers.
7 Now, you might think based upon the Verrochi/Donofric i 8 formula, if you combine the two, you ought to be able to
- 8 effect a reduction of at least ten percent of 1,100 which is 10 110.
11 But, practically speaking, we are not going to be
' 12 combining 1,100 people. We are only going to'ina combining' (f i, 13 a couple hundred of those people, because we are going to have to keep in Johnstown a separate set of accountants to 14 ,
f 15 keep a separate set of books for Penelec and different rate ,
- I 16 cases and all the rest of this other stuff. i 17 So, we have gone through each of the functional 18 groups, and we have identified that not 1,100 p~eople are going 19 to combine, but only 200 and some.
O MR. SHILOBOD: .Actually, now you are going to need
- t
'l
~
more people, aren' t you?
22 . WITNESS VERROCHI: No; we are going to need fewer
'3 l people, 38 fewer.
7_)'
(. 44
~
MR. SHILOBOD: Let's take this. You are going to 25 have purchases control out of your corporate headquarters for 3
I COMMONWEALTH REPORTING COMPANY (7171 761 7150 l
601 ,
r10 l
two companies. Each company is going to maintain its own set O
1 1
2 of books. ;
3 WITNESS VERROCHI: Yes. !
4 MR. SHILOBOD: Somebody is going to have to police 5 the propriety of the allocations; isn't that true?
6 WITNESS VERROCHI: Sure.
i 7 MR. SHILOBOD: Somebody is going to have to audit 8 those allocations? ,
9 WITNESS VERROCHI: Yes.
10 MR. SHILOBOD: You don' t have to do that now, do you?
11 WITNESS VERROCHI: Oh, yes; my goodness, yes. We i 12 have full-time auditors. h 13 MR. SHILOBOD: Do you audit the purchases now? -
1 14 WITNESS VERROCHI: That's not the point. We do 15 purchasing for a great many facilities, some of which we don't 16 own. We currently do purchasing for Conemaugh Station, for 17 Keystone Station, for Homer City Station and we only own half 18 of it. ,
19 We currently have an organization at Penelec. Met-Ed 20 currently has an organization -- had an organization that 21 was doing purchasing for Three Mile Island. They only owned 22 50 percent of it.
23 So, the procedures, the checks and balances, the 24 auditing, the inside auditing, the'outside auditing, the O
25 auditing by anybody and his brother is a matter of routine COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
l l
! r11 -
602
( )T 1 business practice, Mr. Shilobod.
2' MR. SHILOBOD: The procedures are there, you are 3 saying?
4 WITNESS VERROCHI: Yes, sir.
5 MR. SHILOBOD: But the people to'*do the additional 6 work are not there?
7 WITNESS VERROCHI: There is no additional work.
8 MR. SHILODOD: Wouldn't there be additional joint 9 purchases of the two companies?
i 10 WITNESS VERROCHI: Al, perhaps you can explain this [
11 better than I.
12 WITNESS DONOFRIO: Sticking with materials
(~T_-'. . . j 13 management as a function, there would still be a separate ?
14 purchasing and contracts department, one in Johnstown and one ,
15 in Reading.
16 What we are talking about is the management now of 17 those; the Vice-President and the secretary, the manager of 18 purchasing, the manager of contracts.
19 Again, to avoid duplication, to come up with the 29 same po'licies, procedures, management style, that is where we 21 are going to save.
22 , You are still going to have separate purchase 23 orders for Penelec East and Penelec West and separate
'-' contracts; you are going to have separate accounting.
5 In accounting, we are going to have separate COMMONWEALTH REPORTING COMPANY 87171 761 7150 ,
rll
. 603 g 1 property records to record the assets.
2 We still have two physical companies here. They'have 3 their own assets, their own financing, their own rate cases.
4 However, in the accounting area, policies and 5 procedures, we are only going to have one.' A budget department ,
6 we'll only have one. On our operations analysis and 7 development, again, we'll only have one to avoid duplication, 8 but the physical accounting, the physical assets, the physical
. 9 purchasing, they will remain separate.
10 JUDGE CASEY: Stop there for a minute. I think 11 what Mr. Shilobod is indicating is that even though you have-12 your high level corporate executives in the combination llh 13 management team and they are overseen in a broad, general 14 sense, these separated or bifurcated operations in the two 15 companies in the materials management, a Vice-President is not 16 going to do the manual or the physical work connected with 17 supplying the management or overseeing those two separate 18 functions. .
19 WITNESS DONOFRIO: That is correct. l l
20 JUDGE CASEY: So, won' t the .new management combina- l ;
21 tion need a new support staff,which is injecting a third l 22 group or element into your two separated purchasing functions {
23 within the two operating utilities?
24 No, sir.
WITNESS DONOFRIO:
25 JUDGE CASEY: You will not? !
COMMONWEALTH F EpoRTING COMPANY (7171 768 7150' l
-.. . . - - - - . . - _ _ . . - ~
rl2 604 O ,
1 MR. DONOFRIO: We will not.
2 IIR. SHILOBOD: Well, at the present time in 3 Johnstown, there is a materials management group; isn't that 4 true?
5 WITNESS DONOFRIO: Yes, it is.
6 MR. SHISOBOD: They have their own management team 7 there and supervisors there?
8 WITNESS DONOFRIO: They have storekeepers which
- 8 report to them out in the divisions and the generating 10 station.
11 I use the term " storekeepers." They receive the
( >
12 material, the physical watching, holding, issuing of material.
13 Within the corporate headquarters, there is called an 14 inventory management section. There is a physical purchasing 15 section and a contract section.
16 The purchasing and contract section will remain 17 independent and. issue separate ones, but 'the inventory .
18 management section would be a combined function that could ,
19 manage both companies and avoid duplication of having an 20 inventory management functior at Met-Ed and an inventory i
21 l management function at Penelec.
22
- MR. SIIILOBOD: The difference from the way it is l
3 today is that the management that is in place in Johnstown now
( j' "
wouldn' t be in Johnstown; it would be in Reading; right?
l 25 In materials management? ;
WITNESS DONOFRIO:
CoMMONWEAt.TH REPORTING COMPANY (7171 761-71.90
r13 605 1 MR. SHILOBOD: Yes.
l I 2 WITNESS DONOFRIO: Purchasing and contracts would 3 still be out, as well as fuel procurement, in Johnstown.
4 MR. SHILOBOD: You are aware that we are talking 5 about Exhibit 8, are you not?
6 WITNESS DONOFRIO: Yes, sir.
7 MR. SHILOBOD: Are all of these 205 cmployees that 8 are listed there, are those corporate headquarter people or 9 are these field people, or are any of them field peopla?
10 WITNESS DONOFRIO: Corporate headquarter level i
11 people.
12 MR. SHILOBOD: This is solely on the corporate r
13 headquarter basis; is that correct? ( )
14 WITNESS DONOFRIO: That is correct.
15 MR. SHILOBOD: How many of these 205 people would 16 he dedicated to, 33t's say, the materials and management 17 aspect?
18 WITNESS DONOFRIO: 20.out of the 205.
19 MR. SHILOBOD: I see. You are taking the basis l
20 upon the assumptions that are snown on the lower left?
21 WITNESS DONOFRIO: Yes, I am. l
~
22 ,
MR. SHILOBOD: Mr. Verrochi, would you describe for 23 us what the present setup is at Penelec with respect to the f I
24 management of the transmission and distribution functions of f 5
the company? l t
COMMONWEALTH REPORTING COMP ANY (7171 761 7150 3 l
1 l
606 r14 O- 1 WITNESS VERROCHI: Yes. We have, as part of our 2 corporate staff in Johnstown, approximately 170 -- this is as 3 of January 1, 1980 -- we had about 173 people.
4 (Mr. Verrochi and Mr. Donofrio confer.)
5 WITNESS DONOFRIO: I don' t have $n organizational 6 chart with me, but the physical T&D operations piece that we 7 are speaking of today, the ohly thing. in Johnstown today is' 8 the Vice-President, his secretary and two staff people.
- 8 WITNESS VERROCHI: That's Bob Wise; that's the 10 Vice-President of Operations.
11 WITNESS DONOFRIO: Reporting to him are a couple of I
12 functions on corporate headquarters, security and transporta- a 13 tion; that, under the new org .ization, would no longer be 14 reported to him.
15 So, the only corporate staff that he has right now 18 f
that he would have for his division operations is a total of i 17 about four people, and that is wP2re Met-Ed has a bigger staffA 18 and we believe that that staff is too small in order to provide l
18 the expertise and direction for the division in the T&D area 20 atPenelecaswellaswe,haveitsetupinthegenerationareaj 21 So, Penelec is currently operating MR. SHILOBOD:
22 .with the corporate staff of a Vice-President, a secretary and ,
23 two staff people with respect to transmission and distributionj
,_(v. .
t / J 24 With respect to the operations !
l WITNESS VERROCHI:
1 1 *5
~
In addition to that, we have a Vice-President-of the division.
COMMONWEAL.TH REPORTING COMPANY 171717617f 50
[ -. -_ ______. _
rl5 607 ;
I Technical, Jack Poole, whose responsibilities are involved l l 2 with the design and the construction of major transmission 3 facility additions and improvements. He also serves to 4 coordinate and standardize the efforts of engineering that is 5 done at the division levels in division headquarter locations 6 and in' district locations by operating division engineering.
7 MR. SHILOBOD: Is he a Penelec employee?
8 WITNESS VERROCHI: Jack Poole, yes, he is.
8 Is he in Johnstown?
MR. SHILOBOD:
i 10 WITNESS VERROCHI: Yes, he is. Vice-Presiden t./
l 11 Technical has roughly 154' people and they are all in Johnstown.!
12 On the corporate level?
(. MR. SHILOBOD:
I3 WITNESS VERROCHI: At the corporate level, they ar 14 all in Johnstown.
15 Reporting to him of which 46 are WITNESS DONOFRIO: ,
t 16 dispatchers in the divisions.
II WITNESS VERROCHI: I'm sorry; the 154 less 46 -- {
l I8 aren't some of those 28 in Johnstown? I I
I8 Yes, but they are not corporate WITNESS DONOFRIO: f
, i
~o people. ,
i 21 We don't have the WITNESS VERROCHI: I'm sorry.
22 numbers exactly the way you want them, but the Vice-President /i Technical has a 154 people total who report to him; and of .
(
! 24 those, all but 46 are in Johnstown.
'5
~
MR. SHILOBOD: So, there is the Vice-PresidentMechnica l
CoMMoNWEAt.TH REPORTING COMPANY (7171 761 7150 _ _ _ . _ _
[
r16 608 O- 1 plus 108 people in Johnstown; is that correct?
2 WITNESS VERROCHI: Including him, there are 108 3 people. The Vice-President of Operations in Johnstown, 4 including him, has 21 people.
5 MR. SHILOBOD: I am not sure I udderstand this, 6 because before you told me there was a Vice-President, a 7 secretary and two staff people, and now you come in with this.
8 WITNESS VERROCHI: Now, I am going to try to explain 9 that to you.
10 In Johnstown, reporting to the present Vice-President 11 of Operations, Mr. Wise, are 21 people. Actually, there are-12 19. Pardon me for the way we are jumping around here. There-13 are 19 people.
14 Those 19 are broken down by two executive, six 15 security system. It just happens that the people, the security 16 personnel at Johnstown headquarters are currently reporting 17 to him.
18 There are seven of those. There are six system 19 operating people with the dispatchers, and there are four 20 system transportation; is that right? ,
21 WITNESS DONOFRIO: Yes. That is what I was trying l 22 .to explain before, fir. Shilobod; that the security and l 23 transportation functions, some of these will not be reporting O,. 24 to him after this. They will either go to the divisions or l 25 some other officer;so, physically in the divisions right new --
CoMMcNWEAt.TM REPORTING COMPANY (7171 761 7150
rl7 609 l I I MR. SHILOBOD: Is it six and two?
2 WITNESS VERROCHI: It is four on some of the other 3 systems, also.
4 MR. SHILOBOD: Are dispatchers corporate level 5 people?
l 6 WITNESS VERROCHI: No; they happen to be physically 7 located in Johnstown, some of them. .
8 MR. SHILOBOD: I would like to go back. Maybe there 9 is some confusion. I was interested in specifically the 10 corporate level people in Johnstown or working for Penelec 11 nou with respect to the transmission and distribution.
12 WITNESS VERROCHI: Well, the transmission und
(
13 distribution, engineering, design, construction team was that l
14 104 we talked about under Jack Poole.
15 Under Mr. Wise, the Vice-President of Operations, l
16 is approximately eight. There are eight working for the II Vice-President of Operations, including him.
18 In addition, at corporate headquarters, we have a 39 Vice-President of Consumer Affairs, Mr. Baker..
l 20 MR. SHILOBOD: I would like.to just confine ourselves
~
21 to the transmission and distribution.
22 , WITNESS VERROCHI: Which aspects of transportation 23 and distribution?
l 24 MR. SHILOBOD: The same that you referred to here ;
i 25 in your assumptions of needing 125 to 150 people. !
, @sEI2En~G'ETCO RMRT@ W cppM_SKJQ.p_9_@__ __ _ _ _ _ _ _
r18 ' 610 R.r 1 WITNESS VERROCHI: I am sorry. This transportation 2 and distribution, A1, encompasses basically our present 3 Vice-President of Operations and our Vice-President / Technical; 4 is that right?
5 WITNESS DONOFRIO: Yes.
6 WITNESS VERROCHI: What about conservation and 7 load management?
8 WITNESS DONOFRIO: No.
- 9 (Mr. Verrochi and Mr. Donofrio confer.) I 10 WITNESS VERROCHI: Al points out to me that it is 11 proper to include in that T&D function the current Vice-
,m, q_) 12 President, Consumer Affairs, Dick Baker and his staff. !
.I 13 The total number on hand in Johnstown in that 14 function are 37, including the Vice-President of Consumer 15 Affairs. l 16 Maybe you can explain, Al, why some of those don't i
I 17 belong in conservation load management on Exhibit 8. !
i i
la The confusion is that our current array of people, I
19 Mr. Shilobod, is on the basis of the present Penelec l
20 organization.
l 21 Al, on Exhibits 7 and 8, is trying to summarize 22 people on the basis of the proposed organizational setup. So, 1
23 that is why we are a little bit more confused than we normally
,f-)
V 24 are.
25 I am staying just within the box of I
MR. SHILOBOD:
1 COMMONWEAL.TH REPORTING COMPANY (7171 761-7150 _,
r19 611 i
l I'; 1 your assumptions in the lower left corner, namely the number 2 of people that you would need for transmission and distribution 3 but for the combined management operations.
4 WITNESS VERROCHI: Fine; and I think a fair estimate 5 would be the addition of the three numbers.that I just gave 6 you; that's the 104, plus the 8, plus the 37. It's 149.
7 Al also points out to me, and again pardon us, 8 because we have made a lot of changes in going from where we 9 are to where we are proposing to go. We had better subtract 10 12 from that 37. Make that "37" "25" in Consumer Affairs, I
11 Mr. Shilobod, and then I think we are closer to it. I get a 12 total of 137.
13 MR. SHILOBOD: 137.
h 14 WITNESS VERROCHI: I think that's right.
l 15 MR. SHILOBOD: That came out 147. You have 104 16 plus 8 plus 25.
17 JUDGE CASEY: 137.
l l
18 MR. SHILOBOD: 137. .
19 I thought that the way that this study was developed
, s 1
- 20 l was that there was a determination of the number of jobs l I
I I 21 I that could be avoided as a result of the combination, and 1
22 then there was a backing in to this breakdown of how many we ,
i 23 assigned to supervisory, exempt and so on.
I 24 l My understanding was that that initial determinati 25 of how many jobs would be saved was based upon an assumption i
, i COMMONWEAL.TH- REPORTING COMPANY (717) 761 7150 l .
r20 612
]
C) Il that the combination, per se, would cause -- what was it, a I
2 ten percent savings?
3 WITNESS VERROCHI: We are talking about two 4
different things.
5 MR. SHILOBOD: HowdidyoumakeIhedetermination !
6 on the number of jobs to be saved? j One of the things we did was we i WITNESS VERROCHI:
8 took a look at this roughly 137 people that Penelec currently 9
l has in the existing functions. That will come under the i
10 I direction of the T&D function in the new organizational setup.
11 l In Penelec's case, that adds up to roughly 137
()3 13 people. ,
If you took a look at Met-Ed's total numbers in 14 i
corresponding areas, I am sure you will find a larger number i
15 i I of people. There are more people in Met-Ed doing it.
16 I think you would find that the fundamental area 17 where there are more people is in the Vice-President of
. Operation's staff.
1 19
- We have quoted here the present number of about 20 l eight in that area. We.ar,e saying that that eight ought to 21 j j go up to about 58.
3, i
~~ ! -
So, in order for Penelec to do it, at the operaticns levels supporting the divisions, the reorganized divisions, 24 l l [wewouldwantabout58peopleinthatfunctioninsteadof8.
25 l j So, the total would be 137 instead of 157.
COMMO*eWEAl.TH REPCRTING COMPANY a717' 7G17150
r21 GEM i
l i
'h I I If we did what we wanted to do. staying as a 2i;j separate corporation, we would add people up to about the II>
b 3
extent of about 50 to this 137. I think that is as accurately 4
as I can portray it now.
5 MR. SHILOBOD: I may be a little' slow, Mr. Verrochi, 6 because I am just realizing now what you had told me before; I i that this need for 25 to 50 people at Penelec arises out of 7l 8
the changes caused by the divisional reorganization; isn't that correct?
30 In the T&D function, that's WITNESS VERROCHI:
11 ; right, primarily from that.
l ~' ' And that is really an expense of MR. SHILOBOD:
i !
13 ! having gone through a divisional organization; isn't that lll
" I true?
O WITNESS VERROCHI: Proposing to go thrcugh it, yes.
I I
MR. SHILOBOD: And that isn't indicated as an i
17 i expense; rather, that is indicated as a saving on this 18 l 1 Exhibit Number 8; isn't that true?
19 If Yes, again, because it's true
.: WITNESS VERROCHI:
'O ll that if we stayed separate from Met-Ed and we went through
~
2i l F the division consolidation, which would generate by the way I!
~2 4
$ at ,the division level, at the non-corporate location level, a b
"3 d saving of some 73 people ; we would eliminate 73 jobs in the 24 L' combined districts and divisions.
25 .i h i If ee did not combine with Met-Ed, we would have a l
COMMONWE ALTH REPCRTING COMP ANY i717' 7G17150 d
r22 614 l I
t I reduction in the field of 73 people, but we would add to i
2 corporate headquarters 53 people; so that that exercise would 3
result in a net reduction of 23 positions. j 4
If, however, we can combine Penelec and' Met-Ed's 5
manager.onts, we can capitalize on the fact that Met-Ed already 6
has in place at corporate headquarters supervisors and staff
. . i l'
and exempt and non-exempt people to perform the kinds of I i
8l services which we would want to perform at corporate head-9 quarters at Penelec.
! to l So, if we don' t combine, we think that we would have j l
If we do combine, we don't 11 l to add about 50 jobs to Penelec.
12 have to add those 50 jobs.
I 3 I MR. SHILOBOD: Do you see my confusion really gets I4 very great when I look back at your Exhibit Number 7, because 15 l for the divisional reorganization with respect to transmission' 16 and distribution at Pennsylvania Electric, you say that you 17 I are going to have a 73-job saving.
18 Yet, on Exhibit Number 8, you are saying that you 19 are going to avoid 25 to 50 jobs that you would otherwise
'O have to have as a result.of,the divisional. reorganization.
~
21 Can you explain that apparent discrepancy?
WITNESS VERROCHI: I will let Mr. Donofrio try, m WITNESS DONOFRIO: If we went it alone, from day one, r
24 ' we.would have to add at the corporate staff level in T&D 25
. 25 to 50 people on Schedule 8.
COMMONWEAt.TH REPORTING COMPANY q717e 761-7150
r23 -
615 1, Over the next two to three years, if we also went 2 it alone and went with the division reorgahization, we could 3
then decrease out in our division 73 individuals.
4 So, the first thing you would do going alone is add ,
5 the 25 to 50, get a corporate headquarters' staff, then over I
6 the next two or three years reorganize the division down 73.
7 However, if you can combine, you don't have to add 8
the 50 in the first place. Then over the next two to three years, you can do the division reorganization and come up with
'U j
the 73 reduction in the division.
II What you are saying then, if I MR. SHILOBOD:
12 understand you correctly, is that if there wasn't a managemer I' !
combination, there would be an addition of up to 50 people !
I4 and, after a couple of years, there would be a reduction of 15 !
! 73 people or a net reduction of approximately 23 people over a 16 number of years; is'that correct?
17 WITNESS DONOFRIO: By the time that 73rd employee 18 wasn' t on the payroll, you are talking probably two to three 19
, years.
"O l
~, WITNESS VERROCHI: But you wouldn't wait three 1
al l It would be happening all along.
years to do this.
. MR. SHILOBOD: Or you might be able to add 25 t
23
! people now and, in a couple of years, have a reduction of the A8' 24 '
! difference between 73 and 25 or approximately 48 people 25b d reduced; is that correct?
COMMONWCALTH REPORTING COMP ANY e71D 731-7150 i
r24 616
) ! WITNESS DONOFRIO: Yes; but if you go ahead with 2 the combination, you won' t have to add that 25 right there. ;
I 3 MR. SHILOBOD: Staying with this Exhibit Number 7, 4 what are the potential cost savings from the corporate 5 combination alone? ..
6 WITNESS DONOFRIO: Specifically, on Exhibit Number ~7, 7
the S.7 million and S.5 million or $1.2 million are i 1
8 e attributable to corporate employees in a combined management. t 8l However, you cannot do the division reorganization .
l 10 and have those savings without adding the 50 individuals at j i
11 , corporate that we talked about on Exhibit 7.
12 MR. SHILOBOD: I thought that all of these !
\_) ) i '
individuals were at corporate level reductions or am I wrong?
I3 ' l t
I4 i WITNESS DONOFRIO: You are wrong. The last time I
i 15 ' when we talked about that, it was on Exhibit 8 that they were I 18 ! all corporate employees.
I l MR. SHILOBOD: How many of these 247 people are l
I8 ' corporate level employees? , j i
I8 j MR. DONOFRIO: As denoted on the schedule, Penelec !
a N
l 'O] divisional employees would be 73; Met-Ed divisional would be
- i .
21 h i
136.
'2
~
i The 19 and then the additional 19 after one year h
23 1 a would be a-total of 38, and they are the corporate employees.
' ! il
! I I's) ~4 9 - Let me see if I understood you l \_/ MR. SHILOBOD:
.4
- j correctly. Thirty-eight of the 247 are corporate level and l
l COMMONWEALTH REPORTING COMPANY (717 761715C 1
,hn
617 r25
! k 3' 209 are divisional level; is that correct?
2 WITNESS DONOFRIO: That is correct.
3' We are getting right back to what MR. SHILOBOD:
4 we spoke of before. If you are going to eliminate 28 union ;
5 employees to perform work on the divisional level, can you 8
tell me who is going to be doing that work? ;
WITNESS VERROCHI: The union, where are you, at the 8
divisions, Mr. Shilobod?
MR. SHILOBOD: I am on Exhibit Number 7 under 10
" Union." There is a total of 128 jobs being eliminated.
I WITNESS DONOFRIO: Let me stick with the examp.le or Penelec here; the ten union employees or divisional employee l that are clerical in nature. A provision of this division 14 ; f reorganization is the consolidation of business offices by l having a corporate staff of policies, procedures, and making 16 it more uniform by having our centralized cash remittance, i 17 l
accepting a lot of our cash, et cetera.
I 18 We believe that we can do economies of scale with 19 our clerical force in the business office by having a 1 l l 20 l
I consolidation. .
l 21 !
l Again, that is a small piece of something that we i
22 !
! can. effectuate by going ahead with this combination.
I 23 !
l MR. SHILOBOD: You are saying that this is clerical 24 !
i l staff; is that what you are saying; that you will need 10 i i
, 25 1 j union employees?
COMMONWEALTH REPORTING COMPANY 17171 761 7150
r26 618 ,
O I WITNESS DONOFRIO: Yes.
2 MR. SHILOBOD: And you are going to eliminate 3
clerical staff even though you are going to have the very i,
i 4
same purchasing functions done in the Penelec area; you are ,
t 8 going to have the very same bookkeeping maintained in the {
6 You are going to have the same job functions Penelec area?
7 being carried out in the Penelec area?
8 Mr. Shilobod, you are mixing !
WITNESS DONOFRIO:
8 apples and oranges. The accounting, materials management, ,
10 et cetera, are the corporate employees. ~l i
II These here are as a result of consolidetion and t
() )
la the divisional reorganization.
l I3 That divisional reorganization is made possible ,
14 by having a more centralized, stronger, more expertise 15 corporate function in the T&D area. -
' By the way, Mr. Verrochi, when these MR. SHILOBOD:
17 determinations of 247 employees eliminations were considered, 18 was this based upon a work load, study?
WITNESS VERROCHI: I think it was based rather 20 upon our knowledge as to what our work force levels were by 91
~
function and by company through operations analysis, through monphly pri'ntouts of the work forces, and. it was an analysis 93
~
of our existing work force and our existin', work load and what 24 we thought would happen if we consolidated the divisions and 25 cor.bined the corporations.
COMMONWEAL.TH RCPoRTING COMPANY (7171 761 7150
r27 619 I I l. They were based on studies and input made by the gg) 2 officers involved. Bob Wise, for example, on my staff, the 3
Vice-President of Operations, spent a lot of time in estimating 4
and developing criteria for reorganized divisions and ,
estimating and coming up with a division r organization, a new, i
o division organization chart.
f 3
7 He and some of his division managers worked out :
8 what additions and reductions in employees would be required
" to function under the new division organizational setup and 10 i
the new support organization setup that we would have to put in 11 place at corporate headquarters.
12 So, I don't know if that is what you are asking, 13 1 but, sure, they were based on studies like that.
I 14'! MR. SHILOBOD: Was there any work load analysis done 15 on the employees?
16 !
WITNESS VERROCHI: Operations?
17 l MR. SHILOBOD: Yes.
18 WITNESS VERROCHI: Operations analysis,as a matter i
19 1 j of routine, does try to estimate how many people for how lcng 20 l It was an j a period of tame are required to do certain jobs.
21l extension of that sort of thing.
22
. MR. SHILOBOD: Did you utilize time and cc icn 23 studies to determine the number of job reductions that wculd 24 i J
be at Penelec? lll 25l WITNESS VERROCHI: We didn't use time and motion i
LOMvoNWEALTH REPoRTINC.i CCMPANY 1717 7G! 71'!O
r28 620 {
i I
/ studies on this particular point. I don't know to what 1
extent we used time and motion studies in operations.
- Al Donofrio is responsible for O&A. Maybe he can 4
explain it better than I.
5 WITNESS DONOFRIO: We did not on this one. In 6
effect, what we are doing here is saying by having a 7
corporate staff, by having a functional mirror image of each 8
of the divisions, now we don't need that expertise in each and every one of our existing five, and our potential eight IU divisions. g 11 I
So, again, it is a form of consolidating on a j
() ,
1 corporate level. That is why the jobs are not necessary.
t 13 It is again avoiding duplication of efforts. It is not that 14 i we are going to do less work; we aren't going to do less ;
i 15 .
work. We are going to do the same work. ;
16 MR. SHILOBOD: Tell me exactly how did you arrive 17 at this 73 figure for the savings at Penelec arising out of ,
13 '
the divisional reorganization? -
19 3
WITNESS DONOFRIO: How we did it was a' gain through 20 I
! these studies that Mr. Verrochi referred to by Mr. Wise in 21 l
- conjunction with the division managers. They came up with 22
- . the organizational setup for the potential --
'3
~
(} 24 j MR. SHILOBOD: What do you mean by that? Let's take it one step at a time. You came up with an organizaticnal 25; lI setup. . What do you mean?
6 la COMMON}* IAt.TH REPORTING COMPANY #717n 7617150
r29 621 ;
O
) 3 WITNESS DONOFRIO: Exactly what a divisional work 2
force would look like as a result of the reorganization, such 3
as the division managers; the managers report to them; various' 4
employees reporting to the supervisors, et cetera. This is 5
what it would look like at the end. This is in conjunction f
6 with where we are at now with the reduction of 73 individuals.
Again, it is setting up the corporate staff for the f
8 functions no longer provided in the division.
MR. SHILOBOD: But setting up that organization, 10 how did it filter down to determining the number of union 11 people,. non-union people and exempt people and so on on 1
Exhibit 7? .
) .
13 I i WITNESS DONOFRIO: The union people, except for these l
"! ten clerical which are identified because of the consolidation 15 of the business office functions, remained the same.
16 The work load for hooking up new customers, for 17 doing maintenance of lines remains the same.
18 So, the union employees within all of Penelec remain 19 !
ll the same, except for these ten that are in the business office, 20 clerical function.
I 21 i i WITNESS VERROCHI: How many union employees are 22kll there, A1, that we are talking about in this functional area 23 0 with Bob Wise? He has at least 800 or 900 union employees, llh 24 l' doesn' t he? Pardon me for interfering, Mr. Shilobod.
l 25 (Mr. Donofrio and Mr. Verrochi confer.)
u - __ _ m asu m _______ --
r30 622 l
C) - i 8
I WITNESS VERROCHI: In the operating divisions, Mr. Shilobod, Penelee has 2,100 union employees. It is my 3 recollection that something on the order of 800 or more of 4
those union employees are working in the operating divisions ' '
j ,'
5 ,
of Penelec.
i !
6 What Al was saying in part was that we don't expect ii
- I a change as a result of'this exercise in the number of ...
{ ,
8 ba~rgaining unit jobs in either the generation division or the 9
- operating division.
l 10 So, we are simply talking about the supervision of i 11 those people.
l
( 12 I MR. SHILOBOD: I am going to get back to what I 13 '
l started to do before. I am trying to find out exactly how
{ 14 these precise figures came about such that you can tell me that l
l 15 they are going to be 10 out of over 800 jobs eliminated.
I 16 That is a pretty refined number, isn't it?
i 17 l WITNESS VERROCHI: It certainly is, and our studies 18 were focusing on exactly that point. How many jobs would you 19 i l
have to add and how many would you have to subtract.
20 i In the course of doing his investigation, Mr. Wise 21 l i
came up inevitably with studies, work sheets. Again, they n ii l
~~hwereiterationsofthose.
1
.3 ;
What he did is he showed his present organization
(}' 24 charts and the tables showing the number of people he has by 25 division, by district, by function and where they are deployed.
COMMONWEALTH REPORTING COMPANY 47171 761 7150
r31 623 1
He said if we decided to go from 5 divisions and ll 2 18 districts to 8 divisions and no districts, this is the {
3 number of people we would need. This is the organization i
4 chart we need at a division. This it the number of people we 9 f 3
need in each of the blocks shown on the organization chart i 6
to supervise, direct and oversee the work load,'and this is ,
7 the organization chart we need at corporate headquarters to f l
8 lend the necessary support. !
8 Fe har dotted lines and solid lines and dashed ,
10 lines, all the things that you do when scing through organiza j II tional charts, and it was very. detailed ta ele part of him 12 and his division managers to.come up with tMa prcposed change la . .
in organization. :
1 14 He put numbers opposite them; and the numbers that l we are reporting to you represent the difference in numbers 16 of employees at corporate headquarters and division head-17 quarters under the current organizational setup versus the 1
18 ,
number of employees that we would have to have at corporate 19 i
! headquarters and division headquarters under the proposed "o i
~
organization setup.
?! i So, it is the result of a detailed analysis like l that. l 23 ! l i WITNESS DONOFRIO: May I also add that in the l course of this, we did come up with the total organization llh 25 l concept:that in their review,TB and A had made comparisons l
b b COMMONWE ALTH REPOR7tNG COMPANY 4717e 761 7150 p
,I
1 r32 624 e
() 1 with other individual size companies; and it came about that
/
! 2 the approximate number of employees that'we would and up with 3 falls exactly in line with how they would do outside studies 4 and make comparisons with us, with other_ individual -- we did i 5 not have a target to shoot for anything. 'It happened that our 6 end result fell right in line with any other comparable 7
utilities.
8 WITNESS VERROCIII: At the risk of beating a dead !
I I I
, 9l horse,oneoftheotherthingsthatwedoveryfrequenlyagainj I
10 in operations analysis is we make comparisons of the actual
)
I 11 numberofpeoplethatareinplaceatadistrictoradivisionj
() )
12 and we try to ascertain whether the number and type of 33 i employees at a district or a division is reasonably consistent 14 with the work load, numbers of customers, customer density l 15 and all that sort of thing, the number of lines and poles, t
16 miles of distribution.
g .,'
One of the major roles of operations analysis is to ;
i 18 continuously take a look at the, existing divisions.and try to 18 bring them more in line one with the other in terms of how 20 we deploy the troops and the resources.
21 i
You might want to remember that Penelec, like most utiJity companies, is an agglomeration through the years of a
'3
~
number of separate companies.
l ~
94 j ,
- When you acquire and absorb a district or a division
'5 or a company, it is just good management practice not to rock i
- COMMONWEAL.TH REPORTING COMPANY e7171 761-7130
[
r33 625 j i
I the boat too much and kind of let them operate the way they h 2 have been operating, and then you slowly but surely try to 3 make sure that District 11 doesn't have a disproportionately 4
high number of people because you haven't paid attention to 5 '-
it.
6 So, that whole exercise is a continuing process.
{
7 Again, we simply applied that kind of approach to what if we f I
8' reorganized the divisions.
9
. MR. SHILOBOD: Mr. Verrochi, there is a lot of room 10 within Penelec right now to effect cost savings without the M! divisional reorganization or the management combination; isn' I
12 i that true?
I3 WITNESS VERROCHI: I don't know if I would say there a
"! is a lot of room without reorganization. I think I would I3 rather say that there is a lot of room to save money if, in 16 fact, we reorganize ~ the divisions and if, in fact, we combine i
17 l the two managements.
8 MR. SHILOBOD: Let's take then, for instance --
9!
WITNESS VERROCHI: I don't expect there will be much 20 !
j cost savings, for example, in the genarating division. I
'l i
~
- think we have got that organized about the way we want it in "j
3,
- Penelec.
'3 '
~l MR. SHILOBOD: Let's take your assumption. Your assumption is that you spend 30 percent of the supervisor's lh i
~3' m
wages on materials and supplies; in other words, over S10,000 1 COMMONWEALTH REPORTING COMP ANY 8717' 761-7150 1
r34 626, l
i O s I per supervisor just for materials and supplies; isn't that 9
- i correct?
3 WITNESS VERROCHI: Al, that's not an assumption; 4
that's a fact, but go ahead, A1.
5 When you say 30 percent of the WITNESS DONOFRIO:
8 payroll is a small portion of the total, what we are talking +
7 about here is about two percent of the total materials and' !
1 8 i supplies.
9
. MR. SHILOBOD: By the same token, the percent of ;
10 employees that we are talking about is a far smaller We are talking about 247 employees out Il percentage, is it not?
() 2 of approximately 7,000; isn't that true?
3 WITNESS VERROCHI: Yes. .
4 '
MR. SHILOBOD: So, then they are both a small 15 percentage if we are going to be dealing with that?
WITNESS'VERROCHI: Yes, they are.
17 MR. SHILOBOD: So, let's go back now. You 18 nevertheless state that within the operations of your companies 19 you spend 30 percent of your supervisor's wages on related 2 0 ',
I materials and supplies.
21 I WITNESS DONOFRIO: What we have is payroll, and what l '
22 t j .we have done is an analysis based upon our straight time I
i 1 -
l 23 I l payroll dollars.
ss 24 In other words, with straight time payroll dollars, 25 ;
- there is associations of different other items of cost that I CCMMONWEALTH REPORTING COMP ANY #717 761 7150 l
r35 627 i !
I I
O I ' follow and parallel straight time dollars.
I 2i In an analsyis of the companies for the past couple 3, of years, fringe benefits are approximately 30 percent --
4 pension costs. l 5 MR. SHILOBOD: Let's stick with haterials and 6 supplies.
7 WITNESS DONOFRIO: The fringe benefits follow 3
j payroll pensions, hospitalization, et cetera. They total up i
i 9! to about 30 percent. :
10 What we did was we looked at the materials and ,
11
! supplies in total. We looked at when we added employees, 12 when we had the layoff attrition of employees and looked at h I .
13 the effect that added numbers of employees had on increasing j 14 or less employees had on decreasing the total M&S spent at 15 l Penelec.
16 !, What we found was there is a correlation that the i
17 more employees you had given the same work scope, new 18 customers, et cetera, the more M&S was spent.
l l ID I Again, that correlation was approximately two percent 20 l of the tctal M&S would be saved by a reduction of about 247
, ~n ,
l i people.
, I
- ,,j
~~
The last time when we had the layoff or attrition i , !
~3 l that we mentioned before after the accident of 210 l -
l h
'a
~ y' individuals, we found a correlation, even by revising work 23 scopes, that, at that point in time we saved a little over i
i 3 g COMMONWEALTH REPORTING COMPANY (717' 761-7150
r36 627 O 1 seven percent of forecasted M&S by just having less employees 2
on hand there.
3 What we have done is take a conservative view that 4 even if we achieved only a third of what actual happenstance, 5 actual practice happened in 1979, that we bould achieve a representative two percent of our forecasted materials and 6
7 supplies; and that happens to equate to a 30 percent of the l 8
payroll number.
9 Was this an underlying assumption MR. SHIIOBOD:
to of the study; that there would be the two and a half percent 11 l saving in materials and supplies?
Was that the assumption that was made?
12 l 13 WITNESS DONOFRIO: It is an underlying assumption I4 i that the amount of material and supplies does have a 15 relationship to the total employees on hand;.that is correct.
16 And the two and a half percent figure MR. SHILOBOD:
II came as a result of what?
l WITNESS DONOFRIO: The actual circumstance that I9 happened in 1979 that resulted in a seven percent ; again, for 90 conservative reasons, we took a third of that and said that
~1 I we should have no problem. It was a potential, but on a l l 22 '
l cons.ervative basis, we would have no problem by having 247 23 l l
reduced employees; that we would see a reduction in our total O 24 i
M&S of about two percent.
25 l MR. SHILOBOD: Then the way that the amount of I
y COMMONWEALTH REPoRENG COMP ANY s717 7617 t 50
629 r37 ;
h 3Y materials and supplies was determined was not based on 30 g 2
percent of payroll, but rather it was two and a half percent 3
of your total materials and supply bill that happens to equate 4
to 30 percent of the payroll involved; is that correct?
i WITNESS DONOFRIO: That is true.
6 Two and a half percent for a WITNESS VERROCHI:
' specific number of reductions, A1.
MR. SHILOBOD: These changes that occurred in the 0l oI past in the materials and supplies as related to the nwnber i
10 of employees, those changes occurred whenever there was an 11 ' '
addition or a subtraction of numbers of employees due to 1.,h0
- j normal changes in business, namely, different numbers of 13 'iI' customers and different numbers of plants to be worked on an il 14d
' so forth; isn't that true?
15 il The grand total forecasted was J WITNESS DONOFRIO:
i 16 I based upon new cust'omers, et cetera.
IT !,
I am saying what we found was that once a forecast 3
n 13 3
- was done, if you remained at the same level of employees, you i
19 't would hit your forecast.
20 '
However, if you reduced the number of employees,
?! M you would still hook up the same number of customers and maintenance, et cetera; and you would -- the fact was that you reduced the total materials a;i supplies used.
24 MR. SilILOBOD: Is there a relation between the gg 25 (
materials and supplies used and the number of supervisors i
, Co v: 'ONW C A L.T H REPOR TING COMP % N Y 717 761 7*5*.
1
r38 630 t ,
j lb that you have?
.i 2
WITNESS DONOFRIO: We did our relationship based l
3ll upon total straight time payroll.
4l MR. SHILOBOD: Is there an in-fact relationship ,
5 between the materials and supplies used and the number of 6
supervisors that you have?
I WITNESS DONOFRIO: I did.not do that I
- 8, analysis.
I 9 -
MR. SHILOBOD: Is there an in-fact relationship 10 between the materials and supplies and the number of people
, I II that there are at corporate headquarters?
() 32 WITNESS DONOFRIO: .I did not do that analysis.
'3' There may or may not be.
t MR. SHILOBOD: With respect to transportation, you
" .'l "l are aware that Mr. Dieckamp and Mr. Kuhns indicated that there Is]wouldbeweeklytripsbackandforthbetweenReadingtogive 17 l
! the amount of supervision that is needed for the operations at 18 the Penelee service area, are you not?
IG ' Yes, sir.
WITNESS DONOFRIO:
L
~O 3 f
i j MR. SHILGBOD: Where are those additional costs on i a:
21 !!
your Exhibit Number 7?
I n," i
. WITNESS DONOFRIO: The additional costs are netted, B
l l
if you would look under the savings and then the third line
(-s-) 24 :i and numbers down over under the columns, " Miscellaneous J
i 25 r jexpenseincludingofficespace," the S200,000.
I i
, COMMC NWE A LTH WEPO9 TING CCMP ANY e717 7 61 -7 ' '!G
r40 l' 631 i
i l.
1 MR. SHILOBOD: Those are savings of expenses; is I
that correct?
I 3 WITNESS DONOFRIO: That is a net savings taking into i
4 i, consideration not only the reduced travel by not having the 5I corporate headquarters in Johnstown, but a' Iso any net increase G by corporate headquarter people that would have to go frca a 7 Reading headquarter to the divisions.
8, MR. SHILOBOD: What assumption was made on the i
9' number of trips that would have to be made from Reading to 10 Johnstown?
11 WITNESS VERROCHI: Mr. Donofrio made a big analysis 1
12 on that, and maybe he can refer to it in the White Book.
13 ji MR. MESSER: What is the date of the White Book?
Y 14 'll WITNESS VERROCHI: We made it earlier than that.
'h
!5 But what is the date of that?
lI
"' ! MR. MESSER: We don' t have color photocopies. We l'i -
have to relate it to a date, Mr. Verrochi.
l 18 WITNESS DONOFRIO: The Blue Book eventually revised IU is a White Book revised June 4, 1980.
20 MR. SHILOBOD: I have one here June 10, 1980. Oh, i
9
~'
n
- this is it.
2
, MR. MESSER: Fine.
"' MR. SHILOBOD: What page are you referring to?
' It starts back on page 66, and t
WITNESS DONOFRIO:
~9 -
H, the summary is on page 69.
, ,e
'l CCYVoNW E A L'H F4 EPC RTIN G " T "P '.*c' 717 ~6'7'5, j Il
l r41 '; 632 4
i C:)
MR. SHILOBOD: If Your Honor please, we are going to 2 ;l request that this document be marked as an exhibit. We would 3
have it marked as JARI Exhibit Number 3 and request permission I
[ to reproduce it and to give it to the court reporter in the 1 '
3 i next proceeding.
I i
6! JUDGE CASEY: Describe what it is if you will.
I MR. SHILOBOD: This is the Blue Book that has been
's f' referred to as revised May 7, 1980 and revised June 4, 1930, i
C which was the final revision of the Blue Book as it was i
IU previously referred to.
11 JUDGE .CASEY: That was voluntarily provided to you
) 13 i by the company; is that correct?
e 13 MR. SHILOBOD: That is correct, sir,
',i 14 :! WITNESS DONOFRIO: Until Mr. Russell gets back, 15 Your Honor, it was voluntarily provided, but, as Mr. Shilobod 16 was saying, these are confidential names,'and this really 17 h wasn' t going anyplace.
i!
18 p j
MR. SHILOBOD: I don' t believe there are any names 19 I! . .
in this.
o 20 !l Maybe you want to put just those
- WITNESS VERROCHI
21 I:
- pages in.
. i f t ri ,j .
The whole book has nas.es.
^
WITNESS DONCFRIO:
23 !
MR. SHILOBOD: I will withhold that, Your Honor.
(x
.j u y; j We will make some divisions of this book, because there is a 25 particular part I am interested in.
l COVMONWEALTH CPORTIMc COMr'a N Y 717 7G17!SO
r42 i 633 I
E
' Don't forget it would have to be JUDGE CASEY:
2 duplicated if you are going to put it into the record, and t
copied, because we need three copies for the reporter, and I 4
' would need a copy.
5 8i '
MR. SHILOBOD: What we are interested in are the I
n 6 y sections beginning at page 66 and going through page 76, 66
- h, through 76.
n JUDGE CASEY: What does that pertain to, that 9
excerpt?
In MR. SHILOBOD: Cost estimates.
i 11
- JUDGE CASEY
- Cost estimates. Do you want that 4
" marked as JARI Exhibit Ncmber 3? ggg MR. SHILOBCD: I did, but the documents that I hace 9
So, we will withhold doing here are not fastened together.
that at this time.
16 I You are referring to page 67; is that correct?
17: :l WITNESS DONOFRIO: 69.
g 13 :I j MR. SHILOBCD: How did you arrive at the determina-tion of the number of trips to be made by the officers of 1
20 the corporation to Johnstown? ,
21 4 P WITNESS DONOFRIO: As assumption number cne states, m !
" ' this was done with individual of ficer interviews. I: tas
.? their assumption or their estimate of their trips.
24 Their estimate of how many times h
4 MR. SHILOBOD:
- i 23 "
they intended to go to Johnstoun from Reading; is that correct?
l; rm vo .w.w w=mn ec.,_ ww-..
r43 634
((
a
'i 4
(/
s ,3
- WITNESS DONOFRIO: To any of these functions listed
,1 j across the top of the page, either Reading, Harrisburg, 3
Parsipanny, et cetera.
- 4) JUDGE CASEY: Was this based upon their past 5i experience with the corporate setup as it 'is now, or are 6 { these projections? -
i 78i WITNESS DONOFRIO: Both; both on the present 8
condition and then the change if the corporate headquarters 9
was in Johnstown versus the corporate headquarters being 10 j located in Reading.
3 11 .
MR. SHILOBOD: Can you tell me how they knew how a
() '
many times they would have to go to Johnstown?
13 ! WITNESS DONOFRIO: I don't understand your question.
"4 MR. SHILOBOD: How did they know how frequently 15 a they would have to take trips to Johnstown from Reading?
16 WITNESS DONOFRIO: It was their assumption of facts 17
, as they saw what their duties and responsibilities would be 13 i if they would be located in Reading.
19 Again, it depended upon each officer,. exactly what 20 piece of his total function he had located in Johnstown.
n MR. SHILOBOD: When did you gather this informaticn?
. WITNESS DONOFRIO: It would be prior to March 26,
- o1 s
"I 1980, because it is in the original Blue Book dated March 26.
24 S MR. SHILOBOD: But it was gathered after the 23
- decision had been made to proceed with the management O Oi4 MO N WCA LTri '?EPcRTING CcMPANY t717 761 -7 ! $ O
!i
r44 635 i
!h reorganization; is that correct? lll 2 l;!i WITNESS DONOFRIO: Yes.
?
3 MR. SHILOBOD: i.nd whenever you were gathering 4 this information, at that time, you were trying to establish 5I the savings that could be developed as a r'esult of the 6 management. combination; isn't that correct?
7 WITNESS DONOFRIO: Two things; that is one of them, 8- and the other thing that we were-looking at was under the 9 what if you were consolidated kind of question that would be:
ll IO!i in Johnstown; would there be an increase in your travel and Il expense costs? We tried to quantify it based upon certain 12 assumptions as listed on the page.
"' I would like to take you back to the MR. SHILOBOD:
i 4)previouspageofthatsamedocument, namely 66.
- 1 15 i I will let you look at this copy, Your Honor.
.* i , (Document handed to Judge Casey by Mr. Shilobcd.)
\ ,
II i WITNESS DONOFRIO: Your Honor, we are talking about I8 l on page 66.
i I would refer back.to what I said earlier on the l
IU
- i. original Blue Book.
l e
~n il
- The original Blue Book nor this was intended to go i .
~4 through and quantify the cost avoidance. Ths criginal i
l ,o l ~ ' , attempt and still is today is the establishment of the first il f.19individualsorthefirst10percentreductioninthe e
.,n corporate combination of management; and that is what this lll
~~h I' refers to.
sk li e: m e w w .m w e m c. cosa w - - e. :.3:
0
r45 j 636 i
b t
3..i MR. SHILOBOD: You see, Mr. Donofrio, my problem is
~
that I sat in on the oral presentation of the annual review 3 to the Commission by Mr. Kuhns in which he told the Commission i
0 40that there was going to be savings of $18 million from this 5
management combination. That was my understanding of it; that 6l was my perception of it. I l
' I At that time, there was in existence this Blue Book '
i a! with page 66 which suggested the savings are substantially .
l,i.
less from the management combination.
9f 10 Not at all, sir. Where do you WITNESS VERROCHI:
t I'
get that from?
O 12 i 1
! WITNESS DONOFRIO: .This book is just a corporate 13 It has nothing to
- j piece, and this is just 19 individuals.
i d 14 %
do with the divisions or cost avoidance or adding corporate t
15 l l , people. This is the first 19.
16 d*
!; If you will look over on page 68, you will see the
- i. ;
17 if That is 1 5 and the 14 being job eliminated. That is the 19.
is l all this book was meant to be.
3 7;
19 o i MR. SHILOBOD: What were you referring to on page i
2 0
L 68? .
n 3; :t WITNESS DONOFRIO: When you look at the employees, then you come down 3, 1, 23, 5 and 14; at 5 and 14 is the l 2
' 19 referred to over on Exhibit 7 that was put on the record l (-
% 24 .3 l,today.
i8 25 1 jj Also on page 66 that you are referring to is we gave N Co**MONWCAL.TH REDC'sWNG COMPT NY 7t7 761 7'50
. 4 LJ dl
r46 , 637 I
lll a range in there in the last paragraph on page 66 that says, "After the management combination has been in effect for a 3
3 year er so and employees become more f amiliar with their new 4
duties, it is anticipated that 15 to 30 additional positions
.H ,
- h can be eliminated."
I 6
In our Exhibit 7 when we did that, we said that the
'horiginaltenpercentofthe19couldbeanadditionalten d
8 That is all this
!! percent or an additional 19 after one year.
9d is refers to.
O This book has nothing to do with the division i
II q reorganization or the cost avoidance if we don't go ahead I
l
'! with this .
g 13 '
MR. SHILOBOD: Comparing page 66 to your Exhibit I ', i
" Number 7, page 66 indicates that there would be no savings
..!]
from the management combination until into the fourth year; IG 1 i isn' t that true?
17 l WITNESS DONOFRIO: What is says is that for the la !!'
total relocation expense, which.is approximately a little over i,~ 6
, $2 million which is a one time over and once done with, that
~o
!i
j u s t the savings for these first 19 individuals would turn r -
around during the second year.
, JUDGE CASEY: What 19 individuals are you talking
~
about, Penelec people that have toberelocatedtoReadingcjg
. 24 the top 19 people in the management combination?
25 ;'
j ! WITNESS DONOFRIO: The 19 is the initial :ch I
l m k COMMONWE AL TH REPORTING CCMP AN Y ,717 76 ' .7 ^ C
638 r47 ,
l
\
!]reductionsonacorporatelevelasaresultofthecombining t'
2" of existing forces.
3' MR. RUSSELL: Can you identify them on any exhibit?
d 4l WITNESS VERROCHI: On Exhibit 7.
5' MR. SHILOBOD: When you say there is a turnaround l
6 in the second year, as I read page 66 of the Blue Book or.the
', l White Book -- what color is this book supposed to be?
I 8l WITNESS DONOFRIO: There is one dated June 4.
9 MR. SHILOBOD: June 4, 1979?
10 WITNESS DONOFRIO: 1980.
II : MR. SHILOBOD: 1980. The fact is that there is a 12 l cost savings of $315,000 in the second year; isn't that true?
I' WITNESS DONOFRIO: This is only a piece; this is l
l " ! only the reduction of the 19 of the corporate headquarter
" i staff net of the relocation expenses.
l i
16 j Yes, but the relocation expenses for MR. SHILOBOD:
17 the second year?
18 ,
WITNESS DONOFRIO: No, 59 l
MR. SHILOBOD: Is that correct?
l i on -
-~
l WITNESS DONOFRIO: Look at page 66. What te hace is y~ ii l relocation expenses that are paid out over a three-year perj.od. It is a one time and only deal.
'3 h
~y MR. SHILOBOD: Let's start with that right there, O if l D 24"jthe relocation spread out over three years. I take it then
~'
s that what you are saying is that all of these transfers wen't if I' COMMCNWEALTH REPCR? LNG OCMPANY 1717 761.? ) SC
r48 ,
' 639 i
l I be made immediately; they will be spread over a three-year I
2 period?
21i j WITNESS DONOFRIO: Look at page 67, if I may ask 4
you, which details again the assumptions and the work-up on 1
5' the cost of location, and this assumes that all of the costs U
of relocation, moving expenses, et cetera are paid the first
-I'; year.
i 8 However, there is in effect a policy for mortgage
"' interest differential which is paid to employees over a three-3U year period.
II' The first year is added to all of the other costs 32
, of moving, et cetera, closing costs for the first year; and
': then the second and third year payment for the mortgage llh "a '
dif ferential are the only costs for the second and third year
- d a
d based upon this.
16 But if we look at the management MR. SHILOBOD:
a 17 i j combination alone, the annual savings do not reach S700,000 I
until the fourth year; isn't that correct?
1 WITNESS DONOFRIO: And the cost avoidance of "O
~
58 million starts the first year, correct.
,y
' :l MR. SHILOBOD: I am staying now .vith our annual
]
cos,t savings.
WITNESS VERROCHI: It is both of those.
MR. SHILOBOD: When do we reach the Sl.2 million O
( shown on your Exhibit Number 7?
l co"mcNwct,tn4 worr:Na cmwen r- uw 3:
ji
r49 640 l
t O t Il t WITNESS DONOFRIO: The first S . 7 million of the
,i
- ' Sl.2 million starts effective as soon as the combination is 3
allowed to be implemented.
4 The S.5 million would start one year after the i
5 combination was allowed to be implemented.'
6 MR. SHILOBOD: Could that answer be read back?
7 (Whereupon, the reporter read from the record as' 8
requested.)
O! MR. SHILOBOD: Then what you are telling me is that i
10 Exhibit Number 7 are not net cost savings; they are gross cost l 11 l savings, is that correct, prior to the additional expenses l s i pl
\- 32 '
i that are related to the combination?
l l 13 ! WITNESS DONOFRIO: Exhibits 7 and 8 are annualized l \
" savings. Exhibit 7 nor Exhibit 8 do not reflect the cost of is . .
relocation of the approximately $2.5 million, the once and 38 over done costs.
r MR, SHILOBOD: You may have explained it, but I am
- {
13 :
not sure that I understand. .
19 i Does this report of June 4, 1980 contain a greater 90 1
~
' breakdown of the S.5 million savings related to the additional i
~'
reduction in corporate headquarter employees?
,, ?i
~ ~ ;!. - WITNESS DONOFRIO: If you look at page 66, if ycu
~3
, tli 1
{} 2-1 ;.
take the payroll -- let's say the first annualized year as a
].398of$398,000, plus the fringe benefits of $113,000, that 25j !{ is the same exact numbers as it would be for the additional l .
I l J corwoNwce.tra ve=ouruc' r ewany m7 si.vuo
rSO p 641 I;
i f
I
,, 19 people. h
, . I.
' ' The travel In other words, there is no duplication.
3 is a once and done savings. We are not duplicating that, nor 4'
the building space; but the physical payroll and fringe 0
- . benefits are for 19 people. So, it is the same kind of a
6 ! breakdown.
7 il;
!; MR. SHILOBOD: I am trying to relate page 66 to
- l 3
! your Exhibit Number 7. As I read page 66, there are annual i
91 -
savings of $700,000.
10 WITNESS DONOFRIO: Yes, sir.
It
. MR. SHILOBOD: Each year?
+
}0~i WITNESS DONOFRIO: For the first 19 individuals.
O MR. SHILOBOD: For the first 19 individuals?
14 :i .
! WITNESS DONOFRIO: Yes, sir.
.i 15]' ,
MR. SHILOBOD: If I look at your Exhibit Number 7, 16 N
- it shows S.7 million or aS700,000 savings for the first 19
1; !
i individuals.
18 yl WITNESS DONOFRIO: It'is the same $700,000.
I :.
i 19 "
- MR. SHILOBOD
- The second $500,000, where does that y, ;
!. ; come from?
I ~;
s y
,! WITNESS DONOFRIO: Again, it is the same derivation l n i of the payroll and fringe benefit piece of the S700,000 for 2a ,
another 19 employees. It is the same .4 and .1, or if ycu want to refer to page 66, it is the same $398,000 of payroll and 25
$113,000 of fringe benefits, i
l Il g
ow cNwr.itTs oc=c: Tins COMPANY 717 7 G ! .7
- 5C
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- 3, A s qq, /////o k
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~l
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. TEST TARG.T (MT-3) 1.0 g m L2a y @ UE I.l l'SE=E
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- k[>D/
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TEST TARGET (MT-3) 1.0 !9 m DM f $ l!E I.l [o OSS l.8
' ~
I.25 l.6
[IA
e.,
diI>,4 O t[.h4' 4
1
r51 642 1
I:
/~N ',
\-) Il 3
4 MR. SHILOBOD: Then the difference is that for the it
, il J second set of employees, there is no reduction in what, I
3{ transportation expenses; is that what you said?
l WITNESS DONOFRIO: What we said is we already have i
5~ , the total travel changes and the total building space alloca-8 tion with the first 19 on having the headquarters at one versus-l 7l the present setup.
l 8f MR. SHILOBOD: So, the savings of $200,000 from the d.
9 ,1 e
first 19 does not occur with the second 19; is that correct?
10 At approximately ten percenr, WITNESS DONOFRIO: No.
I hitwouldn'tshowupintheroundingsevenifthetenpercent
() 12 1
was added on there.
I3 !! MR. SHILOBOD: The transportation expenses weren't
" really based upon ten percent of the payroll. They were based b
0 upon your determination of transportation savings that 1
16 !!
- happened to be equivalent to ten percent of the payroll; is
- l
'j that a fair statement?
I
!a >j7 WITNESS DONOFRIO: The travel involved was put for 19 the first 19 which took into effect the change at headquarters.
~o
. Under transportation, the more individuals or*1ess. individuals 3
21 you have, we assume and our statistics indicate that i
~34 a.
approximately ten percent of individual salary is used for l
J3 transportation.
24 Travel is one thing, and that is netted in the s
. $160,000 which is detailed on page 66. That is the $200,000 il r
COMMONWCALN REPCRTING COMP ANY 717' 761 7150 i :
rS2 643 i
referred to on Exhibit Number 7.
,J (Mr. 'Donofrio an'd Mr. Verrochi confer. )
" 'i MR. SHILOBOD: You were having a conversation with 44 1 Mr. Verrochi. Is there some clarification you wish to take?
WITNESS DONOFRIO: He only --
6' j MR. SHILOBOD: I am asking if there is something i
l.
p he wanted to clarify.
i 8
! WITNESS VERROCHI: The only point, and I hope it is 9,,
j clarifying, Mr. Shilobod, if you look at Exhibit 7, Al d
to ;' quantifies a S700,000 saving for the first 19 reduction, but 11 1
, a year later for the second 19 he only shows S500,000.
12 I think if you look at the breakdown, transportaticla h is shown as being close enough to being zero to be neglected.
14
' The big difference is that for the second 19 people, you 13 ;
'; don' t have a $200,000 reduction in miscellaneous expenses, 16 i' including office space. You have already got office space.
1 I think that is the main reason why you don't have a $700,000 180 '
l -
for each successive 19 reduction.
l 19 l Does that clarify?
20 MR. SHILOBOD: Yes. Thank you.
2 ; ';
'- Mr. Donofrio, referring to page 71 of the reper cf l 22
- , June 4, 1980, I believe that is your calculation of the savings arising out of rental of office space; is that lll 21 ]
correct?
25 ;'
!! WITNESS DONOFRIO: Yes, sir.
O h wn. av ca a ngrenw =cww v n , r ,o
644 r53 ;
1 C) 1 0 -
MR. SHILOBOD: Did you calculate these savings from 2 the corporate standpoint, or did you calculate them from the 3' ratepayers' standpoint?
I il 4l MR. RUSSELL: Would you explain what the difference 5 is between the two?
6l MR. SHILOBOD: Did you perceive any difference 7 between the two?
I 8 WITNESS DONOFRIO: No, sir.
9 MR. SHILOBOD: With respect to Met-Ed, you show 10 ! that there are no corporate rentals, but there is for Penele::
!! I is that correct?
12 l' WITNESS DONOFRIO: Unless there is a deviation.
N' s'D ,
il 13 jj MR. SHILOBOD: But under the present condition, ycu 14 ;l'j are showing that there is a $32,000 annual rental for Penelec, a
15 ) but no rental obligations for Met-Ed; isn't that correct?
ii 36 j WITNESS.DONOFRIO: Yes, sir.
I' t MR. SHILOBOD: Is that because Met-Ed owns its own l
i 35 h building? ,
U# I WITNESS DONOFRIO: No, sir.
t
- MR. SHILOBOD: Why is it that Penelec has rental 91 expense that Met-Ed doesn't?
22 WITNESS DONOFRIO: Again, it is dependent upon wha:
., 1 building space you have for your current complement cf 24 employees.
MR. SHILOBOD: Either you rent it or you own it, I
, l I- oM:.10NW E ALTH r?C5'C:U 'NG C T."P A N Y 7?? 7G 1 7 ' 50 j
'i 1
r54 p 645 l
- 6
'] presume. It can't be one or the other, ggg 2
WITNESS DONOFRIO: Yes, it is; and you can own your i
3 '
! own building, but you could not have enough space in it. So, you have to rent additional space.
- i 5i
- MR. SHILOBOD
- Penelec owns some'of its own 6i buildings and rents additional space?
l WITNESS DONOFRIO: Yes, sir.
8 i MR. SHILOBOD: And Met-Ed owns its own original o' y j ouilding and has no need to rent additional space; is that i
10 I !
correct?
11 i WITNESS DONOFRIO: I believe so.
WITNESS VERROCHI: You are working on deviations,
" ! A1.
,i "l JUDGE CASEY: If Met-Ed owns its headquarters in 15 Reading and they have to accommodate 97 new people, won't 16 there be any rental expense in connection with this management i
11 Ii qcombination, this transfer of personnel?
4 18 ;u MR. RUSSELL: Are you. referring to additional I!
10 p
' outside space to be rented?
A JUDGE CASEY: My question, I guess, is: can you
~'
' accommodate this influx of people in existing quarters?
~~
, WITNESS DONOFRIO: Yes, sir. As detailed cn page 2
71 under the study under assumption number three, no additicnal n,
space would be neces Try at the Reading location due to the gg n'
assumption of relocation of Met-Ed current employees, scce to
- l .
y CO*' *CNWE/.LTH PCPORTING COMP ANY 717 76 t 7 !",
Y
r55 64E 3
O i 1 Three Mile Island and some to GPU Nuclear and their corporate 1
3 generation function going to Johnstown, vacating that space.
3, MR. SHILOBOD: How is the additional space that is 4 I going to be needed at Met-Ed as a result of the management 5!! combination, how is it being used presently?
6 i WITNESS DONOFRIO: I do not know the answer.
+
Il MR. SHILOBOD: Where does GPU Service Corporation 3 operate?
9 WITNESS VERROCHI: In Reading in a separate 10 i building. They have a separate building, Mr. Shiloted,near
- i 11 j the airport.
3
() 12 MR. SHILOBOD: Will that building be utilized as 13 part of the management combination?
N WITNESS VERROCHI: It will not be. It is already 1
'3 j overcrowded with Service Corporation employees.
16 i MR. SHILOBOD: Would it be utilized for the
" j divisional reorganization?
a l N WITNESS VERROCHI: No, sir.
l MR. SHILOBOD: What building is rented by Penelec l
~'
right now?
~1 WITNESS DONOFRIO: The GTE Building on the next
>n
~~
block.
'n' MR. SHILOBOD: What is it utilized for?
(ss'l 24 "
WITNESS DONOFRT.0: Some of the corporate Penelec i
' '5
~
generation employees are located there in that buildinc: in COMMONW Z ALTH REPCRT!'4G COMP ATv 717 761 7!50
r56 ;, 647 l,
1 fact, as detailed on page 71, generation maintenance, ger.aration engineering; the breakout totalling about 51 1 employees.
4 MR. SHILOBOD: Are there any other functions being 5l carried out in that building?
6 WITNESS VERROCHI: By Penelec?
73 MR. SHILOBOD: Yes.
- l 1-3i WITNESS DONOFRIO: I believe this is all.
1 9
f MR. SHILOBOD: Whenever we have top management t
10j coming from Reading to Johnstown, where would they function?
i i
11 ; Are they going to use somebody else's offices?
4 12 MR. RUSSELL: Is this presently or under the prcpc U combination?
I 14
.. MR. SHILOBOD: Under the proposed combination.
1 13 WITNESS VERROCHI: In my own case, I haven't really 18 decided, Mr. Shilobod, whether to vacate my Johnstown office.
I 17 My present thinking is that I would not. It seems co me I
.i is i would be back in Johnstown frequently enough that I would 19 like to have those quarters.
l l
20 We do have a few executive office spaces which are 2'
available and open now. That is one of the questions that 22 1 we ,really have not focused on in great detail, because one cf the things we will do at the combination is to reorganize and O
W reshuffle our remaining people in the existing corporate 25
, complex.
!* COMMON aC ALT H T EPO r:NG COMP A. + t'~ 7 31 ? ' 5 :'
li
r57 ; 648 l
l (2) , I
'q That study, by the way, is underway now, but we
, ;l ij don' t have any results and haven't seen a pressing need to 3
complete it.
4 But in my own case, for example, I would propose 5
to keep my present office both in Johnstowh and to occupy an 1
6i office in Reading, i
WITNESS DONOFRIO: The talk up to this date is there s
would be very few, if any. Ralph Conrad may have an office il 9: I in Reading, and Bill may have an office there, but we are
'O not contemplating having duplicate offices on each function.
11 MR. SHILOBOD: When Mr. Conrad comes to Johnstown,
- (), where will he stay?
WITNESS VERROCHI: He is in Johnstown and he will I
i 14 L stay there.
i 15 I I MR. SHILOBOD: What about the other Vice-Presidents?
10 i What are the names of the other Vice-Presidents?
t 1; i
!j WITNESS VERROCHI: Mr. Smith.
16 lplli MR. SHILOBOD: Mr. Smith, where is he going te 19 U" stay?
20 .
l ;
WITNESS VERRLOHI: There will be a space for him
" ii 3,
someplace or other, I am sure, and we might want to set up several visiting offices in the existing officer complex on 23 '
the fourth floor at Penelec.
MR. SHILOBCD: Is it correct to say that for all of 25 2
'I these corporate officers exactly what combinations will exis-1 I
d i C Ot."iC NWE ALTH DCFG9 7tNG CGi tPAN Y 7' 761-7150
r58 i 649 i
O in Johnstown is a matter that simply has not been decided?
2 WITNESS VERROCHI: Yes; we don't see that it is a 3
major problem. Again, at the risk of prolonging this, our 4
existing officers do visit division locations and Johnstown
.i 5 0 will be a major division. '
6 They will be going from Reading to Johnstcwn just ii
_ Il
- ll as they currently go from Johnstown to Erie or Altoona or f
8 'i,' Oil City or Towanda.
9
, MR. SHILOBOD: From a conceptual basis, the IO management reorganization of the divisional offices entails II reduction of some job functionings of the division managert I2 and giving them more responsibility with respect to direct customer contact; is that a fair statement of what is entailed?
l
' 4! WITNESS DONOFRIO: It frees them up to spend mcre l
15 l of thtir time on the customer aspects by having their in ] functional expertise and mhrrorimage for technical direction i
1; being at the corporate headquarters.
'i 18 '
MR. SHILOBOD: And when the techincal decisions are 19 going to be carried out, they are going to have to be carried
~O out at the divisional level; isn' t that true?
WITNESS DONOFRIO: Yes. That is why the mirror insge wou,ld be there.
MR. SHILOBOD: And someone is going to hate to 21 supervise the carrying out at the divisional level?
25 WITNESS DONOFRIO: Yes.
N C C M MON W E l.L7 H 7 CPG ATING CCYF ANY 7*7 761 7'5:
r59 i 650
() 1 i
MR. SHILOBOD: And they would continue to have that a
2' obligation; isn't that correct?
3 WITNESS DONOFRIO: Yes.
I' 4; MR. SHILOBOD: So, what you would now have is 5' divisional level carrying out decisions made at the corporate 6 level; whereas, presently, the divisional managers are 7 carrying out, to some extent, their own determinations of what 8 is best for their division; is that a fair statement?
i 9' WITNESS DONOFRIO: No. What you have is different 10 l I
levels amongst th'e divisions-of technical expertise, and they 11 may or may not be carrying out what is needed for a customer.
12 N g 4 MR. SHILOBOD: Could you explain further?
I3 WITNESS DONOFRIO: That on the consolidation coming pi 34 up with corporate standards instead of each division being 15j on their own on work practices, again putting the best 16 available of all our people together and having the expertise a
IIi there, we would come up with what is best for all of the
.!!i customers on a uniform basis and not leave it up to the is possibility of chance.
II n
WITNESS VERROCHI: The present divisions each have-
-'p u
i an operating superintendent. In-the new setup, the divisions
,, d .
wil,1 have a job that is equivalent to the operating superintendent.
Presently, the operating superintendent looks to 5
g his own division manager for direction and leadership and P
t N COV'1CN.a.T ALTh REPo RI!NG COMPANY 7t* 761-7'"O e
r60 651 }
i
- I 3'
. guidance both in the technical functioning of the operating
,d l; superintendents' area.
3
- , In the new setup, the division manager will look U
4 to the operating superintendent to make sure that he 5
prioritizes hooking up new customers and r'estoring service to 6 ll disconnected customers in accordance with the division
_ ll
'l' manager's wishes.
l 3I However, the operating superintendent will lcok to 1
0 the Vice-President-T&D and that Vice-President's staf f at to corporate headquarters for more direction and control than 11
,, he is currently getting.
ll 12 lt It is an attempt to kind of have the operating
]
superintendent look at the two areas for direction and lll 14 a guidance rather than one.
'5 MR. SHILOBOD: Mr. Verrochi, you had indicated l4 16 1 earlier that if the management combinations do not occur,
.I 17 l'
,lthatwithrespecttoPenelec, you would need the 25 to 50 le is q additional people in the transmission and distribution 19
function.
20 Are there any other employees that would have to 21 be added as a result of the divisional reorganizacion if the la ,
management combination is not allowed?
n WITNESS VERROCHI: Let me ask Al to help 7.e on that 21 ;
, one.
25 S
? MR. SHILOBOD: I am speaking with respect to 1
o C C'1T40 N W D LT H 9 F F O 4~.~ia G " C V P 'a *Y * * 't 725^
li
r61 652
- t l
i.
N I
) 3<
Penelec.
, :1 WITNESS VERROCHI: Yes; the division consolidation d
3 j alone.
I WITNESS DONOFRIO: There are two questions, and t .
l l
- we can only have one answer. What happens'is if the I
6! management combination is not allowed, the 205 total
- I ll additional jobs, are needed; of which out of the 205, 85 are 8
at Penelec.
- l 9d So, the first thing is the 85. Then the 10 !i divisional reorganization can be accomplished; and then c~er II
.. the two to three-year period, you would have the reduction of ,
O :
Il 73 in the divisiens.
i i
i 13 !! WITNESS VERROCHI: But if we go through the array
' i r
i '.
] of 85 people, A1, we have identified that 50 of those people 15 0
, in T&D come about because we need them to permit the la !!! reorganization of-the divisions.
Il N
17 l As I go through these, how about conserva:ica and t 13 load management, anything there? It seems to me that r.ost l
t l 19 I of these others are not materially affected by the divisien l i i
l 20 'l r; reorganization, are they?
( 21 '
l WITNESS DONOFRIO: No, but they all are by the l!
22 ii
!!. management --
n WITNESS VERROCHI: Dennis is asking about divi.sicn
%.) I think the answer to your questien, after an l
i 219) reorganization.
j i 25 awful lot of talk, is that of the 85 total jobs to te a;c ce:
l COMMONWEALTH REPORTING COMPANY 717 761 7*5'
r62 653 l
I by the combination, 50 come about because of the division ggg reorganization.
3 JUDGE CASEY: How does that figare, the 85 jobs
- [ that can be avoided, how does that dovetail with the announced 5'
loss of approximately 85 jobs in the Johns' town area in tr>
'l :
event that t:1e management combination is approved? Is there
-Ifanyrelationship?
8 WITNESS VERROCHI: It just happens to be a 9
3 coincidence. If you like, Your Honor, I can give you half a 1
IO l dozen numbers that add up to that 85. Would that be of any 11 help, or would that confuse the issue?
JUDGE CASEY: I am afraid it would.
13 WITNESS VERROCHI: It is a coincidence.
14 MR. SHILOBOD: With respect to the 205 jobs, you 15 are indicating that 120 of those would be allocable to Met-Ed; 16 <
is that correct?
17 a
. WITNESS DONOFRIO: Yes, sir.
18 ,
MR. SHILOBOD: How many of those 120 jobs would be e
13 associated with the divisional reorganization, but for the 20 management combination?
21 WITNESS VERROCHI: None. I think most of the 120 v,
'~
in Met-Ed have to do with other than the division reorganiza-i l ?5 tion.
24 WITNESS DONOFRIO: 75 are generation. ggg 25 '
MR. SHILOBOD: Is that because there will be an h
COMMCN.'/T ALTH PEPG ? ~,NG CCVP ANY 4717 761 71 Fj y' t
r62 654 Il
) jexpandednumberofdivisionsinthePenelecareaanda
,9l: reduction in the number of divisions in the Met-Ed area?
I 3
WITNESS DONOFRIO: They already have a corporate -
4 staff set up. At Met-Ed, they have a corporate staff set up 0 in the T&D function; at Penelec, we have a corporate staff i
6 I set up in the generation function.
t IE What we are trying to do is,instead of duplicating
- I 8! these, take advantage of having the Penelec's generation ccrp rate 9'
staff, in effect, manage both; and here, the T&D instead of 1
' 30 duplicating it at Penelec, let the Met-Ed staff canage it.
I II As I understand it, Met-Ed presently MR. SHILOBOD:
l'"S 12 has four divisions. Under the reorgarAzation, it would be
[\_) ) i,
< reduced to three; is that correct?
1 1
3 14 'y UITNESS VERROCHI: That is what I think is going Oc 15 i!
1 happen, Mr. Shilobod; but as I testified yesterday, I have 8
16
! d been discussing this point with Mr. Smith, who is much more 17 [ knowledgeable about the detailr. of the Met-Ed's operations, 18 !e!
,'j and he and I aren' t really yet sure that we are going to '
I ;9 I!
reduce the number of division. managers from four to three.
20 We may look hard at realigning sc_s of the support services to some of the divisions in fewer locations, like e
i 22 3
! jengineeringandbasecustomeraccountingandsoforth,bu: ce n'
- haven' t reached that stage of study yet in Met-Ed.
( ')' ?
24 l Ii We have done much more work on this in Penelec. 5c, 25l :' it might be four divisions with some decreased staf f at sc=e I
COM MO N WEA L.Tri REPC ~ LNG COVPMdY 1717 761 7'*
r64 ,i i,
655
'I
'h ,
of the division locations, or it might be three divisions or 2
it might be four divisions with no decrease in staff. We 1
3d haven't really looked that hard at it yet.
4 I
1 MR. SHILOBOD: What role did the reduction from l3 5 0 four divisions to three divisions take witn respect to that h
1 6 l estimate of the savings of 136 jobs, or the replacement of i
7[ 136 jobs as a result of the divisional reorganization at 8
Met-Ed?
9 j WITNESS VERROCHI: About ten, Al tells me.
1 1
10
! MR. SHILOBOD: As I understand it then, based upon i
Il current plans with respect to the divisional reorganization
'2 of Metropolitan Edison, byhavingthemanagementccmbinationlll
~3N you are going to immediately do away with four supervisors that are currently functioning wit.h respect to four districts 15 in the company; is that correct?
WITNE3S VERROCHI: Are you talking about Met-Ed on Exhibit 7?
IS MR. SHILOBOD: Yes.
10 '
WITNESS VERROCHI: That hasn' t anything to do with
~O the management combination. That is the reorganization.
,n
~j MR. SHILOBOD: If the management combination is allowed to go through, as I understand i t, you would have an n
immediate reduction of four supervisors wich respect to the n'
divisional reorganization, even though you are maintaining the
- 5 same number of divisicns; is that correct?
r65 656 l!
l.
j 1 It would not be immediate, but l
WITNESS DONOFRIO:
2
.i there would be a reduction.
MR. SHILOBOD: If it would not be immediate, over 3f 4l what period of time are we talking about?
i 0l WITNESS ;%NOFRIO: Two to three years by the time 6 that eventual totals are not on the payroll.
JUDGE CASEY: Excuse me, Mr. Shilobod, but I think
- now would be a good time to break. We will recess now for o!
, lunch until 1:45. Then you can pursue this after the recess.
10 (Whereupon, at 12:45 p.m., the hearing was adjourned, t,
to be reconvened at 1:45 p.m., this same day.)
i l
l o , ~, ;
13 14 ,
i
! i 15
' 16 17 IP i IU l l
20 21 n 22 q
I, .
- 2. . .t O kl 't 23 ij t
t
'l j COMMON NEAT Ti1 PCPCc ring COMPANY 717 731 7'*O
.l m --c=*we+-pag-p+y- -- p.---p-w -
,-,.._p ,- , , . p ,e + = g e e y
p10 657 AFTERNOON SESSION (1:45 p.m.) ggg JUDGE CASEY: We will go back on the record at 3
this time and continue with the cross-e> amination of Mr.
4 Donofrio.
5 ,
j Mr. Shilobod?
6 i i
Whereupon, 7
i F. ALLEN DONOFRIO S; WILLIAM A. VERROCHI O having been previously duly sworn testified further as folicws:
10 CROSS-EXAMINATION (Continued) 11 MR. SHILOBOD: Referring to Exhibit Number 7, 12 there is an indicatio:. of an initial reduction of corporate 0
headquartersemployeesasaresultoftheproposedcorporateggg 24 combination that would cause savings of $700,000 per annum.
15 Is that based upon the assumption that all of the N perceived savings would instantaneously occur, or would these II occur over a period of time?
13 UITNESS DONOFRIO: The assumption is that 3700,000
" is an annual amount, and you would realize that monthly until n r.
you "rcumulated twelve months from the time the combination l
i
" of management was allowed to go ahead.
2 MR. SHILOBOD: So the presumption is that beginning
-~
on day one of the reorganization you would start to accrue the
$700,000 savinos; is that correct?
UITNEG5 DONOFRIO: You would save approximately
=c. - ~ . --- ,,,,,u 1
k
pil [ 658 4
~#
one-twelfth of it each month.
2 MR. SHILOBOD: And the assumption would be that 3
there would be no break in stride whatsoever as a result of n
4 the management combination; is that correct?
. ii ..
~
WITNESS DONOPRIO: When you say'"no break in stride,"
I, 6[ whatsoever," one of the keys on how this can be effected is,
_a
' y as we explained earlier, on permanent positions on a corporate ii 8" basis. Right now we are not hiring them with permanent people.
0 9 if We are putting on temporaries and/or working I" 0!i overtime to get the job done in anticipation of this.
1 II E MR. SHILOBOD: How many people are hired at
't
() I2 Penelec on a temporary basis in anticipation of this combined 13 :' management?
"I > NITNESS DONOPRIO: If I could turn it around, if I "l may; a total of both companies is 64 permanent positions have
' " not been hired because of it.
MR. SHILOBOD: With Penelec how many permanent 18 i-
- positions were not hired? -
l 1n
- WITNESS DONOFRIO: I believe the number is'29.
ao MR. SHILOBOD: 28 out of 64?
21 NITNESS DONCFRIO: Yes.
(
MR. SHILOBOD: What positions are they?
~;
WITUESS DONOPRIO: Tue 28 is a combined nunher of O
k"/ '
~4 ': positions in the corporate and in the divisions, in anticipa-23 o i tion of not only some of the corporate people but also y conc ~wc ur, moams crew - m m-a r:
.-_ .-. ~ , - _ . .- . _. -._ ..
659 p12 O
the 73.
2 MR. SHILOBOD: Do you have a breaklawn of what 3 those 28 positions are?
4 WITNESS DONOFRIO: I believe I may have notes 5 referring to it.
(Witness perusing documents.)
6) 7 WITNESS DONOFRIO: Out of the total of 28 at l
8 i Penelec, 15 have been held up on the corporate side in 9 anticipation of the combined management.
10 -i MR. SHILOBOD: What about the other 13?
I' WITNESS DONOFRIO: They are being held up in the 12 divisions, based upon the reorganization of the divisions 13 concept.
14 MR. SHILOBOD: When you say "on the corporate 15] side,"whatcoyoumean?
16 WITNESS DONOFRIO: These are corporate head-l d quartered employees. Out of the 15 there are three in materials 18/ management, five in technical, three in the Personnel Depart-
" ment, one in the operations, and three in the Controller, ,
2C totaling 15 vacant positions that could be hired today with permanent employees.
U -
MR. SHILOBOD: A little slower. Three in materials 2 management, five technical, three personnel; how many in g i 3
~~
operations?
2 WITNESS DONOFRIO: one.
l
' 1 y r., -r
pl3 q MR. SHILOBOD: How many in the Comtroller's office?
WITNESS DONOFRIO: Three.
' MR. SHILOBOD: Are any of these positions
' executive?
5 WITNESS DONOFRIO: How do you* term " executive"?
7 6 ll; MR. SHILOBOD: How does Penelec term "executiv9 a
4 7
- { positions"?
Il 30 WITNESS DONOFRIO: will assume for all intents d
E' J and purposes that executives may be an officer level.
- i 10 i MR. SHILOBOD
- Are there any of them at an officer's
!! !! level?
i 3 T
12 WITNESS DONOFRIO: No.
w !
MR. SHILOBOD: Are any of them on a supervisory i
l' level?
15] WITNESS DONOFRIO: Yes, sir.
d it j .
MR. SHILOBOD: How many?
i II WITNESS DONOFRIO: Either one or two.
18 MR. SHILOBOD: Where would they be?
' WITNESS DONOFRIO: One is in materials manage..ent l
l 2" and one is in the Comtroller's area.
3 i -
U* MR. SHILOBOD: Is there any position h-- uer than I'
l supervisor among those 15 people?
WITNESS DONOFRIO: No, sir.
l MR. SHILOBOD: How long has the position been r
W l '"
vacant for the supervisor in the materials manacement.sectien?
I a
- cowos.ve.w r creamo em = w m vc-, .r n e
_]
pl4 661 WITNESS DONOFRIO: I do not have that informationggg 2 avai]able.
3 MR. SHILOBOD: Was that position ever filled, or 4 was that a new position that is conceived as now being needed?
5 WITNESS DONOFRIO: No, sir; al.1 of these are 6' positions that had previously been filled.
7 MR. SHILOBOD: Do you have any estimation of hcw S long that position has been vacant?
9 WITNESS DONOFRIO: No, I do not.
10 MR. SHILOBOD: With respect to the one superviser 11 in the Comtroller's office, how long has that position been 10 vacant?
13 WITNESS DONOFRIO: For at least a couple o f Or.:..
I4 MR. SHILOBOD: How was the position vacated; do 2 you know?
D WITNESS DONOFRIO: By a person who left Penelec II and was promoted to a position within the GPU Service Compar.y
" in Parsippany.
" MR. SHILOBOD: What is the job obligaticn of tha:
20 supervisor?
2 WITNESS DONOFRIO: Assistant to the Comtroller.
22 MR. SHILOBOD: What does he do as assistant t0 M the Comtroller?
41 WITNESS DONOFRIO: He heads the staff functicn3 25 hiring, firing, goals review, coordinates meetings cetweer co.moy.e u 4 ot > ;r a cc m .
--m.:-
p15 y 662.
l
\/ ,
the department heads, works on presentations of the various groups. ;
2 MR. SHILOBOD: Is that job function going to hate 4 to be filled and carried out after the management combination?
5h WITNESS DONOFRIO: It has to b'e carried out after 6 the management combination in the Reading headquarters, and is 7 being fulfilled today by a temporary replacement who moved ;
I 8loutofthepresentBudget Department into that position; and
!l 9 - is working overtime to make up fcr
- b. then the Budget Department ,
i 10 the loss of the individual in order for them to meet their 1 ,
11 " work load.
I2 MR. SHILOBOD: You are indicating that hiring
, /~}
n)
" and firing in the Johnstown office is going to be carried on ,
i
" out of Reading under the new arrangement; is that correct?
" WITNESS DONOFRIO: What we are saying is that ,
36 the hiring and firing and promotions and everything that is
" needed to be done for the Controller in the Controller's ,
e IE ' function would all be coordinated out of there, yes.
IU MR. SHILOBOD: What do you mean by "cocrdinated"? ;
Is it something different than what the supervisor is doing 23 !
j now? !
. WITNESS DONOFRIO: No, sir. l b
MR. SHILOBOD: What do you mean by "cc rdinated"?
( WITNESS DONOFRIO: When 'I say " coordinated,"
. this person sets up the interviews and physically interviews t
C C '
- M C N W C A LT N R EuC 771';G C OM* A U t' 7851 7'?:
9
. - , - , _ , _ - _ . . - , - _ , ,___m~ .. . _ , , , . - - - . . - , _ , . , _ .. . . . _ . - . , . . . . , , , . . . - - . _ _ . .,. .- -
7 pl6 i 663
- the new jobs; he is over job positions. He makes the 2
recommendations to the Comtroller; and the Comtroller then, 3 based upon whatever level of that job, may or may not be
[sinvolvedintheactualhiringoftheindividual.
5 ;j On the ones that are a high le. vel, the Comtroller i
h 6 ;;d is involved. In that respect, this individual is a coordinater.
J
- j On lower levels of employee levels, he has the ti sjright to hire and/or fire, in conjunction with the Personnel
'i 9 Department, of course.
- o .j MR. SHILOBOD: When you talk about goal reviews,
- what do you mean?
- q MR. RUSSELL: If Your Honor please, I have gone
, along with this at some length. From the point of view of materiality, I think that this has absolutely no materi.ality if to the issues in this case, which is whether or not this 16 , agreement is in the public interests.
.i I think that it is so far afield that it is jus:
- s ' taking up time for no useful purpose. I object.
b MR. SHILOBOD: If Your Honor please, I think that 9 it goes to the weight to be given to this estimate that has 1 been presented, this estimate of savings and how realistic
- - they are.
7 JUDGE CASEY: I tend to agree with you, but I
- think that you are getting into very, very fine points. I 3 know there has to be a justification. We simply ca.n't lock i
C O '. ' O ' W - '- .ccCry etyg cy egy 7_ ,q. . 57 1:
pl7 664
> ' at the agreement itself within the four corners and make any judgments as to whether the agreement will be in the 3 public interest or not; but that certain supporting documenta-4., tion submitted by the company by way of justification f.or 5 this move must be examined under a fine light, so to speak.
6j I think we can cut it and refine it too fine, I
T especially in the context of the time that we are working with, n I would just ask you to keep that in mind. I don't want to 9 circumvent your right to cross-examine.
10 MR. SHILOBOD: I certainly do understand the t
II limitations taat we are under, and I will attempt to respect 12 those problems.
) '
13 Mr. Donofrio, Exhibit Number 7 is entitled, i4 " Potential Cost Savings." With respect to the S700,000, what 15 is the range of error in the calculation?
IG WITNESS DONOFRIO: The range of error, if any, 17 would be narrow; this is a low number. These are annualized 18 salaries as of January 1, 1980, ,and now we are in 1951.
IF MR. SHILOBOD: You are indicating no errcrs; is 20 that correct?
Il WITNESS DOlcs2RIO: On the 19 individuals?
E .MR. SHILOBOD: Yes.
U WITNESS DONOFRIO: Well, we have a plan as in the 2'
White Book on the physical reduction of these 19 jcbs. We 23 have our original on-hand and our goal where we are going; COS**"CNWEA L9 RE:OuTIN G CO upa ny f rt? ' 91 7 ' * ';
pl8 665 I so there is no error in the 19.
- MR. SHILOBOD: On that S700,000, how much of it 3 is allocable to Penelec?
1 4j WITNESS DONOFRIO: It is hard to say exactly I
3 ,j how much would be to Penelee versus how much would be to 1 Met-Ed. This is a reduction of 19 from a combined present 6 :i 7 now Met-Fd/Penelec to a new combined Penelec/ Met-Ed. If d.
s , everything was in the same portion as the grand total of ti 9" corporate headquarters would be, there would be approxicately 4
in 60 percent Penelee and 40 percent Met-Ed.
11 MR. SHILOBOD: Refresh my memory somewhat. You
- indicated that these 247 employees, that is all on the
- 3 ,
corporate level; is that correct? 4h 14 WITNL35 DONOFRIO: No, sir. The 19 and the
- 5 additional 19 one year later are on the corporate level of the 13 247.
'T MR. SHILOBOD: How many corporate employees dces IS Met-Ed presently have?
WITNESS DONOFRIO: If I may keep with consisten:
20 statistics, on page 7? of the White Book that you have that?
E MR. MESSER: Again, you are referring to the June E 4th edition?
-- WITNESS DONOFRIO: Yes.
24 '
JUDGE Cl.SEY:
d HasthatalsobeendescribedastheO final revision of the Blue Book, the first document?
I o .= *> O N w . o,- : r o ; . -" G t e v. p c . , e ,* 7ce.7 ;-
pl9 / 666 l
() WITNESS DONOFRIO: It is the latest revision.
2 MR. SHILOBOD: If Your Honor please, this would
.1 be a good time- if we ma f, to have this document marked as 4 JARI Exhibit Number 3.
4 5
What it is is the front page of the planning I
6 [ document which is marked " Confidential, Met-Ed/Penelec, 4
7 jj Management Combination Planning Draft, 3/26/80, Revised r
8 l 5/7/80 and Revised 6/4/80."
9 Attached to that confidential sheet is a table
't 10 i. of contents, and then attached thereto in addition are pages il 66 through 76, which is one segment of that document which L -
l 12 is referred to under " Cost Analyses" on the table cf contents.
O 13 May we have it so marked?
14 JUDGE CASEY: Yes, you may. It is JARI Exhibit
!5 Number 3.
IG (Whereupon, the document was marked as JARI Exhibit No. 3 0 for identification.)
13 JUDGE CASEY: Did you put this together,:Ir.
M Shilobod by extracting those sections of the total 31 :e Ecok 20 or whatever it was, and it all pertains to one o terall 2I subject?
22 MR. SHILOBOD: That is correct, Your Mcnor.
/
23 : JUDGE CASEY: Cest reduction?
2#
I%./)' .
MR. SHILOBOD: That is correct. .
25 Mr. Donofrio, yoit are referring to whac page Of I!
!! cc. <w
.u,, n r.r m a c ev n.c y 7 re .: : .
.i
p20 .
667 i
l that document?
2 ", WITNESS DONOFRIO: Page 72.
1 Up in the lefthand corner you will notice actual 4 1180; that is the exact number of corporate employees on hand
.I 5
j as of January 1 of this year. It details it by the functional
- i 6 l group coming down the side of the page; and then across the T tcp it will break out Penelec, Met-Ed and then an acuition or s "1 :he combination of the two of them together, broken out by 9 officers, supervisors, etcetera, which shows on January 1, 10 1980 at Penelec headquarters there were 616 corporate staff 1: .; combined with 460 of Met-Ed's staf f, creating a total of 12 '1,076.
O 13 The next one is the transfers between Johnstown 14 and Reading on jobs, the eliminations or additions, which we 13 will note over on the far right is the first 19 that we were M ' talking about, which then results in a consolidated as at I . January 1, 1980 for the same exact work scope coming down to 18 a combined total of 1,057 employees, or 19 less that actually If on hand.
20 "
MR. SHILOBOD: Could you explain the next two 1
classifications, the change in responsibility and the total 22 ' authorized?
WITNESS DONOFRIO: We have now added a change M 'in responsibility , which in grand total is 53, and the tota]
2 authorized or allowable for the functions of 1,110.
6 N C O v a tC NW " ' ' 7" #PC '-TING ~ C M #* 1 N Y "'I'7'50
'l
p21 668 gl il c
(:) t' Some examples of the change in the responsibility 2' are such things as Service Corporation in Parsippany in GPU
- , has responsibilities for new project generation management of
- t i
4j I believe 15 individuals.
5g d
What happens is that this is the corporate head-6 quarters of the combined management. That work scope plus iyI these individuals are being transferred into this combined l
i management.
3 ,d i:
9 ;;
In materials management, again at the Service l;
to Corporat.on, there are about five individuals. The work 11 e scope plus individual jobs are being placed underneath the
() 12 authority of this combined management.
This would go up with or without the combination
- a i
14 because of the increased work scopo nou. That is why we Ui have them defined differently. Some of it may be a in b division at corporate, but that is what the 53 is reent to ITh, portray.
is ] MR. SHILOBOD: I am.not sure what exactly you l
l "3 meant. Do you mean the 53 that are referred to under" Change 20 in Responsibility," those changes in responsibility may 2i ' arise out of the divisional reorganization; is that what you 22 are saying?
23 WITNESS DONOFRIO: No, sir.
24 5 MR. SHILOBOD: It is strictly with respect tc 25 ] the corporate combination; is that correct?
ll
'i ~
COM',*CNW C S LT-- A CPO3T!* AC. C CMC ANY * * ' 7 E * -7 * * ;
p22 :i 669 WITNESS DONOFRIO: Yes, sir.
2 MR. SHILOBOD: What I don't understand is that 3 you don't show any change in the responsibilities for the 4 i executive; is that true?
5 WITNESS DONOFRIO: When you sa'y " change in the s1l responsibilities,"whatdoyoureferto?
i il 7a MR. SHILOBOD: You have a section there entitled 1
1 Sl " Change in responsibilities," and for the executives you show 9
none.
l 10 i WITNESS DONOFRIO: Change in responsibility is
, 1: only for additional jobs that come along with additional 12 increased work scope.
g
.; The executive responsibility is the same for i, ;the combined. We are still going to manage two companies 15 before or af ter the reductions.
16 MR. SHILOBOD: Then this is an overall change?
W It doesn't have to do with change with respect to any one 15 individual; is that correct or n,ot?
'9 WITNESS DONOFRIO: It has to do with the whole .
20 change from where we actually were as of January 1, 1980 2i at corporate headquarters at both companies to our goal and 22 projected organization with a combined management.
li MR. SHILOBOD:
Are you saying that the Presider.t gg 24 of the new company doesn't have any change in responsibility
'? as opposed to what he bad at Penelec ; is that what you are
._r ~ w,-a
670 p23 ];.
9
(
1 saying?
2 WITNESS DONOFRIO: The change in responsibility, 3 which I reiterate, is above and beyond present work scope.
4 ' There is a work scope right now for the management of Met-Ed 5 ' and Penelec, and there still will be a work scope of manage-6 lmentofMet-EdandPenelec. That is down there in the il 7( consolidated before you get to a change in responsibility.
3 MR. SHILOBOD: So this combinat13n then is based i
9 upon the assumption that when it occurs, there responsibilities a
10 of the executive officer is not changed at all in the a
1: combination, as opposed to the two individual companies?
1 12 WITNESS DONOFRIO: No, sir. Mr. Verrochi would 13 be President, the operating officer of the combined management 34 and he is instituting a team of Senior Vice-Presidents to help 33 in the organization and in the management of the combined I6 management.
1 I
!. MR. SHILOBOD: That is what I thought. That is h
I" why I didn't understand this chart. Frankly, I don't even 30 understand what the change in responsibility is.
'o JUDGE CASEY: Are you saying that there would be l
dj
- ' a change perhaps in the degree of his responsibility, but not 22 (in the nature of his responsibility?
() 2*
WITNESS DONOFRIO: That is it.
'4 i WITNESS VERROCHI: May I try from perhaps another
5 tack, Your Honor. Perhaps we could have changed the title of
n34 671 this " Change in Responsibility" to something that says that ggg
- we are recognizing that the combined managements will have a work loads and work assignments that they don't currently 4 have separately.
.; I think if we just pursue the ' example -- I keep i
s' coming to generation, but I think it is the simplest. Right i
T now in Parsippany there are 19 people -- 15 people of this-8 19 -- see the entry where it says " generation."
9 Right now in Parsippany there are 19 people --
10 15 of those 19 people who are employees of the GPU Service 1: Corporation. They are managers and the senior type engineers 12 involved in design, construction and licensing of fossil power 13 plants.
N one of the things that is going to happen with the 15 combination of management and the formation of the Nuclear 66 Corporation is that those 15 people will no longer be employees 17 of the Service Corporation, but thcy will become employees 16 of Penelec. They are currently,doing the work, and whatever 19 projects they are working on now as employees of the Service 20 Company are being charged to that work order, and, of course ,
- the costs of that work order ultimately goes to the operating 22 companies when the units they are working on go into service 23 in proportion to the ownership.
24 So what Al is trying to show here is that there ggg 23 are 15 people being transferred from the Service Company to c e s. :c w . .r ! urm a .mc.y --
v a :-
i
p25 672 O
Penelec, and that is part of the 19 that show in the column 2 under " Combination" and below " Change in responsibility."
3 In other words, it is a change in responsibility 4 of the corporate entities. It isn't meant to address whether 5 Al has greater or smaller responsibilities'. It is an 6 l increased work scope.
I i
Does that add anything?
1 MR. MESSER: May I ask a few questions, four
's Hor.cr, in this regard?
In i JUDGE CASEY: Yes.
II CROSS-EXAMINATION l! MR. MESSER: Mr. Verrochi, the transfer ot the l
I3 employees of GPU Service Corporation combined mancgement team 14 that you envision would change the method of payment to those I II' individuais, wouldn't it?
j i
36 WITNESS'VERROCHI: Yes, they would become l i j IIj employees of Penelec.
I' '
MR. MESSER: And instead of deferring the charge l
" against the utility, speaking of Penelec and Met-Ed, on a 20 future basis, it would become a current expense, wculdn't it?
1 l
2' WITNESS VERROCHI: No, not at all because their
[
' time is charged to the construction or work orders that they l
2' are working on, and that does not show in the income statement:
2* it is not an operating expense. It is a construction expense.
25 y MR. MESSER: 'In order to assume then that the a
I COMYON /,C/ VH 7Cccr.T;yG cow n r.tv +?~ 9 ; .y + g ;
!i
p26 ; 673 l
1 charges to Penelec and Met-Ed would remain the same, you
- would have to assume that those employees of GPU Service
' Corporation are going to be paid in the same proportion in 4
the combination as they are right now; isn't that right?
53 WITNESS VERROCHI: They are pcid -- their salary i
s J;! expenses currently are apportioned to the work orders of the l
7j jobs that they are doing, and that will continue.
8 '! MR. MESSER: That is my point.
,i 9 WITNESS VERROCHI: There will be no change in that 10 i at all, i
it i WITNESS DONOFRIO: No change at all.
12 MR. MESSER: Is there any indication that these n employees only work on Met-Ed and Penelec projects currently; 14 or under the auspices of GPU Service Corporation they also 15 work on Jersey Central, isn't that right?
- 6 ,
WITNESS VERROCHI: Sure; to the extent that they M ,
do spend part of their time on Jersey Central projects, they I'
" will not be doing that now. The 15 men who are coming over, 1r however, were all pretty much engaged in Homer City coal --
C the multi-stream coal cleaning system, a very major project i- that Joe Henry, Bill Hirst and those people were involved in.
22 That same group was also involved in the licensing
-- and design and construction effort for the Seward-7 coal-fired
?! addition which was going to be owned 90 percent by Penelec gg 25 and 10 percent by Met-Ed -- by Jersey Central.
l' i
c o W O ': w t A H eirO7T:N G c o'.m m y ?s; ; 5: - se
674 p27 l-N a
(' 4^d They would be in various projects. It is true 2, that to some extent when they were at the Service Corporation, 3 not all of their time was being charged to these projects; I
4!! and obviously all of their time will now be charged to Penelec's 5 l new construction projects. ..
6i I In addition, this same group, now chat we have 7, them -- some of them have already moved to Johnstown, by the t
way -- will be working on major construction projects involved 8
1 0' with existing generating stations.
to We spend a lot of money each year making major
.I 1: 1 capital improvements to existing generating stations, either 12 1 - for environmental reasons or for performance improvecent.
(^;L L/ ;
m ..his team of very experienced and qualified 14 , experts will be integrated into the Penelec organization 15 i! to do that kind of work for Penelec, and if we combine for I
1Gi ;l Penelec and Met-Ed..
r
.l l ,i i
t 17j But most of their time is currently charged to l
I 18 a coretruction work orders, and it will continue to be in the I
II 19 !! future.
't 20 hi MR. MESSER: My point, Mr. Verrochi, is that 0 -
21 whatever the time is that they now devote to GPU business 22 !' which is not associated with Penelec or Met-Ed would be an f
23 ' additional cost of the combined management team, wouldn't it?
et l
O" 24C WITNESS VERROCHI: Al might be able to answer that.
25 I tried.
i,
!' COMMONWEALTH REPORTING COMA 4 NY 7'7 7617'5;
_ k - -- .. .. .___ _ -_
p28 675 WITNESS DONOFRIO: When they were over in the 2 Service Corporation, there wasn't only 15 people there. There 3
3 were more than 15 people over there.
1 4 ;j The people that had transferred, we have looked 4
5 at the work load; and the work 1oad that they have brought 6 with them is strictly our coal cleaning plant and the 7 0 construction of Seward-7. The other individuals that were.
a q in the Service Company didn't come.
i 9
They aren't the re . The work is not there, and 10 j the employees aren't there.
1: WITNESS VERROCHI: They came from a group of 12 several hundred people.
13 , MR. MESSER: Are they now employees of Penelec?
14 WITNESS VERROCHI: Some of them are.
3l WITNESS DONOFRIO: Of the 15, some have been
- 6 !! transferred.
l i
17j I
MR. MESSER: How many people are due to be 18 ;l; transferred from GPU Service to, the combined management 53?
19 WITNESS VEPROCHI: Oh, no.
3 .
20 I WITNESS DONOFRIO: 15 in the new construction M' effort, of which some of them already have. It has nothing i
That is why it is. unde r 22 to ,do with the combined management.
23 " Change of responsibility."
24 MR. MESSER: I understand what you are telling me 25 p now. But how many people from GPU Service who have already d
il
!j cowcwn:n m atacarma c? me:v n7 si r sc
676 p29 ,
O been transferred or the intention is to transfer will there be to the new combined management effort?
WITNESS DONOFRIO: There are 15 in the new 4 generation construction, and there is five in the materials 3 management in the coal development, coal planning and strategy il -
6 !' functions, a
~
MR. MESSER: Are they in place now?
1 WITNESS DONOFRIO: Not as of this date MR. MESSER: How many more? Any others?
1" WITNESS DONOFRIO: No.
1 .
l' MR. MESSER: We are talking about a total of 20
() I2 transfers to either the existing Penelec operation and O subsequently or optimally to the ccmbined management group;
" is that correct?
I' WITNESS DONOFRIO: Yes.
I" MR. MESSER: ,And you are telling me now thte scre l~ of the 15 who have already been transferred are on the payrcli I"
of Penelec and some are not. Do you know the breakdown there?
I How many are on Penelec's payroll versus these on GPCC?
i 2'
WITNESS DONOFRIO: The positions are open and being E In other words, there were 15 employees' i filled at Penelec.
l L bodies of work of which the work scope has been transferred :::
to Johnstown responsibility.
So maybe five ck six individuals have transferred; Y
- they have transferred. Per 31cc now has open positions for the
~'~
COM VC v// Ch'F 3 C F C fU 'J G 2 ~N P P:V 'e**'5;
p30 677 1
4 other nine and/or they have been filled out there.
2 MR. MESSER: Now this is an increased cost; the 3 addition of these work scope jobs to Penelee is an increased 4 : cost to Penelec as a result of the transfer, is it not?
5 WITNESS DONOFRIO: No, sir. .
d 6 il MR.s MESSER: ThOy are just jobs being filled?
i t
-h WITNESS DON ^rRIO: The end result is the same.
N 3 ; You can have a paycheck from the Service Corporation, and then a
9 Penelec would be billed, or as it is now Penelec can give a 10 paycheck to the individual; the same end result.
l' MR. MESSER: As far as Penelec is concerned, there 12 is no change?
R WITNESS DONOFRIO: Yes, sir.
14 MR. MESSER: As far as the Service Corporation is 15 involved, there is a service reduction?
10 WITNESS DONOFRIO: When you say there is a IT reduction in costs, they paid out a salary and billed it to IF Penelec. It washes on the Servi,ce Company.
- MR. MESSER: What I am saying is that the Service 20 Company is no longer obligated to pay out of operating funds 21 of the Service Cocporation for these employees.
22 WITNESS DONOFRIO: There are no operating funds 23 of the Service Company. The Service Company has zero costs.
2*
What happens is they perform services for the operating 23 companies and bill for them at cost, and now it is just direc 13
, c . 2cw :: . , w c m a cnves.- -7 m re:
p31 .j $78 4
O at Penelec. A paycheck is given to the individual; the same 1
2 end result.
1 CROSS-EXAMINATION (Continued)
F 4di MB. SHILOBOD: Mr. Verrochi, there are new i
2(lVice-Presidentialpositionscreatedwiththisnewmanagement I 6 l combination , is there not?
Il WITNESS VERROCHI: Yes, that is right.
8f MR. SHILOBOD: How many new Vice-Presidential positions have been created?
f I" ! WITNESS VERROCHI: Prior to the -- again if you II will look at page 72, Mr. Shilobod, you will see that there L
l 12
- are on hand as of 1-1-80 eight officers in Penelec and seven
" " in Met-Ed for a total of 15.
i:
" We are going to increace that total number by one, li
"' as shown under the consolidated as at F1-80. Do you see the f
! fourth group of numbers down?
l !!
IId In addition, because of the change in responsibility 0
I8 the transfer of generation functions, one of those employees
" !who is not currently an officer, by the way, Bill Hirst, will become a Vice-President. So the total authorized plan at the y
bottom of the page -- we are going from 15 actual to 17 with l
! a net addition of two.
MR. SHILOBOD: How were the number 'of employees at C
45" Met-Ed on Exhibit Number 7, the 136 employee changes as a
~ ;a
(. result of the divisional reorganization -- how~were those i
!I l ce" m.% . m ns.c inc, cou.g Aw .v? 7eteen Ij
ees p32 !
i I
figures calculated?
WITNESS VERROCHI: Mr. Donofrio can, I believe, ll
. do a 1 tuer job than I.
. . WITNESS DONOFRIO: The same rationale as I had 3l explained under the Penelec 73.
That is that the divisional I
6l organization through Mr. Wise, who is our current Vice-Presi- -
1 7l; dent of' Operations at Penelec, and Mr. Robidoux, who is 3] Vice-President of Operations at Met-Ed, and Floyd Smith, who h
- is the Senior Vice-President in charge of these functicns M
"! is in effect,has gone through l once the combined management 1: and set up the typical division organization system at i Penelec and Met-Ed in the divisions; they have set that up q
versus the current staffing level, and the reduction would be 136.
0 3 MR. SHILOBOD: Met-Ed has four divisions, and h now it appears that those divisions may remain in existence.
Nevertheless, just by changing the obligations within the C divisional organization, you are going to be able to reduce 136 employees from those four divisions; is that correct: or
'20 approximately 34 individuals per division?
WITNESS DONOFR.0:
There are two things on this.
e 22 This is the result of reorganizing the divisions and going ahead with the corporate combination where, again, the technical expertise, the set-up of corporate headcuarters is
- the same rationale as for Penelec. lll I
C C ' .* C ' '
'
- J EPO9T>i CCapANY **~ c? - ' ac .
q
p33 680 0 . MR. SHILOBOD: I understand that. This is brcken
- down into two parts here. The first section has to do with a the number of employees whose jobs are changed as a result of 4 the reorganization, and the other has the number of employees 3 ' caused by ti.. torporo e combination. ,.
s! I am just confining our attention now to the 7 divisional reorganization as I read these.
8 Just by reorgani ing the divisions, or the 1
3 functions of the division managers, ycu are going to be able 10 to eliminate 44 employees per division; is that correct, it:
11 Met-Ed?
i i
12 i WITNESS DONOFRIO: I am not sure that it is
[}
13 across the board 44 in each one, but dividing the 136 by four 14 equals 44.
15 >
WITNESS VERROCHI: No, it doesn't. It is 34.
16 MR. SHILOBOD: How does the divisional -- wha:
n are the duties of the prerent divisional managers?
18 -
WI"'95S VERROCHI: T,he present duties of a l
19 division manager at Penelec -- and I assume at Met-Ed -- are 20 to supervise the efforts of the employees assigned to the 2' division. These employees are primarily in tuo basic efter:3.
22 One is the so-called technical fuitetion, thich 3 is the engineers and the workers, the bargaining unit pecp'e _
' 21 and the s?pervisors who connect up new customers and .ap.e i 3 .,:. repairs to damaged facilities as a result of stor. damace ::
Yr a
c o s " ". C V.' n tw e< I'5 7 ~ - 2 COMFtN, ,17 T.--
p34 681 r
any other damage, automobile accidents, who do the rootine
_ and non-routine maintenance of transmission and distributic<
O
- facilities, including transmission lines and distribution
- lines substations and the like; and who work on certain l
aspects of construction projects involving, transmission and i
6 distribution facilities.
J l
- i That is one side of the division manager's o
3 responsibilities. The other side of the division manager's 9 responsibilities is in cus:omer operations. That means that
- n he is responsible for the business offices. He is responsible for the meter readers. He is responsible for customer
- 4 relations people, those customer contact people who help in i
~~
all three areas, residential, commercial and industrial. llh 14 He is responsible for local public relations and relations with the media. In Penelec's case and Met-Ed's
" case, he is their spokeuman to the local community, both the business community and the customer community, as well as the 1
is media. .
I am not sure; have I left anything out, Al?
l WITNESS DONOFRIO: That in basically the division 2
manager's responsibility.
22 , MR. SHILOBOD: And I take it he has a number of supervisors underneath hir, is that correct?
WITNESS VERROCHI: Currently he does, ves.
MR. SHILOBOD: Is there a common number of
- 'I '* *),
h f $ . h \ . #( 1 g
- N(, g *4UI* 7 7 j '[
t
p35 682 O supervisors each manager has, or does it change from division 2 to division?
1 WITNESS VERROCHI: It changes from division to 4 division and from district to division. I should have added
- that in our present set-up, both at Met-Ed,and at Penelec, 6 each division manager is located at a division headquarter i
7 location, usually in a major city or some geographical area;
- and in both cases, Met-Ed and Penelec, because of the
't
- relatively far-flung nature of our operation and to provide i 10 supervision at the local level where the line crews and meter 11 readers and so forth are, we have district offices.
o
() 12 The district offices -- I guess kind of 13 simplistically -- are sort of miniature versions of division 14 offices. They have few people. It pretty much covers the 15 ' same kinds of responsibilities, the technical as well as the 1
16 customer, so the division manager is responsible for the
!~ operation of the districts that happen to be in his area.
18 And again, because ,of the geography and custcmer l
29 density and so forth, our division staff and our district M' staff tend to be somewhat different in terms of numbers and 2i i'r some cases the types of jobs that are filled.
22 MR. SHILOBOD: Mr. Verrochi, do you knew how the divisions are broken down in Met-Ed?
O " WITNESS VERROCHI: In what sense, Mr. Shilcbcd?
M MR. SHILOBOD- First of all, do you know the i
COM:J.omv ' LT'- F Ero R ,No Cc'iP W< ,7 -c -7 * :
l
- . - .-~ --
GE9 p36 l
l t duties of the division managers at Mec-Ed? Are they the
- . same as at Penelec, or do they have some different obligatic.
3 WITNESS VERROCHI: I think they are pretty much 4 . the same as they are at Penelec.
3j MR. SHILOBOD: Do you know? .
'l 6 l WITNESS VERROCHI: To the extent that I can el l 7 see, they are pretty much the same. I have discussed this' 8 i with my associates in Penelee and Met-Ed, and as far as 9 general responsibilities are concerned, they are very similar.
10 '
.i MR. SHILOBOD: The 88 excmpt people frca Met-Ed 1 that would be eliminated as a result of the divisicnal 12 reorganization, do you know what their functions are, what i:
13 their job obligations are?
14 , WITNESS VERROCHI: I don't. Mr. Donofrio T.ight.
15 He worked a little more closely with Mr. Wise from Penelec 14 and Mr. Robidoux from Met-Ed.
17 -
WITNESS DONOFRIO: I don't have anything with Id me to break that down. .
MR. SHILOBOD: Do you know whether these numbers l
2' were calculated based on a work load study or a time and 2' motion study?
WITNESS DONOFRIO: They were broken down on the l - same work load of the new reorganized divisions, including 23 a combined management,versus the work load and the manning 23 level required for that work load today.
C r)e s : ' 0 - -. tin-- . O r- .. :s . -+7
p37 684
!i a
O j MR. SHILOBOD: I under.: stand that. What I want
} to know is: were these figures given as a result of surveyed p
a opinions or was a time and motion study or a work lead study?
4q WITNESS DONOFRIO: There was not a time and 5 motion study as such performed by our operations analysis I !
i ti group, but the intent is that this is a very close approxima-T tion, based upon the cognizant officers and division ranagers, s' etcetera, and once we are allowed to go ahead with this, just 93.i as we do in all functions, we will have our operations analysis 10-l go through the work practices and work management to fine-1: " tune it.
~
12 MR. SHILOBOD: Well, you see, I have some diffi-
'3 4culty in that when I look at Exhibit Number 8 and I find that, l w ,for instance, rather surprising when we look at your assumptions 15 ! the number of employees that you would otherwise need whether i i l 'i Met-Ed or Penelec is involved -- I find it somewhat amazing I
I
'T qthatthenumbersaresupposedtobeindenticalinbcth h
la d companies. .
I f' Is there some reason for that, or was that the 20 basis of the assumption with which you started to ake these 23 calculations?
23 WITNESS DONOFRIO: Where do you see tha: they are l
! '3
' identical? Met-Ed is 85 and Penelec is 140.
l !
t '
23 l MR. SHILOBOD: You indicated to us earlier with 25
. respect to the conservation and load management that the 123 11 l.
[
4 a
coa:/c..r:;.Tw
. :mpc=Tiso ccur av *
- 7 75 t - U
685 p38 employees were divided equally between Met-Ed and Penelec.
- WITNESS DONCFRIO: That is because that is what 3 would be needed for the conservation progra.ns and to create 4 identical staffs at each company. They would be approximately 5j equal if both companies came up with the programs.
6 MR. SHILOBOD: So the assumption was that you h
7 would otherwise have to make identical staffs at both 3 comparies; is that correct?
9 '1ITNESS DONOFRIO: Yes, sir.
10 ,
!!R . SHILOBOD: Do they have identical staffs now?
i: WITNESS DONOFRIO: I am nCt poJitive whether they 12 co or do not. Again, the total staff undernee.th-Consumer llg
': Affairs isn't necessarily all conservation and load management N today.
15 It has to do with how many uncollectable accounts, IJ how many complaints they have, how many customers that they IT have.
Id This is for added programs, new programs that are
't necessary now. There is a new program on the Residential 20 Conservatior. Act being instituted in the state. A prcgram is L needed at Penelec, and that same kind of crogram is needed at 22 Met-Ed. That is why we say the identical staff for an additional program would be necessary.
. k MR. SHILOBOD: Ic that the same with rate case 25 management?
Op he g \ %" f 4 " * $ e 4 *Q f *'f
p39 686 l
O ' WITNESS DONOPRIO: Yes, sir.
2 MR. SHILOBOD: Why is it that all of a sudden 2 makes Met-Ed need exactly five more pecole and Penelec need 4 i exactly five more pt..s.le in rate case management?
5 WITNESS DONOFRIO: We are not saying exactly F
o l\ five more people. We are saying that it is our range of five 1;.
- !i to ten needed at both headquarters, approximate 1v the same' r
3 at each one needed for increased rate case activities.
P MR. SHILOBOD: Why are they the same? Is this to just an assumption?
JUDGE CASEY: Wait a minute. That is a composite 11 }l 1" figure, isn't it?
12 WITNESS DONOFRIO: Yes, sir.
1 o
14 j JUDGE CASEY: And that shows the total number of 1' 8 employees. That is the range. They may need anywhere from I t- five to ten.
17 WITNESS DONOFRIO: Yes, sir.
I 18 j JUDGE CASEY: For inytance, in rate case management h -- and then it says ME and Penelec -- so there is going to be 20 some provision of those five --
21 WITNESS VERROCHI: That is five and five.
22 ,
JUDGE CASEY: It might be five and five, bat it may not be.
g -
%)
l 23 WITS'ESS VFRROCHI: Our current estimate is that 1
l 25 it would be abc -'d five. That is how we arrived at e
. .---a.- .. - . y y:m m y ~ o w ~ mn,
p40 ji 687 J
i d
4 our best estimate as to -- if we take the 205 total, we l
1 2s' estimate that 120 of those are at Met-Ed and 85 at Penelec, 9
l 1 ,, and we did that by going through each of the functions and a
4j making our best judgment as to how those potential reductions 5 -- avoidances, ratn?r, of management would take place.
l l 0 I think we hava given those numbers before.
T 0, I guess I hesitate when somebody s7ys " exactly."
l 3 It may be four and it may be six in each case, or it T.ight be O three and seven. We are not sure of that yet.
.i 10 ll This is our best judgment now as to what the n
i 11 j relative numbers are. It is an estimate. It is an estimate 12 based on the amount of detailed studies we have made to date n and I might add as part of our response to the Theodcre Barry
- 4 i and Associates audit, we do plan to refine our numbers in 13 both the consolidation of divisions and to keep better track M as to what cost avoidance we might actually have realized.
7 We have an obligation to ourselves,and the 16 Commission has asked us to keep them posted. And we plan to 10 account for this as time goes on.
20 MR. SHILOBOD: All right, Mr. Verrochi, you r.ay 21 have answered my question. You are indicating that these are l L judgment figures, and it is an estimate of an equal di'.*isic..
WITNESS VERRCCHI: Yes.
2' And, again, we were trying to get a rough feel l D for whether or not the two things that we are planning c do C Q M'.m N n '~m T c p r, c , : - ,yp, ,y y.- ;2 .y . e
p41 688 O would have any significant cost impact, either in ecst 2 increase or decrease; and we were reasonably comfortable and 3 have been all along that the net effect will be a savings.
4a We don't get toc hung up on whether it is going 5 , to be S16 million or $18 .million or $20 million. The main s
6j reason we dre doing this is not to effect reductions in i
1 7 personnel requirements. This is one of the benefits, but it I
l 3 is by no means the only or the major benefit.
9 However, we are very happy to try to work the 10i: numbers out.
't 1: But we still would have gone ahead with it if
() 12 a
these numbers were somewhat different.
13
- MR. SHILOBOD: Going back to Exhibit Number 7, J
ti the --
15 l MR. MESSER: Excuse me, Mr. Verrochi; one 16 question: at what point would it not have made economic-l 17 l sense to proceed?
WITNESS VERRCCHI: I think it always would have 13 jj D made -- our judgment has always been based on our own fudgmen-20 anc our experience with our other two sister companies in d Jersey, that there is no way a combination of managements 3 could result in the specific sense of cost increase to either
" company.
4 There is no way that could happen. It has got i
25 t to be at least a break-even cost or a savings. How significan:
?
et
, cov.;ct. u m 4w~. m scevpv - - ;s i .7 t .
p68 689 the saving is, I don't know.
2 MR. MESSER: If it was just a break-even situatic
- what would the justification be in your mind for the 4 combination?
- 3. WITNESS VERROCHI: All of the other benefits 9
- that we have described at great length in our direct and l
7., indirect testimony and our cross-examination.
J 1
But I don't think that it is realistic, Mr. Messer, s l!
9 to assume that the combination of managment and the ccnsclida-
- n tion of divisions is going to have miniscule cost savings.
- I mean $15 million or $18 million or $20 million is a lot of
- money, and I would be the first to agree that that is a le:
13 of money.
1, However, in terms of -- again, we talk about a
'i percentage of the total revenues of Met-Ed and Penelec, and
., it does kind of get nasked. It is on the order of two percen:
27 of our total revenues.
18 So it is kind of hard to get too excited about
!c something that at best willbe 'of the ordar of one or twc or a three percent savings. That is not the main reason to de 2 something like this, but it is comforting to us to knew tha:
l
- it is going to save money.
MR. SHILOBOD: dasn't this assumption that M combinations per se will produce savings then in the back Of 25 your mind in January when the commitment was made tc proceed
, . cc..._ m.. ..m . .
-c.,
690 p43 ,
0 .
WITNESS VERROCHI: I think we said then and say 2 now, sir, that the major benefit and objective of the 3 combination is to improve the management of Penelee and Met-Ed.
4 ' It thereby -- as A1 keeps reminding me, and we say this and 3 gl we do mean it -- we definitely think that the customers are il G { going to be better served by this organization.
i 7 ,' There will be more people -- a greater fraction i
s '* of our people will be focusing fuller attention on the 9 customers' needs than currently exists.
10 ' Division managers, for example, will be spending 81 ; more of their time on customer needs rather than worrying 12 about what transformer to put up where. It is that kin'd of M thing.
j 1* That is a homely example, but it is typical of 13 I what we are trying to do. We see the need to have a greater I
1" ' fraction of our people get involved in customer service i
IT directly and indirectly; and that is what we think this 18 management combination and consolidation of divisions is l
' I U going to achieve.
2U MR. SHILOBOD: Would you agree that at the ,c resent 1
- time the customer service for the Met-Ed entity is locsing l
l 22 with greater importance?
2" WITNESS VERROCHI: Do you mean our ability c lO i ' continue serving the customers?
( j
< ,O MR. SHILOBOD: The needs of the customers.
Ii
! i cc: .c -. rm wa- . . c.
. . .. m .. -,-w.- m 9
691 p44 WITNESS VERROCHI: IguessIdon'tknowwhatyoulll 2 mean by that, sir.
3 MR. SHILOBOD: You were indicating that this 4 was really designed to meet customer needs. What did you 5
mean?
6 WITNESS VERROCHI: I say what the customer needs t
7 in terms of the quality of electric service that we give them 8 and being responsive to their inquiries and requests and 3
demands.
10 l MR. SHILOBOD: And with that interpretation, don't I!
you agree that the customers of Met-Ed are demanding more C attention to these matters than Penelec customers as a result m'
of the accident?
" WITNESS VERROCHI: No, I don't think that is true 1"~ in terms of the division operations. Again, our own feeling H is -- and I think the Commission's periodic reports on this I
subject indicate that Met-Ed gets very high marks in te rms of its service to its customers.
Penelec is kund of in the middle. We are not tc I
proud of that. We are nSither the worst nor the best , but Met-Ed continucs to get pretty good marks in its response tc customer needs; so I don't think that Met-Ed needs shcring :
as much as Penelec does in that area.
Met-Eddoesn'tserveitscustomersastellbecalll its generating stations aren't running as much as thef shculd, co. .. =-o= sa ~ ~ ~.< ~ -- -
p45 .; 692 I ',
O , I and we are going to try to correct that.
2 MR. SHILOBOD: I would like to go back to what I was asking before on Exhibit Number 7, Mr. Donofrio.
i l 4 The savings allocated to the corporate combination 5 that are to come sometime in the future of $500,000, what i a portion of those savings are allocable to Penelec and what 7 . oortion are allocable to Met-Ed?
4
- 1. j WITNESS DONOFRIO: If it follows the same as e projected for the total corporate, it would be about 60 i
10i . percent Penelec and 40 percent Met-Ed.
11 '
MR. SHILOBOD: How can you say that with respect 1
12
- to the S500,000 when you were not able to give an allocation n with regard to the S700,000?
14 . WITNESS DONOFRIO: I thought I gave the same i
13 '! answer on the S700,000.
1" JUDGE CASEY: I thought you had.
f l
17 '. MR. MESSER: Yes.
15 MR. SHILOBOD: What,are these contincencies upon which the S500,000 would rest, or are there any contingencies?
( 19 20 WITNESS DONOFRIO: The $500,000 is built upcn a 21 January 1, 1980 base of approximately an hight to ten percen: I L ' wage rate increase during the year. That is already buit: in 2 '- .as a contingency on the low side.
~ 1 j 23 I MR. SHILOBOD: Would it be fair to sav that i 3 depends upon the success of the combination?
i C O +
- 0 s . ~ e '. 4 rr PCftT'NG ' OV pa% y .=f -,. 5*,
a.
p46 !; 693 0,:
i WITNESS DONOFRIO: I would say that given the ggy
- amount of time -- we are saying that, given a year where
- , Panelec individuals learn the Met-Ed system and Met-Ed 4; individuals learn the Penelec system, that we believe that we 3 I can accomplish it; it is potential. ,
6i MR. SHILOBOD: The timing of it then would depend d
,1 7: upon the employee response to the changes that are made; is
!i a [ that correct?
a WITNESS DONOFRIO: I don't think we are willing co 10 : let tnat be the sole judge. What we will do is set up how l
1: we have on the initial ten percent, and that is that the
- task force to senior management will be looking at each
- 3 officer's function to see why he cannot accomplish this; what O 14 is going on if, in fact, this potential cannot be realized.
MR. SHILOBOD: How was it decided that this
'6 initial intention could be reached, that is the additional i
'7 19 people?
13 d WITNESS DONOFRIO: I believe that went the
- 1. opposite way. The opposite way was that we believed that
" by combining we really could come up with a 20 percent. The i only thing of it is that we felt that we only could _hieve 2 on day one 10 percent, and get the bugs worked out, and let the one company's employees gather knowledge on the other, 2; etcetera; and given that one year, thenhavethepotentialfcjll 3 the extra ten percent.
cn m'n ..=' ,+ .
c ' a m, ss *-
p47 694
]
i i
k MR. SHILOBOD: Then the perception is that that iadditionaltenpercent is going to come from somewhere.
Exactly where, we can't say richt now. Would that be a fair Il e
1 4 d statement?
! 9 i ~! WITNESS DONOFRIO: What we are sayina is that it
'~
l I G should be just about across the board for all of the functions T ji that physically were combined.
- MR. SHILOBOD: Is that the basir upon which the 0 initial 19 individuals were determined?
l 10 l WITNESS DONOFRIO: Yes, sir.
I
!! !! MR. SHILOBOD: Then from those 19, you again 12 ' used the relaticc. ship of non-exempt to supervisory to get I3d the additional breakdow.4 in Exhibit Number 7; is that correc:?
O "j WITNESS DONOFRIO: Yes, sir.
"3 11 And Exhibit Number 7, the break-out of the i
Ic 1 supervisory, the 5, and the non-union /non-exempt 14, is the i
I hexavu differentiation as on page 72, which detailed the U
18I exact jobs in eliminating the 19.
f
" MR. SHILOBOD: Were those calculations based upcn f
- historical relat! 3 numbers of supervisory to non-union /non-
~t exempt?
w
~~
, WITNESS DONOFRIO: Not for these 19. These 19
~<
- were the e
- act shift from the organization in place at bc:h companies as of January 1 versus the orojected goal organization after the combined management.
! O I y COMMCNWFM.T . S EDormNG CCyr ; w p- 3 t ;-
j l a
p48 695 The past history, the beginning of this year J relationship of the one supervisor, two exempt, two clerical, 1 was used for the cost avoidance figures, which are en 4 Exhibit Number 8.
5 MR. SHILOBOD: Then the presumption is that 5 the second savings of 19 would be identical to these 7., eliminations and additions shown on page 72 of JARI Exhibit 4
Number 3?
WITNESS DONOFRIO: That is the presumption.
10 Again, if the five supervisory and 14 union non-exemet were 19 all exempt, you would still come out with the same answer.
i2 MR. SdILOBOD: Where wc Id the additional executive be eliminated?
" WITNESS DONOFRIO: I don't follow your question, i? MR. SHILCBOD: Af I look at the eliminaticns I
I on pace 72 for the combination, there is an indication that i
I one executive officer would be eliminated with the combinati:n, iE that is utilized to come up with the change of 19.
and I'
I take it that there is another executive cha:
M would be climinated along the line?
WITNESS DON 9FRIO: Sir, what we have use.d along tha.t line is 5 supervisory and 14 con-barc -ining; bu: wha:
we have utilized here is of the 29 reduction in super"iscrs, one became an officer, 23 became exempt,which nets cut :c a reduction of 5 in supervisor, 14 in non-bargaining, t c t a l i.- -
cc~o- :a..m venc .c ovn . - - - u =
i 1
, p49 l. 696
, i-l l
!O-k
- 1 the 19.
2i MR. SHILOBOD: Mr. Donofrio, you wot'ld acree that 3 j'l there would be some additional bookkeeping arising out of I'.
4; the management combination; isn't that correct?
5 WITNESS DONOFRIO: When you say "some additional [
6 bookkeeping," what we are looking at is mechanizing the ccst l I
i i[ allocation of the billing from one company to the other; and I
8! our last estimate as of last week that I had on that was 450 i
. 9, hours of programming, which is approximately one-third of a to 'i man year of about a S30,000 programmer. We recognize that 11 that would be maybe $10,000.
l 12 MR. SHILOBOD: So the only thing you see is the 13 g change in the program?
il 14 ;j WITNESS DONOFRIO: Yes.
15 f One thing that I have learned is I started with to ' Jersey Central back'in 1964, and that was in the format of i
17h the combined management where one officer was a Jersey Central 18 Believe d and another officer was a New Jersey Power and Light.
30hme, it is quite simple in keeping these statistics.
!i 20 All you do is, in effect, change your time sheet, il 23[ which there is no additional cost. They are run with a couple 22 All it is is an extra keypunch, one more months of supply.
-l
~a
' l punch on that time sheet as to which allocation factor there yh
- I would be; so that is the additional that you may be speaking of.
i f COMMoNWE ALTH REPORTING CoMF ANY 717 761 7*50
p50 697 1"
- i I
MR. SHILOBOD: Is that the only additional in 4h 2
accounting expenses that you see?
3' WITNESS DONOFRIO: Yes. I do not see any others.
4 i; MR. SHILOBOD: Who is Mr. Vodzack?
I 5 He is Manager of General WITNESS DONOFRIO:
I 6l Accounting at Penelec.
I
- li MR. SHILOBOD: I show you an inter-office memo-
[i 8' dated October 13, 1980, and ask if you recognize that.
9 Yes, sir.
- WITNESS DONOFD.IO:
l 10 Is that a memo that was sent to MR. SHILOBOD:
I l']youbyMr.Vodzack?
12 d WITNESS DONOFRIO: Yes, it is.
13 l MR. SHILOBOD: I would like you to read the last
- i "j sentence in subparagraph A on page 2, where Mr. Vodzack is 15 '
referring to the changes in accounting needed for the manage-16
, ment combination.
I
" I would like you to read the last sentence out i
18j loud. .
19 MR. JOLLES: May I see that first, please?
20 (Document handed to Counsel Jolles by Counsel
- l n ;:
Shilobod.)
. WITNESS DONOFRIO: The last sentence in A, it
~
says, "This change will require several weeks of work on the 24 i part of the task force within Penelec and I/S personnel."
i 23 :d I referred to that I just got a programming li COMMONWE A TH QCFoRTING COMP ANY p 7 701 7150
{j
i 1
p51 698
[
d i !'
! 1
' ( )- 1 estimate from Information Services a week ago, 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br /> of i
I 2 programming effort;out of a normal man year of 1,500 hours0.00579 days <br />0.139 hours <br />8.267196e-4 weeks <br />1.9025e-4 months <br /> 34'l that is less than one-third of one person's time to do the f
4 ll programming.
I 5 ! MR. SHILOBOD: That 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br />,. includes the time
- 6. at Met-Ed?
I 7! .
WITNESS DONOFRIO: 'No, sir. That is one l'
8 ! programmer putting the programs into effect by programmers, 8[ 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br />.
'l MR. SHILOBOD: I understand that, but what Mr. -
10 h 114 b Vodzack is saying on the changes for the codine would recuire
! h 4
12 several weeks of work by the, task force,by Met-Ed and by
/(
13 [ Penelec and by I/S personnel.
r 14 I WITNESS DONOFRIO: The Information Service would is j do the program; that is 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br />.
I 16 C MR. SHILOBOD: So the Information Services l l 1
l l
l 17 personnel would take 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br />?
18 Yes, sir.
WITNESS DONOFRIO:
Uj p MR. SHILOBOD: How much time would be taken up
~0 d p on the part of Penelec?
lI WITNESS DONOFRIO: I would say one; tops two
,u
~~ !!, individuals. Tops, a man month effort.
E
, [ MR. SHILOBOD: Are~these calculations made here
- 24 i anywhere?
"5f
~
9 WITNESS DONOFRIO: No, sir -- the 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br /> was the i
COMMONWCALTH PEPOR7tf1G COMPANY 7;7 7$17' M
p52 l; 699 ei l
a
-s 1 one given to me. The other one is off the top of my head 2 as to exactly what we are trying to accomplish with it.
3 Let me explain what this is. All it is is setting 4 up exactly down on paper new department numbers for the new 5 ll organization. Now, if you went ahead on an individual comparv l l G [l basis and reorganized the piece of - the personnel department 7 as to corporate secretaries or something like that, we would 8 have to do it anyway.
9 WITNESS VERROCHI: And we have been doing it.
1 10 WITNESS DONOFRIO: And we have been doing it.
!! , MR. SHILOBOD: You are saying you have been doing a
12 it outside the management combination anyway? gg 13 WITNESS DONOFRIO: I am saying that any time you
! 14 ll have these changes, you do it. We just did it for the Bill l
i 15 Hirst group that Mr. Verrochi mentioned. When he came out l
M from the Service Company, we just went through and set up li one of those with a department number and put it into the is works so that he could use it.
L -
1 .
19 We have a seoarate cost set of responsibility 20 for that group.
l U MR. SHILOBOD: 'Did you make an estimate of the i
22 time required at Penelec to carry out this application?
l l WITNESS DONOFRIO: Just the one I did off the 24 top of my head right now.
25 I MR. SHILOBOD: Whac was the figure you gave me?
i; 4
il CoMMONWE ALTH REPORTH-G CCVP ANY 717 761715C
p53 700 O_' WITNESS DONOFRIO: I said one to two individuals, 2
also putting in no more than one man month per individual, 3
plus the 450 hours0.00521 days <br />0.125 hours <br />7.440476e-4 weeks <br />1.71225e-4 months <br /> of the programmer's time, which Infor=atica 4
Services had just provided to me, looking at the scope of 5
everything, what it would take them in order to accomplish 6 i this; and this is a mechanized system that would take it from I
one company's books and physically put it on the other 8
ccmpany's books with a mechanized journal entry.
MR. SHILOBOD: How much time would be recuired to from Met-Ed?
II WITNESS DONOFRIO: Again, the same exact kind of I2
{} !3 effort as at Penelec, and that is one or two people tops, one man month per individual. This is just working out the 34 mechanics to make sure that they are done the same.
15 MR. SHILOBOD: How much time would be required is j on the part of the task force?
l
" WITNESS DONOFRIO: That is the task force.
l 3
l I MR. SHILOBOD: The task force has been working on
" this to date; have they not?
I
,9
~
WITNESS DONOFRIO: They have been meetine tccether i .
to identify what differences there are in the companies, and l
f
, .w hat problems, if any, that they foresaw, or what kind of
, timetable would be needed in order to make changes er ccme up fb
'/ with the recommendations for changes.
' j'
- MR. SHILOBOD: Do you know how much time ycu have l
l b COMVOW EALN REPC ANG COMP ANY ??? 75 ! 7' *!
b
p54 ij 701 f
s 1 spent on this?
2 i G WITNESS DONOFRIO: We do not keep time records 3 on individual efforts like this, but I believe anything that 3
4 l I had done on it, whether it would be for a combined and/or 1
3 Met-Ed, I have learned for the benefit of Penelec.
6, MR. SHILOBOD: How many people underneath you
?,
7fhavebeenworkingonthisjob?
t 3
NITNESS DONORFIO: This, mainly due to the 9
confidentiality of it, very little of anybody working under-d 10]neathme. Again, tops, one man month of effort of anybody l'
other than myself who has worked on this in my area.
I 2 "I MR. SHILOBOD: How many people have been working 33 on this effort at Met-Ed?
I4 '
WITNESS DONOFRIO: I couldn't give you an exact 13 number. I would say, because of the confidentiality of it, it was kept at a pretty high level, either officer or senior
' officer level.
I8 JUDGE CASEY: Do you mean confidential within the GPU System?
'O
~
WITNESS DONOFRIO: Within the names and the framework of the organizations, etcetera.
22
, JUDGE CASEY: Well, certainly from what I gather here, the PUC Bureau of Audits and Theodore Barry and Associates were in on the plan from the beginning.
> NITNESS DONOFRIO: I was referring, Mr. Shilobod,-
COMMON W EAl.Tu R EPORTf NG COM C.1NY 7*7 761-7*50
p55 702 t'
O . to the effort to put together these kind of documents. I kept them mainly in-house, due to the confidentiality.
2 MR. SHILOBOD: Was there any study with respect 4]. to the costs arising out of just the disruption of work load 3 arising out of the management combination? '-
I ;i l
6l WITNESS DONOFRIO: Are you questioning to date?
l MR. SHILOBOD: Or to be expected.
7[
8 ,' WITNESS DONOFRIO: To date, I don't believe that 9 there has been any disruption of work, at least on a personal U)ti
- aspect from the input and the work that I have had on it.
o ,
11 Being the coordinator, I would say that I
(~') 12 probably had the most work of any of the officers, and if
\s 1.
- a. it meant a couple of hours at night that was that; my work l 14 didn't get disrupted.
I 15 MR. SHILOBOD: If the management combination l '! proceeds, is there any' study with respect to the probable IT disruption of work loads?
12 WITNESS DONOFRIO: I don't think that there will 3 be disruption of work load. A lot of the systems that we 20 have in place today are going to continue until the proper 21 timing when we can assimilate making the change-.
2 The thing we have got to remember is tha- we still have two distinct independent organizations. They are
(-) 21 going to have their-two distinct payroll. systems, their 3 financing, their purchasing, tneir accounts payable, etcetera.
cc: c u - w rn e m , ; c o e pt.. v . 2ge l
p56 703
,t As the combined management would become involved,lll
- and come up with the "best of all worlds" on these, one by one we are going to have a timetable on it; there will be 4 a simulation of the timetable of exactly when the best system will be put forward for both compan,ies.
6 MR. SHILOBOD: When this management combination f
! comes into effect, would there be an immediate release of 19 people, or will there be a mere avoidance of hiring 19 people?
I '> WITNESS DONOFRIO: What we are going to have is l' a workforce that requires 19 less individuals. We have R taken steps so that the filling of permanent positions is not 7 occurring right now. Since we are not combined, the work O
4 scope reduction has not decreased, so we either are paying M overtime and/or hiring temporary people to do this work.
M MR. SHILOLOD: There have been a number of layoffs at Met-Ed, as was currently indicated; do you recall that?
WITNESS DONOFRIO: Yes, sir.
MR. RUSSELL: Several times.
MR. SHILOBOD: Sooner or later there is ccing
~
to be a need to hire back some of these individuals, isn't tha.t correct?
WITNESS DONOFRIO: There may or may not #cr llh specific jobs.
~'
MR. SHILOBOD: Nould that be a result of perhaps e n- .- :7 . , = - o ;. . - ., , x
704 P57 I
O increased efficiencies, that you may not have to hire some
- of them?
l WITNESS DONOFRIO: As a result of the ccabined 4 management, that might be possible.
MR. SHILOBOD: Without the combined management, l 5g I
- t. , are you saying that you are going to have to hire back every-7 i one?
t
'l NITNESS DONOFRIO: I don't know.
l MR. SHILOBOD: What are the effects of the
~
4 to Met-Ed's 10 [1 restrictions on the lines of credit with respect 1; , ability to hire back any of those people?
() 12 i
WITNESS DONOFRIO: I don't believe that I an l' the qualified witness to answer that. Mr. Smith or Mr.
- Dieckamp have been keeping the Commission informed on a mon h I ,
to month basis as to the Met-Ed cash position and the Met-Ed D- construction program and employee level.
t 17 .) MR. SHILOBOD: Do you know, Mr. Verrochi?
18 WITNESS VERROCHI: No, only what A1 just described, I know there is a monthly letter. I get a 3- Mr. Shilobod.
2" copy of it. I thought -- wasn't a copy of that handed to li , Mr. Shilobod when Mr. Dieckamp was here; or was I confused?
That is all I recall basically.
MR. MESSER: I didn't see it.
(v~) 2* MR. SHILOBOD: I did not get a copy.
U .. MR. RUSSELL: It is in the rate case.
1 ll c .' t . : . y" s t.- H roc - - r G .~ y ;. z : --~.3.-. e
[
pS9 705 a
MR. SHILOBOD: And tnat decision to lay off --
2 to continue to lay off, I think you previously indicated --
3 was partially a result of the cutbacks on the lines of credit:
4 isn't that correct?
' !; WITNESS VERROCHI: Yes, that is one of the reasons 1
6
- that came about.
ti
.a
' il MR. SHILOBOD: Isn't it a fact that sooner or
.I
! later the work that was otherwise done by thase individuals 9 e is going to have to be done by someone?
" WITNESS VERROCHI: No, that is not the case at 1
1I
, all. It all depends on how quickly Met-Ed is able to imprcve i
p~ j its cash position and its earning position through rate
" regulatory treatment. And there is any kind of a scenaric 14 that you may want to develop. I am sure Met-Ed is on record 15 -
as having said that it would like to have mora people in i_s i
I is i.
~ employ to do the job that needs to be donc.
' ' il MR. SHILOBOD: What would you say would be ycur
!i la 3
, job as President of this combined operation in the event that Met-Ed does not achieve the cash flow needed to do tha:7
, r.
~
WITNESS VERROCHI: It all depends on hov lcng that situation persists.
~
. MR. RUSSELL: It all depends on actions by a ict of other agencies like this Commission over which the compa..r
- v. When it cets has no control. It has sought rate relief.
1 .
l in what amounts, that is highly relevant, but beycnd
.' it and
- g. e c. ~ ~ . w ,.. o , y a = ,s - -.. w
. ,1 m ..
p60 706 O the company's control.
2 MR. SHILOBOD: I didn't say it was within the company's control.
i JUDGE CASEY: I detect a note of pique in your.
tone of voice, and I can't say that I blame you, Mr. Russell.
6 MR. RUSSELL: That would have been within my I .; control.
3 JUDGE CASEY: It is almost like a soap opera. It is something like "D llas," you know.
10 MR.-SHILOBOD: One of the things, looking through er these documents, that is missing -- I am wondering where they
(} U are -- is the costs or savings relating to the GPU Nuclear.
Are they anywhere here to be found, or am I
" missing something, or what?
13 WITNESS VERROCHI: Mr. Donofrio and I were not involved in any detailed studies that would focus on those auestions. I am not aware; I don't know whether such analyses
" have been made. .
MR. SHILOBOD:
As part of the GPU Nuclear, there is going to be the' creation of a new corporate management, is there not?
. WITNESS VERROCHI: Yes.
MR. SHILOBOD: And many of these people served C) ',
similar functions at Met-Ed before; is that correct?
WITNESS VERROCHI: Some of them do, yes.
c,, . sv . c a. , ~ :f=. .c:w w - : ,1.
1
p61 ,
707 t
MR. SHILOBOD: And the. there are additional 2 people hired at GPU Nuclear to fill other corporate functier.s 3 WITNESS VERROCHI: That is right, and I think 4 that Mr. Dieckamp's exhibit showed the key people involved 5
and named them. -
l 6' MR. SHILOBOD: There would be an entire hierarchy I
T,. that was otherwise handled by Met-Ed before that is now J
8j functioning for GPU.
9 NITNESS VERROCHI: No, the scope of responsibili:y I C' of the GPU Nuclear Corporation is broader than the scope of I' responsibility of the Met-Ed generation organization involved 12 with nuclear affairs, both before anc after the Three Mile U Island accident. ggg N The GPU Nuclear organization will have broader U responsibilities than Met-Ed's nuclear' organization had.
l M MR. SHILOBOD- Then the GPU Nuclear Corporaticn 37 will operate with each nuclear power plant operating almost IC like a separate division; would.that be a fair description?
" WITNESS VERROCHI: Mr. Dieckamp, I think, tried 2
to describe that.
~
MR. RUSSELL: I think this witness is nct the
" proper one for questions with respect to this. I think tha:
these are questions that should have been directed to '4r.
Dieckamp.
3 JUDGE CASEY: I am not too sure whccher the GPU i a :. .- m: .- c . . w :. -:
p62 i' 708 i
(2) "
Nuclear Corporation -- that is a fait accompli. That happened 2 in September. That in a New Jersey corporation. I think I
i
- 3 we are called upon to acprove the so-called operating 4 ] agreements between the owner-licensee's nuclear plants and the d
5j new GPU Nuclear Corporation. ,.
6 So I don't think they were defending nuclear 7i corporations on the grounds that they result in cost reductions; 3 ll they were saying that it is a combination of expertise and
"[concentrationinthenucleargeneratingfield,which--I 10 ' won't say was obviously absent, but had something to do with --
!! '!! perhaps had something to do with the accident in March of 1979.
J
(
() 12 I. is to shore up that operation. The operating U agreement, I t-ink your questions might have some relevance l
f l i4 as to what effe ct, if any, it would have on the new management i
combination and on the flow of money to the Nuclear Corpora-N tion as a result of billings for operating two plants that J
II are not on line presently; and there is a question mark as to is when they will be on line. ,
M Try to focus your attention on the bouncing ball 20 when you ask those questions.
Il MR. SHILOBOD: Yes.
'I The GPU Nuclear headquarters would be_in New 3e rsey?
( -
WITNESS VERROCHI: Yes. The Nuclear Corporation 3 headquarters will be in Parsippany, New Jersey, I believe.
I
.,.. .w c . ~ m ,.v e. e . n .. ,, ,m.
--.n ,c. , , , - - , _ ~ ,
p63 . 709 9
,! MR. SHILOBOD: And there will be some degree cf
. management or corporate control cresence in Reading?
^j WITNESS VERRCCHI: I don't remember.
4 MR. RUSSELL: I don't think Mr. Dieckamp's testi-e
- j many indicated that there would be. ,
t, JUDGE CASEY: I mentioned it to Mr. Dieckamp; I 6l ;
I Tdsaidthiswouldbea New Jersey corporation that is sort of
., ; a satellite or string-off of the GPU Service Corporation.
i 9 They will be based in Parsippany, and I said that there won't
.I w ,
be any -- he argued with me as to whether there would be any i
active function performed in Pennsylvania where the nuclear plant was located in Middletown. lll I don't know whether you remember that collocuy f
i
-4 -
between the two of us. He said that there won't be any 30 -- and I used the term " absentee owner" of land there, and
'l to " absentee operator;" and he said: on the contrary, that in an active operation, I guess at Three Mile Island --
3 MR. RUSSELL: They will, in fact, operate the units.
^
JUDGE CASEY: They will be the actual operator l of the units.
MR. SHILOBOD: I would point cut that Mr. Verrochi is a Director in GPU Nuclear.
4 JUDGE CASEY: He is one of a number of in-house O
executives in the GPU Systen that will serve either as a
-r .
m,-- c- ,w , ~,3 ..
I p64 710
~/ 1 Eirector or officer of that corporation.
2 MR. SHILOBOD: Mr. Verrochi, do you know whether 2 or not there will be any corporate presence of GPU Nuclear 4 in Reading?
3 WITNESS VERROCHI: I don't know. There will be a
- 6 i Corporate presence, of Course, at each of the -- there will i
T be a presence of the GPU Nuclear Corporation-employees; some d
8" officers even at Three Mile Island and at Oyster Creek.
9 MR. SHILOBOD: What about at the company offices 10 in Reading?
WITNESS VERROCHI: In Met-Ed; I doubt that there 11 j .
12 will be any at Met-Ed. The only reason I was a little l
13 hesitant is GPU Service Corporation has an office building N at Reading where the Information Service people are located, and several others; and it may well be that some -- I don't I '5 know. Some of the GPU Nuclear Corporation staff might be II headquartered there, but Mr. Dieckamp could handle that 2 housekeeping detail better than,I.
MR. SHILOBOD: How many. employees were lost from 2' Met-Ed to GPU Nuclear; do you know?
4 4!
- WITNESS VERROCHI: I don't know.
22 MR. JOLLES: GPU Nuclear is,not yet operating, Mr. Shilobod. .
[
N "u
MR. SHILOBOD: I believe they have been licensed to maintain --
l l =c..w . c ,a- .c. : , = - . ~
N f -- - ec y t 7- rv w +'e -g-- +-g*yg-,-- a --Wp -w- -i-4 w
711 965 o
MR. RUSSELL: The corporation has come into being.
MR. SHILOBOD: -- to shut down plants.
4 JUDGE CASEY: They were approved by the SEC in
, ,i
' September of this year. ,
6 d Your Honor, we received an order from MR. JOLLES:
- ! the SEC permitting the formation of the GPU Nuclear Corpora-
"' tion. That is all that has happened. The company is not
'i now operating. What is operating is a division of GPU
"!ServiceCompanywhichistryin~gtoformanucleargroupand i
i' which will be transferred to the Nuclear Corporation once we l' i get the regulatory order. g q~
JUDGE CASEY: GPU Nuclear is still on paper, in l
the planning stages, and this group within GPU Service n~ h Corporation you hope will form the nucleus of the Nuclear Corporation.
,.I MR. RUSSELL: I think you may recall -- I believe it was part of Mr. Dieckamp's testimony -- there was an NRC i
- letter of September 15, 1990, which is Penelec/ Met-Ed Exhibit 4, which was the amendment of the TMI-1 technical specifications to let this more informal nuclear group
~
function in the interim until the Nuclear Corporation is able to get necessary authorizations to proceed and operate.
A .R . SHILOBOD: I thought they had authorizations to operate and shut down the plant.
i f c. , _ . .
. - , , .,g,_;.. .
p66 712 O JUDGE CASEY: I think that there was some sort 2 of a change in the operations team, which required approval, 3 and a letter back from the NRC indicated that the approval 4 was being extended for that change in the operations team 5 in the shut-down state of the plants, because I questioned g
i
- [ Mr. Dieckamp about that.
7' When he announced what it was, he didn't 8
specify that it was dur ng the period of shutdown. It sounded as though it was an approval for the indefinite future.
.i
- l MR. SHILOBOD: I am going to want'to break, Your II Honor, if I could ask just one questiun first.
O ": aooce c^ser: co eaeea-MR. SHILOBOD: Mr. Donofrio, referring to page 72 of JARI ExhieAt 3 under the section " Transfers," there
~
is a showing of a transfer of 70 from Penelec to Met-Ed.
" Would you explain what those transfers are?
WITNESS DONOFRIO: That is a net transfer of IS employee levels from the Johnstown headquarters to the Met-Ed headquarters. If you will notice on " Generation," which '.s-the third group down, the transfer is coming the other way.
In other words, the corporate route for these kind of employees, supervi'3ry, exempt, will be being trans-ferred from the Reading headquarters to the Johnstown head-O n quarters.
MR. SHOLOBOD: And, sir, where does it show the
~
i7 ~~1 713.
C ^ *a ? T *, // * + TAQ:* _ ";%5 5 A *. T f
p67 713 i
transfers in either direction?
2 WITNESS DONOFRIO: If you come down to the third 1 group under " Transfers," you have " Executive Customer 4 g Operations," and then " Generation."
5 Do you see that "21 .ng the,other way?
l i
MR. SHILOBOD: Yes, but on a net basis, there 6l T , is a transfer of 70 out from Johnstown and 70 in to Met-Ed, a
> as shown there; is that correct?
9 WITNESS DONOFRIO: Yes.
.i lo! MR. SHILOBOD: And there are an additional 15, t
1: as I recall, that would be transferred out somewhere; isn't h
!" that correct, for a net loss of 85 at Johnstown?
WITN3S, VERROCHI: Here we go again, Mr. Shilobo
" (Mr. Verrochi and Mr. Donofrio confer.)
ii WITNESS DONOFRIO: Mr. Verrachi is pointing out K that on page 67, this will detail the number of employees i
!~1 down the first column of the relocations; how many fron where to what locations, to another location coming down.
!' However, the 85 net job reduction is a cenbination 2" of a couple of things, and that is the actual as of 1-1-30.
In the Johnstown headquarters, there is 616 in';ividuals, ar.d 2 the, total authorized after this, including chances in responsibility, is the bottom number of page 72; 543.
That gives a reduction of 73 in corporate head-
" quarters. The only thing is that within there there is an c 4,
- c. .. . , . _ _ . - - . . . . - - . . , . , . . , .,. -.
i'.
714 p68 O effect on adjustments of differences and changes in
- responsibilities netwean corporate and the division; or the 3 Johnstown division.
4 That is approximately 12 individuals. The 73 plus 5 the 12 is 85; and of these 12, 2 of them a,re telephone s I operators and 10 are mail services, which are being transferred 7 in duties from the division to the corporate.
8 MR. SHILODOD: But these 70 individuals referred
' 9 to under " Transfers" will remain on the Penelec payroll; isn't to that correct?
1; WITNESS DONOFRIO: Again, if is a combination.
In getting down to that 73, it is the physical transfer of
() 12 Il 70 individuals and elimination of 41 jobs, a change in 14 responsibility or addition of 38 jobs, netting to the 73.
i 10 MR. SHILOBOD: But the individuals that previously-If worked for Penelec were considered to be paid by Penelec
! li and, hopefully, reimbursed with a portion from Met-Ed; isn't i
M that correct? ,
M WITNESS DONOFRIO: If in fact any of these
-" iobs -- you have to track them when they went on here --
2' are going to be 100 percent Met-Ed jobs in the corporate .
21 hea,dquarters at Reading. They would be transferred to Met-Ed.
- Initially, what we are going to do is transfer I
Li ih ' 2' these individuals, leave them on the individual payrolis that
\f
)!
' they are on today if they have joint responsibilities, and 4
4
- ( '
- $ ? *g1(* -- &} G V Y * (b R N 9 *'" . } } ,J f
p69 11 715
' h then according to the allocation formula it would be like 2 ' 60-40.
60 percent would be payable by Penelec, and 40 4 percent would be billed to Met-Ed.
5' on the other hand, Met-Ed employees that are that are going to have Gq in the corporate headquarters today, li I joint combined responsibilities, will bill Penelec 60 percent d approximately of their payroll.
9 JUDGE CASEY: On that note, let's take a five
'l
.i I"
- minute recess.
II (Recess.)
u, 24 li
'O
!I h
13 i
'f}
.: ?
2 25
.i A w. -m . . . - _ _ _ _ , _
ji 716 !
/"A r ;
~'
g JUDGE CASEY: Me are back on the record.
, MR. SHILOBOD: Just a few detailed items and then we are g ing to have some policy questions.
3 Mr. Verrochi, what is the total level of expense ,
4 5
right now for the payroll expense of all employees of Met-Ed? '
WITNESS VERROCHI: I don't know offhand; maybe 6
I 7
Mr. Donofrio has it.
l I
g MR. SHILOBOD: I meant Mr. Donofrio.
WITNESS DONOFRIO: The only reports I have with me 9
r 10 for Met-Ed are through October 1980, so this is a ten-month 31 number; the total payroll for ten months, through October 1980 ,
/
to date, was $53.7 million.
) 12 MR. SHILOBOD: And if we added approximately one- ,
13 l
i 14 fifth again to that figure, we would come up with a reasonable.
13 approximation of an annual expense; would that be a fair is statement?
WITNESS DONOFRIO: It all depends on the way you are 17 13 going to use it, I gueos.
MR. SHILOBOD: As an approximation of payroll.
19 20 WITNESS DONOFRIO: Sure.
MR. SHILOBOD: It is about $5.4 million per month?
21 l 1
JUDGE CASEY: Was this a ten-month figure thst you 22 l 23 l just furnished?
~
) WITNESS CONOFRIO: Yes.
24 JUDGE CASEY: Would there be anything that would 25 l I
CCMMONWEALTH REPORTING COMPANY '717* 761 7150
717 j2 cnange the payroll level in the succeeding two months till the end of t.1e calendar year?
WIT 11ESS DONOFRIO: The only thing I do not have is what projection is overtime within this. Overtime could change tne --
JUDGE CASEY: That is a variable.
6 WITNESS DONOFRIO: The month of October happens to g
be SS.1 million versus the average of $5.4 million.
g MR. SHILOBOD: But a fair approximation would be
. m n a m nd; wod dat M agreeaMe?
10 WITNESS VEROCCHI: I think you would be better off using what you saw in the month of October, which was 55.1 g million. That is probably more indicative of the present l
gj manning level. Of course, as Al points out, it may or may nc 15 have the right amount of overtime; but I would just extrapo-16 late S5.1 million for November and December if I were fou.
g MR. SHILOBOD: Does that include the cost of fringe 1
18 benefits or not?
WITNESS DONOFRIO: No, sir.
39 MR. SHILOBOD: What is the level of fringe benefi:
20 21 costs for Penelec?
22 GTNESS VEROCCHI: These are Met-Ed numbers.
23 MR. SHILOBOD: What is the level cf fringe benefi:
24 costs for Met-Ed?
25 UITNESS DONOFRIO: Disregarding vacatio.'s, hc '. id a f :
CoMMONWECAt.TH REPORTING COMPANY 71 f 761715C
- 718 3
those kinds of fringes, which, of course, as fringes are in 2 payroll, it is approximately 30 percent.
3 MR. SHILOBOD: So that would be approximately I
4 S1.53 million per month if you take a SS.1 million average 5 cost.
6 What about the costs of materials and supplies for 7 the ten months ending October 31, 1980?
8 WITNESS DONOFRIO: I do not have that number here.
9 MR. SHILOBOD: Naen there was a decision that 10 $800,000 to $1.3 millior. could be avoided for both companies 11 with respect to materials and supplies, what portion was that
/~T 12 of the total expense for both companies?
, \-)
13 NITNESS DONOFRIO: Approximately 2 percent.
14 MR. SHILOBOD: Do you have the transportation 15 expenses for Met-Ed for the ten months ending on October 31, t
16 1980?
17 WITNESS DONOFRIO: Yes.
i j 18 MR. SHILOBOD: What was their level of expenditure?
i l
l 19 WITNESS DONOFRIO: $4.3 million for ten months 20 ending 1980.
21 MR. SHILOBOD: How would you classify these 22 miscellaneous expenses, including office space; do you have a 23 comparable expense level for the ten months? I am comparing 24 to your Exhibit No. 8. You have a' column, " Miscellaneous 25 Expense, Including Office Space."
CoMMoNWCALTH REPORTING COMPANY #717+ 7617150
719 '
l I l j4 ! ;
I i
WITNESS DONOFRIO: There are various pieces of the i 3
,: miscellaneous, some of them being employee expense accounts,
~\.
3l telephone expense, office supplies, training expenses, office i
4 equipment, association dues and fees. ;
MR. SHILOBOD: Were all of those, factors taken 5
6 into account in this calculation shown on Exhibit No. 8?
7 WITNESS DONOFRIO: Yes, they were.
8
! MR. SHILOBOD: What was the total level of expendi- l l
9; ture for Met-Ed in this ten months? i l
g3 : WITNESS DONOFRIO: I don't have exactly ten months it for each one of these, I don't believe, with me.
12 l MR. SHILOBOD: Do you have an average monthly I i
expense?
13 ;
WITNESS DONOFRIO: I have 1978, '79, '80 for some I yl 15 data; some for Penelec; some for Met-Ed.
I i
1G ; MR. SHILOBOD: Could I see what you have? I l
WITNESS DONOFRIO: For which exact expense? -
17 j l is ! MR. SHILOBOD: I'm trying to get some comparison ig of these S.2 million to S.4 million savings for miscellaneous
!i 20 l; expenses to get some comparison of that figure to the whole !
j 2: , for each company.
n WITNESS DONOFRIO: What we have done here is come l
23 ., up with the annualized expenses for each of these other things 4
1 2 4 ,; and taken that as a relationship of straight time payroll, and 25 i- come up with an approximate figure of 10 percent. Uhat we are-1i !;
l l
! lg COMMONWEALTH REPORTING COMPANY '717 761 7150 ,
ll 720 j5 m
( )
^
3 saying'i.,s again, the same relationships that exist today 2
for 6,000 employees would be the same in proportion to any 3
change, either up or down, in employees; approximately 10 4
percent straight time payroll.
5 MR. SHILOBOD: So you're saying ,that if we took 6
10 percent of the payroll that Met-Ed had for the ten months, 7
that would approximate the miscellaneous expenses, including 3
office space?
9 WITNESS DONOFRIO: Yes, sir; straight time; yes, sir ,
MR. SHILOBOD: What is the level of expense for 10 11 payroll for Penelec for the most recent 12 months that you
/m
( '
12 have?
13 WITNESS DONOFRIO: I have 12 months for 1979 or 14 10 months for 1980.
15 HR. SHILOBOD: Why don' t you give me both?
WITNESS DONOFRIO: The 12 months for 1979 payroll 16 27 is S65.2 million. The straight time payroll for ten months 18 for the year 1980 is $60.2 million.
19 MR. SHILOBOD: The fringe benefits; do you have 20 those figures on fringe benefits?
(
21 (Mr. Verrochi and Mr. Donofrio confer..)
l 22 JUDGE CASEY: He asked if you had figures for l ,
-s 23 fringe benefits, but you answered before it was 30 percent 1 I ~:)
\
24 of the payroll figures.
l 25 Do you have separate figures for the fringe benefits COMMONWEALTH REPORTING COMP ANY (7171 761 7150
72L 1 j6 !
l
- in those documents?
WITNESS DONOFRIO: Mr. Verrochi was pointing out 2
i that you asked two different questions for two different j 3
e companies. For Penelec it is straight time payroll, the 4
numbers, and that is what you received; and for Met-Ed it 5
was total payroll including overtime that you received.
6 MR. SHILOBOD: Do you have a breakdown of how much 7
g of that is overtime?
g WITNESS DONOFRIO: Let me give you the straight time, 12 months ended 1979 for Met-Ed, and that is S51.4 ;
to milli n. That excludes straight time payroll of TMI or 11 i
12 employees on Met-Ed payroll charged to TMI.
(.-
MR. SHILOBOD: That is for what time peried?
O 33 WITNESS DONOFRIO: Twelve months or the year of ,
14 15 1979. Andfor10monthsoftheyear1980itisS46.0millionf la Again, that is straight time payroll, excluding what is t7 chargeable to TMI.
i 18 MR. SHILOBOD: I am going to Pennsylvania Electric.
ig I believe you gave me the payroll figures; and you're 20 indicating that some of that is overtime. Do you know how 21 much of it is overtime?
22 ' WITNESS DONOFRIO: I believe I gave you the l ,
23 straight time, S65.2 million and $60.2 million.
24 MR. SHILOBOD: And fringe benefits is at 30percen$
25 WITNESS DONOFRIO: Again, this is a range l
COMMONWEALTH REPORTING COMPANY (7171 781 7150
722
( !
3 in the year 1979: and estimated the year 1980, at least for 2
Penelec, that we're using 30 percent. The range is 30.45, t
3 27.56 and 32.14. So you can use 30 percent. ,
4 Again, we're trying to arrive at what the potential i
5 or approximate cost savings would be. -
6 MR. SHILOBOD: And materials and supplies expenses I
7 for Penelec; do you have the figures for those for the most l g recent 12-month period? ,
9 WITNESS DONOFRIO: The total 19 M&S per hour budget J b to for this year, for the year 1980, is $49 million.
it MR. SHILOBOD: Do you have the miscellaneous expense:
including office space,for Penelec?
12 l l
13 WITNESS DONOFRIO: I do not have office space here. !
l 14 MR. SHILOBOD: Do you have the other miscellaneous i expense levels? !
, 15
?
l 16 WITNESS JONOFRIO: Total Penelec employee expenses l
l 17 estimated for 1980 of S3.2 million.
18 MR. SHILOBOD: Does that include all of the con- ;
I i l 19 siderations that you previously referred to under miscellaneous; 20 expense?
21 WITNESS DONOFRIO: No. This is just the first-22 piece of it, the employee expense accounts;.this "is meals, 23 lodging, et cetera, on employee expense reports.
l x-l 24 MR. SHILOBOD: Is it an approximation of 10 percent l
25 l of payroll for Penelec as well as Met-Ed?
t [I .
723 j8 WITNESS DONOPRIO: Sir, what this is, this comes g down to S1,000 per emolcyee. What we did is we summarized 2
3 the expenses per employee, summarized that to be $1,850 a 4
year, and took that as a percentage of straight time cayroll 5
per empl yee; and it came to approximately.10 percent. .
1 I
MR. SHILOBOD: That is for employee expenses, but g
for the total miscellaneous expenses, it would be approxi- i 7
a mately 10 percent of the payroll; is that correct?
WITNESS DONOFRIO: Straight tirte payroll: that is 9
10 correct.
MR. SHILOBOD: With this management reorganization 11 12 there is going to be workloads taken out of the division --
13 I'm speaking of the division reorganization -- there is going i to be workloads taken out of the division offices a;d 34 15 taken to the corporate offices; is that not correct?
WITNESS DONOFRIO- When you say " physical workload" --
16 g7 MR. SHILOBOD: I presume there are going to be is certain employees taken out of the division headquarters and ig ;
taken to corporate headquarters; is that correct?
i 20 WITNESS DONOFRIO: I wouldn't say it would be bcdy 23 for body; you would pick up one person and move him here l 22 l and,put him down here.
23 MR. SHILOBOD: That is not going to happen?
24 WITNESS DONOFRIO. No.
25 ! MR. SHILOBOD: There are going to be some functicns CO*4MONWEALTH REPORTING COMPANY 1717' 761 7150
724 ,
j9 i (~h -
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' \_/
that will be removed from division headquarters to the I
2 corporate headquarters; isn't that true? ,
I WITNESS DONOFRIO: The responsibilities, but not ;
3 .
4 exactly the work duties.
MR. SHILOBOD: Somebody is going..to have to carry 5
6 out those responsibilities; isn't that correct?
WITNESS DONOFRIO: The people within this 1,110 7
g level of corporate employees is detailed on that page 72. l l
i i
9 MR. SHILOBOD: I thought page 72 had to do with 10 management combi.~.ation rather than division consolidation? ;
. - I it WITNESS DONOFRIO: This has to do with the end j 12 result of the corporate headquarters based upon a combined g3 management and a division reorganization.
g4 MR. SHILOBOD: Does page 72 include the changes 15 resulting from -- page 72 of JARI Exhibit 3; is that for the f 16 combination, management combination, and the division ,
t; reorganization?
13 WITNESS DONOFRIO: The corporate piece of it, due 19 to the management combination and the division reorganization.
20 MR. SHILOBOD: They are separate, are they not?
21 WITNESS DONOFRIO: What is separate?
22 .
MR. SHILOBOD: The division reorganization could 23i 1 occur without the management combination; isn't that true?
24 WITNESS DONOFRIO: The division reorganization l
i 25 could not occur vithout the addition of the cost avoidance of
-- 1
735 110 50 jobs at Penelec.
7 MR. SHILOBOD: That is not my question. My question 3
was: that the division reorganization could occur without the management combination. The division reorganization could 4
5 ccur without the management combination; isn't that true?
6
- es, prodMng dat de 7
division reorganization--a component piece of it is adding a
50 employees to corporate staff.
g MR. SHILOBOD: Going to that Exhibit No. 7; tor ;
i 3a instance, for Penelec division reorganization there is an 11 indication of a reduction of 73 employees. Would the job 12 functions that are otherwise presently being carried out by 13 Il those 73 employees be assumed by someone else? l i
I
- 4 ; WITNESS DONOFRIO: By the divisional realignment !
h I
15 of the employees there and the combined management corporate !
1G staff together, the same work scope would be being done. {
i i 17 MR. SHILOBOD: But it would now be being done at {
la corporate headquarters rather than at divisional headquarters; 19 is that correct? l 1 !
20 ! WITNESS DONOFRIO: Some of it, yes. :'
21 MR. SHILOBOD: Does Penelec own all of the property 22 where divisional headquarters are now located for its 1
23 1 divisions, or is any of it rented?
21l WITNESS DONOFRIO: Some is owned; some is rented.
25 MR. SHILOBOD: Are those leases long-term leases?
CCMS'oNWE ALTH REPORTING COMP ANY 1717' 761 7150 ,
726 jll !
s, i e
i WITNESS DONOFRIO: I believe they are on the nature of 20 years and then renewable. I could get you the 3
exact information if it is necessary.
4 MR. SHILOBOD: And the people that are occupying 5
some of those leaseholds are doing work that would now be 6
handled on the corporate level; isn't that correct? That 7 would now, under the new reorganization, be handled at the a corporate level? .
9i WITNESS DONOFRIO: Some of what is being done in I
the districts would now be done at the division level; some $
to i.
11 of the division level would now be done at the corporate (x_/ ) 12 level. !
13 MR. SUILOBOD: If Your Honor please, I am not going 14 to follow that line of examination any further. We have some 15 policy questions that I am going to ask that Mr. Messer ,
i 10 be allowed to proceed with because they are primarily going !
l 17 to be directed to Mr. Verrochi. l 13 JUDGE CASEY: All right. You are not going to be to asking Mr. Donofrio questions at the same time? ,
20 MR. MESSER: I don't expect to.
21 MR. RUSSELL: He is available.
22 ,
JUDGE CASEY: You may proceed.
23 I (Witness Donofrio excused.)
(
24 25 CoMMoNWCALTH REPORTING COMPANY s717 761-7150
I 727 ;
jl2 i '
Whereupon, O
l
,, ! WILLIAM A. VERRCCHI
, I i
i 3; having previously been duly sworn, testified further as l
follows:
ill 1
CROSS-EXAMINATION (Continued) 5 BY MR. MESSER:
6
. G Mr. Verrochi, it is my understanding of your gI testimony given throughout today and yesterday that the i
I divisional reorganization which we have all been discussing ,
9li '
that was under consideration at Penelec would proceed j 39 l
! l 3; j regardless of any management combination; is that a tair 3,
assumption? g A. (Witness nodding.)
13 34 l 0 You're nodding your head yes.
4 15 A. I'm just trying to think of timing here, Mr. Messec.
When you get speculative it is sometimes difficult, but I !
16 l guess the answer to the question is yes. I think that the II .
t 33 j benefits to be derived from a divisional reorganization in ;
I '
to ! Penelec would justify doing it whether or not we combine with 20 Met-Ed. I think that would be fair.
- 2 G Would the same be true for Metropolitan Edison 22 . Company in regard to the planned divisional reorganization
'. that is indicated for that cornoration?
3 :!
I'm not as sure of that for Met-Ed, because I g
nh !
A.
25Il g really am not quite as f amiliar with the tiet-Ed organization s @@Mu@NWE ALTH REPCRTING COMP ANY 1717' 761.7150 _
728 I j13
+
as I am with Penelec's. I think if we don't combine, l 3 ,
2 certainly Mr. Smith and his associates, Mr. Dieckamp, the ,
3 acting President, would want to take a hard look at the benefits of reorganization division and corporate headquarters ,
5 The reason I say that is because,there have been 6
studies made under Mr. Dieckamp's direction to focus on 7
that question; and, of course, the Booz-Allen-Hamilton audit 8 raised that question: how come the three companies have a
, 9 different organizational set-up in terms of corporate and j 10 division organizations?
it G Would you say the current organizational structure i
i
(')i q,_ 12 of Metropolitan Edison Company and Penelec are, to some 13 degree, a function of their developmental history and 34 acquisitions and so on?
15 A I chink that is probably the main reason there are i
16 differences between the two companies and differences within 17 the companies as a function of geographical location of the I
ta divisions and districts; yes. .
l l
19 0 The contemplation of the combined management system t
20 is to standardize the divisional operation throughout i 21 Penelec and Met-Ed, as I understand the facts add the figures 22 that I have seen so far. Would'that be a correct assumption -
23 or not? ,
24 A I'm sorry, I really lost the intent of your 25 question. Would you try it once more, please?
, _ , - consonweat,vm ecoparmiffrarmz qp 70i.7% _
729 jl4 1
G Let me try to focus my thoughts so that icu might 2' understand the information that I am trying to make an 3
i effort to receive.
4 It seems to me that there are twe divisional
- s. reoganization plans contemplated, one for Penelee and one for .
I 6l Met-Ed; and that these divisional reorganizational plans ;
7 are an effort to standardize the organizational structure 3I under the combined management agreement.
9 Is that a fair assumption, or is it not?
10 t A If the emphasis is on the words "an attempt or 33 desire" to standardize, I am not sure that that is as 12 important as the desire to create an improved organization i
i3 l system, headquarters and division. ggg 14 The standardization is not as important as the 15 product that would come from the reorganization, the reorgan-16 ization of the divisions and the supporting and directing 1; staf f at system headquarters.
18 I don't mean to get hung up on this, but I'm not 19 sure -
1 20 i G It just seems to me that if there is gcing to bs a 21 combined management that the flow of information u and dcw.
22 the line and the allocation of responsibilities up and dOw.-
23 ! the system should be fairly similar in order to '. ace --
i 24 l A Similar, yes; identical, no. I guess tha is n; h
, 25 f I am hedging. I don't mean to hedge.
COMMONWEALTH REPCR DNG COMP ANY 717 761-?'50 l
t
- - _ . - =
1 j '
730 jl5 l
() g g I don't mean to say standardization in the 2
absolute --
A Certainly we would like to have more of a standard 3
j 4 approach, of course; and we would hope to achieve it. ,
i i 5
g As mach as possible you would li$e to achieve
,i standardization --
7 A Yes. l i
-- throughout both companies? !
! 8 0 i
9 A Sure; yes, sir.
to g In my reading of the Booz-Allen report I came .
t I
11 across several recommendations by Booz-Allen-Hamilton that ;
() 12 the impetus for standardization should come from either the i
13 GPU or the GPU Service Corporation in regard to the ,
i 14 application of standardization procedures for load management ;
15 forecasts and other sorts of decisions throughout the GPU 16 System. Is that your recollection of what one of the t 17 recommendations was?
Is A Yes. One of the functions of the service company 1
19 is to enhance the process whereby operating companies and 20 functional heads within operating companies are brought 21 together to explore the dif ferences in operating procedures, 22 design standards, material standards, and to address the 23 l question: are these differences justified and to what
(:) i 24 f extent should these differences be eliminated so that we can 25 word towards standardization.
COMMONWEALTH REPORTING COMPANY 1717, 761 7150 f
731 !
jl6 I
,l That offort has been going on for years, before the j service company was formed. Certainly, we have done much
- 1
., l more toward that end since the service company has been 3
formed. The hard fact of life is that in spite of that 4
effort, there are differences, inherited differences and 5 ,
i inherent differences, in the operating companies and in the functions of the operatinc companies. So the level of 7
standardization achievable and desirable varies depending a
on what function you're talking about, 9 t g 0 If we can assume then that there are inherent i
I 3; I functional differences among the operating companies, the 3
combined management team would have to deal with those ,
+
i 13l' inherent differences, wouldn't it?
g' g A. Yes, sir.
Q.
If we assume that there are significant inherent 15 g
functional differences within the operational companies, the 17 process of standardization would be curtailed insofar as l those functional differences are concerned; isn't that right?
13 ,
l A. The process of standardization would have to ;
39
- g re flect those differences and the extent to which they ;
are insurmountably unalterable. Iiowe ve r , in the area of 21 l
! division operations, I'm satisifed, and I think our key
,, j ,
3: people are satisifed, that the process that is currently i
nl underway whereby we're trying to develop a set of criteria 25 which one would apply to wnat constitutes a division, how bi CCMMoNWE ALTH REPORTING COMPANY i717' 768 7150
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,j a geographical area and so forth, the lines of responsibility
-l and all of these things, to come up with something that seems to make sense from a criteria point of view -- then 3
the challenge will be to apply those criteria to the existing organizations in Penelec and Met-Ed.
5 I think that that exercise will bring us a lot 6{
closer to a standardized approach in handling division 7
af f airs than currently exists either at Met-Ed or Penelec.
a, ,
9l So it is a matter of degree.
I G At this point in time, with the distinct entities 10 l i
1 that exist in Penelec and Met-Ed, there is no real functional 33 I
n reason to have. cross standardization, is there?
(s -) 3, t 13 A Only to the extent that the standardized approach 34 ,
is a better way of running divisions, from all considerations; 15 l cost,' customer service, quality of service, and so forth, i
budgeting, cost Control; all these factors. One would hope 16 i
that a standardized approach would result in better operatien 1-18 of all the divisions.
( G The functional differences between the operating 39 l 20 ' companies are also dependent upon their service areas, arer.'t 1
i 21 : they?
l 1 22 A Yes.
23 , G And to the extent that the service areas of 24 ' Penelec and Met-Ed are distinct, certificated service areas, 25 i those particular functional differences will not be erased COMMONWEALTH REPORTING COMPANY i717 761 7150
733 jl8 I
I by the combination, will they?
1l l JUDGE CASEY: Are you assuming that there are such 3
differences?
4 MR. MESSER: I am.
5 THE WITNESS: If by " functional , differences" you're l t
i S
referring to urban versus rural versus suburban and {
l
- customer density and these considerations, there are differences, even within Penelec, among the divisions. Erie, a
9 for example, is a highly urban area and very similar in its to , make-up and its concentration of people and kinds of
\
facilities to serve these people to some of the Met-Ed 11 l i
.2 l divisions, which tends to be that way. About 8 percent of llh 13 the population and about 8 percent of the area of 14 , Pennsylvania is served by Met-Ed; so it is roughly consistent i
15 l with both size and number of people it is serving, thereas j 16 Penelec has about 39 percent of the area of the state, and I
17 i only about 12 percent of the people. However, there are l
divisions in Penelec where the concentration of people is 18 l 19 much higher.
i 20 l So I think Penelec does cover a spectrum thich 21 l would include the kind of service area and the kind -
i t
22 j problems Met-Ed has. So I would hope that we could develcp 23 a standard which would be applicable both to Met-Ed and to 24 l Penelec.
25 COM mon W E A LTPH R E poR5PWG Comor59 <999 7s g .912@
jl9 i 734 l
3 BY MR. MESSER:
2 G At this point in time you don't have such a 3
standard, do you? !
l 4
A It is well along, however. We have got some pretty l 1
l g d ideas as a result of considerable effort by people in 5 ,
t g
the service company and, more recently, people in our two
- operating companies have been trying to develop standards, a
i test them, see how they apply; try them out on operating I 9
people to see if they can understand and embrace them. t.'e to have a pretty good, tentative set of standards which, I 11 think, can be applied relatively easily to the two operating li r\
( ) 3, companies.
<> ~
13 G W uld that then erase all the functional dif ferences .
i4 based upon the dif ferences in the certificated areas of the i
15 two companies?
16 I A I guess I don't know what you mean by " functional i i; differences" as it relates to the certificated or franchised 1
1 18 areas. Can you elaborate on that a bit, please?
l 19 G Well, there are differences, are there not, in the l
20 l I
type of customers that are served by Met-Ed and Penelec in l 21 proportion to the amount, let's say, of energy sold to the industrial, commercial and consumer classes?
22 ;
A Penelec serves industrial, commercial and residen-
, , , 23 l l/ I
tial uustomers and so does Met-Ed, so I say that we have 24 I I
'3 l similar types of customers and similar types of customer needs.
I ;
I i
! l CoMMONWE ALTH REPORTING COMP ANY 47176 761 7150
735 j20 G Similar types of customer areas in terms of 3
territory?
3 A In some respects, yes. Certain parts of Penelec's areas are quite similar to Met-Ed's. Certain are 4
5 not -- others are not. Towanda is not lik,e-- for instance ,
6 the northeastern division of Penelec in the Towanda area 7
is not at all like anything Met-Ed has, but the northwestern 3
division is quite similar. The Johnstown division is some- .
i 9
what similar -- the southern division, thatois, of Penelec, i
10 is similar to the Met-Ed division.
G Now, I have noticed in the exhibits attached to 11 j I
32 Mr. Donofrio's testimony and, I believe, it was indicatedinggg i
13 some other portion of the inforsaation that we have received, l l
14 that as far as the IBEW is concerned, none of their 15 employees will be af fected by the merger in terms of a j in removal of po.11 tion or firings; is that correct? !
17 A Are you talking about Met-Ed?
is G And Penelec.
19 A If I look at Mr. Donofrio's Exhibit 7, it talks 20 in terms of -- !
21 G Twenty-eight union people. l 22 ,
A. Yes, ten of which are Penelec's and I think he i 23 referred to all of those as being in our eastern division, 24 which is in Altoona, and that is UWA. I don't know -- of th 25 18 people identified here as being members of Met-Ed's union, COMMoP 'E At.TH REPORTING COMPANY (717' 761 7150 ,
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they would be IBEW. I don't know where they are or what 2 they're doing. Do you, Al, offhand?
3 WITNESS DONOFRIO: The ten in Penelec, as j 4 Mr. Verrochi said, is UWUA. I assume that the 18 in Met-Ed 5 are IBEW. .. l 4
6 WITNESS VEROCCHI: But you don't know what they are j 1l now doing?
8 WITNESS DONOFRIO: No. They're in T&D.
9 WITNESS VEROCCHI: They're in T&D, yes, but I don't 1
10 know what their job functions are.
It BY MR. MESSER:
12 G In the management summary of Booz-Allen in regard.
13 to Metropolitan Ediso.*1 --
and I quote at page 3-2 --
14 MR. RUSSELL:- Gould you show the witness what you 15 have in mind? As a matter of fact, would you let counsel 16 take a look at it?
I 17 (Document handed to Counsel Russell by Counsel Messer.
18 BY MR. MESSER: ,
19 0 Mr. Verrochi, I am handing you the management summary 20 of the Met-Ed Booz-Allen report and ask you to read, please, 21 the last paragraph above the numerals 3-2.
22 , (Document handed to witness.) fi e- 23 A Do you want me to read it out loud or just read it? !
N_g) l 24 G Did you read it?
25 (Witness perusing document.)
i L wmmmywm enQsswmmKerxw7 . tpge m9 eggs _ _ _ 1
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$22 I i l !
i i
A Yes, I have read it.
3 2l G Do you know what that "14" stands for at the end?
3 A Yes. I believe it stands for the number of people 4
reporting directly to the President of Met-Ed; and that 5
includes division managers, for 2xample.
6 % It is my understanding of this particular recommen-l l
7 dation that demands on tne Met-Ed Presidenu's time as a g result of the continuing attention to policy issues as well 9l as operating performance suggests the need to review and l l
I io reduce, where possible, the President's currently large span 11 of control of 14.
1 12 l A Yes, sir. ;
13 % Has that been done? h 14 A In Met-Ed now?
I is ! O Yes. l 16 A. I believe it has, to some extent. I believe, but i
1 I am not sure, that fewer people are reportiag to the I
18 senior Vice-President in residence at Reading, Floyd Smith. j l
Ig G You would take over at least part of Mr. Smith's function as the new President, would you not? l 20 l 21 A Yes, as shown on the exhibit showir:g the proposed 22 -organization chart; it shows the number of people, and their 2 af job titles, who would report to me as President of the com .
24 bined ccmpanies. I think you will see that is six officers:
1 23l chrre senior Vice-Presidents and three Vice-Presidents. So COMMONWEALTH HEPORTING COMPANY e7171 761 -71 SC
.. _ - - - _ -. ~_ __.
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l
'O ,i that span of control would' be six instead of a larger l
number. I think I have more' people reporting to me now than 2
six, as a matter of fact.
3 4 4 Is it also going to be your responsibility to ,
4 5
.m nitor and implement the 10-year Master Plan of 'GPU? l 6
A. Through the appropriate Vice-President, yes.
7 g And that ten year Master Plan is going to make 8
certain demands upon the operating company in terms of 9
hiring and policing and accormodating the plan, is it not?
l A. Yes, it is. .
10 :
G And that wculd have to be accomplished with or l gg without the combination, wouldn' t it?
12 13 A. That is true.
i 14 g At some point, Mr. Verrochi, economies of scale ,
i 15 become infinitesimal, don't they?
IG l A. That's true.
17 g In regard to the economies of scale that you are la indicating ;7n be accomplished in the Met-Ed and Penelec i
ggfsituations,wherewouldyo*4 draw the line as to whether or i
20 l not you would recommend the management combination based upc:-
21 economies of scale?
22 ,
A. Again, that certainly is a judgment question. I 23 think I have testified, and I think Mr. Dieckamp has testi-O 24 I fied that Penelec alone and Met-Ed alone'are relatively small 25 utility companies in terms of assets, number of employees ,
i L [ COMMONWEAL.TH REPORTING COMPANY s747' 761 7150
l 739 j24 g
number of customers; dnd even on a combined basis -- again, 0
2 !
by those criteria -- Penelec and Met-Ed combined would still i
nt be a giant corporation. We would be small, for example --
3 I
about the size of, as I think I mentioned before, 4
5 Pennsylvania Power and Light Company, which, is in terms of custreg, I
6 i assets, number of employees, annual revenues, annual sales ,
i 7 and total megawatt hours. We would be roughly two-thirds 4
al of the size of Philadelphia Electric. So none of us in the 9 GPU System are concerned that we are getting too big for cur 10 l britches, if you will, if we combine Met-Ed and Penelec.
l 11 G You are looking at it in terms of total revenue, 12 isn't that right? lh A Total revenue, number of employees, number of 13 'I I
14 customers.
i 15 i G Territory served?
16 ! A Territory served is a little on the big side, i
1 obviously. The combination would serve about 47 percent of la the State of Pennsylvania. That is big; there is nu question 19 ;; about it. But other electric utility companies in the d
20!!, country serve areas that are as big or bigger, and re <nor, i
even in the State of Pennsylvania General 21! :l for example, njTelephoneservesquitea large area. So it is do-able.
- 1 23 1 C We're talking about apples and oranges here now, i 24 jj aren't we --
25h A Well, in electric -
!l; il J il estacGrarn2Nmc ofWXmmcr(ggrror'vaz at 7 7mi.7im
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- G Well, let me finish my question, Mr. Verrochi.
i 2 Are you indicating to me that the problems -
I 3
associated with the distribution of telephone communication 4
lines and so on is similar to the function that an electric 3
utility company serves? .. ;
6 A I was thinking more of the problem of trying to i
7 combine the top managements of companies. There are a lot of I l
3 electric utility companies and other utility companies that 9
I au familiar with that are able to manage quite a large 10 I service area; again, depending upon well-organized and it well-controlled divisions who are, in turn, trying to handle l
() 12 a more bite-sized piece of the action through territorial 13 siras, numoer of employees, number of customers.
14 4 But you are not intending by your testimony here 15 today to say then -- or to give us any extrapolation of the 16 differences between the utility in Wyoming that may sarvice 17 the entire state versus Penelec or Met-Ed supplying a la territory in Pennsylvania, are you?
l 19 A I was simply trying to be responsive to your l
would the combination of the Met-Ed and Penelec P
20 question:
21 managements and responsibilities result in a product that is 22 too big to handle, that extends beyond the economy of scale;
, 23 and I think I have tried to indicate to you that, from all 24 of these considerations, it doesn't result in that kind of a 25 problem. It is not going too' big to handle. It still will l rnuncNwEALTH REPORTING comp 4NY +717' 761 71 SQ ___
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, (U2s j26 be smaller than many elect:-ic utility companies in the ,
2 1
c untry. :h (1 But not in Pennsylvania. ,
3, i
! A As small as one and smaller than another, in terms i 4j .
i l f some of the parameters; not all. ,
5 -
! l G It certainly would be alf.o true that the other ,
G utilities in Pennsylvania don't have the same set of issues 7
and priorities and problems facing them as Met-Ed and ;
3 9' Penelec; isn't that right?
ig A. They don't have quite the financial crunch that l
gg ! Met-Ed is experiencing. And here, again, it is a matter of l t,
speculation as to to what extent some of our neighboring u!l utilities both in Pennsylvania and our ncighboring utilities y; in the Pennsylvania-Jersey-Maryland Interchange of l
15 h which we a re a part -- it is - ;ter of some speculation N
son- _re going to be running into some 16 h as to how i
financial problems which might be quite similar to what GPU ',
i-is experiencing.
la , '
l 19 ,
! G Unfortunately, you have TMI and they don't.
n 20 A. Yes, that's true. And from that we have some pretty-I 21 sizeable financial problems.
h 4
,, ' MR. RUSSELL: It is part of PJM.
l 23 :' JUDGE CASEY: That was more of an observation than i
21
! a question.
n THE WITNESS: Fine. We have TMI. h a
f COMMONWEALTH REPORTING COMPANY i717i 761-7150
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- l' MR. MESSER
- Personally, I sympathize with anyone >
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who has to deal with TMI. It is a problem that has to be 1
3 dealt with. I think your argument here in this proceeding 4
is how to deal with it.
5 I
JUDGE CASEY: I think, thougn, t, hat you kind af 6
promised us that you were going to stick to questions in the 7
policy area; that is the company's policy rather than 3; philosophical discussions about the apparent size of -- '
I gl MR. MESSER: I think that I must have been drawn into it by one of Mr. Verrochi's answers. I'll go back to 10 ;
I.
the issues that I was intending to cover, which I should be l 33l 4 1 , . . l
/ ) 14 ! finished with very shortly.
x_/ l 13 , BY MR. MESSER: ,
i 14 G Mr. Verrochi, I have reviewed some of the informa-l l 15 l tion -- as much as possible -- in the Booz-Allen-Hamilton l l
16 reports in regard to the Met Ed and Penelec situation. It is I
i 1; indicated in these reports that the purpose of the examina-13 tion by Booz-Allen was to take as broad an approach to the i
19 functional and management issues of GPU as possible.
20 Was that your understanding of the study that was 21 l made or not?
i A. Of the Booz-Allen-Hamilton study?
22 l ,
23 4 Yes.
/ <
i 1[
1
Yes, sir; that is my understanding.
A This study was not ordered by the Commission, was it?
i 25 i G I
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l COMMONWEALTH REPORTING COMP ANY 1717 761 7150
$28 743 f
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1 A No, sir. We contracted for it as the GPU system. l 2 G Can we properly characterize this as an in-house 1
3 i document? !
4 A. It is a matter of public record.
5 MR. RUSSELL: On the face of the, matter it is 6 prepared by an outside consultant.
7 JUDGE CASEY: Right. I think you have to put that a report in perspective. They paid for it. They were i
9 entitled to say what the audit should entail, how much in ,
i l
debt and how broad it had to be; and then they are furnished i 10 l l
11 i
with a number of recommendations contained within the audit I
l i la that they are at liberty to implement or they are at liberty ,
1 to reject. The.re is no compulsion. To the extent that they 13 j 14 have already attempted to do those things, Mr. Verrochi can l 15 explain how and under what circumstances.
16 ! If you see things in your cross-examination that 1 1 17 may have been recommended and for some reason or other the f l 18 company rejected, didn't do those things or delayed imple- l 19 nonting them for reasons best known to management, then you ,
i i
20 may raise some questions. f I
21 Now we have the Theodore Barry and Associates ;
22 report. And I was about to point out, but I didn't want to Il i interfere with your questioning, that Theodore Barry 24 l apparently also adopted the division reorganization scheme.
23 I The division reorganization idea or concept I
COMMONWEALTH REPORTING COMPANY 4717e 761 7150
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apparently came up in the Booz-Allen-Hamilton report where 2
there was no. consideration given to a management combination.
In other words, that division reorganization for ,
', 3 4
both operatir.g utilities stood on its own merits. It was i
5 something that was devised. You were tryi,ng to put it in 1
6 the context that it was so tied together with the ccabination 7 management agreement that one could not succeed without the a other. I think that there were two independent recommendations 9 or findings.
10 IR . MESSER: I think that's right. The purpose of ,
! 11 my question, Your Honor, was to indicate that precise point;
() 12 that, in fact, the divisional reorganizations can proceed
, 13 ' independent of any ecmbination.
I 1
14 JUDGE CASEY: They can, but they dn't have to.
15 This, again, is a management prerogative. However, they are i
I 10 under pressure now, under the circumstances following the t
17 l accident that these recommendations have been made by a l
18 consulting firm who is proceeding under the Commission's
- 9 auspices; so they had better not dismiss the matter at hand.
4 20 You hsd better give them serious consideration. That is the 21 atmosphere or the climate that this thing is in. That is the
!' 22 way,it appears to me, at least.
i 23 I agree, and Mr. Verrochi might agree, that if the 1
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24 division reorganization occurred and there_was some similarity i 23 or standardization within Met-Ed and Penelec, forgetting abcut l COMMONWEAI.TH REPORTING COMPANY 1717' 761-7150
745 j30 their inherent and inherited difference *., would this .ot make it somewhat easier for the new management combination team to proceed in carrying out their function if they had 3
a similar t pe of unified division system in both companies?
I think that is one of the quest. ions that is 5
raised in the testimony this afternoon.
e BY MR. MESSER:
7 3
G The recommendations that I have read in 30cz-Allen 9,
are one -- without going into detail or specifics Of thien they are several -- seem to indicate that there is a need for to 33 ;
standardization throughout the GPU System.
I A. Yes, sir.
1,, !,
13 C. And they recogni::e that that is important intherh g report, I believe; is that right?
A. Yes, sir.
15 0 At no time, at least from what I have gone thrcugh to 37 in the last couple of days, have I seen any recom endation la that there should be any management combination amcng any ig of the three operating companies; is that correct, sir?
A. I believe that is probably correct in ter .s of the 2n l 21 Booz-Allea-Ha' milton report at the time that it was issued.
22 I f orge t the date that it was issued.
G I believe the date; again, is May 1978, 'ich is n l marked on the cover of the report.
~y 25
! A. Right.
e COMMONW5 ALTH REPORTING COMP ANY 8717 761 7150
746 j31 i G Wouldn't it be a fair assumption, Mr. Verrochi,
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2l to assume that there could be certain standardization pro-l 3l jects throughout the entire GPU System which could result in 4 economies of scale without the merger or management 5 combination of any of the related companies?
i 6 A. On that specific issue, the whole effort toward .
t, 7 standardization has been going on without exact purpose in 8 mind, and there is no reason why it can't and wouldn't or i
9! shouldn't continue to go on whether or not we combine the 10 managements of the two organizations.
I 11 j MR. MESSER: Thank you very much. That's all the 12 questions I have today, Your Honor.
- 13
- Excuse me, Your Honor.
I 14 (Pause.)
j 15 BY MR. MESSER:
1 16 g One just housekeeping question, Mr. Verrochi, in 17 regard to Exhibit No. 7. Do you have any time f rame in which l
- 18 the savings, the total savings as a result of the Penelec and i
! 19 Met-Ed divisional reorganization savings would occur?
l 20 MR. RUSSELL: Mr. Donofrio, I think, has covered 21 , that several times in his testimony this-morning.
i l
22 l . MR. MESSER: That was a different issue and a 23 different question in regard to, I believe, the $700,000 24 question which, I believe, Mr. Donof rio addressed. I may be 1
[ 25 ' mistaken, but in order just to clarify my own stupidity, I
'I
747 l j32 ;
i
' f' I
i would ask the question again. Ylk I I t t
- f MR. RUSSELL
- I would ask Mr. Donofrio if he !
l l 3l responded to that.
I WITNESS DONOFRIO: I did.
4 5
WITNESS VERROCHI: Did you on the 209 people and the S8.4 million? Is that what we're talking about?
s 7 MR. MESSER: Yes, that's right.
l, 3l NITNESS DONOFRIO: What we said on there was that l
3- upon completion of the combination management that these .
go i would be done through attrition. He have started a little I
ti bit already. And by that time, that last 73rd or 136th job 32 l was eliminated,we're probably talking a two to three-year ggg i
13 . time period.
I 14 : MR. MESSER: Thank you.
l 15 JUDGE CASEY: That apparently completes the i
is l testimon; for today. Tomorrow we are scheduled to hear f rom !
1 17 ' the Commicsion Administrative Staff witnesses who are the i i
t is Theodore Barry and Associates consulting team. We will be I to meeting at 9:00 a.m. And, as I said, I believe that it is l t
20 l in Roon 503 in the Finance Building directly across the j 21 l street from the North Office Building. ,
May we go off the record just a I 22 '
MR. RUSSELL:
i '
23ll moment?
24 ,; JUDGE CASEY: Yes.
II 25 ll (Discussion off the record.)
i a COMMONWEAL 7H REPoR71NG COMPANY '717 761-7150
t l
l 748 l
j33 lO i JUDGE CASEY: On the record. We will recess until 2 9:00 a.m. tomorrow morning. The hearing is adjourned.
3 (Whereupon, at 4:25 p.m., the hearing was 1
4 adjourned, to be reconvened at 9:00 a.m. on December 10, 1980 5 in Harrisburg, Pennsylvania.) ,
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l COMMONWEALTH RF. PORTING COMPANY #717' 761 7150
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I SEEIIEIEAII $
2 I hereby certify, as the stenographic reporter, i
3 I that the foregoing proceedings were taken stenographically 4 by me, and thereafter reduced to typewriting by me or under ,
5 my direction; and that this transcript is a true and accurate I i
6 record to the best of my ability.
l 7 COMMONNEALTH REPORTING COMPANY, INC.
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8 9 By: .
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'Phyllis Glass i
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