ML20003B554
| ML20003B554 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 10/29/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML20003B456 | List: |
| References | |
| NUDOCS 8102120399 | |
| Download: ML20003B554 (93) | |
Text
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Before I
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21, TIE PEESYLV.'.NIA PUBLIC UTILITY COMMISSION Il 3a
--oCo-di 3
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4t In re:
R-800.51196, etc._ - Penngdgaic Public Utilitz Commission,v_s. Metrocolitan Edison Comoanv.
c 3p Investiga. tion into a requac tad $76.5 million annual Y
rate increase.
i TH)3 DOCUMENT CONTMHS l
Hearing.
P00RQUAUTyPAGE t
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Harrisburg, Pennsylvania October 29, 1980 l
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Pages 132 to 225 I
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I 30 j MCHRBACis 6: MARSHAL, INC.
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THE PENNSYLVAMIA PUBLIC UTILITY COEilSSION 6
3l
~~cCo~~
/.' ;j In re :
R-80051196, etc. ~ Pennsylvanic Public Utility _
Commission vs. Metropolitan Edison Comucnv.
3)
Investigation inTo a requested $76.5 million annual i
rate increase.
6k.
..t Hearing.
?,;
4
--coo--
CR S
Stenographic report of hearing held in Gf Hearing Room No. 3, North Office Building, 3
Harrisburg, Pennsylvania, 10 h f
Wednesday, 11 '
October 29, 1980,
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at 1:00 o' clock p.m.
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,,, j JOSEPH P. MATUSCHAK, ADMINISTFATIVE LAW JUDGE s.e y a
i 13 j APPEARANCES:
)
26[
STEV2N A. McCLAREN, ESQUIRE BOliDAN R. PAMKIW, ESQUIRS 17 -
P. O. Box 3265 i
North Office Building 28 ij Harrisburg, ?ennsylvania 17120 For - Public Utility Ccemission Trial Staff.
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SAMUZL B. RUSSSLL, ESQUIRE 20 [
W. EDWIN CGDEN, ESQUIP2 i
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ERIC L. B. STRAHN, ESQUIRS 31 (.
330 Fenn Square Center i
P. O. Box 699 I
27, Reading, Pennsylvania 19603 I
For - Metropolitan Edison Cocpany 5.3 i m
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.1 )e APPEARANCES:
(Continued)
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l MAURICE A. FRATER, ESQUIRE l' )
McNeec, Wallace & Nurick P. O. Hon 1165 4;
Harrisburg, Pennsylvania 17108 For - St. Regis Paper Co.
5i P. H. Gladfelter Co.
/
National Gypsum Co.
5j, DAVID BARASCH, SSQUIRE 7l ASHLEY SCHANNAUER, ESQUIRE r
1425 Strawberry Square 3j Harrisburg, Pennsylvania 17120
{
For - Consumer Advocate 9$
10 [q' ROBERT E. K".11Y, ESQUIRE Duane, Morris & Heckscher i
P. O. Box 1003 11 h Harrisburg, Pannsylvania 17108 3
For - Victaulic Co. of America 13
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KENNETH A. WISE, ESQUIRE (O
13 i 213-A North Front Street g';
i; Harrisburg, Pennsylvania 17101 3
14 For - Louise Riley and S.P.A.G.
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DIRECT CROSS
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4 t 3 Jo hn G. G raham -------------------
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D. L. Huff -----------------------
161 169
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IhTEX TO EXHIBITS 7j IDEU-AD-i 3
MET-ED TIFIID MITTED
!= B-132 - Calculation of Revenue 9l Requirement Fnere Cc= mon i
Equity Return is Limited to 10 !
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135
'lif THE ADMINISTRsTIVE LAW JUDGE:
Are there a ny 3
2 preliminary matters before ve proceed?
)
3[
MR. RUSSELL:
There was one I would like to e
<jrciseasamatterofclarification.
After thinking about i
s ) some of the comments that cere rather puzzling to me by 6 'l several of the parties yesterday, I would just like to make 7i clear undar what assumption we are proceeding.
We have l
3 proceeded with the assumption that the record in this 9
consolidated proceedings is applicable to the extent relevant i
10 [ to any of t he proceedings that are consolidated for purposes i
12 j of hearing and if that is not the' correct assumption then, l
s' 12 f of course, we would want to make clear what the record with I-p) 13 [ respect to this complaint against temporary rates would t-14 4 consist of.
15 h THE ADMINISTRATIVE LAW JUDGE:
There -are certain l
16 things that have been bothering us in this matter and I 17,' suppose it would be better to disctiss it to get j
a sense 18 j of direction.
b 19 )
In the first place, I am not sure that I G
20 ;. understand what the company's position is as to the b.
31 { inadequacy of the temporary rates that were granted by the l
9 l
22 j Commission on May 23 effective July 1,1980.
I am i
2 l
- 23) cognicant of a proceeding referred to as a petition.
It l
0 l (O n,j was indicated in the nature of an answer to a proceeding f
p yj to this complaint proceading, but absent and assuming for 3-
.,ne: : a mm.w m. - 27 a. -
ow m. - >-w=vs m.
nm
13 6
- l the mcuent that the petition or the proposed settlement is
- i 4
s 3 4 not accepted, where are we, and I might call your attention gg) 1
-g to 1 Pa. Code 35 115, offers of settle =ent.
2 s i
- 4. :
Nothing contained in thes~e rules shall be E
5 ) construed as precluding any participant in a proceeding i
3g free submitting at any time offers of settlement or proposals A
7 l of adjustment to all parties and to the a6ency, or to Staff g j Counsel for transmittal to the agency or from requesting
.4 gy conferences for such purposes.
i 0 {.0 Unaccepted proposals of settlement or adjustmept 1
37 or as to the procedure to be followed and proposed gg stipulations not agreed to shall be privileged and shall not be a dmissible into evidence against any Counsel or ggg C_
f
~
i person claiming such privilege.
q-33 3 Assuming that the so-called petition is not 15 ] granted or the proposed settlement is not accepteC, :. hat 37 ]1 is the position of the ccapany?
What is the actual claim J
~ g ;a of the company as to the inadequacy of the Co==ission's s
4
- g g action en May 23rd fixing the te=porary rates as of June
.4
,o! lst?
1 J
,,a..,1 MR RUSSELL:
Well, I think the questien I I
raise relates in part to the probles that ycu havejust
_. 3 93 j posed.
First of all dealing with the petition.
The petition' 1
can be viewed quite realistically as a suggestion or a gg i
m
$5?
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er.t.ucx s.. 2.xts me. - r ; t.wav.:w wr. - re mazz.o. m. me
i 137
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1? possible offer not in the usual form of an offer for i
O 2 h settlesent, but it does propose terms under which, from the v
e b
3 g company's point of vieu, the metter of the complaint can be a
e E resolved and determined and the complaint disposed of and 3
a lot of our procedural matters that are pending around 6 h the periphery can be likewise disposed of.
If the petition il 7[ is not found to be acceptable by agreement or otherwise, i
Uf then it seems to me that we are still basically within the 9 !
complaint proceeding and the Judge would have to determine ij i
10 ij the complaint against temporary rates on the basis of the 11 }
evidence that has been submitted in support of the complaint.
12 THE ADMINISTRATIVE LAW JUDGE:
Is it a claim
.1 0
13 3 of the company that they are entitled to an increase in v
4 it 14 i temporary ratos of $25 million with or without acceptance d
13.! of a petition?
3 I
16 g MR, RUSSSLL:
I think the testimony of i
17 Mr. Graham has been to the effect that that represents a
~
18 minimum figure to which the company thinks that it would 4i 19 be entitled and it offers that figure, together with certain.
20 of the additional relat ed matters, as a proposal for the i
al a possible resolution of the complaint proceeding.
1 4
I 22 j THE ADMINISTRATIVE LAW JUDGE:
Is it the 4
3? j position of the company that that Commission. set ting
?
(7
?;.{ temporary rates must grant the level of rates equivalent kb i
25i to those~ granted at the last rate proceeding?
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b MOH.9 6W10 ?IAM2;; Ab UIC - ::7 N. L$cx*.W Lew AVE. - ! 4 A.*.*tt:;.in: M S, A.
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I MR. RUSSELL:
Is it the position of the
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company that the Ccomission should do that ?
S,1 THE ADMINISTRATIV5 LAW JUDGE:
Yes.
J 4}
MR. RUSSELL:
No.
I think the Commission itself,,
t 5] at leas; as I read the picture, the Commission itself was
, 4..
oj aware o.t t he facts that in Phase II of the proceedings 7 l this past spring, it did not have before it a timely set of i
3 f evidence on the basis of which it could determine the Just.
i 9
and reasonable level of base rates and that is'why the two 5
7.0 l companies were so startled to see that the Commission, 3
1?. ] notwithstanding then, went ahead and fixed temporary rates.
E3 l3 THE ADMINISTRATIV5 LAW JUDGE:
Well,.is it the i
.,. P
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position of the company that the Commission in satting 24 h temporary rates must use tha same rate of return or the same
~.5 formula that they had used in the last rate. proceeding?
I
~5 j Mr. Graham had referred to it a number of times as to the f.'!
return the Commission would allow on its general rate of l
- i i
16 i raturn and its return on common equity.
Is it the position,!
for
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W)ofthecompanythat the Commission 3say/ temporary rates, i
G ' must use that same criteria in setting temporary rates?
1 MR. RliSSELL:
No, it clearly is not.
That l
p.[ figure is thera.
It is history.
For what it cay be worth, 4
o ) it ia there as it represents a Commission determinatica-2
- d as of a past point in time with respect to s test year, a
+s 25 : future test year chat encad March 31, 1979.
It is not a 4.~
- <J'*NC 1CT L (*/ MMAi OsC. - I.T7 I!/ !;GCT~lf t #'Y V/f* ~ 'dAIII!33*'M N - IYMC
139 g h timely test year.
1 2
As we see it, any number of things have 3
transpired including significant increases in the cost of 4,2 capital which would make that an inappropriate number to use l
3y at this point, but to get just a guidepost, to see what m
y U
5 has been done in the past, it has been used for illustration 7i purposes only but certninly not in any way intended to h
3j represent a limitation upon what the company thinks is i
9; proper to be allowed in light of a currently applicable I
10[ test period.
H I
THE ADMINISTRATIV8 IAW JUDG3; The proceeding 33 ;.
r g ) of the Commission was, I believe, under 1301(b), which is, 1
t 13 I think, a proceeding finding excessive rates.
Is it the l
.u, i position of the company that the Commission, in setting i
t
?
i l
gg { the temporary rates, must revieo anew all aspects of the I
gl company's finances to determine an appropriate rate which r
1 37 could under that assumption result in not a decrease in the 3g j rates. but could result in actual increase in rates?
e 39 j MR.RUSSSLL:
Ace you talking nor about the 4
g g fixing of temporary rates in the first instance?
3 THE ADMINISTRATIVE LAW JUDGS:
Yes, in the first g,
l t
instance.
l 22!
_., h MR. RUSSELL:
Well, it seems to me in the first
.w ?
..l instance what the Commission should have done was to give
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)
a4 1
,,,1 notice and an opportunity to be heard as to what the
.~ )
- six mcw a r. Anat Ut s. - 27 :. 'NNWN
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140,
s.
f
't i
3)ccmpanyandanyotherinterestedpartiesfelt on the basis i
v i
3 ) of evidence they presented was a just and reasonable level lll s
3 5 of rates.
Now that did not take place in this past May.
4 i) As a catter of fset, the Commission, in the May order, n
5 specifically.
1 0$
THE ADMINISTRATIVE LAW JUDGE:
We ought to e
? (2 assume that if the Commission took no action, that the rates Gl then in effect would continue on until the present?
9 ) Can we assume that?
A 20 MR. RUSSELL:
Wd l, I think if you just look 2
11 9 at the historical development, the Commission, in its 3
~
22 l September 19 order, said the matter of the just and I
13 reasonable level of rates was not t hen before it, but if it llI t
3+. el does, then it will address it.
15 t THE ADMINISTRATIVS LAW JUDGE:
Let me start
,1 9
16 with May 23.
If the Cornissicn had taken no action on T7 May 23rd, taken TMI out of rate ' base, the rates then in t,'
18 2 effect would continue on until the next rate proceeding?
9 I9 I!
MR. RUSSELL:
No.
We cere fully expecting that 1
L)) if the Cocmission decided to take TMI-1 out of base rates L;. ' that it ticuld institute a for=cl investigation as to. what h
[
22: the level of rates under those circumstances should be.
We i
23 5 would hsve an opportunity to present testicony as to what I
- -l. l we think they should be in light of t he current test year ll) 73? c-d have the Commission determine what then the change
=cc.e e :
- .. u u:.. m. - a s =m u.ow m. - mu am.ac..%
rme
~
141
_ _ = _ _
r u
1 shculd be.
O I
TE ADMINISTRATIVE LAW JUDGE:
If the v
s
?
3 !
Commission did not take TMI-l out, then the rates that 3
b 4 f were then in effect would continue on to the present?
5' MR. RUSSELL:
Until changed 'oy other means.
0 THS ADMINISTRATIVE LAW JUDGE:
Assuming now 7 f that the Comission takes out TMI-1, say -26 million-of the
'~' [ revenue effect, is it the position of the company it is D
9j incumbent upon the Commission then to go to all the aspects 5
M to conduct another rate hearing to determine the level of 11 {
rates that are applicable at that time and if with the i
13 l inflation and some othar additional costs, the actual costs 13
]
to the company in that period from the last rate case was 34'
$35 million, that instead of reduction in rates, the 13 Commission would have to give the company a $10 million 16 j increase in rates?
?
17 i MR. RUSSELL:
I think our position would be that l.
lal a rata case analysis is necessary to come up w2 ha E
19 l rational basis to fix just and reasonable rates.
n 23 {
THS ADMINISTRATIVE LAW JUDGE:
By that
't 31l assumption then we vould go further and say when the 5
22 S Commission sets temporary rates, it takes the risk - when 3
h 23j it sets temporary rates, when it modifies the existing C
ry 24i rates, and in its feeling that they are excessive, that kb 23;j they take the risk in effect, even though they may exclude s
4 mma n.m: s:ut me. - e:r n.- t.ccr.n sw we. - HAmmerm1. PA.
utin
. 142, i
1 [ some portions of the company's capital investment, that they
(^
2 h take the risk they may have to give a rate increase instead? h I
l 3f MR. RUSSELL:
Well, I'm not sure I am in a 4li position to say what the Commission's thinking would be, 5i but it seems to me as a practical proposition, looking at 1
6 the section 1310, if the Commission wanted to assume the 7 I responsibility for fixing temporary rates, it should on the B: basis of a record after notice and hearing fix a level but i
9 if it does so, it certainly assumes risk that if a compicint
- 10 l is filed that those rates may be found to be higher or 12 lower after a full proceeding than the level that the 3
12{Commissionfixedandsoitseemstomethatif,infact, d
13 { t here had been a full hearing before the temporary rates h
14 had been fixed, we would not be in the complaint proceedings li that we are involved in now, but there was no such hearing, N
16 j' no such opportunity to be heard, and the Respondents feel 4
17 j very clearly that the level of rates is significantly lower
.[
18 f than it should be and we think that the testimony of other t
19 h parties, including the Commission Staff in Phase II, clearly R
s l
20 f supported the proposition that the level of temporary rates 21f fixed by the Commission wcs significantly too low, 22)
THE ADMINISTRATIVE LAW JUDGE:
The Commission p'
33 2 set the temporary rates on May 23rd effective June 1,1980.
.1 24 h It is my understanding that the company has new gone, in h
il 25j trying to determine the level of the rates that the d
ne. r.:m o :w:enu me. - 22 n. mennu.ow ave. - w.msem. r4. im
143 l
l 1 l Cormnission should have set, the company has based its
$o 2htestironyanditsfinancialdataonthetestyearbeginning i
3j September 30, 1979 and ending September 30, 1980, is that k
4 correct?
S MR. RUSSELL:
No, and this is the point to which 3
4 6
I addressed my first remarks this efternoon.
We have J
? j proceeded under tha assumption that the record in this 8;3 consolidated proceeding to the extent relevant is applicable i
9.k to any of the proceedings that are consolidated for hearing.
W 10 THE ADMINISTRATIVE LAW JUDGS:
Well, the il 21 Exhibit B-131 submitted yesterday does assume, I think 13 [ Mr. Graham has testified, it did assume the company's 23 operations from September 30, 1979 to September 30, 1980?
14 l 0
15 0 4
16 l 4
g (The testimony is continued on page 144.)
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.n.j MR. RUSSELL:
Yes, and perhaps I can F
{
7 j clarify for Your lionor the purpose of submitting that 4
g b
e3 data.
It was not submitted as a rate case test year
- 4 4 l presentation because we already have that in the record 3
in the future test year of the rate filing, showing what i
gl the revenue requirements would be based upon the future test 7[ year ending March 31, 1981.
3,[
What this representa, as against the future g
test year presentation which is already in the record, would to show what the actual results of operation were apart from test a,, year normalization and so on.
In the real live world, what y
3 k
12 h did the company's actual operations produce?
13 This shows what the actual operations have g 3,;, produced and shows the effect of the proposals of the 9
g ] petition upon those actual operations so we can sea in the i'
33 g real liva world wha t the company, what its investors, cormon, 17 debt, preferred, and what the financial community would see gg g as the results of the company's operations, n
19 )1 It was not the tdst year presentation upon 30 which the complaint is founded.
<1
.g. j THE AEMINISTRATIVE 1AW JUDGE:
Your complainP J
- 22. ]; is as to the temporary rates that were fixed by the Commissi g,j en June 1, 1980?
1 l'R. RUSSELL:
Yes.
g
.uf TIiE ADMINISTRATIVE LAW JUDGE:
Enat basis
~f "OMT*2*.C4 Ca t' ARCM11-. !*?O. - E7 l LCCUIIL'*UIl A*IE* - HADON#3*
A-I7IIU
~
145 4
i!
I g3% ehould the Concission have had in setting those rates ?
This g
2 information going into September 1980?
U
- e. ?
MR. RUSSELL:
If we would just go back a
~ ti
- j. ) minute into history, and I think it might be helpful to you 3 ) to review the history, during Phase Two we were specifically i6' asked what witnesses we were going to produce for Met-Ed and ej Penelse and at the very first prehearing conference I said:
3 ! Well, now, what is the scope of this proceeding before this i
9 i Commission?
You have several investigations here as to yo j uhether or not TMI-1 should be taken out of rate base, t
gg whether Met-Ed's certificate of public convenience should 33 be revoked, et cetera.
g.
13 '
Now suppose the Commission decides that V
h TMI-l is going to be removed from base rates.
Is it the
,14 is i Ccemission's intent that in this proceeding you would fix L
16 h new base rates for each company?
Then Chairman Goode said n
17 j yes, that is our intention.
H 13 1 I said, all right, then I will give you a 19 g list of the witnesses, and we had a list of 20 some witnesses 20 3 all told for both compsnies which would permit full coverage l
il a
l 313. of a full rate case for each company.
22:
So the matter proceeded.
That was probably r
g3' in September of 1979.
^
- l As the matter proceeded with the Commission b
y$
25 f sitting en banc it became apparent that -- well, as a matter p'
um m.e:r a ur:m:n. t.w - :7 tr. t.ecemu.ow Air - eta nume.u. ra. trtte 1
l
mo
'I 2 ] of fact the matter was originally suggested from some other it
(
2 party that, lock, instead of getting into all this testimony, 3 f why doesn't the Commission decided, first of all, simply the chould be taken out of base 4
question of whether or not TMI7 5
ra tes ?
6h If the answer is no, then we don't need to
?f get into a base rate case for each company.
If the answer G
is yes, then we will address the base rat.e questions as to 9l what the levels should be for each company.
19 The Commission in its December order said,
- 12f, yes, we are not going to get into deciding base rates.
We 12 ( are going to decide these other basic issues.
13 )
But when the order came down in May, they X,.k decided the other issues and, bang, they fixad base rates, 1i 15 temporary rates with no notice, no opportunity to be heard is 3 on our part as to uhat the proper level of base ratas should avy then be.
l 13[
So they fixed this level of temporary 3
19 '
rates and we said we think they are totally inadequate and i
20 ue have therefore filed complaints againse them, n ;:
THE ADMINISTRATIVE IAW JUDGE:
Your complaint i
l is as to the teaporary rates that they made effective June l
ya h t
- .3f1,1980?
g MR. RUSSELL:
- Yes, a
e c3p THE ADMINISTRATIVE IAW JUDGE:
With tha t zw~e:.cn a : mww me. - n 1&=w.m.t.on avz. - w.umaras. n.
ma
I 147 7
.I 1 ) compicint, upon what basis are you basing your contention I
tha t the rates are inadequate, and on what basia should the 2l!
V 3j Commission have made their decision as co the amount of the h
4( temporary rates ?
What facts should they use?
Wha t da ta s
i 3 ', should they use ?
i 6r MR. RUSSELL:
Our position was that the i
7 g Commf ssion did not have before it a rate case presentation G;
based on a timely test year to enable it to determine what i
9: the proper level of just and reasonable base rates should i
10 k have been, and the parties should have been given an opportun Lty i
la [ to present a timely test year presentation as we had originally i
12, intended to do in the fall of 1979 after Chairman Goode had
,d 13 made his ruling, and then did not because of the Commission's f
14 f December order, i!
13 5 So our position is that the just and Il 16 !{ reasonable rates that should be fixed effective June 1, even 1;
17 though they are fixed after the event pursuant to a complaint, 18 } should be just and reasonable rates as determined by an a
19 >3 appropriate and timely test year rate case presentation.
l 1
i 205 THE ADMINISTRATIVE LAW JUDGE:
On what b
313 period.of time?
2 2;l MR. RUSSELL:
Our position. is that the most 4
33 ! appropriate test year period as it now develops here would I
e p
- {.
be the test year on which the base ' rate claim is made in the
' kb 9
25 E rate filing by Met-Ed which is March 31, 1981, and June 1st 6
?
tumn=1 a :wmn ma. - :n n. toc =cw ew s'r:. - u+unmur:a. ex nna l
I
M8._-
t is --
s a f THE AG11MISTRATIVE IAW JUDGE:
Well, how g
(
3 f could you allege that, that the Commission should have made w d 4 l their decision in May of 1980 based on the results --
?,
e!
MR. RUSSELL:
I would say in all probabilit/
~$
6' if they had in the May order said we are taking TMI-l out, 9
now we want you fellows to come in and show us what the 7
3 l level of base rates should be, in every probability our case a
q f would have been a test year based on March 31, 1961, the g
3 12 months ending March 31, 1981, with historical data March g
31, 1980 and a future test year ending March 31,1981, which
,.t1 I{ is precisely the test year on which the rate case claim is
.g.
73 ) based now.
s.
THE ADMINISTRATIVE LAW JUDGE:
What would it t
. y you have used at that t.ime?
What test year did you anticipat e wf 3
, o-4 using on May 23, 1980?
a i
~j j MR. RUSSELL:
We would have used historical g
data Ibrch 31, 1980 and a future test year March 31, 1981, 73 79 l which is exactly what we have here.
The claim is based upon l
the future test year.
g p, d
-.. j THE ADMINISTRATIVE LAW JUDGE:
Let's procee6.-
MR, RUSSELL:
I cight just add one further "y (i
,,y j thought, Whan you are using a future test year, the statute 6,,
f contemplates tha t you uculd upda te the results of operations y4
-)
i g as you go along through the future test year, to show what 1
g 1
- ^1DnR 3AC ! O ?! A*'D 4 AL. !!!C. - 07 !*
LCCT. VILL"wW AVI. - >! A MIS OV7G. PA.
1 M 10 1-
ug y
E I in fact has happened as against your projected future test Z
year projections.
B-131 does in fact do that.
O 1
3; THE ADMINISTRATIVE LAW JUDGE:
It does not f
4l mean, though, that you keep on changing your test year data.
)
5j.
MR. RUSSELL:
No, you have this as something L
6l by which to judge the credibility of your future test year 7 p.Iprojections.
I Sj Am I in error in the assumption that the i
9:
record in this consolidated proceeding is available to the I,
10 $ er. tent relevant for each and every proceeding consolidated F
gg [ for hearing purposes?
12 f THE ADMINISTRATIVE LAW JUDGE:
We had not.
13 :
consolidated all the data.
We had consolidated these two b)
{
v 14 i proceedings for hearing purposes.
d 15 c What is the position of the other parties on i
16 [
that inquiry?
?
17i MR. McCLAREN:
Is the issue Your Honor is i
18 l putting before us, whether the records.themselves are 1
19
- consolidated for purposes of briefing and decision?
20 j$
THE ADMINISTRATIVE LAW JUDGE:
That apparently gi.g is what Mr. Russell --
1
- 27. j MR. RUSSELL:
Yes.
1 23 @
NR. McCIAREN:
The staff wculd have no
~
'i 24l objection to Your Honor so ruling that the record detieloped v)-
23 $ here in each of these separate proceedings is available for s
'?O.'.PC#,CM & 'W.RSif At ! 10. - Of M.- ECCT.7210VI A'/E. - MAM M'43U*S.PA.
171$2
150 s._._
=
}q use and dacision in all.
"d i
,, l THE ADMINISTRATI'E IM JUDGE:
I am not going 1
)
I
,, j to decide that those records are relevant in this temporary au
. rate proceeding.
I am not going to decide at this time that
,j those records are relevant.
~\\
6j E. BARASCH:
Your Honor, I have a few brief d
comments.
One of the things tha t concerns me about the y
3 comments that have been made by Mr. Russell in response to g
Your Honor's questien is it kind of gets back to the icgal g
- argument, or at least one of the legal arguments our office
,20 1 d put forth, and the whole question of whether or not the 11 1 a
,2 j complaints could in fact be prosecuted during trial of the A 1 y3 y regular rate case.
llI 1
..E Nou as I understood Your Honor's ruling on
.i'/ II 4
,,y that matter, which you noted an exception to yesterday, it 1s ;
, i was alleged by the various parties that basically the complaint 16 s.
2 against the temporary rates and general rate case were both 17 12j forward looking in nature and both attempted to describe a IG j l
A set of just and reasonable rates for the same period of time,
,91 A
1 Therefore it is kind of hard to understand how they could 20 1 l
! be separate and dealt with separately.
311 a
Mr. Russell. is now arguing that the complaint 23 j g
25 2] should be handlad, as I undaratand it -- the complaint 3
j against the roll-back rates in May of 1980 -- should be 24 q g
i handled bassd upon the same future test year used in this i
2f,i 1
"UmMC: G r* Att4 %. litC. ** :'.7 54. LCCCW!t L%'? AY - f4A M t?S*'V*2,.'A.
f 71 f;!
r 151 3
3 5
4 acase.
a Q
3 Your Honor has indicated, at least as we under-3 l stood it, the basis for the ruling was that the complaint 0
4 against the temporary rates looked backward in time to a
- 5) period of time in the spring of 1980, while the base rate l
5jcaselooksforward.
7 The trouble I have is we are now in a situation-i O! where I don't really see how we can complete a record on the
!i 9; temporary rate case if the evidence in the company's total 10 [ future test year is really the support for the complaint i
11 l against the temporary rates.
i 13I It seems we have no choice but to try the I
(N) 13 s entire matter and cross-examine all the company's witnesses
~
14 [on various revenue and expense issues.
15 THE ADMINISTRATIVE LAW JUDGE:
There is anot'er h
15 ( thing that troubles me also, whether in the complaint proceed-3 17 ] ing on temporary rates it is proper to consider -- especially h
18 with possible recoupment provisions -- if it is proper to g
8 3jmakeuseoffuturetestyeardato, i
e 20il MR. BARASCH:
I don't know whether Your Honor i
a 01 y finds my ccoment to be responsive to your question,, but there 22 really is no simple way to respond to the question.
23, I think we are left in the situation here p.
24ll whera all the company's uitnesses suddenly beccme extremely Q.
r; M j relevant to the temporary rate case, if the point is we are i
t u:,.uw a mus. n:e. - :w s toer r.e.ove m. - aummeu-o. u.
mm I
1,52
-=
q a
i
. I. doing this upon some future looking period which is identical'
(
3 with the test year in this case.
h e
Y MR. RUSSELL:
I think in that context we can 3
b 4i discuss the petition that was filed.
The petition as we see I
f 3 f it presents an offer of solution to this situation which has 6 f a multiplicity of problems and it offers a basis upon which
?
?f the matter can be concluded, which in terms of additional 0
revenue requirements is significantly less than the amount J
? i which the test year data would support, and it in effect is ii 10 f a compromise position, which it uss certainly hoped that the i
i 12,
parties could recognize as being beyond any reasonable 13 {
question as to appropriateness as to the level of rates and 13 would thereby provide a basis upon which this complaint h
I roceeding could be disposed of.
14 p
3 4
13 $
THE AI7clINISTRATIVE LW JUDGE:
I tend to 3
16 ) agree somewhat with the position of the Consumer Advocate.
i 1
l'l )4 We consolidated these matters for hearing purposes.
We did 1
S 18 ij not intend that the subject matter of the complaint on l
0 19 ' tecporary rates would involve the same data that is involved a
200 in che general rate increase, otherwise there would be no a
t-
- 21) purgese in rasolving the complaint proceeding aside from the t i
ti
- 22. j general rate increase, beccuse we could not conclude the S
l 23; cecplaint proceeding until we concluded the general ra te increase prcceeding.
How cculd we conclude?
If all the 29 !j data in tha general rate increase is to be considered, then s4 scmne:t n M AMsNA'. rNc. - 07 !!. LCCT.Y!L.: ow. 't!. - HAmm3 sun. PA tr.tr
153
=.
,~_.
4 4
1 j what you are suggesting is what we said ue were not going to 3
do.
n 3[
We said we were not going to merge these two h
4 g matters, You are suggesting that we merge them.
If we merge 5
them, then I agree with the Consumer Advocate, it should all i
6 3 await the final resolution.
7 MR. RUSSELL:
I think we have suggested a 8
compromise position to dispose of the matter and I think 9; Your Honor's point in his order was very well taken, that i
10 ;
it is in the interest of all parties to have an expeditious i
2R [ resolution of the complaint situation to avoid the.recoupment L
23 and other issues that could be looming on the horizon, and 13 it is in that interest that the petition was prepared and
.14 presented as well as to pick up a couple --
I.S f THE ADMINISTRATIVE IAW JUDGE:
If you attempt i
Id '
to merge these two, otherwise the request for an adjustment a
17 :
of temporary rates may include at least a portion of an la f interim rate increase thich was prohibited by the code itself.
i 19 {
MR. RUSSELL:
By what section of the code-?
20-THE ADMINISTRATIVE 1AW JUDGE:
By the code 31 which states you can't have a temporary rate increase during 22 the term of a general rate proceeding.
i 23 (-
MR. RUSSELL:
But that is with respect to a I
b l plj 24j company proposed rate, that is not with respect to a Commission s
\\
.23 i; fixed rate, uhich is what in fact the temporary rates are.
N I
wmen a mcm. u.s - r n. coemuew 3 r. - num:ms, m.
- ne l
154 t
n 3' They arc fixed by the Corlssion, not proposed by the companyj
\\
\\
MR. McCLAPIN:
Your Honor, could I orrer a r
e 3
couple comments from the staff's position?
4 5
THE ADMINIS1RATIVE LW JUDGE:
Yes, we cre ai g
on unuacd and infertile ground ha re and any enlightenment 6 { would be oppreciated.
9i MR. McCMREU:
I think in one sense these ti 3
questions with respect to what is proper under the statute e
o 't are really moot for our purposes.
The company has not chosen, il i
3 to appeal the Commission's decision.
There is no point in
- g gg arguing them here.
t 13 !
THE ALMINISTRATIVE IRf JUDGE:
Has not appeale;:1 1
wha t ?
r
(-
13 f
.14 MR. McCMREN:
Strike that, they did take an
! appeal but it is still not. to be decided in these proceedings.
15 J g# whether the Cocaission's action was legal, gb THE ADMINISTRATIVE IEi JUDGE:
The last case r
1 1
a te, j of the Coczonwealth Court is that there is no temporary rate 4
29 i proceeding appealabic.
They overruled the law, the pipeline
)
y case, and in the Pittsburgh Luquesce Light ' Company case.
i MR. McCLARED:
1 suppose it still remains 37 4
r the company to attempt to raise that again.
But my 22 i
-.n. i, point in that as far as Your Honor is concerned for purposes l
e Y
~'
of this proceeding those are not issues that can be and 7..
! (.
,)
h necd be decided here.
i
.n -
}
~g l
nc.=a a ww r z - n n. eeceru.ev w. - w maena.
.u
,m:
155
}
2 The petition is useful to us only to the 2
extent that it is accepted by the partien in the nature of 3j a settlement, otherwise ir still does not resolve the 1
4'.
conceptual problem before Your Honor, and that is what is p
-s 3q it we are deciding?
6f If in fact the complaint is to determine i
7i: whether TMI should go back in rate base on a future test t
3{
year basis, then it is totally indistinguishable from the i
9j rate increase request.
10 [
THE ADMINISTRATIVE 1AW JUDGE:
I don't knew e
la h that in setting temporary rates the future test year provision J
't 121 in the code applies.
I am not saying it does not, but I am 15 not satisfied that it does.
t.
14 ?
You cited an appropriate example there, where i
15 ;
the Comission could take TMI out today and the company i
16 ) could assume six months later that it is going to be back 17 [ in, and you say that the Cocr21ssion should have set the rates 16 -
on the assumption that it should have been in all the time, 4
19 e which is incongruous,
d 3
20[
MR. McCIAREN:
I think at this point, Your Honor, che company is really put to an election.
It must 31 23 determine and state what it is it wishes to pursue.
23 !
If it wishes to pursue relief that is fi 24 essentially identical to the general rate increase request, 23 then the complaint must be merged for all purposes and cannot ecnnoacu e, w m,.. we. - n n. um en.w:1.wr. - um:se uu. n.
mn
[
i 156 e
- ; be decided earlier.
1 I think there are forms of relief it could 3
a 3 [ pursue that would be distinguishable from the general race 4,{ increase.
But I raised this question when you first asked d
3 l our position on consolidation and I think we still do not a
d f have an answer, what is a clear statement of the form of
)
g relief the company wants under the complaint that is distinct i
from the general rate increase.
3 3 gf THE ADMINISTRATIVE LAW JUDGE:
That is right, 10 and, of course, at the time the complaint was filed we had no i
12 [ ides what the position of the company was.
Was the position 13 of the company that TMI should not havr teen out, should havd 13 -l been in, was that the basis of it?
If that would have been g I the basis of it, it could. probably be resolved very quickly.
,1,3 13 h But if the co=pany wants to take the position i
33 i that they have co reopen the matter of base rates as of 17 i June 1st, May 23rd when the Commission made its findings,
28 3 then I would agree they have a task that almost amounts to i
19 j another ra te case.
4 3o MR. RUSSELL:
May I respond to Mr. McCluren's comments?
It is our view that the Commonwealth Court, as 21 s
Your Honor has said, has clearly ruled that the fixing 22 1
- 7., ?
temporary rates is an intericcutory matter and is not appeal-y { able.
Therefore, with respect to the iscue of TMI-1 inclusicgl i
in bcse rates, that was decided by that intericcutory order, j
- ,5 i,
m:c2 cf c4 $*?J:3ML If?C. - 27 f f. L8 07*ll(* eW AYO. - lf A MMt 3 7 L*F'G. f*A
$7112
157 3
s I
a J uhich is nt;t appealabio until such time as the complaint I
S 2 l against those rates is ruled ~upon and anything associated b
i 3, with that case is then appealable, o
3h So there is not any suggestion whatsoever in 5
g f our minds about the inclusion of a claim for TMI-1 revenues s j in this complaint proceeding.
It is simply a matter of fixing 7 f what should be the just and reasonable level of rates excluding
?
3[ TdI-1 from the capital and operating costs, from the claim.
i I'
p{
Therefore the complaint claim differs from ft go t the rate filing claim in that one major respect among others, i
g3 ; namely, the general rate case filing includes the claim for n
33 TMI-1.
The complaint does not.
That is a taatter to be resolved.
.Oe 13 :t y}
THE ADMIllISTRATIVE LAW JUDGE:
I have not
\\
13.: asserted any opinion as to whether that portion of the
.1 16 l C mission's order, which took TMI out of rate base, was g7 - appealable or not.
I think the court has ruled that the i
28 f. temporary rates themselvas, the complaint as to teaporary e
- g l rates themselves as being inadequate and confiscatory would 3
i 2 nil be interlecutory and would not be appealable.
2 2.1 h But I connot see where the Commission in setting temporary rates as of June 1 must run the risk that g3 I
q l
33 3 in daleting a portion of the capital investment improvement 8
$ of the company,cust take the risk that their temporary rates, l O' y~1 23 ] even uith that deletion, must result in an increase in the a
d
!senr:o Acn a N*ts :A?
f!*'L
- U." LOCC*Et OW AVL
- M W ISEUAG PA.
17117.
9 t
158
+
a
.1 ] ratec existing up to chat time.
)
2j It just docc not seca proper, under the j
g 0
the Com:nicsion 9 j provision of the Act 1310D which/ asserted that the rates v
4 were excessive.
It was not upon the complaint of the company a
5 that the rates should have been increased.
6@
MR. McCLAREN:
I think, Your Honor, that was t
?; contemplated by the Cocmission and you yourself referred to i
3 f it in your decision with respect to consolidating these cases, t-
'J j that the Commission said if it turns out that they have erred 10 [ in setting those temporary rates on complaint of the company, l
.13. there could be a restatement of the deferred energy balance 13 i of the company.
13 THE ADMINISTRATIVE LAW JUDGE:
I think that g
24 ' is the general assumption under that section of the 'act, that 3
15 f the question is not whether the rates would be increased, but d i the quentSn is whether the rates should be decreased, and 1
l 17 the company's position, if they want to open up the whole test.
13 hyear and future test year to March 31 of 1981, then in effect I
l 19 it amounts to what is exactly prohibited by the code, which k
1 l
20]is a temporary rate increase during a general rate increase i
21 h proceeding.
2;', g Mr. Barasch?
i j
MR. BAFASCH:
Could I have one second, Your 23l.
l 7,4 Honcr?
g
?
25p THE ADMIlilSTRATIVE Lui JUDGE:
The issue, as mA:
U.
- vv:n=rm o mm _. me. - a-u. torer. ow vs. - :'Amosec. PA-
159 il 4
1 !I see it, is where did the Commission go wrong when they set 4
Q 3 thetemporary rates?
Where uero they wrong at that time?
4 34 MR. EUSSE11:
All right, then, the company 0
4 3has filed a complaint with recpect to the temporary rate 5 blevels, saying they don't think the temporary rate level 4
e 6i fixed was a just and reasonabic level.
h
?
Now the issue in the complaint proceeding is 3! not ubether the company has filed a new rate or new rates; i
9 gthe issue is what evidence doas the company have to provide 10 in support of its claim that the present rates are not adequate?
11 The evidence that we use is evidence that is i
- 13. already here in support of another prceeeding but is equally O
2*ja9"'i="'**
- 3""* '** **** """"*"" ** *" *
" " """ 3'>
24 l1981time frame.
i 15.4 The June 1,1980 time frame is smack in the J
4 M s middle of the test year we are talking about.
J J
l'/ a So it is a matter of evidence not the format i
13 iin which the evidence was originally submitted in another i
a 19 fj: ratter, but it is suitable evidence in support of either one i
20 i of the claims.
b
'd1 l THE ADMINISTRATIVE 1AW JUDGE:
I believe the e
22i coda provides as long as the Commission allows not less than 3
23 } 5 percent on the. original coct, that that is not confiscatory, i
Q
- Wj uhereas it appears that the company in its prasentstion appears U
23 $ to assume that the Ccamission must set the rates in accordance
?
.mn:.,en :. vunm. me. - w n: txmu w : r:. - umma. n.
ew
139-A
_ _.. _ _ _. _ ~. - - -
'. { with the rate of returns that were found in the last rate 7? casa.
O If MR. BARMCH:
Your Honor, if I could make onei el furcher coment.
I believe I heard the ceggestion here from s
3 i Mr. Russell that che case of this future test year case 2
s 64 associated uith TMI-1, I imagine it is some $35 million, 7 Q that somehow inferrentially $40 cillion has nothing to do O with TMI-1, yet co.nehow further inferrentially $25 million f
of that is unquestionable, and I don't think that bssed upon --
i
'.0 !
TPa ADMINISTPATIVE l#1 JUDGE:
Well,if you A
11ltakeMr. Russell'spositionheuouldbeentitledtothe d
12 i; 425 million plus another $25 million of TMI s hich would be 3
!e 13 'j a rate increase of $25 million.
g j
?..v vi 1
15 f j
(Trcnscript continues en Page 160.)
If 7
?
t l
1? ]
I 23 j i
.19 1 a
s i
.U. p k:
2,2 )
i n
23 5 i
+
i
.-,.n 1
.J,j 1
A
_ -t o:::2r e t 3 u ra s: ten m e. - 27 N LC C? '.cv Avn - se r.a.rs r u o. PA.
sitt:
l
. 3-1.
1 2$
MR. RUSSELL:
Va make no such clai:n in the a
3 f complaint proceeding.
(
3l THE AEMINISTRATIVE LAW JUDGE:
Yes, but from
,t if 4 i eur discussions here,/ Commonwealth Court decided that nil
)
.51 should be in, then what I gather, you would cant that h
6 ;1 25 million in plus the 25 million that ycu are talking about.
7Il MR. RUSSELL:
I may have misspoka.
I am not E
O saying in the complaint proceeding 'we have any claim for
?,
the reinstatement of n!I-l revenues in this proceeding.
10 !
The TMI-l claim that we make is in connection with the y
12 i base rate filing and is not part of the complaint claim.
1? b MR. BARASCH:
The point I was trying to make
(,
13 was perhaps corollary to what Mr. Russell just said, Mi certain different i:nput.
If there is a piece of his futura i
15 ) test year claim that has nothing to do with n11-1, somahow l
16 i1 the suggestion is the temporary rate claim can be disposed i
17 h of because by everybody's calculation, somehow $25 million d
.L5 ')
is cicarly allowable.
I would like to note for the record i
19 8 as far as the Consumer Advocate is concerned, we would make
\\
10j no cuch concession at this time.
We have no evidence 1
31 t; devabped on this record as to what the pure non-TMI revanues i
2
(
23 }-
would be for this company and to pull a number of $25 33 l aillion out of the hat has no basis in this record and if r
2 l
.a4] that is what is going to go on here, we would want a full n
o 25j developmant of the record before anything happens.
1
_.,,c._.._._.-.~.
I
3-1 161 p. -..- -- - -
1 ak THE ADMINISTRATIVC 1AW JUDGE:
Well, let's go
'5<
2 h on with the cross-examination.
Is there any crosa-gg) e examination of Mr. Graham and Mr. Huf f ?
s n:
s, j MR. PANKIW:
Your Honor, we would defer to the
~e d
5j cross of the Consumer Advocate.
i B.
6j MR, RUSSELL:
If Your Honor please, we have a 2
y y little further direct to cover the exhibits, and so on.
14 3
If Your Honor please, we have handeo to the p ] Reporter three copies of a document which we ask to have yo (
marked for identification as Mot-Ed Exhibit B-132.
We have t
gg : called Mr. Huff and Mr. Graham back for further testimony.
3 13 "1
- 23. !.
JOHN G. GRAHAM and D. L._HUEP, called as (g) 24 witnesses, having been previously duly sworn, were recalled 11 and testified as folloNs :
5g i
16 :
j
" DIRECT EXAMINATION 17 i4 BY MR. RUSSELL:
20 ij Q
Mr. Huff, I show you an exhibit which has been 4
13 ] marked for identification. Was that prepared by you or
~
4
,0 ( under your supervision er direction?
r* i I
A (Mr. Huff)
Yes, it was.
t 9e
"" 3 Q
Was this an exhibit that was a subject of 3
a racuest just yesterday afternoon?
.., l g
1 A
(Huff)
That is correct.
I y~
, -. r
.eo ne ncec t :. wstMA nL' ~ 27 ;
Co=("It' M L*C ~ MMM. M~
WM
3-3 Grahem/ Huff-direct
--. 6.9 F
2k Q
Could you describe briefly what is represented I
%f;on that exhibit?
33 A
(Huff)
Yes.
Referencing the question of Your E
r.'.f Honor of yesterday af ternoon, it was my understanding of 4
5 that question that it was important to the proceeding that d ; one would take a look at the September 30, 1980 income i
?
statement and purge TMI-2 and TMI-1 from that so that onc e
0 F could take a look at the income statement excluding TMI t*
95 in its entirety.
That is represented on Page 3 of Exhibit 5
10 $,, B-132.
f, n
In addition to that, I have made an adjustment
- 13. in Column 5 which the $4,658,000 was charged to expense II representing the alleged coal overpayment which the 14 I Commission in its order of May 23rd asked us to reduce the k
IS$ asset, so therefore I have reinstated that entry as a f
n 16 j normalizing entry,
?.7 Further, in support of the claim of the company, 3
23 j what we have done on this exhibit ic then, taking the 19.$, measure of value, and this I am referring to on Page 1 of f
20 ) that exhibit, taking the measure of value exclusive of 4
31 j TMI-1 and TMI-2 at September 30, 1980, applying an overall 5
33 # rate of return which is calculated on Page 2, utilizing 1,
r i the 13.38 per cent rate of return to come up with an 8
34; ovarall return, comparing it to the normalized return en O.
y P ?ago 3 and than calculating what the revenue requirement:
I i
l MO"-T*CA C*d 0; ;?AR!Mu, IMC. - ::7 Pf. L4COMt.bCW AYL
- U AARf 3CurcG. PA.
17th
3A Gra Na/liuf f-tiret
_.. _ 163
,_....e__..~.--.
a 1
? q would ba to achieve that rate of return.
In this ccre, I-s L ] it is $31 million or in encess of $31 million which far g
lJ S,1 exceeds the $25 millicn that we were discussing yesterday.
h 4 lj 1 believe that is my interpretation, at lecat in part of
- )
5 $ what Your Honor wishes to see.
'i 6 ll In addition, Page 4 of this exhibit, in a private 4
t 7 i discussion with the Staff attorney, he wished to see a more l
1 0 )1 definitive breakdown of the operation end maintenance
?
Ij expenses.
Page 4 has baen included to satisfy that 10 I request.
I I
Mj Q
All right, Mr. Huff.
The eclculation summarized 4
12 d on Page 1 of Exhibit 3-132 is predicated upon a proposed
.I
(
c.S]13.38percentreturnoncommonequity,isthatcorrect?
g li
.M )
A (Huff)
That is correct.
dj Q
In the March 31, 1981 test year data provided u
Id 4 by Met-Ed, what is the rate of return on coccon equity?
I l
'? )
A (Suff)
Fifteen and a half per cent.
3 i
18 j Q
If fifteen and a half per cent were reflected l
i i
19 l in the claim instead of 13.38 as shown on Exhibit B-132, 1
i E; ;. what uculd che additional revenue requirement represenc.
i
=1 A
(Huff)
Ii. would be in excess of $40 million.
ci.
Q and in what Met-Ed exhibir could that data be found?
A (IIuff';
My r aference would be to Exhibit 3-1,
.g 1
i 2..
Part S, Peger 1 cnd 2.
If one were to take the histori cel
~~ ?,: o1*:LW.N ?.
3 6 r? 5 H ? ?., !!!C. - n7 f :. ' C C:0*il%'.Ca% I '.~2
- F ~ O!CS %*EG. I' A.
I ?!I2 --
~
3.5 Graham / Huff,. direct 164 7'J B
1 test year of March 31, 1981, which would be Part 9, Page n
2 y 1 and Pcge 2, I believe that the equivalent anount would ba V
q, 3 l approximately $31 million.
j 4d Q
For illustration purposes only, if the rate of 5
return of 13.38 par cent were used in Mat-Ed's March 31, 5i 1981 test year claim, what uould the revenue requirements 7 I under those circumstances represent excluding, of course, N
G l the TMI-1 claim?
U 9[
A (Huff)
Would you repeat the test year agaia, f
10,
please?
11 h Q
March 31,1981.
it (Huff)
Appro::imately $35 million.
12 y a
L IS Q
And where does that calculation appear?
.16i A
(Huff)
It is my recollection that it was in 15 ;5 E::hibit A-3, Appendix F.
That would be Mr. Hafer's i
17,I exhibit.
i t
17.'
Q Are you familiar with the common equity return la j allowance in the recent Philadelphia Electric decision by It 19 K this Commission?
Either you or Mr. Graham, as the case may 20:i be.
I 1
1 31 ]
A (Graham)
I believe it was 14.35 par cent.
u 22 l Q
If you utilieed that rate of return for 4
23 )1 illustration purposes in the cciculation reflected in i
33 Exhibit G-132, wbct would the additional ravenue requirement i
~
3 repra.sent?
33 t
a h
- r3ouerc t a fastann n.::. - m tre 1:eekv 12.e,y Avt. - nat:rnto pm s7tt:
3-6 Graham /Heff-direct 165 y__
i 2f A
(Graham)
It would be abouc $3 million more 9
- gi than the $31 millien that appears on that exhibit.
I 5 ).
HR. RUSSELL:
I believe that is all we have 43 at this time.
N w
5$
THE ADMINISTRATIVE Lt.W JUDGE:
By that line of l
6 l questioning, does the company suggest that the rate of 7
return at the last rate case and the rate of return in U !, equity in recent cases should be requirements of the i
93CommissioninsettingthetemporaryratesofJune1,1980?
10 MR. RUSSELL:
I think our position is that the IR rate of return of fifteen and a half is an appropriate level, i
12$ appropriate minimum level considering current circumstances 13 i including, among other things, the fact that you are llI I4 ) calculating rate c. return on equity with respect to a iv company that has had all the capital and operatind costa n
16 ! of two nuclear units recavad from its base rates.
4 17 !
THE ADMINISTRATIVE LAW JUDGE:
Does the company I
1 i
la i take the position that any temporary rates above'5 per cent 0
s 10 i; on tha dr.preciated original cost and less than 13.38 per cent
]
}
101 on common equity would be confiscation of the company's i
J 92 1 assets?
J l*
nt MR. RUSSELL:
I would say we could use that i
3.1fconstitutional-resort if naed be.
I don?.t think we would i
i
+ 1 ;' have to get as far as the constitutional issue.
I think l
V 3-3 ; we would simply say it does not meet the statutory test j
I
~e:o: Acw : twnw it:c. - 27 ?:, t.c 9 /t1Lw/,, tar. - P A.=intsc enc. Pf s yn:
a
- _ _. Gra.,h. _aa /. lief f.._redire c t
-- 16_6__
3; 1
s of bein; a just and reasonabic rate.
l
'4 [
THE ADMINISTPATIVE LAW JUDGE:
The statute A
r 33 says the Commission can set tc=porary rates not to roturn l
accrued 4, f less than 5 per cent on the origiuol cost lecc./
depreciationf.
I 5{
MR. RUSSELL:
I believe, as I understand it, 5
the Comission acted pursuant to 1310(d) and in the case
?,e of 1310(d) in the fi::ing of temporary ra'tes, the utility is t
2i entitled to complain if it believes that,the rates are 9 f unjust and unreasonable, and as we would view it, that go l would be the applicable ctandard to be used in determining that has been filed here.
y,3g the complaint s
n$
THE ADMINISTRATIVE LAW JUDGE:
Is it your t
13 i position that the fact referred to in 1310(a) has no sU 14.l'otherreferenceto1310?
'I 13 j
-MR. RUSSELL:
We don't believe that is the 24 : section under which we are functioning here.
We don't think u
gy y it is applicable to the 1310(d) situation because of tha i
is {
specific provision in 1310(d) for the complaint end the l
19 ;,, st:ndard by which the complaint should be determined.
~
l 1
THE ADMINISTRATIVE LAW JUDGE:
Mr. Burgraff.
39q I
y,j MR. BURGRAFF:
Thank you, Your Honor.
We have 1.! several questions.
l 4,. 1 t
,i 33 j THE ADMINISTRATIVE LAW JUDGE:
Before you start,
,i -let me ask one question.
In the' complaint against the O
^;
G
,,, q temocrary rates that are established by ths Comission on
~?
l i
l L
w.ac e um ms. - =r w :ma: m, un. - wmsw w. w. m1.
I 3-8 Graham./ Huff _.. direct
- 167
- G e 1y June 1, 1980 bow is any testimony relevant as to what the 3
3 cost of credit, the cost of bonds in September, October of 1
3 f 1980, what relevancy is that in the cc:aplaint against the 4
i.1 rates that were set on June 1, 19807 What relevancy is 3
5'fitthatmoneycostinOctober1980?
6 MR. RUSSELL:
Well, there is always a timing s
7.f problem whether one is using a historical test year or a 3 l future test year and as we would see it, the cost applicable a3 to a reasonably current ticaly period is the best that the e
M t circumstances can possibly hope for and the coat that we EE E are referring to in the common equity picture for Met-Ed, 32 ' for e:cample, is in the test year presentation under the U'
March 31, 1981 data and is significantly less than the testia y
,,j M.i of its witness would support while there is a timing C
If 2 difference of several months.
U i TIE ADMINISTRATIVE LAN JUDGE:
Where is there l
5 17 ] anything in 1310 about any future test year?
16 MR. RUSSELL:
Well, the issue in 1310 provides 19 that a utility may complain i.E it believes that the rates Zi are unjust and unreasonable.
I M I.
THE ADMINISTRATIVE LAW JUDGE:
At that time?
i i
I.
33 )
MR. RUSSELL:
Yes, and certainly the burden 1
Ulofproofinratemattersisontheutility.
l 2.
In131CE, which has to do with the use of a 35j future test year, is provided specifically that in j
t uma ac: r-w.,e n x. - :s n. =ce. u.y m. -..mmevu. m m t:
, 3-6,
Graham / Huff
. direct 158 I
" h discharging; its burden of proof, a utility may utilize H
I Q
3 the future test year, so wa think that the future test 3f year is ' perfectly available whether it is a 1308 case, il 4;
whether it is a 1310 case or uhatever else it may be as t
1 3:
a vehicle by which the utility can meet the burden of proof J
6) in a rate proceeding that is imposed upon us.
7
. MR. GRAHAM:
You said you were asking the C[ Witness that question.
If it would be of help, I guess 9l our thought was what is actually happening under the 10 !
rates that were set by the Commission effective Juna 1st f
11 i was the best evidence of the adequacy of the rates, We 12 !
could prepara an exhibit just like B-132 that would use t
13[r 12 months ended May 31, 1930 so that we would have a period 14 (.1 that would be identical to that when the temporary rates
?
15 [ became effective if that would be of help to you.
I think l
16i that it would show the sa=e kind of result, namely limiting i
17 [ our complaint against the temporary rates to the last 18 ;
allowed return on equity and limiting it as we think we i
19 [ have to the amount that waa taken away from us by the 20' Comission, the $26.9 million, that the $25 million would i
21 g be thera.
If it is of help, we would be happy to prepare 32 that exhibit.
4 33 ]
THE ADMINISTRATIVE LAW. JUDGE:
Conctner Adi/ocate, 1
]\\_..
23j you may proceed.
j l
Mj MR. BURGRAFF:
ThanI; you, Your Honor.
L
.va:macu e merw., we. - u n. tecwxu.ow m. - um:2cm. n.
,w:
l I
3-9 169
-I 5
.q CEOSS c,XAMINATION O
3 BY MR. BURGRAFF:
2 Q
Since we have both Mr. Graham and Mr. Huff I
4 on the stand, I will attempt to direct my questions to 3
whom I think is the appropriate witre as and if I am wrong, 6 3 I am sure you will correct me, and the appropriate witness i
? j will answer.
i 0i In dealing with the proposed petition that the i
9 company has presented. Mr. Graham, isn't it true that if 20 l the Public Utility Commission grants your petition in its i
13 j present form, eben Metropolitan Edison's return on equity i
12 / will be improved?
II A
(Graham)
Improved from what it is today or g
2.' l improved from what it was when the Commission set its 13 temporary rates, Mr. Burgraff?
j 16 3 Q
Well, from basically what it would be in the t
l'/ l future if the petition was not granted.
I 18 i A
(Graham)
Yes.
1 don't know of any rate 3
17lincrecscthatwouldnotdothat.
- o j Q
Now as I understand the request for the t
31[ disposition of tha $25 million which has been in question, y
3; p am I correct, sir, that from the point of Decision 4 base i
2J j rates will be increased by an amount to reflect that on an 2
g.t annual basis and there will ba a return to June 1 of 1980 23[ for som2 type of pact treatment, is that correct?
)
.W:7"Tw 3M o itr <.e3X AL. !?;c. ~ 25? EL* LOCT41'. LOW A*lL -- *4 A2 5ts 3OftG..=/. 17t ta
Grahca/ Huff-crcss 170 3-10 v
1 A
(Graham)
Base rates will be increased from 6
2 the date the order becomes effective by $25 million per o
S, year.
For the period from June 1 until that date as set i
4 l forth in the Commission's May 23rd order, we would make 5
accounting entries that would restate the deferred energy 6! balance on a consistent basis.
I Q
Perhaps you can just explain to me in a little i
3; more detail tha accounting entries that youpropose to make 9;
and indeed the rate impact that will have on the 10 l Metropolitan Edison customers for that period of time.
t IR &
A (Graham)
Accounting entries are set forth i
22 [ in the petition at paragraph 10, Pages 4 and 5.
We 4
c 13 would charsc Account 186, which is the account for deferred 14 I energy costs, and credit operating expenses, other power 4
13 y supply expense which is Account 557.
We would propose 4
16 [' that the deferred energy balance, which would be larger, 1
.17 } would be collected over the period at the end of the a
l
- C ] eighteenth month amortization that was allowed by the 19 : Commission.
i 70 j Q
Kell is the impact of that, Mr. Grahsm, that l
]j m. approxicately 512 million -- I am using a rough number.
n.)i If I am wrong, please correct me.
That will have been 33 collected during the time from Junc 1 to the end of then 7 7. ';j current levelized energy clause, will then have to be torne p
- u i
^Jj at some point in the future by ratepayers under the new
'L
- w.ma: a n.uwa.. i.:c. - n c._ co=vii.ow.w:. - :un mnew. e.s.
iniz l
3-11 Grahacicuff-croso 171.
s 7 k proposed energy clausa?
4
(^
3f A
(Graham)
Just dollars that have been collected h
.4 51 would be attributed to something other than deferred energy j
11:
o i which is exactly what the Coc=ission anticipated in its N
May 23rd order in the event that there was a complaint 5
against the temporary rates.
?)
Q Now from earlier today insofar as any potential N
$ltestyearmightbeassociatedwiththecomplaintagainst A
9 temporary rates, there was some discussion of the future 1
20 '
test year and. a differentiation between a TMI-l piece and i
la y a non-TMI-l piece of that future test year and tha requested 13 revenue requirement in the general rate case.
Perhaps l for the record, sir, either you or Mr. Huff, if you know, h
13 s.
M[couldgiveusthedelineationsofthosetwopieces.
I maan A
13 ) the monetary amounts of each one.
4 15 ?,
A (Graham)
I think I can do it for you, A
17 jl Mr. Burgraff.
In tha filihg,. that initial characterization 2d[j of the revenues requested could ha broken down as follows:
B S 3 Non-TMI related costs, both for higher rate base for the 1
1
",0 i effects of inflation for operating enpenses, all of those 2
35 )4 things at the 15.5 requested return on equity is $41.1 I
- c,]million.
TMI-l at the 15.5 return on equity is $32.4 million.
53 f The difference between the last allowed return on equity I
4 of 13.38 per cent and the 15.5 per cent is approximately G_.
3., 3 S12 million of the total request of $76.5 million.
Part
.'i l
m,,m m _ m...
m =. - = m. m =- m. - ~,m me. m
- m. m
3-12 Grcham/Iluff-cros s 172 2
F.'; of that would be attributable to the TMI-l part and part 9
CO' t,j to the non-TMI part.
3l Q
Now, Mr. Graham, I believe in your answer you
.S f stated that the initial characterization was a breakup of i
3g32.4millionversus41.1million.
I am afraid by your 9
a h initial choice of worde, is there something that has 7
occurred in the interim that would have altered the particulsy i
4 3, vslues of the rate request, the general rate request between 9 i TMI-1 and non-related TMI-1 matters ?
s t
10 j A
(Graham)
It is our intention to justify the your El )g revenues without regard to whether/ characterize' them as et 13 l TMI-l or not as the case proceeds.
We do intend to file a
il fs.
11 j acme additional testimony and as the material is updated, d
d l14 l 92 believe th:it core of it will be attributable to the
}
15 i THI related category.
e LS f Q
So as I understand what you are testifying to,
?.? !! Mr. Graham, and correct me if I am wrong, that even if 1
23 l in the general ratesTHI-1 related costs are not allowed, 1
.3 l that the company is still of the opinion that it is allowed i
l 1
1 2
20 j or it has an argument for ccore then $1.1 million?
n 21 A
(Graham)
Yes.
i 23 6 Q
Now as I understxd Mr. Russell earlier this l
0 l
33 ! morning, I believe his statements were to the effect that
]
I lp 3.;. j if one looks at the future test year and the $76 million J
l
- s( revenue request as c ootential justification for the prasented
-j mr 1
mw.ca a tms. m
- m. - = n. i.e mu.cw w:. - ammma, n.
I t
3-13 Gra ham /5u22-cros 3 173 1 ; petition to settic the cospicint at the temporary ratos, E
that one would have to ccmpare the S25 million to the Y
3 non-TMI-1 portion of that rate case or that future test 43 I guess my question, sir, is to the extent thct the
- f. year.
5L rate case claim oculd not justify $25 millien of non-IMI-l 5
rate relief, would not this petition indirectly recognize I
1 7l' TMI-l related costs for investment?
i O)
A (Graham)
In the last proceeding there was a W
9{ set of exhibits produced by the Staff of the Commissien n
10 - that I believe added up to core than $24 million, so I can't 13 [ find a set of circumstances under which the non-TMI related 5
13 !
result of the race case would be less than $25 million, i
At the old rate of return, Exhibit F to Exhibit
(..
g 14 i A-3 uhich Mr. Huff refer ed to, comes up to $35.3 million IS so I have difficulty imcgining a set of circumstances 1
15 j undar which the S25 million would sorachow be anyway 1
17,1 attributable to THI-1.
J 18 (
a 19 !
i 1
30I (The testicony is c >ntinued on page 174.)
i
.31 !
i l
22
- l a
b 33 3 i
I i
J
/
l 2) 1 ne:me ca o m:.:mt., me. - 27 i. ;esever.i.ew 4
- : w r.,_m nc. ca. ni i c.
GrChtd/Enff-Crba s 174
=-
1-0 I am not surprised with your view, Mr. Graham.
['
2 f I thought I phrased the c.uestion es a hypothetical.
Please U
3 1
3{ take it in that veic.
't 4i If one assumed hypothetically that that was 1
5 + the case, then wouldn't the granting of the petition indirectly 6 f recognize TMI-1 related costs of investment?
7 A
(Graham)
I don't believe so, not if the G l Cottmission sets the rates in the complaint against the 9 d temporary rates on the basis of non-TMI.
It is only TMI if 10ftheCommicsionsaysitis.
I just don't understand how it il [ suddenly would become allowing some piece of TMI-l back.
b 13 i Q
I understand, given your answers, we are t
13 i dealing with a shifting definition for rate case purpoces of V
a
.14 [uhat is and what is not TMI-1 related.
9 13 l Let's limit the hypothetical to the $41.1 3
16 j million initial characterized non-TMI-1 piece, so then the 5
I? j hypothetical would be structured thusly:
to the extent that i
10 j the rate base claim does not justify $25 million of that i
I?! $41.4 million initial characterized non-THI-l piece of rate l
20ireliefi wouldn't the granting of this petition indirectly n
N
- 31. recognize THI-1 related costs of investment?
11 22 l A
(Graham)
I think you are asking me to engage s
14 23 '] in a kind of conjecture that uould be excessive fine tuning s
2.i.f and I really can't respond to it, that I would suddenly find
).
c v
a 25 q citer the fact that TMI-1 had in ser.e portion been recognized.,
^
- un en a mw.u m=. - a n. seazvm. rr x.= - mmsum. n.
nn=
Grcha /11uff-croze
- 175 1
s 2.
We believe that for this preceeding, the
(
y, i cocplaint agalart the temporary rctes, re are accepting the i
O 3 '.uay in ubich the Ccxmission said that rates should be set, f,
that it is.uithout TMI taken into ac count, and on two bases
'a Lswe have shown a method of making rates that demonstrates that t
6.$ it will not be taken into account, Exhibit B-131 and EM21 bit i,
i "l
l J
I don't knew b'u to suddenly say that at the Gl o
i 7 3 end of a rata case next spring it turned out that somaching 1
19 f else was done.
{i ig Q
With regard to that answer, Mr. Graham, d
12 Perhaps we can go to Exhibit B-132 that Mr. Ruff has presented, is j and perhaps we can ash Mr. Huff some questions in tha 1
l 14 j Mr. Huff, en page 1 of Exhibic B-132 am I
- i x 3, correct in assuming that the $546 million rate base listed as 2
- 3 l in the first line of that page includes deferred energy i
p; i balances ?
-1 1
i 3a (
A (Huff)
Partially, yes.
It only includes the i
e,p j deferred energy balance subsequent to Ju.ly 1,1978 in sc: ard-l i
- c c ance with the rate-making treatment that was afforded tha 6
3J (company at RID 626.
b 22 3 Q
Let me understand your answer.
You are b
5.u
- tectifying you were grented that trestment in your last i
' general r:te case for Met-Ed?
's C
3d l.
A (Huff)
Putting it another way, there are two e
- ':..3 cit, ~ ;ts : % '.':c. -- 07 E C OT" ' 0W ^'/2
- FS* Eft'M. M.
t ?! t t.
Graham-Euff-crosa 17 5._.,
. =._.
- $different energy balancca.
One that cccurred becauce of the
- 3.,* adoption of the energy clause effective,Tuly 1,1978.
The Q
i 3 f deferred energy balance for the prior period, I belisva, was i
4 [1:xcluded frca rate base in RID 626 and we have th y (it in this calculation.
6 Q
The $546 million rate base which you have jjpresentedonB-132,page1,hasnotbeenreducedbysources f
g,of funds from preferred dividends or accrued interest, is f
I e) that correct?
h go j A
(Huff)
Yes, it has.
13 '
Q It has been?
s 12 l A
(Huff)
Yes, sir.
We utiliced cash working 13 l capital that was allowed in the last rate exclusive of TMI-1 O
- p. '.and 2, as was presented in that case, $5 million 203.
That 13 ; was substantially less than the claim the company made in
~
16 l that case and represents the elimination of dividends and 37 j interest.
It does not say that we accept that position.
1 gjHowever,forthispurposewehaveexcludedit.
4 3
- g 3 Q
At page 3 of Exhibit B-132, I am correct, sir, 1
l that as an adjustment you have reflected expense increases of 20 }j 2'1 j cpproximately $20 million for reserve capacity payments, is 22]j that correct?
(Huff)
A
/ Have I experienced a $20 million increase in 23 ;
i n
g 1 expenses ? We have afforded the same treatment here as in d
l the 23( RID 625 in which we aliminated/ reserve capacity effect on
-j o
I-=
r epecn n 1.mst? a t.,
't!=. ~ f"?
- 1. LOCW:t t.ev/ Av2. - :-rt..warum. PA.
17:t2
Gra na.c/ 3u f f-croca 177 5
I j LII-l and TMI-2.
I utill ad that dollar arount tha t was in
~I.; our hiatorical test year data basically because of the severe g yo if
, j limitation of time.
It could not 'oe calculated as of September I
' ?;30.
4:(
Tnat takes quite a bit of time.
8 So for purposes here I utill:ed uhat ucs in 5l
. the historical test period.
h Q
Perhaps I should phrase it this uay, Mr. Huff.
7; gUnder Footnote A in the two columns that it refers to under S
3 jTHI-2 and TMI-1, am I correct in assuming that the expenses 9J 3
10 l involved have baen increased to reflect reserve capacity w
.i2 l; expenses of $20 million for nil-1 and for TMI-2?
A (Huff)
It is treated the same as the
- 17.,[
Commission.
In other words, there are C&M erpenses and to g
,<v,.j offset the expenses there are reserve espacity payments.
lit is treated the same way as the last rate cases.
1F {
3 Q
So uhat is the answer to my question, sir?
Id I I
A (Huff)
I am trying to figure out the total
- 7 :
a S of uhat the question is.
If you are asking if in all other 16 j j there is an increase in expenses, or are you looking at TdI-1 19 2
i a nd TdI-2 '?
20Q
[
If you are locking et n11-1 and BiI-2, wa are E.!
_ ; raducing those expanses because reservt capscity credit is eu. y ejust that, it is a credit.
7,31 I
We have pulled no miracles.
This is in a
3.:. -
W a conformity with past rate making.
23y vm :n a ms.mm me. - n : ccev.w.
.v=. - +.w wr~=. n m >=
Graham /Euf2-croca 178
-- q 3
s 3$
Q Perhaps the question is, Mr, Huff, are the l
I
~
y, jreserve capacity expences in column 4, $20 million higher than j O,
r, 3 jthe resarve capacity expences in colu=n 17 A
(Euff)
Yes.
However, I think -- now I will
.g have to refer to the historical case in the area of Mr. Newtonbs 3
6 htestimony -- that there are three parts to reserve capacity, 7 one esscciated with Unit 1, associated with Unit 2, and asscci$ tad c fuith All Other, and it is true that the All Other expenses are gt higher than the net total by about $20 million.
10 Q
Would I be correct, sir, that this pro forma 33 l $20 million we are discussing, shall we say the pro forma 12 payments, reserve capacity payments we ere discussing account o
13 l for twenty out of the $31 million increase you state that
!3-132 juscifLos?
y,4 15 k A
(Huff)
No.
y$
Q Why not?
A (Huff)
In the decision in taking Three Mile 37 3 { Island 1 and 2 out, the Commission took into effect the 19 j reserve capacity in both instances.
That is precisely 30, what I am doing, 31j The calculation of the $31 million indicates 1
~
22 j the other than TMI.
We have done nothing more than what the Cc:.nission has done in this caso.
23 2
Q New, Mr. Huff, was this $20 million expanse
~7 3
b
! we are discussig booked during the year ending September 19807 33 M M12 tC*t & PL* 'I sit'sL. C:. - 27 11. CCOT*.*Rt.G'J AYL - HAs:Mt33U*t$.
P,*
f7?t2
Graham /Euff-cross 179
)
i i
A (Huff)
It is included in the reserve 3
capacity expenses that were booked, yes.
g 3
.4 Q
And, sir, uhat was the reserve capacity 4,4er. pense booked during that 12-month peried?
I A
(Huff)
Net?
g g )!
Q Yes.
A (Unff)
Since this is on a split year, I do 7
a 3 not have the proper infortration with me to determine that.
8 a
9j Q
Could you turn to Exhibit B-1, Part 8, Page 17, 3Now under As Budgeted behind line 12, under reserve capacity, g
i
- there is a negative figure, is that correct?
g A
(Huff)
That is right.
g Q
I am correct that is a negative expense, is 13 ithae correct, sir?
A, y I
gl
/.
(Huff)
That is right.
Q Am I correct,. sir, at least according to your g
budget that that is what is expected to be booked during the l,e, ;
i 13 j future test year presented in the general rate case?
u gg j A
(Huff)
Het including Three Mile Island 1 and glThree Mile Island 2, yes.
J Q
Excuse me, I didn't hear the answer.
"1 (:
4 A
(Euff)
That is net including the effects of l
} Three Mile Island 1 and Three Mile Island 2.
s.3 4
)
Q Mr. Huff, is part of the reason that that w.-
$ budgeted number reflects a negative expence that currently l
.. : 3
)
J
-m :. w.mt t.:c. - ::7 :..ocanaew un. - :omcwm. 7A sm:
1
Grcham/liuff-crosa 180
- 7. = _.
i 2 dand anticipated through tha future test year in the g2neral i
O
- p.,lrate case the PJd accounting treatment as currently being O
3 given still reflects TMI-1 nnd TMI-2 as reducing any reserve 4 ::apacity payments that Met-Ed might have to mako?
3[
A (Huff)
I am not fully qualified to respond i
6 to that, but that is my understanding, yes, or at least to
'i some degree.
I S.
Q If I could return to the proposed petition, t
1 9lcs I understand page 8 of that petition, Mr. Graham, the coopany 10 is requesting that TMI-1 be classified as plant held for future s
12 l use effective as of June 1,1980, is that correct, sir?
12 j A
(Graham)
Yes, sir, 13 ;
Q Now if this treatment is granted, Mr. Graham, bs a
14 l how will THI-1 be treated insofar as your tax retures ?
15 i A
(Graham)
There will be no change for taxes.
15l Q
So then you will continue to depreciate it 0
17 l for tax purposes, is that correct?
le :\\
A (Graham)
Yes.
)
19 f Q
Mr. Graham, may I ask why the same treatment 1
20 j hss not been suggested for TMI Unit No. 2?
21 A
(Graham)
We believe that there is a lot more 1
22 { question and ambiguity about Unit 2.
We have had discussions Ti 23 } with our auditors and with the staff of the FERC and they 1
- have significantly mora questions about it.
We felt that
. O v.2 l
23 ) for purposes of this prcceeding, that is, the complaint agains,t l;
vew.c., a n nca t. me. - :, n. s.cmir n.ev en. - unr. sme n. nsu
C-8 " ' ""ff5_""
!f1_,
0 y,
the teaporary rates and what might be donc nou, since your
{
3 uitness had testified about stopping depreciation on Unit 1 g
- . iand the FERC staff ssea.s to be on board for that, we could 4hatleastaccoroplishthat.
l 3 P BY THE ADMINISTRATIVE LAW JUDGE:
i 6;
Q Hou is that consistent, if you are going to i
? j take TMI-l and defer depreciation, TMI-l which has a prospect 4
G ! of early return to use, and not defer depreciation on TMI-2 I
o,,whose return is problecatical?
A (Graham)
From the perspectiva of the account-10 j
,u. ing profession, as I understand it, Your Honor, what they are 13 fsaying is that uith TMI-1 it seems likely that there will be
(-
13. a near term resolution of the license question and it seems a
f W
.I.3l likely to them that the plant will return to service and i
is therefore to keep the caset on the books and to depreciate 16 j it when it is producing electricity makes sense.
4i 17 j On the other hand, with TMI-2 they'see a much
.iil 23 longer term problem.
They see questions about whether it J.9 } will ever return to service.
They in fact see the decisions E
20.] of thia Commicsion in which thia Cc= mission raised questions i
g.jabcut that.
1, 22 l.
So they say it would be better to have the 23 esset be smaller on tha books and therefore continue depreciating s
2 f-it*
g I don't think there is a final decision has 25',
2
tyt tf.
crsham/nuff-croas m
182_,
4
, jbeen made in their minds on TMI-2 as to whather it is appro-p jpriate to depreciate it or not depreciate it.
We have been O
')
O
, t; continuing discussions with the FERC staff and with our own
- il
. ! accountants.
40 a
That is a matter that the Cer. mission's order
-1 9
6 f.said should be discussed in the pending rate case.
But there does seem to be consensus at least 7
9 n.!'about Unit 1.
- l I think Your Honor knows that the FERC has 9
fprimary jurisdiction over the accounting of electric ccmpanies
" )
11 {
eubject to their jurisdiction, so their willingness to accept this accounting treatment on Unit 1 is an in:portant part of 1
/3.
y ;the ability to accomplish this.
t 4
V They are not ready to agree to that on Unit 2
~
[atthispoint.
a5 s a
- BY IG. EURGRAFF
..g ;
j Q
Mr. Graham, in regard to your proposed o
- .g ! treatment for TMI No.1 from June 1,1980, I understand that you are requesting this as accounting methodology, at least g
3
,,O j for purposes of the petition, is that. correct?
L.
i!
A (Graham)
I don't know what that means.
ok l.
$.i e are proposing it for accounting and for future rate making.
W l
' If
,y, 4 Q
So, Mr. Graham, te the extent that the
,,3 Fennsylvania _ Com. mission allous generally in rate base claims
.m.
(mb
.., y a provision for plant held for future use up to a certain 4.E
- iFf?3 ACM 0: M.uT.M6 Usc. ~ 37 M. ECC4Yt40W AVE. -
.st,*.M Risserto, PA, m n:
i
Grahmo/ Huff-cross 183 e
y i number of years, then you are suggesting that the company 4
l g quould hsve the ability at soma future time in a future rate g 9
3 jcase to include TMI-1 in that as a part of the rate base as N
g,[ plant held for future use as long as it is in the account t
3 f that you desire to transfer?
I 61 A
(Graham)
That is in no way our intention.
y ;We don't think the label put on TMI-1 is going to change the o Commission's decision as to whether to allow a return on that.
B gl We proposed the use of the account called Plant Held For Future Use because that was the FERC's 10 3g f recomendation as to the way to accomplish this result within ggf the definitions of accounts that they have prescribed.
13 Q
Am I correct, then, in your two answers, Mr. g yl Graham, that you csede a reference to future rate casa purposes 33 [well, I am confused as to what you meant by the phrase.
e 16 f A
(Graham)
If you refer to the petition, Mr.
s 37 f Burgraff, Paragraph 12 has with it subparagraphs (b) and (c).
1.8lIn rder for the FERC to agree that we should stop taking
- 9 g depreciation on Unit 1, they insist there be assurance that i
39 4 when the plant goes back into service it go back at the cmount 2
- 3. j that is consistent with h.sving stopped taking deprecistion.
g I
g { That is what I had in mind.
t 23 {
Q Once again, staying on page 8, subparagraph t
(c), tir. Graham, thera is a statement that the Commission g
~
,g,k should state that upon resuoption of generation by TMI-1 and !
4
*=3' #O?#2( *: **JfKit SN ("A. " 17 I-1. T.CCTl.7PJ OW AW " f4#.7RL7WS, P9b 97112
rreaham/Hu..ft-cross _
184
=
y i
1
( its prompt recognition as a component of rate base certain e
,}
3 treatments will be suggested.
3f Is it the intention of the company to suggest c
4 3 a standard that would be used at that point in time or is 5
5 l that simply a generic phrase, to be decided later7 e
6 A
(Graham)
Mr. Burgraff, it was meant to be a j
generic phrase.
Let me explain it this way.
3 You know, we disagree with the Commission's g ! decision with respect to the removal of TMI-1.
If the h
in 1 Commission sticks with that decision, there will be a i
gg f question as to when T!!I-l goes back into service and there
- 3 p may be several times when the Commission may allow it back 13 l into rates, when the ASLB signs off, when the NRC signs off, O
.14 ;
when it goes critical, when it starts to generate elutricity, 73 :
there could be a lot of times.
1 15f The FERC staff recognizes that the Pennsylvania
/
17 Cocmission has not always been pro::pt in reccgnizing new 3
18 g generating units in rcte base.
They did not want to see k
19 z delay an a tactic to accomplish the disallowance of the f
20.f depreciation and that is all that was meant by that phrase.
31 9
2%l.]
(Trsnscript continues on Page 185.)
i
$.1
-.p m
o
%)
Y l
25e l
d I
MC/.$3A CH & t# 13Nat, it.4. - ?.7 fL LtPCWitt/.SW AVC. - HMAff!!L*k G. PA.
17110 l
5-1 Gra ham / Huff-c roa c 185
.4 4
Iy 4
Turn to Page 9, Mr. Graham.
You requested N
3 the Commission authorize you to aggregate two amounts and 3 3 cpecify fi t.ure regulatory treatment for those amounts and h
4 q those are all TMI-l expenditure expense, March 31, 1979, 3
and to defer all restart O&M expenditures since May of 1980, 6 3 is that correct, basically?
f 7
A (Graham)
Yes, sir, and I might say that the 8 j capital expenditures incurred since March 31, 1979, as I i
a 9',
understand it, are already reflected on the books as 10l capitalfexpenditures.
Perhaps, Mr. Huff could help there.
11 y (Huff)
That in correct.
3 12 l Q
From your answer, Mr. Huff, am I correct I
13 "
in assuming that the modifiers stated in Subparagraph D
's
(
)
24 [ on Page 9 as to URc requirements and clean-up activities 15 f as a result of that accident, that applies to the non-1 2.61; capital expenditures, correct?
That does not refer tothe 17 { capital expenditures?
1
?.8 j A
(Huff)
I believe, yes.
19 ;
(Graham)
Mr. Bur 6raff, would it help if b
2Ou I explained the intention of the su'oparagraph, subtentence
.o l
- 1 216 1 and 2 that was there to modify the non-capital expenditures?
)
22 :
Q Well, I think I understand that.
23 ]
A (Graham)
Okay, fine.
'l 242 Q
Since the capital expenditures have been i
G
.%5 ) booked, Mr. Huff, do you know the amount we are talking about Y
w= ceca e, = :rrm r: c. - n u. ince.w ow we. - w.wscee, ca. tvs2:
5-2 Grahan/ildff-cross lEC y
I to date for Met-Ed's share?
3J A
(Graham)
The number that comes to mind 3 j at the moment since the date of the accident ssscciated il 4 j. with the restart was approximately $6 million.
That is i
5' Met Ed's share.
q 5
6.j Q
That is capital expenditures?
?:
A (Huff)
That is capital expenditures, yes.
4 4
S There have been other capital expenditures associated with 9 g non-restart.
I don't have that number.
d 10 l Q
Perhaps this can just be provided.
We h
11 are interested in the amount of non-restart capital 3
if, expenditures made to this point in time and as I understand 13 !
the concany's estimate as to TMI-l return is I believe July O
J 24 [. 1 of 1981.
I assume the company has estimates of the l
15 !. capital expenditures that will have been made as of d
16[ that date and have broken down into both of your categories, 17 if you could provide those two as well.
Id.
A (Huff)
I believe I have to search my memory, 19 j but I believe the' total capital expenditures for TMI-1 are
}
20 j in the rate base in forms of various exhibits.
It is not l
h 32 [ the restart piece.
The restart piece is a part of that.
l 22!
I have to temper that a bit.
It may not be since the l
4 l
23l accident.
That is one piece that does nct come to mind, il
- 34) but I believe there have been interrogatories and what not n"
a 23 U that have responded to that issue.
3 int r.r*'.C*A O tWI.SW.L. f*% ""* C i. LC'IW/1LC'N AW. ~ ??A.'?APSTUTPG. PA.
171'2.
I
5-3 G raham/Euf f-c ros s IW i
k 1l Q
Well either it can be provided from the il 2 [ accident or you can direct us tothe particular places you
(
)
0 3lthinkitalreadyexists,ifyou.wouldplease, sir.
0 4j A
(Huff)
That is to Septealber 30, 19807 5
4 Yes.
6 MR. BARASCH:
Could we go off the record, 4
7)a please?
il 8l (Whereupon there was an off the record 1
discussion.)
93 4i 10 '
THE ADMIIIISTRATIVE LAW JUEGE:
Mr. Graham, 11 on paragraph 12-B under Section 2, you say that not 12 associated with cleanup activities arising out of the b
13 { result of the TMI-2 accident stating that such accounting 14 ( for these costs is appropriate and will be recognized by 5
13 a the Cccmission for its accounting and ratemak'.ng purposes 1
16 [1 beginning with THI's reco6nition in rate base.
17 [I What is your theory as to proper recognition
- l 1
16g of the Commission?
'f 1B {
MR. GRAHAM:
We felt that was an issue 4
toj that could be decided by the Commission at that time, whether i
3,;] it would be something that would be added to plant and J
n q essentially depreciated or whether it would be something i) 7,3.] that would be normalized in the same nature as an abnormal 4
g
- 7., level of expense over scme period of time.
We did.not r
- 3 intend to foreclose that dec. sion in the future.
3 aomv_a e n.ms e :. - = :. :.ecavm_o v.w:. - nuweeno, n. mu
52 Grase, dufr-cross 188 a
i
, I:
^!
THE ADMINISTRATIVE IAU JUIT,E:
You may proceed.
M S
I Q
BY MR. EURGRAFF;
~K Q
Now staying with that subparagraph Mr. Huff, 0 g 3
0 0 ~ and concerning the non-capital expenditures incurred since 4
5 May 31, 1980 for TMI Unit 1, as I look at Pa6e 2 of Exhibit 0 i B-131 the restart related O&M expenditures are in total 3
f 7j'5 3 million for four months ending September 1980 and h Met-Ed's share of that is $2.65 million for that four months, i!
cE is that correct?
E
'^O A
(Huff)
That is correct.
U Q
Now just trying to get an order of magnitude b
O of what you may be talking about, you don't by any chance L
U f) h have any data beyond data shown on B-131 as to cost levels
.,h
~
A*C for those amounts, do you?
3
.g:
4';
MR. RUSSELL:
I am not sure.
Are you' talking M
about future psriod' or breakdown in detail?
I am not sure 17 ! of the question.
J Uf MR. BURGRAFF:
Well, for future period.
e!
^'
I am wondering if the ccmpany has.any estimates as to the 2
M l anticipated level of restart expenses we are talking about.
I 21 MR. HUFF:
In total?
4 20 j MR. BURGRAFF:
Yes.
e 1
.?3 (
MR. HUFF:
Probably in the range of 20 million.
4
]--
M j Excuse me just a minute.
Yes, that was the total j
-a
- 23 expenditares.
Met-Ed's share would be about half.
In the i
- mam: e, :wsm. use. ~ m u. s,ecrac_t.e ei ur_. - :uameum, n.
- n 1::
o rahau/b tff-cro;s XLU 5-5 7,
d 1
Ee! range of 10 cillion total for Met-Ed.
k 2 f BY MR. MTRGRAFF:
t!
l 3h Q
But that would fit the requirements that 1
4, you are talking about in Subparagraph D, non-capital 5 ( expenditures r.ecessary to comply with NRC requirements and i
0 not associated with cleanup activities at TMI-2?
?}
A (Huff)
- Yes, e
C Q
Am I correct, sir, in the assumption, when 9
did you assume those expenditures will be incurred?
,l 10 !
A (Huff)
The assumption is that it would be i
12 {
until the plant starts, which would be sometime next summer, 13 i 1981.
13 Q
So system-wide there are approximately $15 14 ) million of non-capital restart expenditures to be incurred i
13 ? prior to next summer?
d 16 A
(Huff)
To be incurred, a
17 y Q
Yes.
2 18 h A
(Hufi, o, I think it is perhaps some of u
19 k those expenditures may nave been incurred prior to May 31, i
10$ 1980.
s 21$
Q Well. do you know what is pre-May 31, 1980?
ei 22 j A
(Huff)
Not at this moment, no.
'O /
Q We would like a breakout of those two, if
?
A.;.; you could.
i e
F,3 (
A (Huff)
May I have a clarification of what f-ww,cz a wemu r-n - 27 x. se=w:u.cw ce :. - warsxm. m.
m u-
i l
,J _.
G u dHufi'-c reca 190 36 G
q l
1u it is you would like to see?
Are you interested in what 2
is to be expended from June 1 through June 30, 1981 on 3 i. rectart?
7 s
4 [i-Q Well, if I understand it, we have a number Sj. that has been given for the four clonths through September 4
6 i 30, 1980.
Now I am making an assumption that does not
?
?.
include any expenditures prior to May 31, is that correct?
t Si A
(Huff)
That is correct, i
9; Q
So there is an increment that you have given 0
10 f to get us to $20 million.
I guess what we need is how t
11[muchofthatincrementwasincurredpriortoMay31andhow in much was going to be incurred from September looking forward, n
13 ) That should give us the whole picture.
\\ _)
i 24f.
.i. Ey I'l I 1,
4 19 m,
31 ul, 23}'I -
A M!
v; 3,
%3xOC?c:4 ra.'.rmMAL f !C. - 27 Tit L'garm*.ew /.vg. - itARMIS3V*G PA.
17112
m
=
1 Q
Noa staying with that same subparagm ph --
3 !,and I would assume lir, Graham would be the proper witness to O
3 respond to this line of questioning -- as I understand it, 4 lthe company has asked for scoe type of statement in connection l i
5! with this petition that the accounting treatments we have 6 l mentioned insofar as this subparagraph are concerned on page
? 9 is appropriate, and will be recognized by the Commission 3 for accounting and rate-making purposes beginning with TMI-l's i
9[ recognition in rate base, is that correct?
10 )
A (Graham)
Yes, sir.
nj Q
Insofar as the rate-making portion of that i
12 [ request is concerned, Mr. Graham, is it the ccmpany's 13 $ intention in this petition to actually resolve those issues 9
Ifor future rate-making purposes as to how these treatments 14 ;!
Is j will be reflected in future rates or is the company simply 1
a 16 : asking for the acccunting treatment and suggesting that che l
17 j actual rate-making issues associated with it will be deferred 4
10Wto some point in the future?
8 l
19 THE ADMINISTRATIVE LAW JUDGE:
I think that b
20 k is the portion that I addressed a few minutes ago.
You can 5
2.1 repeat your response.
22 l THE WITNESS:
(Grafiam)
Judge Matuschak, 11 23 j I think, asked me the same question, and what we are saying g.:.l is that the FERC wants to know that the principle is established G
E 23 j that these are expenditures that will be reccanized for rate
?-
.,ww=: c. mm
- m. - n u. es=w.w en m. - u.nxsw.a. n.
me
Grabsc/Kuff-cross 192 1pmaking.
O 2h Exact y how that is done, whether it is by 4
3 ; depreciating them over the life of the plant or treating them
,) [over some period' of time is not of importance to the iERC at 3 this point, and therefore we don't believe it is necessary to:
r 6[ address that issue in this proceeding.
I 7 i We would think that would be something that a
G fwould be decided when TMI-l goes back in service.
P g BY MR. EURGRAFF:
1
- o j Q
Is it the intention of the company, Mr. Graham,
11 fthat any agreements made in this regard as part of the pro-0 13 } posed petition would in essence bind the parties as to a C) 13 i particular number that would be associated with this account-V L
E
.g ing treatment?
y,3 A
(Graham)
No, it is the principle of the 16 [ accounting.
I would think that, as is true with any expenditure 4
pf j when it comes time to recognize it in rate making. any party J
N 18 has the right to test the reasonableness of an expenditure
- pfmade.
l 4
20 Q
Now, sir, both you gentlemen have talked 9
33 f concerning the capital costs we have been discussing and the l
s 33 l non-capital expenditures and we bandied about the company's 1
23 j cstie:te as to the return date of TMI Unit No.1 as being, I q-gglbelieve, July 1,1981.
v 3
h In arriving at that estimate, did the company 33}
tNgg l
l
._ Grshna/Huffecross J93 k.
r i
- { make any assumption as to at,; bat state the plant would be j
p 3 l functioning at that time, or is that simply a rcugh cut look f v
at what the company assuccd insofar as the federal proceeding 3
gt }j were concerned over the restart?
r 3l A
(Graham)
I think I can answer that, Mr.
9 6 i Burgra ff.
The level of expenditures that were given to me N
4 7
and that were the 1 inds of numbers that Mr. Huff was using a !,. are partially based upon completion of the licensing proceed-9l ings before the NRC.
t i
sc) I They are also partially an estimace of what L
n f requirements have been imposed and will b'e imposed and will ggf have to be met before the plant starts.
13 l Until the licensing is completed no one can i
.14. ! really know exactly what will be required in that regard.
5 13.f So to some extent, it is open ended depending upon when the
- ,3, licensing is completed.
O To some extent it is open ended depending
- 7 ld I
- g upon exactly what changes in plant configuration and plant t
19 ), procedures and plant training and things like that will be
't 20 required in connection with the restart.
21.(
Q That, I think, covers the expenditure side of W
22 j it, Mr. Graham.
What about the atP.ual estimate of the in-i s
33 j service date itself is that predicated on any particular 3
C p.) level of operation or testing procedure that would be O
33; estimated to be in effect on that date or running rate or i
Gg hac/iiuff-cross 194 1 iwas it simply tied to the b30 schedule?
g l1 A
(Graham)
Tha number that taas given to me that Q
Mr, Huff discussed, the fifteen to twenty million dollars a 3
4 year for the plant, about half of which would be Met-Ed, was g j based upon the plant returning to service in mid-1981.
6 I assume that number may be somewhat larger 1
b or smaller depending upon changes in that schedule.
9 9i I was also given to understand that, more 3
9 important than the changes in the schedule, are any changes go p in what is required for restart, that that is more controlling i
a the level of the dollars than the schedule.
12 i
?
Q I am interestad in the actual date that was 12]
t 13 assumed for the restart.
What was assumed insofar as the y,[ condition of that plant on July 1, or was that an assumption T
15 j that was used?
?
16 I In other words, hoy did the company arrive i
i 17 j at its July 1,1981 date or midsummer date, whatever the case i
la il may be.
A (Graham)
July 1,1981 comes out of an 19 j 1
20 ) estimate of the completion of the restart proceedings, f
3 f
Q Is that the NRC decision o-- is that the ASLB 21 i
..3 : decision?
4 A
(Graham)
That is based upon the plant being 23 li relicensed July 1, 1981.
y, U
3 g3 Q
In that assumption, Mr. Graham, am I correct i
J i
A
-:n=:.eu s unmv nse. - n u. concr xn. - wwwm. n ma l
t i
.c
- c. ahn.n niiiH -c rans _ _
1W5 4
4 the 3 gin assuming that the ecmpany did not anticipate that 2Jplant would actually be operating on that dcte?
r.
A (Graham)
My understanding, Mr. Burgraff, is 3f t
- gthat when the license is received there may be co
- ne additional
'9
.4 a twork that will have to be done.
There will then be some 6 testing of components.
There will then be a time when the 7j plant will go critical, and then it will start to produce 3
electricity at a low levei, and it will slowly build up to gl full power.
4 I was told to anticipate a period of several 10 7; [ months between th'e time when the license wss actually received 33 (and the plant was likely to be at full power.
l 13 j For financial planning purposes I am using the
.e(
y,(six-monthperiodforthat.
Ig; Q
Thae is six months following July 1?
8 3g)
A (Graham)
Yes.
a:
g)
Q Mr. Graham, in the forecast at E-25 I believe l
gg j you reflected fuel clause revenues ct 19,1 mills per INH for
?!
19 f leveliced energy clause frcs Janucry till June 1981 and 12.0 20 mills per KW for July to December of 1981'.
t l
,g j My question is, cre those rctes more or less
'l 22 i than what the company has stated in its recent application to iI 33, cet a neu 1cvelizedenergy c1suse?
A (Graham)
You refer to A-25?
l 1
b*
3 e
4 2
- c :m.cw c wn c at
- e..
.,. r:. nec nms.cw e vt. - n.umwns, y,t im:
Grsham/ Huff-creas 196 7
--~~
't A
(Graham)
I would have to talk with Mr. Hafer.
3 I am not up to date on eractly where that filing stands.
But 3
v
- 3j let me say this, Mr. Burgraff, that you will recall that tha 4{ September 5 letter from the banks gives us credit that is the l
5j deferred energy balance plus certain other things.
6 The credit floats with the deferred energy I
y (balance and therefore the amount of credit is not sensitive i
3[ to the setting of the energy cost rate, so that any change in the assumed energy cost rate and the recovery of energy 9
gf expense changes the lines that are shown on my E:dlibit E-26 g j but does not change the space between the lines in any way, i
i-If y u like, I can go off the record and ask d
.g 33 gMr. Hafer what the current status of the energy cost rate V
p filing is.
p Q
Let me just ask one more question.. Does the a
p' t g,) 7.1 mill difference as reflected for January-June 1981 to g
July-December 1981 -- is that the average effect of assuming
,j 4
1G, that you will have TMI-l in operation through tha t period of time?
.t9 3 1
i A
(Graham)
Yes.
90 '
Q Would I be correct as a general rule, Mr.
!) Graham, in stating that perhaps the annual effect in fuel 22 1 23 ]lvings. I m TMI-1, at least for the Met-Ed system, was 3
,, j generally in a range, or could be expected to be in a range (o;
er :l w
g l of, from say, $55 million to $60 million a year?
Is that too vam ne, a nsw2 me.
~r n. ccav.:r :.ew me. - ummaun. n, sm:
G.T & 2 C h i?1E s ~r W F W L-.
il
'J 1 p low, or about right?
Y 5
A (Graham) 2, f I think it may be a little bit low, l I
3 g $6 million a month kind of sticks in my head.
But I think d
44 that is a ballpark number.
X 5
Q Mr. Graham, in your opinion, is there any i
6l substantive difference between the company's request for l
? k extraordinary rate relief in the amount of $35 million and 1
0 d
8 g its current proposed petition to modify temporary rates in 9
the amount of $25 million?
d il go y A
(Graham)
Yes, sir, very significant il njdifferences.
The $33 million was before two events occurred.
13 l One uas the clunge in the credit available as reflected in 13 p the May 5 letter which is Exhibit E-19-1.
The second event 14l was the change in the levels of expenditures that resulted it is j from that, and from our cash constraints that are set forth 4
16 g in Exhibit E-25, and also to comply with the Commission's l
17 j orders of September 18 and September 26 with respect to s
1e$s proceeding on the clean-up effort at Three Mile Unit 2.
l
(
19 f Whereas the entraordinary rate relief was l
1 go]tryingtofundongoinglevelsofwork,bothontheelectric I
e
- 21) system and at Three Mile Island, what we are now trying to do is have the funds available to be able to go boek to doing 2g a
.i 23 j scra ucrk, be able to hook up customers we cannot otherwise a
hook up, and to spend the money for that purpose we hava y
~
23 ] el-imimted any attempt to do the clean-up effort at Three l
A mxwen a r:msw r.~x. - w n. excmu w un. - umsnm. n. rms
i Grahgy Huff-cross 193 3
3 3 ;l Mile Isind Unit 2, and there is no element of these funds g.
gf that would be used for that purpose.
U s
h S
I think there is a very, very significant 3
difference between the extraordinary rate relief and the idea aH f
3g behind it and how we would have used the funds and what we s
,3 f will do with the money we hope to obtain here.
7f Q
Now, Mr. Graham, perhaps if you can't give me 3
a brief status report Mr. Russell could as counsel.
What is the current ~ status of the company's proceeding in Federal
~
9 10 {District Court here in Harrisburg as to the Commission's t
11. September 18 order?
f TIE ADMINISTRATIVE 1AW JUDGE:
Perhaps Mr.
12 ;I 13 Russell can respond.
IIR. RUSSELL:
I think I can handle it.
I g.
do not think it is relevant to this proceeding but to the 15 extent that it is, that proceeding was the subject of a hearing g
with respect to an application for a temporary restraining g
IG g rder and was then scheduled for a hearing with respet to the application for preliminary and permanent injunctions.
19 t
20l That hearing was postponed and is subject to 31.
the matter of scheduling of a further hearing by the parties ij g ] and agreement of the court.
23 l MR. BURGRAFF:
Mr. Russell, am I correct that 9
by postponement the company atill has the ability to pursue y
.n il the matter, is that correct?
~d 4
mmwe a wmuu sm. - a n. n.aa:wu.ew ;x=. - mmunvna. n.
tmz
~
e o
,e-,-,
,,m-r,
--w
.-s-,,
a
CrahanhMff-cross 198-A 2
.; )
MR, RUSSEL1,:
Oh, certainly.
.1 1i IG., BURGRAFF:
Your Honor, I think based upon e1 0
,,3the evidence the comcany has submitted to this point in time e.
g, 'iL. insofar as their complaint against temporary rates is concerned, 3
"th 3 lI at ic all the cross-examination we would have.
- However,
,y f since we seem to be up in the air as to what might be presented e
7 in the future and what night not be presented, depending on g
tha t factor, we reserve the right to deal with that at an
~
l ogappropriate time.
3 a
4 10 '
t 12 :!
13 <
13 (Transcript continues on Page 199 )
g
.143 1
3
- n. 3 5
16 17 4 3
4 18 ]
1 1
i 20; t
21 1 1
4
/s
.i 4
,2,3 '1 l
i 2Y r,s il i
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- .v.nmt nr - 21 et.1:cwn.:.sw xt.:. ~ n,*s.ms:v.x. p.t snt:
0r e c /ilufT~crcoa 199 7.-1 7
?gj THE AIBfINISTRATIVE LAW JUr,GE:
Very well, fl gh Commission Staff?
v BY MR. PANKIW:
3; I
4]
Q Mr. Graham, with reference to one of your 3) earlier responses to the Consumer Advocate 8 s questions, i
6}
you testified that in your view the request for emergency i
sg j rate relief was substantively different from this current a;
request for modification of temporary rates, is that correct?
9)
A (Graham)
Yes, sir.
f 10 i Q
And you mentioned two factors which in your I
gg(opinionmadeupthissubstantivedifference.
Could you E
12 {
repeat again what those two factors were?
i 13 A
(Graham)
Sure, let me state it a little pl differently.
Now we are in a position that we have had to i
33 make significant cuts in our operation of the electric 16 ) system in our ability to serve and hook up customers.
We 37 3 need additional revenues and credits so that we can do N
gg g that work.
The last time we were in a position that we 19fthoughtwewouldstillbeabletodotheworkandwhilewe 1
t i
- 20) were looking for money to fund it, it was not to devote d
k the revenues to actually be able to keep people on the
- t payroll and serve the electric system.
l
_9.,
23 Additionally, if you recali in the material
)
y, : that was presented in the rate case'and that was referred v
l 33 ;j to in the decision with respect to the interim, we were l
4 2
- . m cae m m m.u:c.- a r tw a = w:
-we w = =. m.
m u i
7-2 Gra han/Huf f-c ross 200 4
1l doing work at D1I and there was some question addressed 2
to whether we were not trying to get revenues to do the 3 g.
cleanup work.
We aren't doing the cleanup work any more, n
4t We have cut that out as reflected in Exhibit E-25 We k
5 f are not spending money for that purpose and will not i
6 spend money for that purpose under the Commission's orders 7l of September 16, and September 26.
None of the money that 0
we would receive here would be used for that purpose.
t 9l Q
You are saying then that cleanup activities i'
10 )
have ceased on the island?
r 11 h A
(Graham)
They have ceased except for the i
12 !
items that are discussed in Mr. Smith's letter of 13 September 12 to the Commission to the extent of something i
14 [
like $15 million a year.
We believe that those expenditures s
15; are fully covered by insurance and recoveries or to the 16 very limited extent that they are not, that there are 17,
scurces of revenues other than those the Commission told r
18 us we could not use that will be sufficient to carry that 19 work.
It is very small, 1
20?
Q Other than the uses to which additional t
21; revenues would be put, is there any practical difference between receiving emergency rate relief of $25 million today 22 l
l 23 l and that increase in temporary rates of $25 million on an 24.,
annual basis?
q 25 ]
A (Graham)
Yes, sir.
The complaint against 1
Wi t 2
7-3 ornhau/ nuff-c ross 201 h
2 1) the temporary rates, because of the decision of Judge t
h 2;
Matuschak at Page 7.,
implementing the Commiasion's May 23rd i
i 3j, order and the paragraph he quoted at Page 15 of that order i
4l by restating the deferred energy balance will give us t
3l approximately $12 million 'of additional credit, so it is
~
f 6j not only the revenues 3 but the credit that we Eet that 7
allows us to do the work.
I do not know of any way by' 8{
which granting extraordinary rate relief would give the i
9{
additional credit to us.
Io,
Q Mr. Huff, with respect to your Exhibit B-132, i
11 ;
Page 4, on that exhibit you identify the TMI related 12 :
operating expenses exclusive of cleanup activities.
On O
13 ! 'tue 5 rou ne~ve e ce*esorv "otner" nica nee a verv 1er8e i
14 amount of approximately $11 million.
Could you provide a t
15:
brief description and the amount of the major items that i
16i make up that figure?
i 17!'
A (Huff)
In the 7.6 million, there is 3.8 18 million in which there is a category of professional l
19l services.
Those professional services would i~nclude such 20; things as, you know, restart cost, any professional 21 services assisting us on the restart.
It would certainly 221 include a substantial amount of money from a company called 23 Radiation Management Services which is assist'.ng in the
{}
24 health physics and radiation protection.
3 25 There would be consulting engineering to our
'to:CSACFf a f4A:t SHAL. M-tO. - 0? *!/ t.C3KWitt.9W AVI!. - HARELISEUnG. PA.
17112
74 Graima./Intff-cross 202 l
1 1 )
operations, so it is the host of the professional services i
2j including that type.
h 3?
There was 1.4 million frcm GPU Service i
e 4f Company which is their efforts associated with normal 5i operations of Unit 1.
They are, in fact, an outside service h
6l as far as Metropolitan Edison is concerned, for record-i 7l keeping at least.
There is close to $900,000 of payroll 1
3!
overhea d.
These would be some insurances, pension costs, 9
et cetera, that are reported on direct payroll and are 10 l recorded as miscellaneous.
I 21!
The balance of it of the.6 million or 3
i 12 !
thereby is a host of other smaller items of which it would 13 take a fairly substantial effort to get those out.
9 14 !
As far as the 3.4 million, we have very 15 similar kinds of things.
I have $800,000 for professional 16;i services.
That also includes nuclear safety and licensing, 17 cpprc::imately $300,000, but it also would include what i
16 l other minor efforts we miSht have in our professional i
19 services assisting in the normal operating areas of TMI-2.
20 It includes one-half million from GPU Service Company 21j charges; almost $400,000 of payroll overhead and there i
22!
again the balance of miscellaneous.
c 23l MR. PAirdIW:
Thank you, Mr. Huff.
That 1
24i is all we have, Your Honor.
l 23j THE AIMINISTRATIVE IAW JUIGE:
Mr. Kelly.
b
171f1
G rahsm/ Huff-cros s 203 7-5 1e MR. KELLY:
If anybody else has a question, nU 2E I will pass, i
3 THE AININISTRATIVE LAW JUIGE:
Do any other
(' Counsel have any questicns?
4 MR. FRATER:
Yes, Your Honor.
5l 6
THE ADMINISTRATIVE LAW JUDGE:
Mr. Frater.
7l BY MR. FEATER:
i 5!
Q Mr. Graham, am 'I correct in understanding 4
9i that the period June 1 through November 30th adjustment l'
10 l that you intend to make if your petition is granted to the 11 deferred energy account would represent approximately 12,I
$12 million?
J O
13 i
^
(orena-)
res, sir.
1t is $25 =1111on e t
14 f year divided by 12 times the number of months from June 1st 15 i until the change in the rates.
16 f Q
So that if this proposal is approved by 17 I the Commission, the amount of money adjunted, assuming h
18;
$12 million would have to be collected beyond the eighteenth b
month mentioned in the Commission't. order for the collection 19 20l of that deferred energy account, is that correct?
21{
A (Graham)
That is our proposal.
Yes, sir.
t 22j Q
Noa as a part of the concept of your i
23 e complaint against temporary rates, is it your position f
that the Commi:sion's order to the extent that it dealt 24 t
25{
with deferred energy was unjust and unreasonable?
!.tC:4MB ACM & M ARSML. !PIC. - 27 !!/ LOOKWit.trCW AVE. - M ARRISBtJRG. P A.
17112
7-6 Graham /aaff-cros s 204 il 0
1r A
(Graham)
If Mr. Malatesta were still with i
l l
2 E us, he would say I was testifying to a legal ccnclucion.
i 3i I am not sure I know what you mean, sir.
4 Q
Well, Mr. ' Smith had no problem in swearing 5l to the truth of the' petition.
Now you seem to be standing h
6e in lieu of Mr. Smith here.
Don't you have any position 7,
with respect to this?
)
S MR. RUSSELL:
Could we have the question 9
read back?
10 11 )
(Whereupon the referred to question was I
12 l read back as follows:
~
13 "Q
Now as a part of the concept of your h
14 l complaint against temporary rates, i. it your position 1
15 !
that the Commission's order to the extent that it dealt 3
16 ll with deferred energy was unjust and unreasonable?")
d 17 I l
18 !
MR. RUSSELL:
I think just factually the I
19 f complaint, as I recall it, was a two-page document and I
i 20 '
alleged that the temporcr'y rates fixed were unjust and I
21 unreasonable.
It made no specificreference to deferred 22; energy.
There is a difference to deferred energy in the 23l petition as part of a proposal in effect of Metropolitan Edison to try to provide a baais for the resolution of the g
24)l s
25 complaint, but the complaint itself does not, in fact, O
mounu:n a unseat. m::. - er a.- toc::wru.ow ave. - numseuno. n.
m2
Graham / Huff-croce 205 7y 1 S make any reference to deferred energy and deferred energy O);
t 2 y cceec in a part of the proposal set forth in the petition.
l THE AD'INISTRATIVE IAW JUDGE:
Is there an 3
1 4;
objection to the question?
Are you objecting to the 3l question, Mr. Russe 11?
t 6
MR. RUSSELL:
I would object to it on the 7 b grounds that it is factually incorrect as to the complaint.
3; THE ADMINISTRATIVE IAW JUIGE:
Cbjection I
9i overruled.
10 MR. GRAHAM:
I am s'rry.
I don't know o
11 !
how to answer the question.
The Commission did several i
i 12 l things with deferred ener5y in its May 23rd order, one of O
13J which dealt with some coal purchases in 1974. We have 0
14i appealed from that in that sense, yes.
We think it was 15[
unjust and unreasonable.
The establishment of the principle h
16 j that the deferred energy be collected, we do not have any l
I 17{
complaint with.
I don't know how else t'o answer the u
16 questien.
19 ld BY MR. FRATER:
20)
Q Now with respect to the temporary rates,
?
31l 1s it your position that the Commission's order of May 1980 22 was unjust and unreasonable at that time?
23'-
A (Graham)
On the base rates, yes, sir, and o
a' 24]0 I so testified in that prceeeding..-
We believed then and V O' 25}l believe now that if the Commissicn was going to iake TMI-l J
NCH,M ACH 0. MAR $M AL. INC. - 27 ?L LOO:; WILLOW AVC. - HARM 133MRG. PA.
17112
7-6 G rchac/ Huff-cross 205 1
1 f out of our base rates that we should have an opportunity 3
2 f to demonstrate that on a current basis no change in our (l) i 3 [ base rates was inappropriate or would now be appropriate.
4 That 1; the basis. for our complaint against the temporary 9
3] ra te s.
6i We think the Commission should have looked 7j at the question of whether, because of inflation and higher i
3 investments and operating expen.:es and money costs in the 9 [ approximately a year and a half from the time they had last i
10(setbaserates,evenifyouwantedtoignoreTMI-1,the 1
11 base rates ought tohave been left alone.
That is the idea
)
12hofourcomplaintagainstthebaseratesnow, J
13,l Q
So it is your preferred position, is it ll 4
24 correct, to say that you think the base rates in effect 15 fl in May 1980 should have remained in effect as temporary 16 i ra tes ?
1 17 l A
(Graham)
Is it my preferred position no..
1 I
'8' or was it?
l l
1 19 1 Q
Now.
Treated as a current question.
3
\\
a l
20f A
(Graham)
I don't kno.e what my preferred l
l 21lpoultionmeans, sir.
I was very unhappy when our base rates 1
223 were reduced.
It meant that we could not provide the level 33 [j of service that we think we should and that led to a 24 significant reduction in our credit.
I would certainly jg)
(
41 25 j prefer to have our complaints Eranted in the way that we A
. r.mmea c. wez n. me - w ::. ewa u.en.vx. - nwasuno. n.
ma
7-9 C admr&'Euff-c ros s 207 have proposed in our position instead of having us be where 1)1
]
2.
we are today.
In that senue, i.t is certainly my preferred
] position.
3 4f Q
Well I would like to So back to your prior i
5i response.
It seemed to me that you said if the Commission 6 ) determined it appropriate to remove TMI-l from base rates, 7
the company should have been given an opportunity to i
a demonstrate what bas,e rates otherwi e should have been 9 f at that time.
Is that a correct statement of your position?
(
A (Graham) ~ The Commission's order in 10 11 h December of 1979 very clearly led us to believe that was 12 jl the procedure they intended to follow.
It was not until
'4 13 May 23rd that we found out that they would in fact, reduce 3
24 the base rates before there had been dt. opportunity to 25 [ discuss that very question.
i 16 l Q
In assuming that the Commission in May 1980 17 has removed TMI-1 from base rates, is it your position that IS the company, given the opportunity to make appropriate R
~
19 y proof, would have been able to demonstrate that existing 20 base rates or something equivalent should tave remained n effect?
i 21 22 l A
(Graham)
Yes, sir, and Mr. Packard's 35 exhibits demonstrated that quite adequately in those s
Q 24 r! Proceedings last spring.
(%
25lg Q
Now with respect to the rates published '
I N
na:ne.m: e unasau me. - n x. t6cmu.ow ave. - mamssuas. n.
ime
7-10 Graham /Iiuff-cross 203 2 f by the company in June 1980, is it your po.,ition that those rates were unjust and unreasonable?
L 3b A
(Graham)
Yes.
4 Q
At that time?
3A A
(Graham)
Yes.
Base rates?
0 Q
Yes, I intended that as a question.
0 7l Now were.those bese rates published in June 3
1980 unjust and unreasonable because of the revenues 9
generated thereby for the company?
10 l A
(Graham)
I would say the lack of revenues i
11 generated thereby, i
13 fj Q
You mean they didn't produce any revenues?
13 A
(Graham)
They didn't produce sufficient c
I,
~
14 revenues.
13 lI Q
And would your an.;wer be the same with i
a 16l respect to rate of return that no revenues were produced?
17 l A
(Graham)
Well, the rate of return on I
IS 3 co::: mon equity was and is negative so, yes, it is clear that 19 when you have a negative rate of return, the rates are.
20 il Q
When you say the rate of return is negative, A
31 it is not negative on a rate base found appropriate by the 22f Commission?
)
l 23 y A
(Graham)
That is the difficulty.
The rate J
24 base found appropriate by the Commission was ;fust a residual.h
'a y,
25 $ All they did was subtract $16.9 million.
They never found mm.xr a a, mw.c. me. - ~7 n. toe =u.te,W AVE. - MARP,3SE*,%,FA mm
7-11,
Grar'.cm/liaff-c rosG 209 l
1 a rate base. Wha t we have produced on Exhibit B-131 is a 0-2i reproeuetion of the rate ease foune avoropriate et e veer 3:
and a ha1f ago.
4 Q
Well there la language in the May 1980 order 5f that would suggest that that was the appropriate rate base 6l to be considered irr establiabing rates in June of 1980, l
7 isn't there?
i 8
A (Graham)
Not that I am aware -of.
9f Q
How does the ecmpany's proposal with respect L
10g!
to the treatment of depreciation and capitalizatien of 11 }
expenditures for TMI-l relate to the adjustments and 12 reasonableness of base rates published by the company as a
(]
13 result of the Commission's order in May 1980?
14 A
(Graham)
It has no effect on a cash basis, t
15 There is no change in rates that result from that proposal.
16 It does, ho..ever, give assurance to investors and to the 17 I banking community that the Co= mission intends' to allow 18 recovery of those dollars subsequently and, therefore, 19 when they are deferred, those investors will lo' k to them o
20f as a source of being paid in the future, so while it does i
21{
nothing for cash and it does not change rates, it 22 l;
~
certainly changes the financial po.>ture of the company and i
23 gives some measure of assurance to a banker in putting O.
24;l funds into the company.
a 23h Q
Well then in a censideration of a complaint i
b
- MCt;M0 4CH & M AM $tW.. tN C, - D N. f.,0CKW11.1.CW AVE. " H A RitfSetJRG. PA.
171f2
-~
I
~{ - a Gnia:.y dhG-cross g19
,r - --
~
$ against temporary rates, on the basis that thca o tcmporary 7
2 [ rates are unjust and unrecsonable from the inception, why r
e 3[
should any consideration to depreciation and capitalization 1
4 of expenses for TMI be given?
A (Graham)
I know of no procedure or rule 5
?
(3 { of the Commission that requires that there be separate P
7 headings on this.
On Septccber 18 the Commission explicitly i
3; directed the parties in the rate case to deal with the 9j TMI-l depreciation.
We are very anxious to be able to i
10 stop the bleeding in the sense that the ccmpany cannot gy provide the service that it should to its service 12 territory that is set forth in the letter of September 12th.
I 13 We are going to have to cut back on hooking up people and L
e y q on msintaining the electric system.
We tried to put li 15,l to5 ether as a packa6e something that would 1
6 ve us some g!
additional revenues, give us noce additional credit and
- 7 l also give some assurance as to the future to short-term G
73 j!
investors, to bankers.
That seems like the meaningful
.b ipl way to deal with the situation in the near term.
I a6ree 20 with you that there is no necessary connection between s
31 the complaint against the temporary rates and the changes I
i 22l Proposed for the accounting.
However, viewed from the
{
23 Prespective of trying to hold bank credit together there i
is a cicar logical consistency.
.A 33 '.
Q Is it your position that the policies or TC,ti st %CM Q MA;t OH AL, TN C. " 27 PL LS OKWILLOW AV E. ** H A ft PJ3 G bit 3, P A.
17112 =
.7-13 Graham /11uff-crors 211 1
the re6ulations of FERC control the policies or regulations O
2!
of tue,cnnsy1,anta pus 11c u,111ty Commission with respect 3
to utility accounting for jurisdictional utilities subject i
4I to the Pennsylvania Commission's jurisdiction?
f 5l A
(Graham)
My understanding of the 0
Appalachian Power Case is that FERC has primary jurisdiction 7
over the accounting and that we cannot keep our books and 0
records inconsistent with their regulations.
The only way 9
that they will allow us to vary from their normal 10 accounting requirements is on the understanding that 11 '
the state regulator will treat the matter that way for 12 its accounting and its ratemaking purposes.
To that
/]
13 f extent, my understanding is that FERC's accounting practices 14 do ' control over the way we can keep our books and records.
15 Q
If the proposal in the petition is 16 j accepted and approved by the Commission, will you agree 17 with me that it has a disproportionate impact upon the 16 company's large customers?
19 f A
(Graham)
No.
20[
Q And would you explain that answer for me3 21 please?
22i A
(Graham)
We are anxious to be able to i
23 provide service.
We cannot provide service under our O,
24i exietins ratce.
There ere minime1 differences in the y
w
- 3l effect of our proposal upon the total bill of those I
r.?Of tR3ACH & MAR 3H AL. I?tc. - ? ti. t.eCKW1 LOW AYE. - 14 AftRfSSUftG, PA.
17142
Graham Jaa-czos; 212 7-14 r
t 1J custccers.
We think $25 millica ia less than c just and ltil 2
reasonable rate.
It is less than what was being paid for 3f base rates before the May 23rd order.
It will only be in 4 ( effect until the rate case is completed and there can be t
5 a complete determination of cost of service and tariff 6[
design in that proceeding, and I would not, therefore, t
i7i describe the rather minimal differences in the effect t
t 8f upon the total bill as being disproportionate.
I 9!
Q Won't you agree with me that some of the i
t 10 ;
company's customers will end up paying rates higher than 113 the base rates in effect prior to the Commission's order 12,
of May 19807 t
13 A
(Graham)
You would have to discuss that i
e 14 '
with Mr. Carter.
I don't Know whether.that would actually 15l happen as to the effect of the tariffs.
16 f' Q
Well then everything that you have t
17 '
answered with respect to this line of questioning has to i
18, be conditioned in relationship to this referral to d
19 Mr. Carter and your lack of knowledge about the impact of i
20,
~ your proposal, wouldn't it?
i 21 [
A (Graham)
I don't believe so.
I think that 22f the c=all differences that might occur, which are a result i
23 s of the various Commirsion orders, are not something that 24 I would describe as being sufficient to becoue disproportionatee 23 {
as you put it.
MOMP C ACM Q F# 4 R SH AL. ' t'IC. - 27 Pl. t.CCKW1LL ?W AVE. - HAR RISBURG. PA.
17f12
,7-15 a rahau/ Huff-cross 213 li 1
Q What evidence have you provided for this I
h 2 f record to quantify the small differences that you are i
3 1 describing?
I i
4l A
(Graham)
Mr. Carter testified yesterday.
3 He is here today and I think he could testify to the effect 6l of the change upcn total tariff schedules and different 7
Ends cf bills.
8f Q
Then you don't know what the impact upon t
9 the company's customers with respect to. base rates is going 10 to be if your proposal was adopted then, do you?
A (Graham)
No, that is not true.
11 {
12 Q
Well then I refer you back to a previ.ous I
13 question.
Isn't it true that some of the company's Q
14 customers, if your-proposal is adopted, will be confronted i
15 with base rates in excess of what was in effect prior to f
16i the Commission's order of May 1980?
{
17 i A
(Graham)
I don't know the answer tothat 18 question.
19 f THE AIFAINISTRATIVE IAW JUEGE:
Mr. Frater,
?
20l he indicated that he does not know the answer.
Mr. Carter 21!
is here.
He indicated that Mr. Carter will be able to 22, answer that question and I suggest you ask Mr. Carter.
1 33 c MR. FBATER:
I understand that, Your Honor, 3
i but he did feel free to make some comments about the same Q
24 (Y'
i 25:
crea, however.
VOHFt2 ACH is M ARSHAL IMO. - 17 N. LCCXWILLOW AVE. - H ARRISCURG. PA.
17112
T-16 GrahamMuff-c ros s 214 1l BY I4R. FRATER:
ft 2f Q
Mr. Graham, it seems to me that both 3
Mr. Russell ac.d yourself have referred to the petition p
4[
that we have before us for consideration as a compromise l
Sl settlement of the company's complaint against temporary I
6!
rates.
Does that mischaracterize your position?
7l A
(Graham)
I am not sure that compromise 8
settlement is a completely accurate characterization.
I i
9l think we see elements of compromise in it and it will 10 [
dispose of several pending matters in that sense.
In that 11 '
sense, it is a compromise and it la a settlement.
12 f Q
Could you list those pending matters that i
13 you con:,ider you would diapose of?
h c
14 i A
(Graham)
It would dispose of the appeal 1
1S i that la pending from the denial of extraordinary rate I
d 16 y relief.
It would dispose of the pending complaints against 1
1 17 h the temporary rates and I m1 ht say that we have filed 5
18 a petition in the complaint with respect to Penelec so 0
19 it would deal with Penelec's pending complaint also.
20 Perhaps Mr. Russell can remind me whether there are others.
21 MR. RUSSELL:
Clearly in the petition i
22t itself you have the matter of depreciation cessation which I
23 the Commission itself has phrased which will be disposed a
24ij of itself in connection with this if this suggestion were p
25 !
to come to fruition, ii a*OH3C ACH G ? t AR $H AL. tNC. - 27 fl. LOOX'A"LLOW AV2. ~ H ARRisa:JrtG. PA.
17:12
, 7-l'/,
Grahaci/s:iuff-cross 215 a
W 1
HR. FRATER:
I?oth'ing further, Your Honor.
2j Thank you.
3 THE AniINISTRATIVE IAW JUDGE:
Mr. Kelly.
4f MR. KELLY:
Just a few questions.
3l BY MR, KELLY:
1 6<
Q On B-132, Page 4, the $24 million of f
7t operation and maintenance expense of TMI-1 and TMI-2 can D
n G ya ~be found on Exhibit 131, page 2, is that correct, Lines 9 $ 11 and 127 I
10 [
A (Graham)
Yes.
(
11 E Q
In Part G7 12 i A
(Graham)
Yes.
There is included in the b.
C) 13 I payroll and other O&M categories the amounts that are sh'own V
14.j there.
15 q Q
Likewise with regard to Line 18 then, the-r 16( $66 million figure which is charges and preferred dividends.
il 17 l First of all, dropping up for dividends, what do we have
.t 18[ loft?
What figure?
l 19I A
(Graham)
The dihference between preferred i
20 !j dividends and interest ia, well the preferred dividends are h
l
- n :i about $13.2 million so the interest --
0 2: I Q
$13 2 million?
t 23 [
A (Graham)
Yes, sir.
I am sorry.
About Q
24 10 million.
Interest would be the rest.
1
~
25:
Q And this interest refers to debt service for I
I I
h
- .:enwc: a m.a h. me. - 27 ri. toee.vv.r ow a ez. - war.aisav:ro. n.
27tiz
7-15 Graim:,.ifi-cNCs
- 216, 1
'- I TMI-l and TMI-2 as well as the other aspects of Met-Ed, i
3 is that right?
g 1
3 A
(Graham)
Yes, sir.
If you could refer to g
i 4l Exhibit B-132, we have allocated the interest on the 5 l. preferred stock dividends between TMI-1, TMI-2 and the 6 f rest of the companies on Line 17 You see the same nu=ber 7L of $66,762,000 and in a manner similar to that uacd by O [ the Commission, Mr. Huff allocated the interest and i
a 9jpreferredstockdividendstoTMI-1andTMI-2.
.t
.10 f6 Q
And lastly, does the $56 million figure i
11 include interest under the RCA?
12i A
(Graham)
Yes, short-term interest is 1
13 fincluded.
g 34-MR. KELLY:
That is all.
3 15 16 u ).
.I
.I 10 j "9'
i 20?
l to 9 l 9 " 9 l 1 l ?.31 2+; e, 1 l ^ *; ~g l l
- St:RCAOH 2: t?AK SM At.. !MC. - 27 M. LGC';VALL OW AYC. " HARRICCU!'G. rw t71 1.a.
l l
Grab &tinii-c23 3 2L7 1 9
- 3 BY THE ADMINISTRATIVE LAW JUDGE
Q Mr. Graham, are the expenses referred to in ], 3;
- 3. ! Met-Ed B-132, page 4, included in the data on 3-131, page 17 I
i A (Graham) They arc, Your Honor. The, data on 4[ 3,5 page 1 of Exhibit B-131 is the whole company. It is the i 6 company as seen by the outside world. } 7[ Q Well, then, when you suggest in 12-D that l' D! those costs be deferred and kept in a separate account, isn't 9 there a duplication there when you are assuming your present go [ needs in B-1317 A (Graham) No, sir, those costs have been 3.5. >i 12 removed in Footnote B cn page 2 of that exhibit. With
- .3 respect to the calculation of race of return on Exhibit 3-132, all of those costs have been removed from the calculation 24 that produces the $31.2 million at the bottom.
13 It is true, Judge, that had we been able to 16 a! cease depreciation on TMI-1 and capitalize those dollars in 17 gg I the months of June, July, August, September, the figures that 19 would appear on page 1 of B-131 would have been different 20[ and wculd have presented a better financial posture than is 214 shown there. 4 4 l 22 Q However, for purpcscs of looking at the 1 23 j result from the $25 millica, on the second page of that 1
- ""'*d ""7 O
.*i*="*"*'""d 25,$ those ecs ts. 1 5 varme: a reswn. um. - a n. t ace.vn.t.ew em - HAn nston p.s im i l l
i utad w Jul?-crcze 218 17j What ycu point out is ecnsistent with tha r ,jpoint I was trying to cake to Mr. Frater, that by not having ' 'r 'i to book those expenses on the income stateennt, the posture 2 0 ,, as seen by the outside world would have been batter and would e3 "be better for the future. P a i g THE ADMINISTRATIVE LAW JUDGE: Anything f further? 7 r h3. BURGRAFF: We have nothing, Your Honor, g t 4 THE ADMINISTRATIVE LAW JUDGE: Mr. Russell, n'3 y u were n t here when we were discussing the joint haarings 10 ) for the ueak of november 12,13 and 14. MR. RUSSELL: I was brought up to date by g. 13 } Mr. Ogden. ( Q .a THE ADMINISTRATIVE LAW JUDGE: Is it our .x g ,, q understanding new that on November 12 and 13 ue vill have n 26.!. joint hearings on the general rate case preceeding and on 1 g j November the 14th we will hold that open for the response to g f the temporcry rate proceeding by other parties? Is tha t .t9.2 consistent with what we decided the other day? l g),'j MR. BARASCH: Tha t is what we said, Ycur i Honor, and I assume, subject to whatever other evidence the 211 1 z,.- ;j c ompa ny -- I i gj TiiE ADMINISTRATIVE LAW JUDGE: Well, cubject ,. ; to cny possible change, the next proceedings in this matter s,. j will be hald on November 12,13 and 14. Any questions ? g t wem a :u.~w.. m. - a n. ten,w., m:. -- m.-.as nc. n. mu
219 MR. RUSSELL: I think in view of the question z. s hI raised at the outset today, with respcct to the evidence O 2 before Your Honor with respect to the complaint, just to make 3 , the petitioner 's and the complainant's position clear in this 4l specific proceeding, if they are not already a part of the l record in this complaint proceeding we would submit in this 0 i ! preceeding, in support of the complaint, Met-Ed's prepared auritten testimony, exhibits and other documentary evidence 3) 9 f and the notes of testimony at R-80051196 insofar as they I l re ate to t.he March 31, 1981 future test year data, excluding, ,20 F thowever, such portion as is represented by the el. aim in that 11 data with respect to the capital and operating costs of IMI-1. ,.t3, THE ADMINISTRATIVE LAW JUDGE: Do eounsel O' 23 !ihave any response to that? 14,f .l MR. B.TdSCH: Could I have one second, Your za.' 16 0 onor Your Honor, that is the position of the company and H ? $j I think ue are going to have to review our position to l determine how many of the company's witnesses are going to ~ i , B l. .t have to be cross-examined based upon the future test year j 1 20. data, in order to understand what cakes up this temporary l l ol [ rate case, I would oppose such an incorporation of that 22 J 23 [I evidence because I think it is tantamount to trying the l 1t entire base rote case in a temporary rate proceeding. O, ' M$ f THE ADMINISTRATIVE LAW JUDGE: Ifr. Russell, 25 f L ve mm a www e c. - :s n. nac> r.us, m. - ammum. n m, 1
220 =-- =..-- f ? )if you intend to ccasolidate all the testimony that is s 2 h submitted in the genoral rate case proceeding, aran't you in h 3 j effect trying to do what we indicated we were not going to do, i 4 ;l merge the tuo cases together? 3j Or are ycu prepared to refer to portions of 6f that filing in yot'.r position as relevant to this proceeding? 1 ?$
- 12. RUSSELL:
It is possible, Your Honor, O I that we could cull out of all of that testimony some things 1 9, that are' not explicitly directly related, but the fact of the 10 matter is that as long as you have a consolidation, either one 11 i of the proceedings, either jointly or standing on its own two l t t 12., feet, to the extent that it involves a determination of a 13 level of just and reasonable rates you connot reach such a 14 h determination without an appropriato and timely presentation ? E 15 g of rate base and inecme statement data to support the claimed 16 j level of rates. 17 ); Wo had contemplated at one point that 4 18 perhaps if they were not consolidated, one might try to 19 5 put together -- I think I suggested an alternative at the 20 j prehearing conference -- an alternate test year fremawork b 21 for the complaint proceeding. 22 THE ADMINISTRATIVE LAW JUDGE: You indicated 23,) at the prehearing conference, I believe, tha t your submissions lh 24 in the eccplaint proceeding were not going to be the same, 3 Mi! the backup data was not going to be the sese sa the data in a w_. ..~- l'omT.a c* ' er Mans ;Ab. 'f Mll. ~ 07 A*. Loc'Ef/If LCW AW. - f %"1Mn!3*.PC. r*A. Inta
l 221 r I the general rate increase, at least that is my reco11cetion. 1 k E HR. RUSSELL: I think that is correct, and O S! , [that was on the assumption that there be no consolidation, 3 1 , lthat they proceed separately, and we endeavor in that light -I gte go in with an abbreviated alternate test year. d We w re t that point, right off the cuff 6[ l thinking of the pessibility of using a historical test year. I With the consolidation in fact of the pro-o ;4 fceedings and with the limitations in time and personnel and y k ~ gso on that we have, it was our conclusion that the two 7.0 y ,, iseparate test perieds, with the support necessary for them, At d f were something of a luxury that we are not very capable of -- d,, THE ADMINISTRATIVE IAU JUDGE: Isn't the Q l' [ . issue as to whether or not the future test year is applicable M l; 15 ( to the complaint against the temporary rates set by the l i! Commission in the May 23rd order? Isn't that one of the 16y ! issues that has to be determined, whether or not the filing 17 4
- as to the future testi year is relevant in the complaint proceeding?
y, i MR. RUSSELL: 1 think I suggested this ,,. 7 tornin3 that Sectica 315 of the Public Utility Code, which i 311 provides for the use of future test year, has it as a l ,3 j permissive method for a utility to enable it to meet 'its 4 hs
- Ejburden.ofproofinaratoproceeding,andinthelightof 4
d,, i that we think -- y i -m*m-r o etus w r::c. - r-r >:. t.ccrmu.ow Avz. - :unem-ewr, n. tme
2ME~~ q, e 2f THE ADMINISTRATIVE IET JUDGE: That may be
- 1 2 : true in a rate proceeding where incrosses are proposed, but 3 'kidoes that apply where the Comission has reduced the temporary t
4 j rates and the complaint is against such reduced temporary 3 rates ? 6 MR, RUSSELL: As I read Section 315 of the 'l Code, I find no such limitation of it with respect to rates Cl proposed by a utility. As a matter of fact, it is in any 9 proceeding that is upon the motion of the Cozmission or upon 10,k any proceedings invalving proposed increases in rates. That i 11 ; is 315-A. That relates to the burden of proof upon utilities. 12 { 315-E then rohtea to the manner in which a 13 utility can discharge its burden of proof via the use of a -e 3 24 i future test year. 15 j THE ADMINISTRATIVE LAW JUDGE: We are not i
- .d ] going to try the case for any party.
The parties must submit 27 evidence as they see fit. However, we are not at this time 5 13 j going to rule on the relevancy of any of the filings of the 19 j future test year as it relates to the complaint against che 2 20 j temporary rates that were set by the Cor. mission in Jun.e. 1 6 31 ] MR. RUSSELL: To the extent that it is a i 22 i problem for Your Honor, I would supplement my submission by f i ?.3 j including in the submiscion, for the purpose of this
- record,
.i
- 3. ';. the prepcred written tectimany, exhibits and documents at 3
l 25;R-80051196 as I have previously made a submission, and in i . =cm e, r.w.n~<.. v c. - n u. w r::ua n az. - mmsem. m,ma l
223 . = 7 _
- 1. addition to that, include the historical test year data 4
a ,3 contained in that with respect to historical test year ending Sitrch 31, 1980. 3 5 4 THE ADMINISTRATIVE IAW JUDGE: Very well. 3[ MR. PANKIW: Well, Your Honor, are you ruling 6l that that body of data is admitted into evidence? 7] MR. RUSSELL: I am not offering it in-S evidence. I am submitting it in this proceeding in support 9; of the complaint. 10 l MR. PANKIW: Are you now not submitting the i 11 h future test year data in the rate case? 1 i 12 NR. RUSSELL: I did not say that. I am saying I (~) 13 : I am supplementing my previous submission by including rather V I ,34 than excluding the historical test year data, in addition l 15 ; to the future test year data. h 16 l MR. BARASCH: Your Honer, I don't know where 4 3j that leaves us as far as supposedly wrapping up the hearing gg j on this temporary rate matter at the next set of heerings on is the 14th. I We are going to need an opportunity to 20; 1 31 j examine -- ii - 22: THE ADMINISTRATIVE LAU JUDGE: I am not going 23 to foreclose you. If we have to have additional hearings: we 2 are going to have them. Let's wait till the 14th and see where l
- 5 j we get.
i j t*.im.4CM & t'.aggst y,3,, SNe., = 27 ft. t'.C3K'YtL1.OW A'/2 - H A R P.iC50M, PA. 37912
224 In the naantime, if any of the parties hava 1 i , !any camerandun of lan in regard to the issues that were raised &a today, wo would appreciate having them, and then we would be 4 iin a better position to make a final determination on those , j issues. 1 RUSSELL: If Your Honor please, we will 6 be happy to discuss further with the parties any ideas they 7 C h have os to appropriate test years, but at the moment what we e.l have done is our best suggestion. THE ADMINISTRATIVE LAW ' JUDGE: We would ., 0 suggest that counsel confer with each other and see if. f they can arrive at some common starting ground in this s2 proceeding, in the. complaint proceeding. u ~ MR. RUSSELL: There is one other Inatter I e 24 j 15l.. ght mention, Your Honor. mi You mentioned the 12th,13th and En 14th as the next hearings with respect to Met-Ed and related 16t! ! matters. As I unde.rstand it, Messrs, Arnold and Cherry and 17 9 a ?H 18 d uff are scheduled as possible witnesses on that day. 19 }; THE ADMINISTRATIVE LAW JUDGE: I think we had a l E more than tha t. 20' ) l s IG. BARASCH: I think that was for the 12th, ,of j 3Your Honor, 2.2 5 4 2a,; MR. RUSSELL: That was for the 12th only. 1 S THE ADMINISTRATIVE LAW JUDGE: 24 3 Yes, we had g ! three witncases for the 12th and three witnesses for the 13th. W 35j _ mem e mm.u c=. - e u.=.w.:.ow een. - m.w
- a. r.s im:
225 ., f MR. RUSSELL: I just usnt to mention that 4 t E' jthcre are some conflicts as to Mr. Cherry's availability. n l U } , jMr. Raber has prepered testimony submitted by Mr. Cherry, 3 o hunder the supervision of Mr. Cherry, and to the ertent that ,P Mr. Cherry is not available we would propose to have Mr. ' Raber here to adopt Mr. Cherry's testimony and be cross-6 examined with respect to it, s ,, l THE ADMINISTRATIVE LAW JUDGE: Any objections? 9.i MR. BURGRAFF: No. I THE ADMINISTRATIVE I.AW JUDGE: Well, let's 10 : 1 11 :ileave it go at that and if counsel desire further testimony 3 13 iby Mr. Cherry, we will make him availabic at some future time. .'Off the record. Q 23 ! ? (Discuscion off the record.) My 15 (The hearing was adjourned at 4:42 o'cicek 16ll p.m.) 3 l 17 j .10 ; 19.1 J 20 3.1, 1 22,f 1 23 l '1 2'i w l 2-1 l 4 --nw=um :. tm x. m=. - u n. w=mu.=w un. mus m:~a. n smk
'i r .m, ).* ..oco.- s 3 E.4 4$ I hereby certify that the foregoing is a 5 5 I true and correct transcript of my stenotype notes taken 6 by ma during the hearing on the above cause, at the herein ii ? q indicated time and plsec, before the ' Pennsylvania Public ,i 0 5 Utility Commission. i I ? E, MOHRBACH.& MARSHAL, IEC. s
- T U
By -N cuba-13 5 [/ JAMES P. O'HARA 3 By d N/s 1^?h 3 Y'B. MARSHAL ~ 15 : l#'
- ~
h, M [ REPORTED 37: 17 h; MOHREACH & MARSHAL, INC. J 27 North Leckwillow Avenue 18 Harrisburg, Pennsylvenia 17112 19' l 20 -) (The foregoing certification of this transcript does not apply to say reprcduction of tha same 2' );; by any means unless under the direct control and/or Jcuparv2.sica of the certifying reporter.) 27.- I ?.5 s I ~. U ._ tw:nrr.cn a ";scyc.' .77 N. to rm:u o'.V A'/C. - F annteme, rm. 17:t2 4 l t}}