ML20003B557

Transcript of PA Public Util Commission 801219 Restart Hearing in Harrisburg,Pa.Pp 1,664-1,792

ML20003B557
Person / Time
Site:	Three Mile Island
Issue date:	12/19/1980
From:	PENNSYLVANIA, COMMONWEALTH OF
To:
Shared Package
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References
NUDOCS 8102120404
Download: ML20003B557 (128)

Text

.

& .i

. Before h

.; '- '1HE PENNSYLVANIA PUBLIC UTILI1"! COMMISSION  !

O  ;

--oCo--

.e .c Il q, ; In re: R-S0051196 - Pennevivania Public Utility Cornission, et al. v_ersue N tropolitan Edison Comoany. Investi- !

=., cstion into a recuested $76.5 million rate incresse. :

e5 C-80072105 - Metroralitan Edison Comonny versus l Pennculvania Public Utility _ Commission. Complaint  !

y against temporary base rates fixed by the Commissica r

, ,i " in its order of May 23, 1980 at I-79040308,  ;

d R-80051197 - Pennsylvania Public ntility Commission, I e- et al. versus Pennsylvania Electric Company ,i

] Investigation into recuested $67.4 million rate  !

10 increase. j n[ C-80072106 - Pennsylvania Electric Comocny verr.us l

Pennsylvania Public Utility Commission. Complaint  ?

I,2 j against temporary base rates fixed by the Cocsiscion j in its Order of May 23,1980 at I-79040308. j

" 13 h

! Hearings.

]' As H 5,

l --o00--

13 0 l 1 Harrisburg, Pennsylvania j 26 : -

i December 19, 1980

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17[j' --oCo-- }

18 ;i

!i 19 p c

20 Pages '1664' to 1792

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)

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THIS' DOCUMENT CONTAINS P00R QUAUTY PAGES 2...;E 4

23 f MORRBACH & MARSHAL, INC. .

j 27 North Lockwillow Avenue

24) Harrisburg, Pennsylvania 17 2 l0 I

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' ' MOHRB ACH & MARSf1AL. I?4C. - 27 P;. l.CCKWLLLoyt AVE. - n gpRispuRC P A. 37112 8102120%O%

avas e

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Lefere i

~ f; THE PElGSYLVidNIA PU2LIC UTILITY C0brilSSION  !

1.?!. $

--c00-- i i ., I e = l (In rc: n-80051196 - Pennsylvani_e_ Public Utility Cc:roicciou, I.

.? et cL 7eraus Metronclitan Edicen Comoany. -

Inverti- {

getion into a recuested 476.5 ctillion rate inerscsc. '

E  !

. C-80072105 - Macroeclitan Edison Coencny versua  !

6f Pen .svivania Public Utility Comic.nion. Corcihint i i

1 s.gtinct temporcry base rates firec i>y the Ceszission i y, In its Order of May 23. 1980 at I-79C40308 3 I

! c

. R-80051197 - Pennsylvania Pchlic Utility Corriic:icn, i.

e.t al. versus Pennsvivanic Electric Ccaccnv.

y, In-'estigction into . requested 567,4 :tillion rce  !

i. increasc. .

201 #

[ C-80072106 - Pennsvivcnic Electric Com:r.ny rercus {

Pennsylvanic Public Utility Commicsion.

.. r Compicint against tempercry base rates fixed by the Cortission

2 ; in its Order of May 23, 1980 at I-79040308,  !

I i

Q 13 i

Hearings,

.c...i n --o00--

l L

' 1

t .

Stenographic report of hearing held in I

.i Haaring Room No, 3, IIorth Office Building, n 1

15.s i Ecrrichurg, Pennsylvania, I '

l m.i ,; Fridsye December 19, 1980

\ <

! 10 ~.' at 10:15 o' clock c m.

19 d --oCo--

!! JOSEPH P. MATUSCIL4K, ADMINISTRATIVE LAW JUDGE 20 (- --o00--

il 21(APPEAPANOES:

21 i ;l STEVEN A. McCI.AEN, ESQUIPE

! Depud; Chief Counsel 21 'j JULIA.D S. SUF.MI, ESQUIRE Ascictant Counscl >

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RO'5ERT ?. KELLY, ESQUIRE

.i.s.'. J ROLAND M0".RIE, ESQUIP2 Dunne, Harri.s & Bechscher h

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• Eo. B-144 - Rescence to Louise Rile : and Senior . ,

Pcua:: Action Group Interroga: cry Iso 7, ,

i s.'. Einnass: D. ~,. Huff . . . . . . .... 1667 .

15 , No. B 149 - Respcase to Consumer Advo cte. Intar-rogs:+:ory (Set Four) Bo, 106, Witness: 6 a:: p

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Doct nent 21h Citizens (9ntitled Low Income Senior-)Ucage Characteristics

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J. G. Grchcm . . . . . . . . . . Ox i

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5 g No. E 25 - Response tc Consums Advocste Inter-rogccory No. 105, Witnccc: J. G. Grah:m 1720 l Gi f

No. C-40 Docenant entitled Lou Inccme/Sc_icr

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- Citizen Usage Characteristicc Customar .

l Frequency Distribution Essed Up::n Aver ge  !

C lj; Monthly kWh Usage, Uitness: E. I'. Ccrter 1720  !

E No. C Tcble entitled Ecsidential Typiccl Id.ll

! Comraarisons Jan.1969 vs. Dec.1980 For

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10 j ge1ceted Levels of Use, Witness: E. F. l Carter ... . . . . .. 1;'20 ;

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-  !: INDEX TO STATEMEKTS l

l 17 l il MET-ED 18 ll

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.; Statement C-1, Supplemental Direct Testimony of ,

E. F. Carter, December 18, 1980 . . . . . . . . , ,166S I ,eJ.n

PENELEC

! 21 i i

I t Stctercut C-1, Suppicnental Direct Tectimony of 22 Ij E. F. Carter, Deccchar 19, 1980

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[ THE ADMINISTRATIVE IAW JUDGE

Mr. Ogden,

~: ,

' do you have some preliminary matters?

lO I

y ,!. MR. OGDEN: Yes, Your Honor, I do. I have j,1

[ distributed to the parties this morning several responses

. to requests and exhibits and I would ask to h ve marked at 6 this time the following exhibits:

i B-150 and  :

Met-Ed Exhibits B-144, B-149,/ B-151, s:atauent gp C-1 for Met-Ed which is a supplement relating to PURPA testi i p mony, Met-Ed Exhibits C-41, C-42, Met-Ed Exhibit E-28 and i J-5. i 10 [i l

, , ,j In addition, we have joint Met-Ed/Penelee j

_ ., 3 g ' Exhibit Nos. E-5-2 and E-6-2, and for Penelee we have 13 g Exhibits B-lll-4 and B-158 14 h We have some small matter of redirect for Q t

,e,; Mr. Graham.

l 16 a

, (Whereupon the follcwing exhibits were "7 ; produced and marked for identification 13 [ as follows:

i 1

19 ll Met-Ed Exhibit No. B-144, document entitled ti Response to Louise Riley and Senior Power 20y Action Group Interrogatory No. 7, Witness :

I D. L. Huff.

I 24 m

~q Met-Ed Exhibit No. B-149, document entitled 22 Response to Consumer Advocate Interrogatory

) (Set Four) No.106, Witness : D. L. Huff.

23'l '

Met-Ed Exhibit No. B-150, document entitled y Response to Consumer Advocate Interrogatcry 25 g (Set Four) No.107, Witness: D. L. Huff. g MOHRD ACH e. M AR CH AL. INC. = 27 f4. LOOM WNLOW AVL - H ARRJ65 UR G P A. 17112

1668 1 Met-Ed Exhibit No. B-151, document entitled Response to Consumer Advocate Interrogatory No. 37.

Q 2 g 3l Met-Ed Statement C-1, Supplemental Direct Testimony of E. F. Carter, December 18, 1980, 4

3- Met-Ed Exhibit No. C-41, document entitled  !

Low Income Senior' Citizens (1) Usage 6 :l characteristics Customer Frequency Distribu-l tion Based Upen Average Monthly kWh Usaga, 7 ,! Witness: E. F. Carter.

O Met-Ed Exhibit No. C-42, document entitled I

i Minimum Grid Study, Witness: E. F. Carter.

9 ',

!! Met-Ed Exhibit No. E-28, document entitled  :

10 h Revised Short-Term Debt Forecast for 1981 l

! Comparison,cf Assumptions with ME/PN it lt Statement E, Witness: J. G, Graham.

12 [ Met-Ed Exhibit No. J-5, document entitled 4 i Letter of F. J. Smith, Senior Vice President 13 of Metropolitan Edison Company, dated

.s i December 17, 1980 to Pennsylvania Public 14 1 Utility Commission, Witness: H. M. DiecKamp.

i 15 1 i

Met-Ed/Penelec Exhibit No. E-5-2, document 16 y entitled Quarterly Financial Statements September 30, 1980, Witness:J. G. Graham.

17 l a h Met-Ed/Penelec Exhibit No. E-6-2, document 18 3 entitled GPU, Witness: J. G. Graham.

l 19]

• Penelec Exhibit No. B-lll-4, document 20l entitled November 1980 Operating Highlights y as submitted to the Pa. PUC, Witness: T.L.

l 21i Carroll, i

l 22,i Penelec Exhibit No. B-158, document l l entitled Response to Consumer Advocate l 23! Interrogatory No. 33 (First Set), Witness:

!) T. L. Carroll, )

! 24 $

lO I 23 g

" McHMBACH & MArtBHA t IMC. - 2e N. LeeXWRL,0W AVE. - H AKRIS B UR G P A. 47182

LMBB i ,

1p MR. BARASCH: Your Honor, there is can i h  :

2 $ prolininary matter I would like to dispose of if I could i I

3 d before we begin. l

)

}

4: THE ADMINISTRATIVE LAU JUDGE: Very well, i s

4 5 MR. BARASCH: Yesterday we sent a letter to L

6i all parties which probably has not crrived yet so I uculd ,

7lljust read it into the record, addressed to Mr. Thierfelder, h

8 9 dated December 18, 4

9 l.; The Office of Consumer Advocate hereby i k

i, 10ll notifies the commission that it does not -- I emphasice il 11 ,1 the word not -- intend to present a direct case through j

12 ij testinony of an e:tpert witness in the area of rste structure H

( 13 h in either of the above referenced proceedings, Penelee or 9

1 14 !! Met-Ed. We do reserve our right, however, to file rebuttal l'

15il testimony in response to the direct cases of other parties c

h 16, if such appears to be necessary and desirable.

il 17 j Signed Ashley Schannauer, Assistant Consumer 4

l 18hAdvocate.

S THE ADENISTRATIVE LAW JUDGE: Very well.

19 ()

H 20[

t 21t JOHN G. GRAHAM, recalled as a witness on k

22 l behalf of the Respondents, having been previously sworn l 23' according to law, wcs examined and testified further as 24)lfollows:

1 25 l d

lll MOHRB ACH & M ARCH AL. INC " 27 N. C@CKWILLOW AVE. - MARaidFURG Pt. 37t92

Grcham-redirect 1670 j i

j REDIRECT EXAMINATION

~

BY MR. OGDEN:  ;

1 0 ,k i

Q Mr. Grahcm, there have been marked for i o,

i g -

lidentificationthismorningtwodocuments,JointEnhibits l p i 5 Met-Ed/Penelec E-5-2 and E-6-2. Are ycu sponsoring those 6 exhibits in this proceeding?

l i e6 .,

A Yes, sir.

l g Q Could you just briefly describe what they are' g A E:tibit E-5-2 are the published financial j 10 L s atements for General Public Utilities Corporation and its t

{subsidiariesdatedSeptember 30, 1980. ,

12 ( Exhibit E-6-2 is the GPU qucrterly report 13 t shareholders for the quarter ended September 30, 1980. l t 0 pj Q Mr. Graham, I show you what has been marked 15 f r identification as Met-Ed Exhibit E-28 and ask you if you 16 l u uld briefly identify what that is.

17 l, ,

A Yes, sir. Subsequent to the denial of 18)! extraordinary rate relief for Met-Ed we wrote a letter to 19 the Commission dated September 12, 1980. That letter set 20; f rth the level of spending that would be possible for Met-21 Ed in the remainder of 1980 and in 1981 and has been marked 1

22 lasExhibitE-25inthisproceeding.

23 In addition to that, when I testified y previously in this proceeding I sponsored an exhibit eclied l 25 Exhibit E-26 which was a series of graphs plotting the credit I

M OHR B ACH f. M Ait WH Al-. INC. ~ lir: H. LOCKWNL.OW AVE. - 44ARRl50unG P A. 17112 I

n. . .

mens-ge@mecu; N60A r  ;

,yavcilabletoMetropolitanEdisonCompanyagcinstthelevels j

L>

fof short-term credit that were needed and that exhibit ,

2; i e9 tracked the letter of September 12 to the Commission.

I, In the middle of October, the middle of

( l li November and again in the middle of December we wrote fol'.ou-5- i

' up letters to the Commission explaining where Met-Ed stood o

" relative to the projected levels of spending that were set  !

'l ;

0 forth in Exhibit E-25. I don't have all the exhibit nuchers I 8 i: i i

r, but I do know that, for instance, the December letter was 93 f just marked as Exhibit J-5 in this proceeding. l 10 :! l E In my original testimony I stated that I 11 $

$ would update things to reflect our levels of spending as 12 s l 0 we saw them going forward into 1981 and there have been 13 h't very significant changes that have occurred since my original g

!{ testimony.

15 h a I 3 For instance, the September 12 letter to the 16 )

fCommission,theSeptember18orderofthisCommissionwith 17 hrespecttospendingmoneyatThreeMileIsland,morefavorable l

18 q l action with respect to the recovery of insurance proceeds 19 i than we had anticipated, and things like that. So there 20[

t h ave been some changes.

21!

Exhibit E-28 is intended to detail those 22d l

) changes and show where Met-Ed is now in terms of its avail-l 23

. able cash and its available credit, y '3  ;

N I have on the first page of Exhibit E-28 254 .

h

" f.tOMTIB ACH T4 M Art SH ' . IN C,. - 2T N. LectOvmLOW AVE. - N ara tsm u R G P A. 17112

Grabcm-redirect 1672 p

e 1;j detciled various significant items that are somewhat differeng

. Il 3 li or the same as they were in the original exhibits E-25 and O s 3ll!E-26.

4! For instance. the levels of construction, j

5 9 payroll and OMI that were set forth in my original exhibit i d

6 were at about $171 millien a year. This new cxhibit details 4 .

'ig expenditures of about $165 million a year, 8f I should say that Met-Ed is not able to spend 9I at the level of $165 million now and is spending at a level l i 10 that is about $146 million, j l i I

11 I believe that if you add up all the 1

12 ) expenditures that were set forth in Mr. Smith's letter of 13 September 12 3 that is Exhibit E-25, you would find that the A  !

t

/ i

, 14 l- inherent level of spending is at about $140 million a year.

1 I

O So this exhibit sets forth a more normal

! 15.:

'l 16 Il level of expenditures than we are now making.

d 17 ) With respect to the funds needed for the l 18 deferral of clean-up expenses, in my exhibit I had assumed i

19 l that by the end of 1981 there would be about $17 million in 20 the account. With the reduction in expenditures and with the 21: more rapid payout of insurance proceeds we are now estimating 22 that there will be no increase in the deferred clean-up v

23 ) account, I

l 24]i In my original exhibits I had assumed TMI-l bs 25lreturningtofullpowerinthemiddleof1981, We are now i! MQHRBACH C. lr. ARSHAL. WC, - M N. Le4NU,0W AVE. - H ARMSBURG M. Im2

GEY3 -- -

g -,

y . l .

t glooking at the beginning of 1982  !

l.i I 3 My origincl exhibits, Statement E, had h assumed that we would not lose the credit available to Met-Ed l 4g'aadthatwewouldhave$105millionavailable. As you know, l c j in the September 5 letter from the bcnks the credit was r ,

I 6 ;' reduced to only allou us to borrow against certain defined

,,]llquidassets, so I have set forth that formula of crecit

~ .

L.

i. t.

g available on this exhibit.

9 ! I have assumed in both cases that I would not i

yg j obtain permanent capital, f 11 I have assumed in the new exhibit that the i i

12 i TMI base rates will not be restored through the end of 1981.

N 13 l I have also assumed that we would come to a r

yfzerodeferredenergybalanceforbothofthesepresentctions !

i I

h gllat the end of 1981.

With those levels of spending, what can be 16]

d i 17llseen is that Met-Ed would cross its available credit in about' 18 June or July of next year. I believe that the earlier exhibits had shown Met-Ed crossing its level of credit at 19 f 20 about April of next year.

l 31 I mentioned earlier that Met-Ed is not able 22 ;t spend the levels of money that are set forth on this i

23: exhibit and that we are spending at a rate that is about

$19 million a year less than that.

24 u You can see that the gap at the end of Jecemb9 rg e ,

i _._..._._.-.,m. - . .- _ ._ - ,,,,,

- = - m -

a

Graham-redirect 1674 Q i 1  ! for Met-Ed between its available credit and its need for l  !

2 current debt is in the range of about $30 million or $33 3 'l million. If one subtracts about $19 million from ths you i 0

4[ can see that we would cross over, rather than in June of next; L

5 year, somewhere around October of ne::t year. l 6( In a presentation before the Congressicnal .

?

? . committee that is looking at assistance to GPU and its it  ;

D  :

6 il customers I stated that at the levels of spending that we  ;

0 l 9(arenowexperiencing,andifMet-Eddoesnotobtainrate f e

i l 10 a relief, it would cross over its available credit in about  :

5 I 11 g October of next year and that is substantiated by this exhibit, a

12,! assuming no rate relief and assuming the continued reductions .!

i I

13 of expenditures to service the electric system well below 14[thatwhichisminimallyadequate.

!! g 15 !! MR. PANKIW: May I ask a clarifying question?l

!I 16 l THE ADMINISTRATIVE LAW JUDGE: Go ahead.

N  :

17lBYMR.PANKIW:

1 18 Q Mr. Graham, the $19 million figure is less 1

19 ( than the level of spending reflected on Exhibit E-28 of i

20 $165 million?

21 -

A Yes. Let me put it this way. If one looked h

22 l at the levels of spending for construction, payroll and other 23 c O&M in 1981 that were inherent in the letter of September 12 24.land the exhibits that accompanied that letter, they would pd i 23 add up to about $146 million. So there is about $19 million a MOHRB ACH & MAftSH AL. INC. - 27 N. L9CJCWILLC W AVE - HARRISSURG P A. 57812

a-. m l'  ;

2 that has been cut out of whst we ought to spend ner.t year, y l 4

i to be consistent with what we are now dcing.  ;

l if h t we are now doing is escentially what is .

s j, i set forth in Er. Smith's letter of SepteaUer 12.

f

,.l BY MR. OGDEN: .

. . - t 6; O Mr. Graham, there has b2e; marked for  ;

> 1

,; jl identification this morning Met-Ed Enhibit J-5, perhaps 1

1 i 6, more for c nvenience than anything else, since previoua r:

A exhibits in the J series have included letters from Mr. Smith 1 i I show you that document, and in connection 10 !l to the Commission.

? l

, ...,a j with a request on the record by some parties for further i li

- 9 2 ; inf rmation on the request for extension of the time in 4

13 j which to make tax payments to the state that were due in

.q. l April 1981, I ask if you could tell us what v

the result of g 15 ' that request for extension has been and refer us to any i

1 6 i Pertinent portions of J-5 which would aid un in that response.

A Although signed by Mr. Smith and sponsored 37 I 18 . by Mr. Dieckamp, this series of letters was written by me.

19 [ This is the most recent letter detailing differences between 20 the forecasts of debt requirements set forth in the Septemberi l

12 letter and what we have actually experienced.

21j I One of the things that was mentioned in the 22 a 4

l 23 s November letter was the fact that we had asked the Pennsylvania 2e,a Department of Revenue for an extension of time to make 3

gg

s Certain tax pF.yments in the spring of next year, namely, the g

" . MOHPD ACH Q M Aft SH At INC. - 27 N. LOCKWILLCV/ AVC.- H A P R I'sB UR G P A. 17112 -

m

Graham-redircet 1676 j

L.

j 1980 gross receipts tax and the tentative 1981 gross receipts p 1[ tax. e V We attached, as I recall,to the November

_h

.:r :: (

4 !'l letter our raquest for such an extension, and with the j l'

_" December letter, Exhibit J-5, there is cttached the response i a e i

0jfromtheDepartmentofRevenue,andthethirdparagraphof i E l 1 it says: I regret -- cnd I don't think anyone has to read l

?U

,,fmuchbeyondthat. ,

• d i l The Division of Revenue has taken the  !

9P4  !

i position that the taxes must be paid in mid-April of next  !

,0 1 1 9  !

il year.

11 'i t

.! BY MR. MORRIS:

12 i

r. Q A question for clarification, sir. Can you 13 V3 C/  ! refresh my recollection, Mr. Graham, as to whether or not the 14 l

! letter of November 13 of Mr. Rubin to the Commonwealth of 15 ll n

n Pennsylvania, Department of Revenue referred to in J-5 has 16 4 l

i been tendered as an exhibit?

17 18 f a

g (Transcript continued on next page.)

20f.

I 21j lt 22 23!

')

24l O

'J l 2s i s

NCHR DACH & MMtSHAL. INC. - 27 N. LO*KWILI.ow AVE. " M A R RIS B URG PA. 17112 l

l

~

inD 6:-

t . ,

1 THE WITNESS: I thought it eat attached c.,

S the Ecvember tetter, bhich I thinn. would se Erhibit J s7a 1 2' :ccy have only 5:en referred to chare. tu it nuct inn 2 o f'.y 0

4r been referred to there.

, , , T. .

s' '

19.. MORRIS: Do you hsve a copy of it eit:h.

0[ycu, sir? ,

r- ,.

t }; A No, I do not. I believe that the letts:  !

i  :

e n  !

S 4 was filed, with the Comnission. It ecy are have been ccrhed i i i 9 ac an exhibit. I am not surc. I cm c.,ure we can get hold of !

J f-

.d.g a copy of it.

s t', i 11 1 MR. MORRIS: Your attorney is shaking his ,

n 13 ll head negative. I take it it is not with us todcy? I i I

. 3., r'l

! MR. OGDEN: I don't have a copy with me

$4ih today.  !;

I h

i if $p THE WITNESS: The Division of Revenue is '

16 ' next door, istt' t it? That was the basis for my assumption.

t i

!.? e' .

SY MR. OGDEN:

s i 18 0 Q One more item, Mr. Graham. In connection 19 i.I with a motion of Commissioner Johnson in the Penelec i,

i I

1 ,i 20 ) proceeding, there were seven items for which a responce was e

21 ? requested. Would you provide a response pt this point to 22 l{ Items 5 and 6 to that motion?

t 22 A Yes. sir. Item 5 stated

"Resonpasnt )

24[ is directed to develop a ' customer stock purchase plan' w3.th

.. i.

23 y objectives similar to the ' employee stock purchase plan' and r,

g k tet 4REI.CH C. f4/JtSHl.L.,1ll0.

• 27 N. LOCKWtLL OV A VL - D *Q198URG PA. }

17112 -

Graham-rcdirect 1676 J  !

N 1 to submit it togccher with the cppropricte Ocaments t.che 3 Commission in this proceeding."

S. One of the restli:s of the cocidaat act 4$ that the employaa stock purchase plan ecs saspanded. We

! l usre advised by counsel that we would not be cble un her I

i 5; en effective registration statement that roeid make poss1ble c

L i

? d the issuence of new shares of common stock.

1 We, therefore, 4 4

f, G y no longer have an employee stock option plan such as was i il

? O referred to in the motion and I believe it will oe sec2 tan before we would be chie to have an effective registration i 10 N:!{+ .!

11 h statement that would permit us to issue new shares of stock. '

t 12 h In addition to that, one of tb foundatic r!.s 13 q:, for the employee stock option plan is provisions in cha.

( >

s

[

14 d Internal Revenue Code that makes possible the use of f

15 0 investment tan credits to fund the stock which is made n

16 !! available to employees. I knou of no provision in the ccds 17 s that does that for customers.

k 18 0 I might say thst we have for some time l 19 'dprior l

l to the accident been working to attempt to increase

?

20j stock ownership by our customers and have surveyed other 21 shareholders to find out which people are in cur service 22 territory. We have moved our annual meeting around our 23 :! service territory in an attempt to build interest in the stock of the company and ee would be very plessed to hcve 24[

- 25,h additional ownership of the company by our customers. I d i l' F40HRG#.CH C f1 AR3NA1.,130. - 27 f:. LOCKWILLCW AVE." HARRIS 3U'?G PA. 17182

Graham-redirect 1 167? o - !

r y

1 ,. think that probably tha kind of action chat was neessca y co compsny 3

.i develop the/stoch option plan woulc requirs c. chsuge .a T S

,a, federal law and I am not at all sure that ther is somccaf ;

4 ii that could be accou plished, c

n 5$ Item 6 in the motion states that: "Jespondl-F, 6 l: ent is directed to develop a plan to make c reasonz51e w reich i

7 E of future tax exempt bond offerings available in $100  ;

h 8 i;il denocinations to its ratepayers in its next and subsequent '

1 9] offering and to submit the plan. together with appropriate

'i  !

10 ) comments, to the Commission within this proceeding."

Il 11 h Neither Met-Ed nor Penelec has any plans f n 1 u ';a to issue t.ax exempt bonds or notes.

We have no property '

h 13 a

that would qualify for such financing. The cooling tower h

.I4j at TITUS would have qualified up until November of this year i s,

t, 15 4 and I assume that some of the pollution control equipment l 1 i 16 J at Seward 7 might qualify several years from now when tinc l 4

t, l 17 I' station is built. l l i I 18 I don't believe we have any objection to f 4 i 19 5 making tax exempt bond offerings available to our ratepayers i l

20l Imightsaythatwhenonereducesthesizeofthedenominatidn 21 J of bonds, the underwriting commissions go up and pollution

'd 22 control financing tends to be expensive financing anyway, so 1  :

23 3 it would add to the cost of the financing to do this.

i g

L 24 MR. CGDEN: That is all we have for 25 g Mr. Graham at this point, Your Honor, tACMitDACH f. tJAJ19 lAL, INC. - 27 Nc LOCKWILLOW AVE.

• H A R R 69 E tJ R G PA. 17112

~

GTSTsm -reetu s 1 600 j.

3 n

1 TrE ADMINISTRNZIVE LW JUDGE: Staff? ,

5 RECROSS-ELEr:MTION kq_/ e 3j BY MP.. PANKIW:  ;

1

i. ,

Q Mr. Graham, I would like to get back to 4 y'l 53 the two items you refer to on Commissioner Johnson's motion.

.! i 6d With respect to making GPU stock arci'..tblcd

? ,( to ratepayers, could you tell uc why G?U is not able to issud 8 a lawful registration statement with respect to its emplegee ,

i 9 !! stock ownershlo plan? l

i 10 " A We are advised by our counsel and  ?

l 11 !- discussionsthatIhavehadwiththestaffoftheSECledmef  :

11 ;j to believe that there are too many uncertainties, particular}y

{j 13 h

as a result of actione taken by this Commission, to allow a

')

t 14 I registration statement to become effective. We do not I

i 15 I believe that the SEC would allow us to offer any security I

16! to the public. }

1 E ~,

17 ] All financings that we have done since ths'-

1 8 T; sceident have been in private markets, private placement N

19'l rather than through public offering.

ii l 20l Q Now with respect to making. bonds adailable 1

21 ,

to ratep,ayers in $100 increments, your answer wts with respect 22J.

to tar exempt bonds. Would your answer apply equally to I

l 23 'I debentures or first mortgage bonds?

i i

l 24 '! A I answered the question about tax exempt  :

(~') i

, s-25l  :

bonds simply to say we don't have any plan to offer

,,m ocsa..i,ma.m im -=> m '== .- - :4x,:ee:>o e >>ii=

t . . .

@TEham-rc@Tosi 1681 4

i respcc to debentures. Bonds or preferred stock of a 5 subsidicry companics. my caseer wcu.i.d h enccely se saus c;.

g 3: it use with respect to a custemars' stock oc.. tion olen.

.1

+ l, Namely: that that would require an; effective regictrctict ,

i 55 statement from the SEC and 1 don't believe Y could get or.e '

e 0 at this point. .

n ;,

j Again, I should scy that ee would ba very 0^ plessed to have our customers be security holders in che 3

n 9 slectric system. As us are able to go into capital markets '

g 10)wehevenoobjectiontotryingtodesigntheseofferingsso l

11 ll as to make them attrcetive to our customers and available to ;

9 t

't 12k our customers. The difficulty is that we are frozen out of ,

i 13 ,; any public capitcl markets at this time.

14 &

e Q Assuming that in the future Met-Ed and e

15 " GPU had the ability to enter the capital markets, what ir, 16 j your opinion would be the best method of enabling ratepayers !

N 17 j of the system to become investors in the utility service 16 enterprise?

i 4

19 $ A The best thing that could be done would 0 6 20it $ be to make them an attractive investment, N

31 d A Well, my question goes more towards would a

n 22 l a stockholdership plan be more economical or easy to adzinis ter k

23 '1 than a plcn that dec1t with bcnds or debentures or pr2ferred ,

. I, 24 <; stock? i 43 l>

A When you get down to the point that you h

.. s b - A*OifREACM & (4A7:EK/4 IN:.. - 2, N. LOCKWILLOW AVE.- N APit!SC L RC. PA. 17182 -

I

w ra a s - m e n 3ng ,

. ;i

^

s Ic have very small securities, dollar denominations er nua'mra M i

3 shares, it becczas very expansive to edruiniater a;.xpir C) .

3, baccuse an account that hcs one or two sharez sad it tnhas u

4. il as much work in terms of people tima and computer time and 4

5i postage and envelopes and all of that kind of thing as doas l a .

6 en account eith ceveral hundred or even/thousand shcre;.in

,1

? hit, so it is n. ore expensive. I l

3  :

I might say that our sharehoicer erianses,!

c :! unlika other electric and non-electric utilities in tha i il  !

a 10 f state of Pennsylvanis are not charged to our customers. Thej, t -

l 11 f expenses of the holding company nre not billed to the  !

l 12 operating co=panies whereas PP&L, for instance, one of its  !

( 13 ! expenses is its shareholder expenses. I don't know exactly Q

V

,14. ]iwhat the way would be to do it in terms of marketing or is makin5 it available. I guess I have to say I would be very

6 ] surprised if people would buy it at this point.

i,1 17 j Q I would like to direct your attention to l

l li 18 your Exhibit E-28 which you spoke of today. The graph on i

19 g page 2 indicates that the level of short-term debt will  ;

E 20; exceed the RCA credit limit during June of 1981. However, I.

you testified thot due to the reduced level of expenditures, 21 *!

l l 22 l4 the level of short-tem debt will be lower than is shown on l h 231 this graph, is that correct?

i $

i. 24

• A At the spending levels we are nou

! O)

C 25 incurring b'ecause we are not providing that service, the line l

' fitOHROACH & MARSH /.L. litC. - 27 (L LOCyWILLOW AVE. - N r.R RIEE LR F P/.. 17112 e

1683' k U . .

i i 1 ' will be louer, yes.  !

l  !

2. Q And at the reduced level of expsaditure:;

1 3 f you indicated that the RCA limit could then be exceeded in  ;

i G d i i

4 the month of, did you scy October?

E 5; A About October.  !

l 1

6 3 Q Could ycu tell us why you did not drat:  !

, t o

i Tj this graph to reflect the reduced levels of expandituras?  ;

h  !

E] A I would be happy to do it if you would ,

i  ;

? like. The reason is because ue should be doing the work. we 10 j't want to do the work and we can't. I don't think it makes a  !

L 12 4 lot of sense to show credit incurred for failure to serve  !

i 12 ; the electric system and we expect to get rate relief out of i

is ! this case. We hope that the rate relief is sufficient that 14 B we can have the people working and hook up customers. llh 3

If ', If you could look over on the right side 16j of th; graph and mark off a 20 yard penalty about on the 1

17I hash marks there, reduce the line about $20 million and then I h 18,1 just follow the line across to the left-hand side of the i

I 1 9 ,: graph, you will come up with the sama kind of a figure and 9

1 P

20, you will see that it would cross in about October.

i t

a 21 4 As I say, I will be very pleased to prepar e i

22hl j such an exhibit if you would like.

23 4 Q Could you tell us generally how you

!i 24 ] determine the level of short-term dact with respect to such 25 grcph? llh i

U-MOMRS ACH 5. 8.t AR CHAL.1:4C. - 27 N. LOOKWILLCW AVE.- H AR N150 V R C PA. 17112

tes M c M - W m 1684

li I c A It is the sum of all of the capitc1 i 9

p 3 requiremants less the internally generated ftads. j U r i 3[ Q Do you have Exhibit E-23 available to you,;

n  !

4EIf Mr. Graham?  !

5 (;; A Could you tell me what that exh!. bit is?

60 Q E-23 is a response to c data request made Ii 7 l by the Trial Staff and it asks for a source and application O!i of funds statement for Met-Ed that backed up a similar graph 9 representing the RCA credit limits and short-term debt levels

! t 10 expected by the company.

11 if THE ADMINISTRATIVE LAW JUDGE: Which i!

12 I E-23 is that? Met-Ed or Penelec?

l 13 h MR. PANKIW: Met-Ed E-23. In particular, n

U 14 -

I page 3 of 5.

I 15 d THE WITNESS: Yes. This had nothing to 16 do with the September 12th letter. This was the source of I G

( 17 0 the application of funds that backed up Appendix A which was l

ll 18 ,j attached to the application for extraordinary relief.

9 19 j BY MR. PANKIW:

li 20 Q Yes, I understand that, Mr. Graham. Is 31[ this the source of application of funds that would back up 22 j h

this current Exhibit E-28?

ti i yn

~0 ' A Yes.

- i'

. 64 l' Q Now that question is with respect to l(d

\

25i internal sources, the item net income af ter preferred, could E MOW ACH & f.:M 5W . WO. - D fi. LCCKWMOY. AVE.- HM mS 2 Vft ? PA. 17112

- < x al.%! dm*

i: 'I

you tell us hos that ar. cunt is determined? l

' 1 2 A It is the bc tc= line cf the incw 1 etatresnt. It is what you lost in operating the bucinen 4 after you paid all of your ta::es , your payroll. your OSM  ;

5c depreciation, everything else, interect, long-term interest.

1 6 t' short-term interest, and proferred stock dividends.

J

? .' Q No' with respect to the income taxes that e

8 ,. cre reflected in this bottom line item, could you tell us 0

9 '!it whether those are the normalized state and federal incomc i!

10 4;. taxes or the actual state and federal income taxes thet ths J

11hcompanyexpectstopay?

1 e 12  ! A I don't know what you mean by normslized ,

i 12] taxes. The income statement reflects both the current porticfa 14 : of the federal income tax expense and the deferred portion ofl I ,

J 15 $. the federal income tax, if that is what you mean. ,.

16 ) Q The tax payments to the federal government, s ,

17f,, if they are made they are made not monthly, but I assume i

!i l 16 l ;i four times a year, is that correct?

19 0 A I don't know if they are made four times L

20 il a year at this time, but I think that is about right. It may 1

21 j be three times. -

4,, ,

I am advised that it is four. '

22 Iji i

9  ;

23 '; Q So in order to get a tconthly figurt fer -

2,: ,

both the current and deferred portion of the, well only the ,

25j current portion of the federal income tax would be paid four h U F.10HRCACH C !! ARSIW-. It!C. - 27 ?!. LOCXWlu.ovt AVE.- w a r*.m SB UR 3 PA. 17112

Graham-recross 1686 ___ q

[ timse a yecr, is chat correct?

F i

s ,, A Shat is correct. Ir you look coen 11t:1+a 7-)s

% 1 3y further there you see two more lines. one is investment tax i 4 f credit net and the one following that is deferred incora tax .

u 5)4 and to the extent that there are differences betusen ths

,i 6[ income statement and the actual cash payments for taxes, j t

7 ,, those are accounted for on those two lines. I J

ti S i' Q Can you tell us whether Met-Ed cill hcva.

! i o what their federal tax liability status will be with respect j i

i 10 jl to their portion of the consclidated income tax return for  !

h 11 y the year 1981?

1 12 la A I think Mr. Huff is a better person to i a

(~'

r 13 3 testify to those things than I, but my understanding is that

! t 14 i Met-Ed is expected to be in a loss pocition.

Whether that n

15 4 uould be true with full rate relief, I don't know.

16' Q Assuming that Met-Ed would be in a loss i

17 p position, is it correct that under the principles of i d l

18 j consolidation practiced by the ecmpany, Met-Ed would receive h

l 19 y a cash payment from the parent?

20 A It could be from the parent although that l

21; is very unlikely in this sutuation. More likely, it sould I

l 22 f be from one of its cister companies and whether it would I

23r I actually receive a ten payment is a function of whether the

~

(

t 24.l othar operating compenies are in a loss position or a net  ;

i (3 j

' kJ 25 -

income position also, lI J

" MOH;tBACH T: !4An5HAL.I!O.- 27 N. LOO Aw tLL O'.*, AVE.- H AR R:9 C U:t G P A. 17113 l

i  ; -

e- ,,

@stL&bF7st-If_4MW ~M t To the extent that Mec-Ed was at this time g in this set of exhibits expected to obtain any settlement 3

t 1

from another operating company for taxes, those are reflected i

g i

,:, y in this exhibit.

(

a.

g I can give you an illustration of that.

3 If you look at Exhibit J-5 you will see that one of the

,; itess that accounts for a difference between what we had .

I 6" expected to happen and what has actually happened is a c change in the federal in=ome tax settlement as between the 10 i e mpanies and we had budgeted for Met-Ed to pay -- I think k

_ _ .j in titis case it was a payment of $1.7 million -- and we were l 12 able to put that off from the time it had been anticipated

?

13 j in the cash flow exhibits.

i 14 h

MR. PANKIW: Is Mr. Huff here today? h 15 j MR. OGDEN: Yes, he is.  :

t 16- MR. PANKIW: Perhaps if I have some addi-17f , tional questions along this line I will ask him.

That is sg j all, Your Honor, 19 l .

THE ADMINISTRATIVE LAW JUDGE: Consumer 20; k, Advocate, i

21 1 MR. BARASCH: Thank you, Your Honor, r

22 BY MR. BARASCH:

23:1 Q Cood corning, Mr. Graham. Just a couple of g) questions. Looking at your graph on Exhibit E-28, first, if we look at page 1 it says assumed base rate increases and 25 it -

MOMRBACH ta MARSHAL. INC. - 2710 LQCMWH. LOW AVE. - Han'tl5 BURG P A. 17112 1

Graham-recross 1688

. . j

, reflects Met-Ed/Penelec's Statement E's assumption now is n

1. j!none, i (3

V g In scying none do you cean no TMI-l reisted li

, y base rates or do you mean a zero result ec:ning out of thin z.

case?

6j A I mean both. j i

h i ,g ;I Q In ether words, zero takes care of both  !

8 assumptions? I l e li A Yes. It is a no rate relief exhibit, j l '4 t 9 1 Q Thct is right, no TMI-l increase and no  !

10 ll E

glattritionoranyothertypeincrease.

A That is right.

~2 1  ! i

! i 13 Q Now also on your Exhibit E-28 -- and as you I

d y q testif.ed this morning -- you indicate that with the service

?

_-y; related budget cuts now in place or expected to be in place g j there would be about a $19 million decrease in your level of i

i construction payroll and other O&M expenses during 1981, I 17 co m et?

18 4

19 l A You may have just limited it a little bit 20 too much. Let me just state it this way.

l l To do the things that were cut out in Mr.

21l  %

22 Smith's letter of September 12 other than the things related i

23 f to Three Mile Island Unit 2, we would have to add back in

1 p.q the vicinity of $19 million.

O 2s  ! o shouta we ===u-e so e eortioo or caet *19 j

D NOHRBACH & M ARSHAL. INC. ~ 27 N. LGCKWILLOW AVE. - HARmfeURG P A. 87112

(

t,rauaw :.xruus tsyg 1

1 .. million savings, for want of a better word: relates to less 1 i

.t 4 money being expended by the company es a result of a decision!

3, if to li.mit new cervice bookups? Is that included in that I

g

i

-! i 4 number? l 5 '

A We have not gone that far at this point.  :

l 6 The level of $146 million would not eliminate booking up j

? new customers. That is a difference that people have come  ;

4 i Ej to talk about of the 80 linemen, namely, that below the cj $146 million level the nent thing we would have to do was ,

10f lay off about 80 linemen. We have not done that. i I

e 11 fi Q At this point in time you have not prioritizdd a i.

n 12.i your new service hookups, is that correct? There is an l kl

{ 13 l application pending but in fact you are still hooking up

.14 new customers as applications come in, correct?

15l A Yes, sir, but the application for the tariff 16 ' approval has nothing to do with that question.

When we see l i  !

17 k that we do not have the money for those 80 linemen they will j

/ -

i 18 be laid off whether or not the Commission has approved the l il 19fnewtariffthatwehavefiled.

20h Q What assumptions has your graph on page 2 s

21 of 2 of E-28 made about the payment of co:mnon stock dividenda 22 during 19817 A It assumes that Met-Ed pays no dividend to 23 )

'i e

24g GPU.

25 I'

Q What about preferred stock payments? h 2.10HR E ACH Cs M ARSH AL. INC. - 27 N. LC CKWILLOW AVE - H A *1RIF S U R G P A. 17112

Graham-recross 1690 h I

! A It assumes that we continue to pay a preferred:

9, E'E stock dividend.

f' *d (T / l' Finally; I believe in response to a question 3j i Q

,;, (s regarding tax er.cmpt bond financing or something a little it t.

3j earlier this morning you made a reference to Sewcrd-7 and ,

d 6.!ebout soas pollution control matters that could be in association with that plant. Do you recall that, sir? l 7

f 8 A Yes, sir.

I gl Q What is your best estinste at the moment of i

., i a

10 an in-service date for Seward-7? Hasn't that dete been put I

'! I

.; ; g i off by several years as a result of the financial situation I j

12 'l of GPU?

I 13 A It has been delayed until 1989. I was trying s

.\- .gs,qtomakethepointthatthenexttimethatPenelecwouldhave v

_53 i! occasion to be able to issue pollution control bonds would 16

! probably be scmetime quite far off in the future, 1

il 17 y Q In terms of the issuance of bonds, if we r

1g i ascume those bonds uould be associated with Seuard-7, in i

your understanding as Treasurer when would those bond 19 t.

20 financings have to occur if they are going to be associated I

21' with a plant going on line in 1989?

22, A I am n t real good at this , Mr. Barasch, f but I believe it has to be about three years before to one 33 24,9 year after. The three years before, as I understand it,

./~N i

(_) relates to notes rather than bonds, although there may be 25 .* e q

NOHREACH fu t!AMSHAL. INC. - 27 ti. LOCKWILLOav AVE. " r4 ARRIF EURG PA. 17112

~ =~ . . . . _

~

T e -

oranum-recross 1691 r- 3

. 1 .

t some opportunities te sell the bonds in anticipation of l expenditures one intends to take.  !

3y

$ Even that, I don't see it cening along before . llk i 1986, 1987, and I cight say we have never engaged in any of f that prior finsucing for pollutica control projects as scua ii

, companies heve.

o Q

You said nou thac the lacest in-service date .l 8 . f r S war -7 is pr bably 1989. I assume that is not as a

c. ) result of a construction slippage in actual bricks and mortar

,o u( work but rather that the coapany has delayed the beginning t

1 ss n!! of the real construction of this plant? I

-- a 1 2[ A I don't think that there is anything on the  !

3h, site.I I think everything that has been done is environmental (1

n

3. f surveys and preliminary engineering and land acquisition and ,

a a

ll) i

.1 5 L, that kir.d of thing.

n ic, ; -

It has to do with c combination of slower 7

load growth and lack of access to capital markets. l l

.g i I might say that the change in the schedule

.I 19]4 for the construction of Seuard-7 was announced very shortly

{ after Penelec failed in the market for $50 million of bonds.

t l

Q If I can just return for a second to our 1

31)3 22 >l discussion about new service ' hookups, j ust to make sure I l $ understand the situation, when you refer to tha $146 million 23 4

_ level of expanditure for 1981 you are assuming that new m, ;

2s_ E service hookups wo~uld continue in a non-reduced fashion, as i:

2 tAOMRSACH a M AR9HAL. INO. - 27 N. LOEJ: WILLOW AVE. - H AR eiss uR $ PA. 17112

Grahrm-rccrose 1692 E

I p if you would be hooking up new custoscre the scae way you

; uculd have been hooking up neu customers had you never had

x '; i e ? an accident at Three Mile Island?

Is that basicclly the g,(cituation? l

i

~t j A I think essentially, I ci not sure that it ,

u 4

0 6 really is working thct way. -

y ,: The peopic cre expected to set:r en the payrel.

P i 1

3' to do che job but the levels of support. coch in the office  ;

a chandinmaintenanceoftrucksandallofthoecthings,ecve j g.fa changed significantly. The invsntory levels have changed

t

, 4 significantly.

__3 l J

12 4 So I think that it probably will mean that

( 13 a

people will not get hooked up as fast. Eut it does anticipade

("h E

(_) ,14. f that we would keep the people on the payroll to continue to

)

13 ; hock up new customers.

16 Q When we talk about new hookup priortization  :

, t P

6 j is that something that if approved by this Commission would l 17 ;d i 18 ! ! have the impact of reducing your level of expenditures for j l

a 19 i new Ecokuns?

i:

20 A No. The way I view that tariff filing is l-21 in the nature of a standby. If we have to lay off some or 22 all of these 80 linemen, or if we have to lay off more than 0

22 j those 80 linemen, then somebody is going to have to decide,

't 74q with the very lindted number of people that we would have tot E

l -

25(hookupcustomers,uhoisgoingtogethockedupfirstand

f1 f tCHM ACH C. 6:AMMAL. WC. - 27 N. LGC!:mu.OW AVE. - M ARitif BUf?3 PA. 17112 i

m

Graham-rreros3 16G3 q .

, I; who is going to sit cad uait.

The tariff filing is to ash that the

,?

W

_: Commiccion acke thc: decision for us.

j Q Under a standby system the actual tariff g filing would not affect the levd of neu hcohup. at the monant g as 'ont as you continue to have enough monay?

, A That is right. When ue filed that in i.

g September we capected to be in thct position immediately. *

• i gI The cash generation within the company has  :

• """* 7 * * "" #8 **" "" "E # ""

• 10  !

.,i could keep thoce 80 linemen on the payroll.  ;

L L it 6

-2j I might say they received layoff notices ruo !

1 1

7- 33 ;' or three times and have received a stay at the lest minute each time. I don't know whether they are under layoff no*icef g

_ " right now.

La, n, l.

I

. i l .6 j

, Q Can I make an assumption thst given the l

, l ,

present status cf your cash flows cnd whatnot of these 7

18 ] c mpanies, particularly Metropolitan Edison, thst we would t

79 c not see any change in the number of employees relating to

- 4 20 new service hookups until the Commission renders its decision o ., H in March or April of this year?

If I 1 k at your graph it would appear to 22 ]s me that that would be the case. Is that a reasonable 23 }!

_ I expectation?

t+:

H A Could I just have the first part of that 25.j ,

MOMRS ACH Ce f.!AR SH AL. IMO " 27 N. LCCKWILLCW AV E. - A ARRif BURC PA. 17112

Graham-recross 1694 l'

iquestion read back?

) i O ,e (The following was read by the reporter:

i l

+)\

Question: Can I make an essumotion that 3

g given the present statos of your cash flows and l

3 whatnot of these companies, particularly *

.j Metropolitan Edison, that we could not see any l g' change in the number of _cployees relating to nee 9

service hookups until the Commission renders ite i decision in March or April of this year?)

10 8

. 4

. t 4 THE WITNESS: As things non stand I think 33 f i;

'f

( 13 f that is probably the case, but if we see any material change O u ! ie estuer our actuel incurred ceeh reautrements e= eer ex>cett d i d l 153 cash requirements that will not be the case. l j  :

16: If, f r instance, we get a cisjor ice storm l l'

,,g this winter and.it costs us a few million dollars in cash,

- . . , f 1 8 l that can happen very, very rapidly, in a week ce two, there

. h 1 ')

i 19 ' is no_ question but that we will have to lay those people off.

l Q What I am trying to get at is, as I under-20 .J.

21 stand your graph, you got approximately a $15 million spread 0

lbetween,oryouareexpectinga$15millionspreadapprovimately a

I 23 j between your revolving credit agree:nent and your short-term g)debtlevelsasofJanuary1,1981, correct, approximately? l O un A That is the amount that would be thare ct V ~E "

NONRCt.CH a MAF:SHAL. INC. - 27 N. LOCKWIL LOW AVE. - ,i AMRIS o utt G P A. 17112 e

. - - . . - , , - s - - -

Grahmn-rcercn3 1695 i

i that ooint, yes. i

' i

2. Q What is missing frem this graph is probably 1 another, as you put it, 20-yard penalty to drop down in terms ,

9 i  :

}' of what the short term debt line eculd look like, assumine 5 that the present senrice cuts that cre noe in place and i 6 enpected to continue remain so, correct?

?

I 7- A Yes, i e t E. Q So rhat we would proba%r have a $65 million l

!; t s' !j to $70 million spread between your revolving credit agreement l

!i  !

10j and your short-term debt lines during the period roughly  ;

.4  !

11 ) from January 1 to March 1 of next year?

4  !

12 !j A No, sir. You gather that $20 million at the I l 13 [ rate of about a million and a half a month during the year, l t

14,hsowhatwouldhappenisthatyouwouldbedownabout$20 I g

N 15 ] million at the end of December, but in January you would be 3

16 j essentially at the same place as, you are.

i It would be an j a

17 l ever-widening --

18 Q Fine, so with that correction you would see 19 a line approximately something in the vicinity of a $50 i

million spread between the revolving credit agreement line 20f k

21 and short-term debt balances during the period January 1 22 ) to March 1 of next year, correct?

I!

23 h A Yes, and I would hate to cut it off even i

24 f one month after that, Mr. Barasch.

25 Q I understand that. There is a reason uhy Il MOMRBACH fu MAftSHAL. ENC. - 27 N. LOCKW1LLew AVE. - M A R8ttS B URG f* A. 17112

Graham-r: cross 1695

. . =

q s

3 g I am csking the question this way. I just want to mcke sure il 3lIunderstandyourenhibit.

E

, .: A Sure.

3 .1 g, f Q And then uhat happens is as you spproach yo.:r 5 tax 11 bility in April, your short-term debt stcres to rise 3(verydramaticclly, correct?  ;

i  !

7 A Yes.  ;

g! Q Nou you are expecting a decision in the r, )iMarch to April period, as you understand it, correct?  ;

3 A I certainly hope so.  !

10 )! !

Is it your testimony that based upon what yy ; Q  !

k I 73 )l your projections are right now, thdt an ice storm or sanethingl 9

g3 of that magnitude could cause you to make a decision, for n

() yfexample,intheJanuarytoMarch1, period,tolayoffline.nen F

ggqandthusdiscontinueorprioritizenewservicehookups?  ;

4 I

,6

! A Yes. The reason is the right-hand side of the graph, particularly given some of the positions that I  !

17,

g have seen filed in this case. You cannot fill that gap by is 19 the end of the year.

20l MR. BARASCH: I have no further questions of f

21hthewitness.

22 BY MR. MORRIS:

23 j Q Mr. Graham, let me ask you first to clarify l

g a relationship which I understood to be expr.3ssed in one of E

25 l your answers to Mr. Barasch.

U a MCHRDACH & !4ARSHAL. INC. - 27 H. LOCKWsLLow AVE. - HORIMeVRG P A. 3 73 g;t 0

~~ , . .. . .

--- pwy- v. -%, --t - e m Y

. q> "9) o

//  %

+ ---

. TEST TARGET (MT-3) 1.0 l# En LE S R3 E2a m ==

l,l h," bN l.8 1.25 1.4 1.6

6~

,, / !4%

n$w:%>/7/

v o

+>A 4

<+p$A+ < 1 1

l-

• RIi*

. Q$' + 0

%*? 'ff? #

4 9// V;> $ > 4 / o,

//// '

gy+}4 - .. - . -

1. %{'s,

////

TEST TARGET (MT-3) l l

l 1.0 MBH E4 y @ HE I.l ?_m N2 1.8 l '-

I l.25 1.4 1.6 I

< 6" >

I//// l M,,rI,4 S o

3 [.e[(

'4t 4< ,>

Graham-recross 1697 7 .

f Referring to the September 12 letter of Mr.

O k, Smith, you related the figure of $19 million to that lettar.

.  ; Pcrhaps I misunderstood you. The $19 million, I take it, a.

fbeingthedifferencebetween$165milliononMet-EdExhibit *

• E-28 and the $145 million figure .unich is your more updated

.. experience. Can you take the September 12 letcer and relate oe i

,' a the $19 millice to Paragraphs D and E, which I take it are i

r cl the operative onas for this purpose?

t g (! A It is difficult or impossible to de and the ,

, reason is that Enhibit E-28 is based upon a projection of zO 9 ,

_ a what we expect the 1981 budget for Met-Ed to look like.

11 J 12 j The Septe=ber 12 letter was baced upon d

f 13 ;] adjustments that we kept making to the 1980 budget and tha 0

l 1

4,ij 1980 budget was prepared before TMI-l was recoved from ra

e ggg s

_.j base, for instance.

13 )

,,i The difficulty is that as you go through a Ac q ,

7 budgeting process and a control of expenditure process you I 18 y reach a point somewhere toward the end of the year that Ln ,! instead of looking at this year's budget you start looking y

0 at nent year's budget. So it gets to be difficult to translace r

g $ the items.

But essentially what is covered is if you

• ^ "# ** * *E ** * * *# "" 7" 23 l ,

24rn

look down at the bottom at Items 9 through 14, and at the

, ! top at Items 3 and 4, it is those items that ue are keeping 65 3 I N h!OHRSACH a M AN SH Al. INC. - 27 N. LCEKwit.LCW t.VE. - H A991f 9v?!G P A. 37112 --

....~,w--- =

Graham-recross 1093

. . p

. ,l 3 p in at the $165 million and taking out at the $146 million, i 9

,s 3[ Q 111ne through 14 essencicily?

l u_) a -

3. f A And 3 and 4, although those are very snall, n .

4 The big ones, the ones that affect the customers, affect the i gg service, et cetera, are 9 through 14.

4 ,

i 6, Q I do not uant to take the tims on the record n; to do it, but I assume in at least order or magnituce  : 1  ;

', . I agtake9through14Iwillcometosomethingover$15millice pi and something under $25 million? I at not asking you to de l d i 10 iU*

d  !

s, j A You can do it if you look at the page before,'

12 q Attachment 4, page 2. I think 9 through 14 add up there tc 5 3 ll about fifteen or so million dollars.

a V

(e%) 74  ! Q Attachment 4, page 2? i 9

15 ( A Yes. And then if you go up and 1cok at s ,

16 : Items like 3, 4, 6 and 7, you will get s number that is in l v i 17l; the $20 million range, j 1 .

IS As I say, it beccmes very difficult because d

19 y the particular projects that would have been identified in 9

k 20:.u the 1980 budget that went into this may or may not be in il 21] exactly the same ordar in the 1981 budget, and other items 22 )4 may have moved up in priority and things like that.

23 l4 ME. MORRIS: I directed Mr. Grcham's 1

24[ ctcention to the first pcge of- Attachment 5 and he indicated,

. h seN yes, those were the figures on 9 through 14 but that somethir g

(~) "" ?i k/ v.exase cw a ruasst mc. - 27 to ceciwrittove Ave - HA'TRJf BURG PA. 17112 -

Graham-recross lE 9__D.. . _ . . _, ,

f i

?was onitted.

8-

, li T!IE UITNESS: No, tne differencs is htt on

y. (attachment 5 uney go through April. On Antechman; 4, psgi 1.

6

. 'l thev go through December 1981.

t. h gl MR. MORRIS: Thank ycu i.? w 'ceferc I erk '

6

,3 Mr. Grshtm cny further questions, I uculd like to ask 1x.

s. agden a question, if I may.

l

• i l c

C Is Mr. Graham the witness to authenticate the' f

3

.. records furnished in response to our interrogatories in terms 3

4 4 e . ~ ,

. or tne ecmotateness or the response?

c0 ' *

.T. 'i- ,

(Trcnscript continued onmxt page.)

LA i f

r' 13 0 '

\

o . h M i ll l I

?

.. O i Its ' -

l a f 17 [f l 18 ::  !

H 1 9 'Js l l 204 .n f

l i

22 h.

il l 9%

-O l t 2',L N

, _ i!i:

dO (" .

MOHRD ACH a MAft THAL. INO. - 27 M. L9CWWILLQV. AVE.- HAR*!!FFURG PA. 17112

Grcham-recross 1699

>I l  !

'I i

14 E. CGDEN: Mr. Morris, I think it depends!

n p'

'v 3 . en which intarrogatory you cant co refer to.

g In terne of  ;

3 ji se:ne of the fintncini dsta, that may be true. In tents of C

4 f some of the rate comparisons, Mr. Certer would be the cit.uss a !! In terms of scre of the TMI material uhich ecs furnish,d, d

a 6 ::l Mr. Arnold would be the one.

ii  !

?g MR. MORRIS: I perhaps confused you cith !

F 3,fthewordauthenticate. The quastion I an asking is who can i

?.i giva me a review of the completeness of the response. .

k 10 E E. CGDEN: Well, I think that in terms of 11 al TMI cstters, Mr. Arnold is the one that would perhaps respondf, 12 !;: fully to the material that he provided.

!)

(~ 13 y I think Mr. Carter would be the one to

-v i

f()h 14 y respond to rate comparisons insofar as your interrogatories s

15 l address rate comparisons, and I think Mr. Graham would be ths 1

16 l one to respond to you on financial matters.  !

.. j ii i' 17 4s MR. MORRIS: Let me ask Mr. Graham to 18 5 review the interrogatories t.hich I have provided the company

't.

19 ll two months or so ago, n

L 20L THE WITNESS: Yes.

21 BY MR. MORRIS:

a 22 Q You have read the definition of records 23 i and the four record requests that uere made?

i 24!i A Yes, sir.

i n 25l Q Uma I show you s list of the. records which 17912

~

f.? O M R B ACH & MA.". S H AL. tit c. - M ti. L OCN WRLOW AVE.- H A R R IF F U R S P A.

G:aham-recr tts 1703 1 uarc :sndered co me 3y counsal and I till gica a cocy :a

?-

- n. .f,g, a, %s... . .. ...

, . . m.

.. :c. ~;

u - a n oy...

. a. 1.,.e. ....;,p.it

.u. . . -

,. c . .

- ,s. .

I which I have furniched you is in 30 7 qec cc.d it ic . a; 4- form of c rece.~.p: provided by counsel in which vor corsei

? listed the records on tese cope. rate pages and I ask :cu to

'5 review these.

• a!- MR. OGDZK: I think3 Mr. Ecrris, 70 wi. 3 i

8 f find that the items presented for your inspectica dealing :ita F MI natters reltte to your Interrcsctories 5 and 6 a 10 particulcr.

11 i 1 MR. H3RF.IS: I ca not sure I know what 13[ that means, but feel free to cicrify it. I understood that ,

a  ;

. 4 5 .,'

- ' i] caterial which was to be provided cy your orfice: Mr. Ogden,j 14 was responsive to the interrogatories. ,

15 ' i MR. OGLEN: The only point I am making is i i

16 ,

that you showed Mr. Grsham, I believe, tha H se four  !

i  :

171 interrogatories.

You additionclly filed two more interrogatories, le a. nunbers 5 and 6, and the meterial supplied to von being .

4 1

19 i outlined on the receipt for such material is in response to t .

20 L all six of those interrogatories.

4

!i 4

2 2' ,'t, BY MR. MORRIS:

N 22 j Q P. ave you reviewed the list. Mr. Graham?

, t 1

23 A yes, sir, l

i i

24 q Tha list does not include., for crcmple-- ,

'>L and incidentally. I am only here seeking te e

neke sure ne hav>p ,

/ CMIF AOH C. W.P C)4 AI.. M O """ U N ' OCIIW! BLOW '.VI. - N '. X 7 ' F u M G P A- 37112

Graham-recross I BA

. G.

7,.

S 1; had a chance to incpect data that ua think r.c be appropriate,i 5' ne c to crit-iciac respcases because 7. kaco your tina hut ace 5 :; limited, but taken in that ccatert. it does not, for instan d

!! l 4 [ include the iherber 13th letter from Mr. Ruben to the 2

1 9

5 Dep:rtment of Revenue or any of the uncierlying arkpapert, '

?

6- does it? i e  :

? '!u A I agree it does net. Ocn vou -

tell me (tet, 1

i! '

O! interrogatory that eould ba relevant to? '

a I_ t

? (' q I wat1d say either one cr tuo. l i!  :

10 p A Do I have cy choice? ,

9  !

11 (! Q If it is not compended by one of those, d

12 $ perhaps I didn't draft then cs broadly as I might have. Let ,

1:

s,  ;

(; 13 me suggest some others. There is reference in Mr. Miller's l ,

(d 14nf! testimony uhich was provided to me, to various forecasts for l 15 l 1983, the company, at uhich he had looked but are not includdd.

16 ; That is corrcet, is it not, and there are such forecasts?

l 17 'j A I haven't seen Mr. Miller's testimony for i l

16.fscmatime. I have the feeling that he was referring to the I I 3

IP d material that was submitted as an exhibit by me in the last 7

20j rate case which went through 1985 at the direction of the a

3 21!I Commission.

at 1

22 k Isn't there an exception to your material 0

23 lI for that which d.nn it said except material filed of recor'd it; 24 y n

this proceeding before the Pennsylvanic Public Utility q -

l r)

~'

25 'c Commission?

\, +e L-  !.:OMMBt.CH & MARSHAL, it:C - 27 ti. LOCKWiLLOW AVE.* rt ?# eH 3 e d /tG PA. 17112 9

GrahSm-recross l'j gg 4

.~

a Lid Tod Say in ;he last TEc3 caro?

Q a n .os. -

cton c n o; n nu - ::n - rr, e s e c :.n 3 -

I' recas when ec hzve ccaplaints assinst temporary rctes zud 4' ever,rthing _ike that.

r Q I think w2 can recch an agream nt eithout 3

', fencin . There are no wori: papers or correcponcance ox drants i

( -

underlyinn the ccteriel thct was cuomitted?

- Thac ir correct, t.

t'%

5 0 is it not?

-5 Ny ..

A Thct is correct. '

10 Q And certain correspondance is reauested in:

iEl the definition which I just read?

t u,

A It is.

(

i Q And you are aucre from the intarregatories!

M- ft as I believe Mr. Ecfer is, who is here, that we were willing l '

5 15i [ end are willing to cc=e to you to look at them wheravsr they ;

,,i  :

10 . are collected?

e Thatisclear,isitnotfromtheinterroga-;!

.t7 ll tories? t t

i a i c.S . A I have no problem with that. ,!

c w"

~' I: Q That is what they said, right? ,

' i 20[ A It says: " Offer for examination or copying!

\

33-

, 3. at reasonable location in 1 ennsylvania or New Jersey." Yes.,

22 ! MR. MORRIS: I think it is clear from the 4;

, interrogatories and the witness,s cnseer and I will nov i

k address cyself to the Administrative Law Judge that we have  !

f  !

22 : not had an opportunity to examine the records uhich we requesped MOHR3A:n C M utSHAL. INC. - 27 N. LOC::Y 6LLW" AV".- u n r. t s t L a c n A. 17111

Grahnz-recross .,703

+

15 E I will inform the Judge, and I think 1Ir. Ogden will agraa, l

Q E g

t we hsvc written and corresponded in en attempt to be ,

3 i reasonable about that we canted to loch at, but ca do not ,

4 ;', see how we ecn proceed in this rate hearing and/or prepare i d

f ] testimony or ccmplete the examination of thase uitsser unlesIs 6j ue Ecve complate responses to what we tried to cthe resscnab b i.

7 interrogatories snd interrogatorica uith respect to which se 6 agreed to go to their offices to review thas.

I simply

1 l 9 f, address to the Administrative Law Jud ;e and ask that some 10 2 form of sanction and/or opportunities be provided with a

,, ' t 12 !I respect to which we can have our requests answered and/or l 4 5 13 i revieu the documents. i 4

b- "e

,e THE ADMINISTRATIVE LAW JUDGE: At this O,

s" ,^ +. . h. 3 late date, as we beve indicated, we expect all direct '

d

!O s testimony to be submitted on or before December 26th and we i

16 3 don't feel ce should change that on the complaint of lack of s

17 j resporse at this time.

"g 4.

[j MR. MORRIS: Your Honor, this response

.: 9 "o $ has been requested for some twc cienths.

No data was tenderec-n

20) and wo brought this to your attention at an earlier hearing 21 time, December 3rd. This./is the first opportunity we have n

4 24 l had to interrogate with respect to the completeness and on 23' 'i the surface of the documents provided, it is not complete.

24) Nou I don't think we want to leave this s

(q 25 reccrd in such a stcte that reascaable interrogstories,

%) L

' MCifRSACH ta :M.El4AL Bil". * ?.7 H. LOCKWNL OW AVE - M arf:!5c uRO P A. 17112

Grche:n-re:ross ..

i ressenably prop .t:nded and fol?.ceed c.p requ_ca .:t :t et.~ c p 1. ,

S. court trys.ng ta sei. then. it. s e e.c.1 cc m :in  ::: 1

.e scecc.codating anc reic * :1v2iv. c.o rF 1..- if --in c.:m. a n.v is vi._id .

e c to--

f, Tii5 ADXIIF'2ATIM. IXJ JL22.: I have na 6, objection, but I ac. not referring to that. I cc referring to:

'l direct testicony in the complaints filed at this time end I l 1

S. am not gcing tc change the deadlina of the direcc testimony. '

1

?l Not: let's refer to the ccmpany. Ubat la a

10 ' the company cble to do to satisfy counsel?

11 9 EP.. OGDEN: Your Honor, I think I have n

1 12 i heard Mr. Morris use terms reasonable. on their face, anc so '

.I j

13 / forth. It seems to me, and I recall numercus correspondance;

.14 between ouroffice and that of Mr. Morris in terms of trying i

h 15 j to provide 2.nrormation unich reasonably cou,ad be expected to 16 ' provided from these interrogstories, i 1  !

t .

17 j Non rather than get into formal legal e

18 j li obj ections and tie up rhe proceeding further with that, we o I 19 " attempted to co-operate with Mr. Morris and his associate j 9 ,

1 20 {r in terms of providing what c.rauld be reasonable to be provideo Il 21 y under these interrogatorien, but if you look for a moment at 4

22 !! the definition of the section of these interregctories, ,

s 23 reports include, cithcut limitation thereto. reports, 2.( *- memorandum, correspondsnee 3 opinicac, charts, graphs,

}

l 25 documents of any nsture whatsoever including apper. dices, M OHRul AC r4 L f.* AR E MAL inc. - M N. L OO. V.T.L O W AVE -- 4 4 R ro F ; U R O PA. 17112 g

Grahsm-recrosa 1705 Ih exhibits, attcchments , addendum, cuc. , etc. , etc.

O  !

?

un noants: ,ere woe ea ov9o===1:=r =c 5I object--

?

-0 ) 12. OCDEN: Let ne finish. I have given i Y,.

, 1 Eou I want my chance.

5 :j you a chance. ,

i,, I 6 if O Row as a racult of our subc.ittal on  !

.i ,

7 December 3rd, we felt we had recsonchly complied with ::he

{

GI spirit and intent of these interrogatories. I know of no I 2

9 f court, and I certainly know of no hearing room in this office' 10!a oftheCommission,inwhichinterrcgatoriesmaybeusedasaf L

m l

11 fishing expedition for opening up companies' files for 12 E..whatever purpose, relevant or irrelevant.

^ m .

13 j Now I might also note for the record (L# ) i:

.141 that these responses were given to Mr. Morris and his 15 j associate on Decocher 3rd. He said on their face they 16 j appecr to be inadequate. Well, I cuggest if on their face I

17 r, they appear to be so damn inadequate, he should have made his

!i 18] response before todey, which is the 19th of December.

19 d MR, MORRIS: When the docusants were li 20 $ tendered to me, I asked of whom I could inquire regarding d..

21 h their completeness.

ti I was informed by Mr. Ogden, Mr. Grchen, 22 5 and I have done so today, the first opportunity I had.

23: Hou 1 point out, sir, that objections to 24 0 the scope of interrogatorias are not nce timely. We did noti

?

O 351eareeto1tuitthem-htCHR2/.CH & MA."?H A*.. .

we ata coe e=ree. 7cu ceamot i==siae ce Inc. - 27 N. t.0cxt f1LOY/ ,W3. - H AE ml:FURG P t. 17112 S

, y . _ - , . , ym . -~

Grahua-recroCS Ug I having not agreed--

Z TEZ ADMENIST:#i . ' i JJ: E : I cion ' t huos I chether you ac. reed to limit it or not. I don'c have ?:e l-1

'. interreactories before me. but if they cra p'=ssed in that 3 language, I think i-hey are overly broad sad inpc.s apon th::

O; company undue responsibility, too.- '

I g '4 MP.. MORP.IS : Uell, in that centent, sir, j

? ,

Ei since I think they have been on file with the Octnission anu i .

the company. no objection pas filed and this is the first I l

. to 6 'ai hve had thst ruling, I would be entitled / limit and to have i

i; 11l adequate time to limit, sir. l 1

II 1 TIE ADi1NISTRATIVE IAW JUDGE: On  !

. i 13 i

December 3rd, certain data, certain records were furnished h

. n 14 j to you. Were you satisfied at thct time that you had

,r, 1 i

13] received everything that you wanted?  ;

6

., i 40 i MR. MOPJtIS: No, sir, and I asked  !

a A- ] Mr. Ogden who I could ask with respect to the coupleteness s

' ,3 l 18 ;y: of these ansvers. He told me Mr. Graham.

19  : Mr. Graham is on the witnessstand and I n

L 20 am now asking him, l

I L

31 )q THE ADMINISTRATIVE LAW JUDGE: Did you I'

22 . specifically state to the company or did you ask us to direct 1

22 ' the company to furnish any specific date?

N :, 12. MORRIS : We asked you, sir. I think 5

25 over a conth and a hcif ago after we had filed the interrogatories 3

' MoHR;Acd a M/.T:3HAi., IMO. - 27 t'.

. LOCK % P i on n'E. - H A;'n t s ai, R C TA. 1:1f2 L

Grchse-recross 1707 I

5 and had not had answers. I believe thst 5:Es motion 2d on the O

V E record anc che thou pt m s thnt. the ccomer y ocul: Sc : .S .

s

c. ,  ;

4 j 'IEE AD)ENISTYs.TD.'E isU JOUE: Uhc i

• (specificcllycreyouscekingnow?

a nl

"[ MR. rDERIS : I am seeking an opportunity  ;

o i to look at the underlying workpapers and the various repert. i a4 D., that uere made end I think I am entitled Oc do so. j!

" ll I a= seeking the materisi that ese

[

,. i,

, requested in the interrogatories and I am willing to go and  ;

8 1

20 inspect'them. I am not asking the compcny to acse:61e thm. '

31 [l MR. CCDEN: Your Honor, I can assure yo.-

that we have no intention of opening up our corporato records, e --9  ;

' "' for his perusal. whatever material might be relevant or O

N. s u li l

.pl irrelevant to this proceeding.

-d:  !

,3 (

Let me say this. I guess perhaps I r.m '

M 3 getting a little testy on this matter because we have f J.

17 ] literclly hundreds of' interrogatories that we have answered. ;

i t i

^8 j

- t g Now we have tried to refrain from posing legal objections to i so 3 l -'q the interrogatorien because it wastes time and for the most 20 i i part, 7ou can work things out very satisfactorily with the

21. parties in terms of what you provide. l 22 g We provided Mr. Morris with what we felt 2

23)wcecreasonableresponsetohicinterrogatorieswhich,if {

p .

W youlookathicdefinitionalsection,arecompletelyoutinj.  !

m d- r t i ()

I j left field, have no bearing or relevancy in this proceeding a,t

d. J

,4canet.cn t raict w.:.. me. - 27 ::. Lect:wr_Lo .y e vt. - unatsuumo pr. 27:ir E

Grah2n-recrose 17Dn

all, but we supplied him ui.

h what we felt occ n reasonan'_e 2 responts to the _ntarrcE- ries. ,

I Rov if he ins.~.att ou ser'.ng cil uf the i

.m62rlying pcpars thuc pere referred to in : Deuey's 2 test;.ceny back in the 300 proceeoing. if he usntc to ces cli 6 the underlying corkpapers cnd calevictionc cc 2 retult of

'l ' the restimany back in che 303 proce.eding af other citnessec G c r nr.dsrl-f ing uorkpspers. or cny of thera thinge uhich rare E supplied, he ucs perfectly free to request that further 10 docunantstion a long time before this and he usc0 this as cn i

u 11d excuse cc this point to try to ccall off filing testimony  ;

12 ] or rcise some kind of legal objection, I think is preposterotf.s.

4 13 !i MR. MORRIS: I think M . Ogoen says it 31{

14 chan he says they will not lat me revieu their books and h i

15 records. I have done this ac promptly as I cou? d and indeed :

is , as he agrees, we corresponded at length to try to get these !

i 17 ,; without being forr.21 and when we got them, we did not get i le j the underlying pcpers that we required and et my first 9

10 / opportunity, I have made that point.

t k I 20: THE ADMINISTILt.IIVE LAW JUDGE: This is not 21] the first opportunity you had to complain.

MR. MORRIS: I did complain previously, 22 f ,

22 sir. ,

.p. 'UE I.Di'INISTRATIVE LAW JUOT.:. : You have ,

25( not referred to thic matter or requested additional data or gg idCMMili ACH A .Y MtSH ~ L.1:3 0 ~ 07 N LOOTA IL#' " E' ~ " "M I"'

Grshca-recross i709 L }' rectested enseinstion of any recorer since the records vers o

d I shouc. to veu for inspection on Dseer? ar 3rd. 3:u, irJ M e >

I ; I dotbt uhether you attended am of the hearings froa de

. t t ;a date on.

g .

Y' MR. MORRIS: I believe our office tae  :

-a * '

{ represented.

.i S3 THE ADMINISTFitTIV2 LM JJDGE: Your officej t

"i was represented, but your office made no request and did nst !

3 d indicate to us that any of the responces and opportunities

'^ Oa *i for enemination were not aliorded to you and I can't permit

t-1 nou a delay. We have to complete this prcceeding in c_t W 1yl 12' fashion.

s I I

p N ;; We are restricted and we are not going to ,

1 ,

, . r, M'

. extend the time for filing direct testimony. j

-a -

'a j 1%. M01EIS: I am not suggesting that we 16 . deley thet tisetabic, sir.

I am merely suggesting now, une ,

i 3 ,

17ilpointhavingbee.2 established on the record, that we he given AS ,i i

an opportunity to look at this materici and cs promptly ac j i

3hpossible. Thst is all I am asking.

. i

~~O g MR. OGDEN: Well, Your Honor, in light- of e

21fthatfurtherrequest, let me say this. The meterial to which-

' ' li

, Mr. lio-:*is is referring, it vould appear from his definitions!

E c.; che interregatories, include reports without limits:tica, [

. V

[ thereto, c:cmorcndum. correcpondance, cherts, drafts, documents

j. 1

^~a ? i

('Ns.) f of any nature whatsoever including cppendices, shibits, .

E-

• 1CH*tEACM 6 f1AA ENAL.12 0 * "7 N. LOCKVr1 LOW AV E. H A MEIOURC PA, 1711 4 --

m ,

Grahnm-recroe5 1719 ___

j 1' attaennot.s, audendum thereto related in :.:ny usy " a arpact S te hi: Interragstory 1; every report preperad af:er Fe,rtsry m (g)

.~ 1979 by staff or consultanta related to the impcet er a

v

'? D developmsats at Throa Mile Island on the financial prenpacte I

i 3 of Met-Ed or the GPU Utility Corporation or any of its u

, I O -

subsidiaries.

7 1 assume that uould include. ~ Jersey Central 3

0 Power and Light.

s F Item 2, overy report prepared after 10 February 1,1979 by staff or consultants related to i

11 j consideration of financial alternatives which might confront

^^ ll or be available to Met-Ed, GPU, or any of its subsidiaries  ;

n I

(~ 13 j as a result of developments at Three Mile Island.

2+ h

! Three, every report prepared after &

..i 10 1 February 1,1979 by staff or consultants relating to race i

16 j comparisons between Me -Ed and/or electric utilitie serving!

n 27 >' the public in the Commonwealth of Penn.sylvania or the State s

L8a!! of New Jersey.

r SQ' i Four, every report prepared after 20 February 1,1979 by staff or consultants related to 21.IJ'i restructure or reorganization of the debt or the capital 4

li 22 d structure of Met-Ed, G?U, or any of its subsidiaries, and, ti 9e3 u '

Your Ecnor, I have tried to make a reasonable response to 3  !

2, these requests. We hava corresponded with Mr. Ucrris, but I Li li 2 se clead eith you that this sort of discovery is an abuse of p c Ha pf.0); a f! Aft SKAL. I?:C - 27 T., LOOKWLLLOW AVE.- H A

• RIS E L ef G PA. 1/112 -

lll

i 1

Graham-recross 1711 1,I. process I l

Q,, .% , MR. MORRIS: Tour lioner, I think tha  !

i S time for objection, if that is the objectica now interpoced, ,I 4 [e is ecrlier. I am willing to try to linit but no obje.ction i.

5j was previously ccde and I understcod I uould get essen_ icily l t

6 3 that material. Uhct I got was escentially prepared testimony l 7 li. without underlying erkpapers, notes or .:crrespondance. I a'

55 think I am entitled to that.

?.Q Tii3 ADMINISTRATIVS 1,AW JUDG2: Wa think '

h.

10 4h the request to interrogatories, whether any objection ia <

9 l

11 ;i '

]madeornot,wethinktheyareeverlybroadandcreatean to l 12 j excessive burden upon the company / turnish all and every part i 13 )n of that request in those responses anc now at this late date l C[^ 0 14 J to soecifically make requeste for specific items, ve think 4,

15 I' is too late. We are going to refuse the requcct.

41 .

a 16i MR. E02RIS: Welldefine,YourEooor,thenl 17 f since I had nonoticeofthisbeforeanddidaskandnobodyl '

n IS E previously objected arid no response until December 3rd, that i r

n 19 s I have time to refine them in line with your ruling? That i

e i

20 P,,,

sec.ns only fair.

E 21j THE ADMINISTRATIVE LAW JUDGE: Ifyouwere!

. 4 32; not given ehat you thought uas sufficient information, e

25 [ sufficient discovery at the time of December 3, you ha:' the c ,

i 22,: [ opportunity to report so to us and we may have made scme  ;

ji 23 f additional ruling, but at this ~.:. ate date we are not going to !

.* OHittACH 0, e4 2 RE:AL. (MC. - 27 N. LOCKWtiLOZ , YE .

• HE R NIS B.24 PA. 17,82 l ~

.n_. - .

L

Graham-recros s ,:

z ..:.

I delcy the proceedings in this ctter by secr:i-cer.ec sanething

? :nat cas requa=ced in sa exce;ela:, :nd burcanecme 22n:_ar :han g the original intarrogctor/

• ;C. if0ERIS :  :

'fe- I be ciczr for .hs rer.crd.

5 sir, since I thich ;his is excretaly 12ncartcae an6 effsets

.=

the tenability of their esse.

c. ino ri3, 3ditJ.LSina r-r-.v. . 1- - .m-.-

21+ c yAky1 J3 J3, u.

e c, :

a c o b,.2.c w _ ; .

e there has bean no Submissicn as to the Tale 73 Ley Cf any r.~.d c

all of these tatters that hsve been requested in the discovery 10 interrogatories in the discovery proceeding.

1 11 MR. MORRIS: I ask if I cight :rske a point,:

12 [ clec: for the record since I think this goes to the teacbility 13 , of their case since they are unwilling to disclose the 4 .

At :: uncerlying data.

i 1 ~ ..

I do not ask you to postpone the dirsc I

16 , testimony. I do not ssh v,ou to L>ostpone the decision date. !

17 .: I merely asked for the opportunity to revise or if necessary

) f t

16 8 a refined set of documents during the remainder of thesc 19hproceedingswhichwillgoonforsometime.

v.

a l 20i TIIE AD111NISTRATIVE LAW JUDGE: If you can 21s indicate to us the specific relevancv of those documents 3 ua 1 ,

4 4

j 22 ll uill samine your request. Until thst is done--

23 i m. F3RRIS: W uill de so, but I hava te ,

i t

M: ash for en exception to the ruling. I suppoce maybe that is 25 unnecasacry because I think the opportunity t: take17f12 itAMt?"sRG P A-a icok at) g MOHRSACH c Mr *:SH/.L. INC. - 27 R LOCKV iLLOW AVE

Graham-recroas - - . . .

W

.; ' . 1 1: the underlying esteri 1 of the cocpanzos e.s cri.ticial when  :

1 ,

} 2; youareaskingtherecepnyersteabsorbamajorincracss.anc[

1 h you are neu. I telle*te, denying the retepsyers the opport:0 ~ O, il i 4 i to test whether or not the impcsition or the rate relief ,

c,1 y } requested or any rate relief requested supports.

it f

d 6j THE ADMINISTRATEG iAW JUDGE: We are not 4

7 i danying anybody anything. We are stating that the original 6? interrogatory submitted by you is execcsive, burdonsezs to F{thecompany. You have not shoun the relevancy of all those 10 l matters and patentably on the face of it shown that the

].

I 11 ? request is excessiva and does not merit enmining all the I

a 12 2 records of the company for the purpose of a fishing l r i C 13l expedition. {

w .

t 14 Md. MORRIS: Would you agree with me sir.f r

i i

15: u that I cm entitled tc cu~e that? This is av first notice cf ,,

2 ,

2 16 ! it and th?re has been no previcus objectica on that ground. !

I? j That just has to be the case.

1 M! .i THE ADMIMSTRATIVE LAW JUDGE: You had th$

5 19s opportunity to inspect certain records as late as December

?

20 5 3rd.

n l \;

31 ' MR. MORRIS: That is when I first saw 22 x them.- sir.

. p i 23 " TE5 ADMINISTRATIVE I.AY JUDGE: If ve,u N.ra 24 notsatisfiedwiththatresponseofthecompsnyatthertime) 25 you feel that you should have applied to us and made your

' McHRS,.OH 4. Li AUSMAL. ;NO.

• 27 ?!. LC CXW:LLOW A*/E - % Ni?OURG P A. 1"#tt2

_s .. . . . . _ - .

L

Graham-recross 1713A .

f i request for c6ditic.1:1 informatica, additional discovery i O cppor:cnicy prier to this time.

J g

2 M2. MDPaIS: Tour Honcr, I cas no  !

l 1

dissatisfied eith them until I telhed to Mr. Grchem tcdcy i 5

i I cnd cy first opportunity to examina hit to dsterrine chetheri i

G' or not they were conplate. They are not as the tertimony  ;

a-shows. ,

l.

I 6 THS ADMIEISTRATIVE LAW JULGE: We don't  ;

e i

-C- e ro o g i- ^ Is

" -en~ *-

~ o +***

~^ g ep- *  ;

a'*~t'- ,

i 10 1 Lec's take s 10 minate recess. i 11 j (A short reasss was taken.)

5 v

12,3 I

- I

.. l' r l

J.d .. ,

a 6 )

I

,1h B

5E,

, 1 10 t 77*

i

• B T3 t.

E T.O

.w (a

b 90 .!!.

w%!

I

• N 41 )'.

e

)

23 ~ i i

f f.

.I A l 9,4. a' l 't t

l l 1.

l -_C, ll F' *;OHR 3 ACH & M ARSH *.L,1;;O. - 2* ?!. LC OKw:LLCW A VE. - :4 A

• mS C L PG P A.

47112 i

1 1

\

\

r I

Graham-recross 1714 E

c

}

1[ TIE ADMINISTRATIVE LAN JUDGS: Anything furth$r, n

] 5 4

Mr. Mo ric?

{

i 3: FE. MORRIS: No, except chst I d.ght, sir, 8 J

P 4 j assure myself from Mr. Ogden thc5- rhe oppm eris.te person u 5 clarify a couple of questions I have on Exhibit 132 le Mr.

6 j; Huff rather than Mr. Graham, B-132. l a'

. That was sponsored by Mr. Huff. l' i'

oa c; 12. OGDEN: If it was sponsored by Mr. Huff i:

U

'i I would say you could cross-examine him or cross-examine i j '

.i i 10 ! Mr. Graham to the extent he may know. i e i i

11 MR. MORRIS: Since Mr. Huff cponsored it and 12 [ I assume prepared it, why don't we do it with Mr. Huff?

'~

13 THE ADMINISTRATIVE LAW JUDGE: Any further O

\d

.14 ;ll cross-examination of this witness?  !

4 l

15 3 -

MR. PANKIW: Your Honor, I almost hate to I

! i 16 ) say so, but I do have a data request of Mr. Graham.  !

l <

17 $ With respect to your graph of short-term debt!

'i 18 lnl without rate rolief do you have the underlying source and 19! application 1

l4 of funds and attendant short-term balances with-20 out rate relief, the statement that would support the data 21 that is graphed on E-28? ,

22 l THE WITNESS: I don't have it with me. I il l 23 !! can prepare it.

e q s

24j MR. PAliKIW: Could you provide us with that f')

J 25;i:

l statement, similar to that which you have already provided as

= ,m o ,ounco_.me.-an.<cewi- ws.- - m.= m. mu l

l

\

Grcham-recross

• u l5

support in E-23, pase 3 of 5?

n

4 MR LAPASCH

% Ocasm ar Lovnecte abe nr y . cn interest in the sans cert of informuloa.

i

..? IG.?A1EIW: It would cleo he hcipful if v,:u 3 ; would note ct the bottom of the pegs, Mr. Graham, the i 5 corresponding conthly RCA credit limit that would match u;:,

7 j uith the short-term debt balcuces.

s 0 Secondly, Mr. Graham, could you provide che ,

? scme ir. formation which would reflect the SlS' million decrecse 10 " in expenditurcs that was referred to earlier this morcieg?

L i

t THE ADMINISTRATIVE LAW JUDGE: B at did you

-n t

12 d want as to the $19 million figure? What information did you i I

t

{ 13 v

want? g a

.I.0 & MR. PANKIN: The same information I asked

.h T5: for uith respect to the graph that the compcny has supplied.

16 THE ADMINISTPATIVE LAW JUDGE: Can that be i l t, 17 ,, furnished, Mr. Ogden?

+,

4 18 $ MR. OGDEN: Yes, Your Honor.

l V

19 f MR. PANKIW: Thank you very much.

+1 20h THE ADMINISTRATIVE LAW JUDGE: Any redirect?

MR. KELLY: I have just a couple of points of 1

1 21 f.. #1 4

22 y clarification for Mr. Grahem on E-28.

.h 22 N BY MR. IGLLY:

1

! 1 e Q Uith referance to deferred TNI clesn-up less 2< I 25 ;! insurance proceeds there is F dash on the E-28 column. That h

h

" %HREACH & man SHAL. IMO. - 27 fl. LCCK'**:LLOW AVE,- h A P K t C C '. fR G PA 17112 b -

Gralmm-recross 1716 I -

]

, e means that ycu cre act incraesing the nn.omt nhmm on ME/TW

. p s' ,

N .. Exh' hit E. is th t sen ect?

U

d,  !

y j A Tht: in right. l

-rr -

0 Does that show ne deferrac or no increase?  !

4 :$ i, 1

No m:cuch in the deferred.

A b.!!!! '

l Q S it is still 17?

6; N

I A No, there would have been a $17 million 7[ l gf growth in the deferrcl acccrding to Erhibic E. Non there  !

7 q

-i lI will be to growth in tha deferral. I Q I cm n t sure why. What is the basis for l O I the change? I 1 .

12LI A Because we have stopped spending money and .

, because we are getting the insurance more rapidly.

3 a.

V Q When the insurance runs out there will be

.Lt ,

i a further deferrals., is that correct?

15 it n A Yes, sir, ct today's level of spending there 16,i ll 2.,l}wculdbeabout$60millioncyear.

Q S it is simply the fact since you cre using 18 d

19 solely insurance proceeds there is no deferral?

A That is right.

20

il I

y Q It has no relation to the projected increases II in the totcl clean-up costs?

22 !!n t,

~, [

. A No. i 1

Q Okay, that is what I was not sure. We have 24i i; p g gone over thic, I think everybody here has asked it, but just l t) k monw.cn e. unnw . mc. - r n. Locaiu ow ava - ur.enac n. im -I j

l

( -, -

E

l Grshsm-racross 1717 _ _

i so I have it ebsolutely clear, che: level of operationc is ,

1 currently nov st 2146 million per ysar, is that right? T. l I is the 165 minue the 19?

.=

A That is right.

Q t

,' Q That is what we are operating at now and for ,

s.

the foreseeable future?  !

6' l A Idon'tknowwhatyoumecnbytheforeseeablej future.

Sh ,

e i Q I mean you have no definite plans to add bach ~

9 !,,

J thnt $19 million worth of work? You plan to operate at the 10 4 0 146 level and not the 165 level?

J

-l A We have definite plans not to add it back

.s ]

n,  :

e ntjunlesswereceiveratereliefthatmakesitpossibletodo I

u .il ="-  :

1 O

Q That is uhat I was g'etting at --

15;i I. MR. KELLY: That ic all, Your Honor, thank '

16 g  ;

i.! y o u ,

nd D

ij MR. BAPdSCH: No further cross.

18 h.

, , ll MR. OGDEN: Your Honor, I have handed to the ue  !!

reporter cnd distributed to the parties four exhibits in Mr.

Graham's area and I would ask to have those marked at this 21l. t i; time as Met-Ed E-Jiibits E-29 and E-30 and Penelec Exhibite 22 ll

.n

- !s E-24 and E-25.

~1

^4 2+# (Whereupon the following exhibits werc produced and marked for identification 25 [p as follows:

MOMRSACH & f.t AR SHAL, INC. - 27 tic LOCfrWit. LOW AVE.- e< AR el s G L* R G P A. 17112 g

Graham-recrors 1718 c i 4 .

3  ;

Ik Met-Ed Exhibit No. E-29, Response to

i Consumer Advocate Interrogatory No.105, E2 Witness: J. G. Graham.

O n Met-Ed Exhibit No. E-30, Response to 3 I: ,

C Consumer Advocate Interrogatory No. 106, i 4E Witness: J. G, Graham.

l t!

i i i

52

$ Penelec Exhibit No. E-24, Response to l Consumer Advocate Interrogatory No. 1043 6l a Witness: J. G. Graham.

)

7$

f Penelec Exhibit No. E-25, Response to 85 Consumer Advocate Interrogetory No. 105, i E Witness: J. G. Graham.) l 9I i 3 1

+-

ii 10 !!

.4 REDIRECT EXE INATION 9

11 l BY MR OGDEN:

V Q Mr. Graham, I show you those respective 12 {

f 13 l exhibits and ask you whether they were prepared by you or O  !

.14 i under your supervision?

D 4

15 h A They were, il

.t 16 i.i THE ADMINISTRATIVE LAW JUDGE: Do I have a l 17 j copy of those?

16 MR. OGDEN: Yes, Your Honor, I think you do.

h 19 0 MR. BARASCH: Were those distributed to us, F

2O[ Mr. Ogden?

8 21l #

MR. KELLY: Just now, during the break.

r 22 I THE ADMINISTRATIVE LAW JUDGE: What numbers 9,a 23$ were those?

24 h MR. CGDEN: Met-Ed Exhibit E-29 and E-30, O

V 25 Penelec Exhibits E-24 and E-25.

MOHRDACH & M ARCHAL. INC. - 27 N. LOCKW6LLCW AVE - F AatretsaVNG P A. 37182

+ --- -- --*gp,t--y-w g --y w w 4 w- - - - + - +-- - - -

, - -s-,. -

---

t +w---

r 1

GmYEth-sst4N mo

~ ~ ~

9

Tris .nDMINIETRATIVE IE JUDGE

Yes, I hcvs .

i.

them. Thank you.

.c MR. CGDEN: In addition v:- distributed to ,h

, f, the parties various responses. He hcvs entra copies. If I f 1

l l g. failed to give somebody a copy we will suppPJ them uitt cr.e .

l 6 That is all we have of Mr. Grahsa st this time, Ycur Honor.

1 I

y THE ADMINISTRATIVE IAU JUDGE: Very a21.1. l

- 1 l e, MR. BAPASCH: May es have one minute, Your 3

p 'Eonor, to take a lock at these two exhibits he hss jus" i gg ; distributed, to see ubether we have any cross?

i 33 , TiiE AmilNISTRATIVE 1AW JUDGE: Yes. -

13 , MR. BARASCH: Thank you, Your Honor, i

19 1

THE ADMINISTRATIVE IAU JUDGE: Anythin'; fur ~ther 13 '!

1 9

l

..-t f..

as to the exhibits just referred to? e' 15 Go response.) l t

f 16 ,. THE ADI-IIRISTRATIVE LAU JUDOE: If not, Mr. j 1;, Graham is excused for the time being.

1

p -

MR. CODEN: Your Honor, we would call Mr.

l l

gg5 Hafer next for some short redirect.

I I

l .

! 20[ THE ADMINISTRATIVE LAW JUDGE: Very well.

1 4 l 1 l 21j .

22 FRED D. HAFER, recalled as a witness on a

1 i 22,j behsif of the Respondents, having been previously sworn 24 l according to law, uns examined and testified further as it 25 9

follous: g

" MC'MRD ACH in MA.*t SHAL. IJ;O. - 27 M. L90KWLLLOW AVL - H AR Ri <i te'/ R 3 P A. 17t12 -.

~

Hafer-redirecc 1720 1  ;

i d,:  !

p ii REDIRECT EXAMINATION

• b 3 MR. CGDEN: Ycur Honor, I might note fer i

d .

3! the record that I have handed to the reporter and distributed!

I A

4 ( to the parties copica of Penelee Supplemental Statement C-1, 5)thatisMr. Carter'sPURPAtestimonyforthePeneleccase3 i

6 j and in addition, Penelec Exhibits C-40 and C-41. f.

7 THE ADMINISTRATIVE 1AW JUDGE: Very wet 1.. j S

3 9li (Whereupon the following exhibits were produced and marked for identification .

as follows:

10 ] f

'li 11 i; Penelec Statement C-1, Supplemental Direct i

! Tescimony of E. F. Carter, December 19,  !

12 - 1980.

(o) 13 ;,

q Penelec Exhibit No. C-40, document entitled Low Income / Senior Citizen Usage Character-14 h istics Customer Frequency Distribution Based Upon Average Montly kWh Usage, 15 [j Witness: E. F. Carter.

. 6 [! Penelec Exhibit No. C-41, table entitled Residential T37 ical Bill Comparisons Jan. '

l 17k l 1969 vs. Dec. 1980 For Selected Levels of l ) Use, Witness: E. F. Carter.)

18 l.,

l 4 19 BY MR. OGDEN:

I 20 0 Mr. Hafer, turning for a moment to the R .

l 21i temporary rate matters, wnat test year would Met-Ed and I li l 22 l Penelee have utilized back in May 1980 had the Commission I il l o 23' ( decided to hear testimony at that time as to an appropriate i

p 24 lcyc1 of rates?

v) 25 ;: A Met-Ed uculd have put together dsta based on L- MOHHBACM fa f8R SML. mC, - p H. LeCY.WP.LW AVE. - HWG5MG M. MIM 1

l_,_.--- _ _ ,

H&fer-redirect 1~/21 the most recent actual caleadar quarter available to us,

. .which would havs been the 12 months ended March 31, 1950 and

, !; would have put together data for the future test year being llh c

the subsequent L2-month period. The recuirement that they be !

, il back to back would have been the 12 conths ended March 31, l s,  ;

, 1981. In other words, it would hava been the same datc that o -

r u2 are using in the base rata proceeding nov i 7

t i

,j o

Q Mr. Hafer, with respect to any increase which !

r

, g would relate back to the effective date of the Cocaission l

. k order, being June 1,1980, what is the company's , collec tively 10 - t 1

!' Met-EdandPenelec,positionwithrespecttoanyrevenuesthed 11 3 i

,_hrelatebackintime? I

 ?  !

A The companies' position is that they find no j

(-

13 i

..s fault with the provision that the Commission made in saying l &

W

.te c i

.i I

,, 's they would deal with the recouument problem by restating the ;

10 l i if d deferred energy bclance of the company at the time the new i 16a i J i e rates are to become effective. i

, 17 d  ;

i ,,

,g g I think what that does is recognize that the {

gg ] overall level of chcrges to customers during the period P

20 !

June 1,1980 and thereafter might have been reasonable, l l

but the allocation of the costs allowed for rate making and 21.l n

l i

22ltherecoveryofcostsisoutofbalance.

h l 1 The Ccamission has provided that in order to 23 4 avoid an actual recoupment procedure, which couB be a re- .

I 1

billing to customers and place essentially an additional 25 l

e

" MCFfft BACH & MA."UrH AL. INC. - 27 M. f 96KW11.Lew AVE - MARntsevRo PA, ty:12 o i

l - -.- .. .

Hafer-redirect 1722

• i M

1: financial burden on them or a doubling up during that perice ,

O- 1 -

2 [! of time, that they would accomplish the snue result by restath 3 I! ing the deferred energy balance. .

'i 4 { The effect of that is the same as if the 3 Commission had allowed higher base rates from the period i il 6 ;( June 1 forward but a lower or slower rate of acortization of 7 I deferred energy during the same period of time, so that the

. I 8 total charges to customers would have been exactly the same

?)astheywere.

h At some point in time in the future those lo f 11 accumulated deferred energy costs which would be restated 12 h will have to be recovered and will have to be considered for f

/l 13 / rate making, u  :

I 14 ,:;- That also is totally consf. stent because they 4

15 ] have ',een found to be recoverable costs ar.d legitimate for i

16+ recovery, just as a determination now that the base rate l 17 should have been higher for any other components of cost l :i 18 would be a determination that that was appropriately recover-t 19hl able.

9 l 20 j The Commission does have within its power 21 I a certain amount of discretion to determine over what periodr g

22 '; of time certain costs are to be recovered, and certainly l N 23] deferred energy cost is one that they have used a great i

24]l deal of discretion in allowing some to be recovered currently O

b V

25 g others to be recovered over varying periods of time.

d MoHf!D ACH f. M AR$HAL. IN=. - 27 tL LSCKWILLGW AVE. - HA R RIS 5 Lt R G PA. 17112

.t - _

Enfer-redirect 1723 V i 1 =,

I Thebottemlineisthatwethinkthatcertainth 3 ; the company does not take exception tc the method that the 1 ._ Commission has sec in their May 23rd ordar for decling with C ,

(. the so-called recoupment problem in a way ubich does not 5 3reouire any back-billing to customers,

(

6 I! Q Pe. Hsfer, during the course of this proceedin3 n i r ,

i

?;some questions arose concerning Met-Ed and Penelec's energy p

1; 81 cost rate filing, and more particularly questions were raised.

l'  !

1 7 " trith respect to assumptions made in that filing concerning s

I b '

10 f, che return of TFE-1 to service. i u

11 h Could you explain for us, if you would, the 1

12 assumptions made in the filing with respect to THI-l's. returni

("' 13 h and the reason for those assumptions? l ggg i n

.14 ." A The fuel costs of generating power at TM" .

.1 l 15 s Unit No.1 or 2 have not been included in the cost esticates l 16 used by the companies in filing their energy cost rate filing $

3 '

17 % to become effective January 1,1981.

il 18 ! Those energy cost rate filings are for the 19 0 12 months calendar year 1981. As I indicated, the energy 2OJ cost associated with running Three Mile Island has not been d

21! included in the fuel expenses used in those filings.

1 0 22d Conversely, the cost of replacement power by 4

23 3 virtue of the plants not operating has been reflected.

1 l

2, 'd I think that is totally consistent both with j 25ll the intent of the energy cost rates that the company has filed, I llI E

37412

}

.ACH' TEACH & :.tARSilAL. .f;c. - 27 N. LOCKWILLGW AVE.~ 4 A R R(S D *J R G PA.

Hafer-redirect 1724 L

n 7 d

,0' which have provisions for new unit exclusions, and consictent l

~

' (] 3 with soma sound regulatory principles. If the operations of 1

e" those plants unre taken into account it would mean that

-i 4, l effective Janucry 1 c11 customars' billa would go .doun i;

3jbecausetheywouldbegintopassthroughsubstantialenersy i

6 f cost savings which in fact uould not be there, and ct the

,; ( same time the bills uould not be reflecting any of the costs

' 1:~

l

& f of ounership or operation of those plants.

1 il p$ MR OGDEN: Thank you, Mr. Hafer. That is li 10 I all we have of Mr. Hafer ar this time. .

t I

3; ) THE ADMINISTRATIVE IAW JUDGE: Co= mission l l

12 ]!! Staff, i

)

MR.PAHKIW: Yes, Your Honor.

13 l R

l .u.

- , il l gg Q RECROSS-EXAMINATION 1

16.1 BY MR. PANKIW:

I 37 ,' Q I gather, then, that it is the companies' 4

18 l Position that any recoupment which might be found ultimately 19 by the Commission ought to be accounted for by a restatement 20 of the deferred energy balance, is that correct?

l 31 A I think if we understand that I am responding l

22 to the proceeding involving the temporary rates, ti.te complaira:

23 $ proceeding, cod the express methodology which the commission i I

h 24l themselves set forth in their May 23 order for dealing with l Ci f

.V 23 f recoupment, yes, it is that exact recoupcent question that I i

1ACHRGACH & '4 ARSHAL.1HC. ~ 27 N. LOCKWELGW AVL - H A1RISB UR G P A. 17112

_ ~ . . - -

Fufer-recross 1725 *

• E am responding to, and my answer, if ve have an understanding i

5'; that we are talking about the same issue, ic affirmative.

g P

r. j Q Let's take a hypothetical that I thinh vill

<.,- be close to the actu:1 figures that are involved here. l 1

5h supcoce that beginning June 1,1980 tha j i

6 y deferred energy balance was about $100 million and ther j

? j between that time and the date that the Com:nission decision {

C 5 is reached that deferred energy balance is ataorti:;cd down to j 4

i

?]$50million, ,

10  ;!! A Yes.

I fi  :

11 B Q Assume alsc that the Commission finds that l d i 12 h the company is entitled to $50 million in recoupment. As ,!

O,

{ 13 I understand the procedure you have outlined,the deferred g

14 l energy balance would then be restated to $100 million, mid )

15: 9 that be correct? '

16 .' A In the context of dealing witn a hypothetical!

.i  ;

l 17 ! analysis, yes. But that would have a recoupment level higher!

t I' l 18 y than the reduction which took place in the companies' base l 19 ) rates on June 1,1980.

9.

20 We have asked that the recoupment be effectiv ny 21 the restatement or the reversal of those orders.

i k 22 The petition that we filed in the case of 23 n Met-Ed uas for an even $25 million, when the base rates of 1 .

M[ the company have actually been reduced by $26.9 million, ,

N 25 4 but effectively our response has been that we think that $

T.

mos.. s ,, nu,,sxu, u,c. _ 2, ,o tocxwittow ave. - nariaisouac ,4. ,,,,,

ilafer-rcerocs 1726 cetion was wrong and that action should be corrected.

O .!

oy neereuoteewinstheethcae==cesderestered 32 1 and then an additional $25 million be added tc it back to -

,5 e[ June 1,1980,

,j So if you would just modify your hypothetical,

?;

6 hj; if the deferred energy balance was $100 million on June 1,

,l1980cndwasreducedto$50millionasofDecember 31, 1980,

{

g( cnd if at that point the Ccunission found that the companies' D

E 1 base rates should not have been reduced or that $25 million I

f j of that reduction should be restored, as we have asked in our 10 t r

h 11! petition, then we would restate the $50 million of deferred i i

,2i l energy on the books by an amount equivalent to what would 13y have been recovered under base rates had the base rates not

h. lbeen reduced by the $25 million.

14 g l

? BY THE ADMINISTRATIVE LAW JUDGE:

15 h

$ Q The $25 million uas an annua 1 figure?

1 16$

A The $25 million is an annual, so it would be 1 7g!

,8y A g about seven-twelfths. The actual analysis would be to look g back at the level of sales and the billings and calculate

$ an exact number that would have otherwise been charged.

I But for purposes of discussion that would then turn out to

~

1 t l i be about $15 million which would have been collected, 22 1 23 S the $50 million deferred energy balance would be restated to $65 million, and then, of course, on a 25l Prospective basis the rates would % reset at the higher leved, e

t. mosnoAcw a tunsHAL. NC. - 27 ;L LOct YALLOW AVC. " H ARftf SBliftG PA. 27112

Hafar-recross 1727 4 . ,

7 BY MR. PANZIU:

^

,i Q Under those circumstances where che daferria

'f

,t energy balance would be, for exam 31e, rescated upwards 'cy &

~i  ;

z,(cppronicctcly$15million,wouldnotineffectthecusto=ces l lI

be paying for $15 million worth of purchased power tuice?

~

6l A No. Wrt has happened is the Comiscicn hec f,

i.

y [ eliminated certain legitima:e costo cf business f:.om the bsse a

gfratesbeingchargedtocustomersduringtheperiodfromJune',

p 1980 forward, so that c determination that $25 million of i i

s 10 y that should be restored is offectively a recognition the '

h gj .

there were $25 million on an annual basis of legitimate l

5 costs being incurred by the company which the Commission i 2;  !

had no right to take out of rates charged to customers, f

13 i L

14 that there were $25 million of costs for which the customers i g il 15lhaveneverpaid, b

16 :l BY THE ADMINISTRATIVE LAU JUDGE:

Q In effect aren't you saying that uhen the 17 i!

gg ComMssion took $26% million off as a result of exclusion w ! of TMI-1 out of rate base, that what the Coc:miscion did not it 20 f anticipate or did not lock at was the countervciling influences 21 h f the inflationary period which made the cost of operation I

I higher by about $25 million?

22 J

')

23 i A Yes.

1 Q S the $25 million still excludes any cest 24t f'

-,e of THI-l?

MOHRBACH & f!AP.SN AL. tit % - 07 N. LOCKWILLOW A VE. ~ 4 An RIS H U R G P A. 17812 h

Hafer-recross 1728

?

l j A Yes, it does. Just to felicw that up. it is j 1i i O

U ea 2

not a dorbling up of costs. It is a recognition that tharc "i

f were costs incurred during che period that had never been

3. . I dpaidfor. It is n after-the-fact recognition.

4i

,h The way they are ccrrecting thct is s.*taply  !

j asying, we will account for it by swapping the revenues which e

0

>>a ; uere collected, $15 million of these revenues which ware e

8.E collected for amortication of deferred energy, and use them 4

j instecd to pay for these costs which have never been recovereS.

9-Il j We will take care of the recovery of deferred energy st some 10 h 6

i subsequent point in time.

11 .

il BY MR. PANKIN:

12 )

Q Mr. Hafer, you may not know the answer to G

, t 13 !

U this question, but do you know what would be the corresponding 14 }

,,kaccountingsatricstoreflectarestatementofthedeferred on energy balance for, say, the $15 million that wa spoke of 10 q y hypothetically, what accounts would be credited and tdtich 17 g

)

18 f, accounts would be debited?

l THE I.DMINISTRATIVE LAU JUDGE: Mr. Carroll 19 :

lishereandMr. Huff.

20[

l i THE WITNESS: We may have been somewhat 21 l i

22)l specific in our petition but if we were not, I can tell you

! Owhattheaccountingentrieswere. Just let ce look at the 23 i lpetitionagain.

t 24 [

O'N-n Looking at a copy of Mot-Ed's petition in 25 g E- c.enasacer a uusw.t. me. - n r0 LCCNW.OW AVE.

• M R m W URG PA Im2

~ * * ~~

~ ~ ~ ~ ~ ~

,~ ._

Hafer-recrocs

-.u-. ,,t 9 this case, specifically 1 guess beginnins at the boctoa cf f

page 4, paragraph 10, the cccl recponse to your ques.tica

, , appears on page 5 where it identifies exactly t hat accouatt .

O c

1 b-; cccount nu:bar and by title would be affected and what l

+

c. < .

-.I the appropriate entries would be.  !

The same exact erectment ic applicable to -

i 6.

4 I

. Penele-4 cj Kit. PANKIW: That is fine, thank you. Thct  !.

. (

, is all, Your Honor.  ;

. l THE ADMINISTRATIVE IJN JUDGE: Constm. I to u -

ti i Advocate.  !

11 3 i

_l BY MR. BAPJ.SCH: .

is 4, i.

- Q G d morning, Mr. Hafer. I believe you were 1a, y talking about your view of the manner in which recoupment g

, ,, 3 should be treated through a deferred energy balance a few L3 a  !

.,- minutes ago. Mr. Hafer, maybe you could refresh my m m ry, i

.o >  ;

Uhat is your title with GPU?  !

At  !

j A My current title is Vice-President Rate Case 18 n gjManagementforGPUServiceCorporation.

E 20, Q I y er w rk m*.th GPU over the period of time l

i l

21 l you have been employed there have you ever had any involvemen1 r

! in rate design catters?

42 g 1

A Yes.

23  ;

Q Would it be fair to say that in putting

.j ,,

T

- ! together the various filings that the company bcs made in

# (

MOP 4;t3A"P 4 P4 ARCHA Isig. - 29 ??. LC SXW1LLGW AVE.- 9 A PRIS ELRG PA 17132 h

=

L

i Hafer-recross 173c i

e these proceedings, both egainst the temporary rates and the general rate case, the direct responsibility for those filingd i

.hfallsinMr. Carter'screabutthatyouineffectarehis l

}: f supervisor?

4 E A Not in effect. In fact.

• ]

,0 Q So is it fcir for me to assume that when the oe il 7 company put together its pettrion on the te=porary rete matteq, G [ discussions as to hou rat./ should be allocated t:ould have t

g j been had between you and Mr. Carter? l 1

. 'iE 10 '

A Yes, i I

g ,j Q Can I also assume that since the petition

.I proposes to handle the recoupment, if any, through a restate-A5 y ment f the deferred energy balcnce, that it was your opinion

] 13 l

t q fl at the time of the filing of those petitions in the Met-Ed 15 i

' and Penelec cases that this manner of treatment of the costs

was reasonably reflective of the cost incurrence of the

?

.. company?

z e l!  ;

a

,8 q A I don't think I understand the question.

19 Q Well, was it your opinion then and is it your 20 fi pini n n w that by restating the deferred energy balance to

! A i

41.,

, P catch up, if you will, for any possible attrition that might 2

g have not been reflected at the time TMI was removed from l  ; base rates, that doing it through the deferred energy p~ i

,1 balsnee in fact is, in your opinion, a reasonable manner of allocating these costs prospectively.

.i.

l _,._ ,,mm.,m-,,, - .._ .- -,,,,- m ,,,,,

i t_ _

Hafor-rceross 1731 *

'~

l THE ADMINISIRATIVE LAW JUDGE: Do you mean  !

- i

- by cost per kilowatt hour?

Y' b i j MR. BARASCH: I believe tnat is the way the  ;

3l l l deferred energy bclance treats it.

4i THE WITNESS: I believe that the solution 5 ;! .

which the Cc=missien hss proposed to deal with that hat 6l q become a ven confusing, complicated matter, is a reasonable 73 D way to handle it, yes.

8H h

'd BY MR. BARASCH:

p Q And you believe that the resulting rates and 10 !

j charges that would arise, should such a restatement occur, i 11 [

$wouldinfactbeareasonablesetofrelativeratesand 12 il 3 charges to the "arious customer classes that take service 13 F 14 !

f rom Metropolitan Edison and Pennsylvania Electric Company? h b A Yes, sir, because I beliae that no class of 15 ' ,

I j custor.er would pay more than the legitimate costs of providing 16 B d service to that class.

17 i j Q Nou a little further along you were dis-18 g g cussing the treatment of your ECR filing and you said that le the assumption is built in that there would be no TMI-l power i 1 l 9 21['ofproduction during to?

what you were testifying 1981, is that a correct chara t 22 E A Actually what I was saying is that the rates 23 g]

3 which will be charged to customers beginning January 1, 1981 Mi h will not reflect the operation of TMI Units 1 or 2 25, c _._._._.-~.,m._,---- . ...

O

i Hafer-recross 1732 9

5  !! Q And the net effect both of exclusion of the

~'

O- 2 a related fuC. costs for TMI-l's operctica and exclusion of the

.' assoqictc. replacement power purchases will be that your rate-

~N 4{payersvillhachargedahighersetofratescumulativelyove g ! the course of 1981 than they would experience if in fact Lvl-1l

'i 6!; returned to service during 19817 P  :

el A Well I think it is a little bit of an unfair !

'n g l charccterization, but th( net effect is that the rates which

!i p il the consumers will be charged will be equal to the costs d

10 h being incurred by the company, li 11 If TMI is returned to service during the 12 ] course of 1981, there is a provision that ce will adjust the i I

7 13 L energy cost rate accordingly.

(Q a y, ,. In fact, there is a standard provision which t '

ig lj provides that to the extent the energy cost rate is not 16i ladequatelyreflectingthecostsitcanbenadifiedatanytimel, 5

l 27y Certainly the return to service of TMI-l l

16 would be a significant event and would imorove the energy 19 l coste to custo=ers, improve the:n by making them much lower, 20n and if that takes place, there are provisions for modifying F

l 31 ! the energy cost rate downward to reflect the costs that would 22 actually be incurred from that point foruard.

l 23f

l (Transcript continued on next page.)

24. '-

l l

0 2yi k- reewamAcw e. r4xaswat irse. - 22 n. teckwatove Avs. - wanniseuna p*. irisa l

---

~~~~,- ~f , _ ,, _.  : _ _ , _ ,

Refa.r-recror t . .

1733 L C 'i:r fin 11y, a believe in cross-ar:tcinzuion 1 cy Mr. Pcnk... you sars asked a susstion cacut hypothe~:.c:- l~cf 0

i 2- reststing the oeferad energy balanca and I thich you :n ed O the phrase 7/12th's. I conder if you would m: plain tc me hon f you derived the notion tat let's cssmre hypothetically a  :

6 S25 million restatement on en canual bcsis. why .t ucu c be

? I 7/12t:- 's of thec. Wh: is the 7/12th's based on? I thinh itj O is important to near it frem the uitness.

A

&; What I said to Mr. Fankie ucs for purpcaes; 101 of discussion since we had a series of numbers that we wanted; e ,

11 L to use for exsmpics, we nill use 7/12th's and then further I ce4 will use $15 million.

I 13 What I don' t, in fact, know because I lll 2+a.g didn't use a calculater, is whether $15 million is exactly i

15]7/12th'sof25. What I also said was we would have the ,

n 16- opportunitios, since this applies to all actus1 data, to

_ .i 1/ 6 actually recalcu19te the bills to take a look at vbet charges 4 e 20 r ij would have been in effect durius the period and develope

,c'

-- S an cract amount. j n

20 Wall, the 7/12th's would assume the months Q

31 $i June, approximately, through December of 1980, correct?

n 22 0 A That is what it was based upon. That is l.

4 4 4 23 ' right.

I 2, . But in fact, if che Administrative Lac l

.s .;

c~

25; Judge and the Commission were to determine at the conclusion l

g nmmuet

e eunmn. me. - a n. wemmmw m - -mnunc ex. mu -J

Hafer-recross .g g

[

a

j of these proceedings thct there should oc some restrea.anc j h 1 2, thet could probably occur in March, so wouldn't t

a aenna

3]4 that it would not be 7/12th's? Would there ha come nuchar 4 larger than 7/12th's?

h E MR. OGDEN: The conclusion of chich I i! i 6] proceeding? I guscs that is my confusion with the question.

9 73 MR. BARASCH: I am assucing that the 9

C S complaint of temporary rates is disposed of in March. I  ;

f l 9 ] don't care which month you choose. I am trying to establish '

ii that that fraction will chcnge depending upon the month. I 10 (

f THE WITNESS:

11 " I hope and I think I was 1

12 )Yrather specific in dealing with that on a number of occasiona, e

f

] 13y but the fact of the matter is it is whatever amount of money 14 ; would have ocherwise been collected from the period beginning C

l June 1, 1980.

15 l1 16 $ If a e.ecision is made effectiva Janaury 1 ,

i c

17l 1981, it is roughly sever _ months. If it is not effectivo a

163 until February 1, it is 8/12th's and 9/12th's, and so on.

i 19 i TE ADMINISTRATIVE 1/# JUDGE: The i

20l relationship of the number of months under which you are 31 operating under temporary rates as it !is to the $25 million?

22e TE WITNESS: Yes. I e

it 25 ]

MR, BARA ICH: Than't you very such. That 4

24 0 is all the questions I have.

m ii b 25 fi W TE ADMINISTRATITIE I>.W JUDT:.: Mr. Morris}

v d d e.f oHRDAch a rAAnSHAL. INC. - 27 N.1.0Citwt;,. Low AVE - H4RRt&2VRC P A. 17182

.- -em,... , ,- , .,.n- .-. y -

4

Ucfor-recronc . .

1735 i

BT l'I.. CFRis :

5 r r. Bsrr.ccb z.chal you vasti:n in you_

Q e: epinion, cs I mdarccood the quec:.icr., t.ihechar the rhnrt;a 4 L of 'isricus customers by thair category as a result of the 5 . stacement of the deferred em rgy br.lcace uculd bo. #.ppropricte 6 if applied under tha current formula and I iink ycur ansuer ,

wa that you believe that that reflected tna cos.s of serfing' n

those customere accurately. l t  :

9) i Aa I restating that corractly and did T l.

O[understandyouranswercorrectly?

j HC A No, I don't believe you did.

12 l Q Let me ask you the question then and if b 13 you don't understand it, you can tell ce so. The deferred h W8 9 A- energy calance is distributed to customers on uhat basic? I.

i 15 3 A Uc11, the deferred energy balance has not i i

10 ' yet been distributed to customers. That is why it is  :

27 ::l deferred. It ultimately gets distribuced to customers on a n

s 18' per kilowatt hour basis.

t 10' '

,P Q And do you believe that is or is not

i. to 20i 1, reflective of the cost of ser.vicc/ the various categories of 21 ] customera from industrials to residential?

.I l A For that particular element of costs, I 22 ] _

", u believe

.i

.'t is.

i i

%, Q Uoc if you restate tha deferred energy i Ei balance as ycc have requested to inctode, if I can short-1.1CMit S '.CH te f.f Ar.S:ML. f t!O. - 29 r! LO O!! v'*^.L O W ave. -- w A t R I r * *.! R G P A. 37110

Hafer-recross 1 71.6

't s

i hand it. cc item that might othernise be retrieved as a m;ttel

0 cf recoupmant. do ncu s till belie rc i; fair and reflaccia es.

" .a cost to cistribete tha chcrges on a par M ic w tt Sour tacis?

. ?,

4a i I stated in resoonse to 12. Barasch thtt I;

!1 '

t f!jfeltthatthctprocedure,assetforthbyt'.eCormissien,n.:; r f

6 ';

. still an equitable procedure. that it wcs a recsonab'.e rete- !

i ti Ih making way to get out of a very co:aplicated and involved 2 problem that has da reloped and that the resultant tocai  ;

customart

?> chcrges to the various classes of/chcrSes as a result of .

.i  !

10 ] doing that would not be in ercess of the coct of providing i ii .

11 l service to those classes of customers. .

i 9

11 ; Is that answer,to wit that the total n

Q

' '# p

j charges to customars would not be in excess of the cosc of l 3 .

M*

• l't providing service, different from saying that the distributior[

e ,

'3 of the charges to customers would be reflective of the cost l O; of serving those customers? '

17 l A That is a different answer. i s t

- t S P Q Would you explain the difference? l' 3 A Not in my opinion, but obviously bcGod I

l 20 g on the companies' filing, we believa that the only way you s

21h can have the charges reflective of the cost is to recogniza e

l E i 22 f a substantici base rate increase to all classes of custo::urs l l l

2f j served by the ecmpany, some 76 and c half million dollers in  ;

i j 24 3 the case of Met-Ed. Anything less than that impact 'on any of s e  !

k l 35 g those classes of customers or the pro-rate piece of that '.i e

MCHRSACH & VAD$H/.L. tMC. " 17 P;. LOOXWfLLOYr s.VE. - M RISE ust G PA. 17112 ------d l

l t_...m____--. - -

u__,... .c. C.~. ,..-, n .. o _e e

.. _- ,. _ - ,_.._ ~ . _ _ _ _ - ,. . . _ . . _ _ = ..__..y. ~ . .; , ,

Ier 'l ' i . '_- b .. '2."_ .l...',.o '

^

4 '.'.'m**..Cm''-"u' . " . ' . . . "y' '.. w"' 'J .' . ~ _I

.. "' 'e _r'a' ' .-

., c ..:...

.. t u . - . ..- . ,,,.c. . . . , _ aw , . y . ,.;. .. . u ls. ,. . . . . . . .- . . .O

.. .a -.

1' J.. E.. raver corplic:tes.' it aigi.: be. it ' ' .?

m. .e . , r ~ .,. , e , . q. . d .' ~ ' o ue..= tha .b i. ves y.,..s. .s. u.

. ~ . . - . . . _r.,

y ct:coners so t'c.ey i:ere more reflective pre-rrt: to che ec ~.

5i c.~ cu.ou.l,ving those custansrs than the forcule yc2 two m 3 it, r;

a.acb - . . ,. 2%

m ?.

I g  ;

., x:.. ,1 's , ..o

,s g u _-,. ._;v

-n.~,.

• r.c 3.g e ;._ _ c. t ,,1_

..._3 .s .

- e e . . . e o_ _- m_ .,..

. . c. f.

s.  %. __w%

t.u. ,c en,,y o 9 10 , <

Q Yec, and then the distribution of it en f

3

..  : a kilonact bour basis.

11 A I think it is a little unfcir to 13 chsracterize it as the formula I proposed. It is pichiits i 14 "p or the Cc=miss, ion's rate order. h

f Q I c.m corry. I didn't maan to cay yo.' .

id i o.rooceed it. .

Thct is proposed as a result of whct the. ,

I J l 17 Commiscion did?

a  ;

18 < A Yes. I think the Co==ission, I believe l

19 , is free to develop any number of theories as far as rete l

f 20i desig;n and allocation of costs and vcrious cost of service

, i a

21j cathodologies. All I said seas that they indicated in the  ;

> s 21' Me.y 23rd order how they intended to deal .iith this problem  !

23 and I concur viuh that.  !

'm Q And czang the varicus cpcions avai.1.able .

2r to the Commission wculd be so=e that rated the custorars cord

• -- M C6'R D A CM O ' # ".C:iA'.. IN O. - 17 '.. LOC'f wlbLO .* AVL - H 8 e n t s.ra t a PA. ~ 7 ; 1;; i 9 I

HTfer-recroSC I,', ,~A

~-- - .. -

7 1

' closaly in terra of th p'

o-rcta er rt.'.io of cost of service '

y, cet.caen then TLr ic true, is it ac: .

3 A Weli., I don't think it ir fair ta urs chs ;

i 4 d chcractarization that, you know, one metbc3 x the ocher tigid r '

I t

5g be. per.ferable. Th2re cre clearly differances of opinion. .

1 i

6 ; There are claarly different methodologies thet con::dcaicas  !

a j

?fandthisCommissionusefrc: time to time. I suspact th t on:)

f l G of the options the Co:r.=ission might hcve is just to sicply e

c 1 allow full recoup 2 ant and forget the restatement provteion j h

10 ; and allow us to rebuild. That uns a process that 5 cs very P i 31 p common up until the Code uns changed and it provided and ,

i i 12 f, it presented an awful lot of problems.

u l

M i

i O k a ='"* "*=* d "*> ""' ' *= " ' '" '

14j$ disagracment with you, please don't understand me to be so, j

,. i

g r if that presents problems, the distribution of charges in the!

)

I

'6 ; recoup =ent process uould not be holding on a kilowatt hour {

J i 17 l basis in the vcriouc categories? '

b 18 j A -

That is not clear because the Commission a

19 l hss at its option the power to direct the company to distribu:e t

o 20, the charges in the way it deems appropriate.

5.

H

" Then let me make the question more finite.

21 f Q

, 22 $ Had you received during the recoup = ant period et iscue the 3

231 right to charge higher rates and had you distributed them in

,i 1

20 accordance with the formula then in effect, the smounts which O' 25 l- you now propose to recoup by restating them in the deferrad il MOHRD ACM is MARSMN 1MC. - 21 L LOCK % :*. Low Avt - M Anttis bur G . PA. 17112

-n g e m , y. .we wwr - g + w. ,# .--- - y e

Hafer-recrcse

~7'M 1

", erergy category ectid not hcvc been a ctricutec ?nti :ely on r_ '

i kiice:'tt hour bar'.r would they? h I a Eot ent'.rcly. no.

i 4

MP., MORIS: Thans you. j t ,

5' THF 'Si1NISTPJ.TIVE U.W JSC-l': Anythini l 5 further? f T W. BARASCH: Yes.  !

!i l 6 EY MP. 3ARASCH: l P '; O- Just to stermnrise thic little iscussion e s s

IO h with the Censuocr Advocate's Office as wall cs eith  !

i:

11 L Mr. Morris, the bottom line, if cat summarize,isthatyoul l

13qbelievethattheallocationofanyreconocent-typedollaronl I 13 f a Kh5 bssis could result in a set of charges between various r

14 ; classes that would be reaconable in your opinion and that G

a If~ there might be other reasonable methods, but this result is 16 S one of several that might be reasonable?

17 ) A The answer is yes.

18 i MR. BARASCH: That is all the questions 1

19E I have.

I!

20 !! THE ADMINISTRATIVE IAW JUDGE: Mr. Hafer, i

i

31) the position of the company is that even though TMI was h

22 ) removad from the rate base, TMI-l was removed from the rate

~

h 23 I base effective Junc lst, 1980, that because of the increrse 24I of operction end other espects of the company operations 1

25 s

that the Commission shouldnot have reduced the rates by h L M 3HnE/.Ci & M Ab Ifit . - ? fl. LO CMWILLL ". AVE - hARR:AttaG P A. 17112 - - -

Hafer-recross .a.ku.

2 i

S26 cnd a half 47 Lion at that time?

O  :; In other words, there vare countarvailiusi n

s ji influencer, count 2rvsiling influences which rendered that  !

i 4 l,1 ; reduction, which made that reduction provide an unrescancble I ii 5]returntothecompany.

Ic that the position of the ccmpany?

60 THE C :3SS: Yes, sir. I 4

7j 'TEC ADMINISTRATIVE LAP JULGE: And in I ri Gh, effect what Met-Ed now wants is a return of 25 miition of

3 p

9 !! that 26 and a half million?

i j

!i 10 li; THE WITNESS: Yes, sir.

E 11 j TE ADMINISTPATIVE LAW JUDGE: When the 12 h Commission took the 26 and c balf million, on what basis was

i

% H

, )

13 l' the reduction made?

n ii 14 !l TE WIT'ESS: The basis that the 4

15 1 Cce:nission employed was to cramine the cmount of revenues , a a

4 16 J TIE ADMINISTRATIVE LAW JUDGE: No, I mean a

17)howdiditeffectthacustomers? Was it effected on a per P

18 kilowatt hour or a percentage basis? How was the reduction 19, made to the cuctemer?

t n

20 l! THE WITNESS: No, the mduction uas made

)

21l not on a per kilowatt hour basis but rather on the cost of et 22 j! service methodology which had been used, which had been h

23 3 approved by the Commission prior to that. It ecs on a mora

.y conventionzl cost of service allocation as opposed to a

] b 25 'l straight kilowatt hour bacis.

b MCM"lDACH & !.t ARSHAL.134C. - 27 ti. LCOKWILLOW AVC. - H S R RISDUR G PA. 17112 -==

. . - . , , . - .. - - . , . . ..~ l , -

Hafer-recross 2.7 41. . .

- f TEC ADMINISTM.TM LW JUDCE : It ses not ! i on a percentre er sis; It cs t, ba ud en the cc.e o f e 3:r .~i .:e h a

1 and the rate tes/.p chat usa set uo by che caissix in che !

isst rcte case. is chs; right?

r i

~

THE WITESS: That is truc. I thin!c there 0

va: developed ut.'.i_ icing thct, thattherewasdevelopdabaad i

F; i j

- - for a percentcge or rationale for a percentage reduction c

G "i If the relevant question is was it dcme cat 9l;aperkilocateho.rbasie--

10 'ie -

TE ADMINISTRATIVE LtM JUDGC: I want to I

' i AL @i know whether it n s done on a per hilowatt hour basis. on a ,

j 9

- - . i

" :1 .

strcight percentap) basic or whather it was done on a design

~

^3 '

p; setup in the lact r:te case with one of the three

.. I i

'9E WITNESS: I think it acs done on e '

.; -3 ', i parcentcge bssis. I' was not done on a kilowatt hour ocsis, i i  ;

Mj I can varify that. Il you want, I can do it right now. I

).

i

. ,. !i i

M il.. can do it later.  !

4 I i 18 j THE 6DMINISTRATIVE 1AW JUDGE: The 5

'O [ industrial had a witness yesterday who indicated it was done 5

20 h on a percentage basis and the industrial yesterday indicated il 3,

e1 P

that they didn't think it uas equitable to now use a differen t

.1 22E..U formula in effect replacing that sc=e amount of revenue.

93/ 1 i

In other words: assuming the company took 24' r

25 mi:. lion off cnd neu you cant 25 teillion back, which is to 25

) cover thct came period. in one case they used a percentage l'- -

M OHitD ACH u f

• f.P SMAL. W O. *- 1T PL LOC //: LLC '/ 2. -

• rat 9T.2C P A. 17112 t

Hafer-recross lb2_

1, fortals and the industriale cre complaining that neu you era O 7, recormending a differen forculc.

a i

% i 2- TEE WITBSS: I undarstrad thcc.

i 4h TE ADMINISTEATIVE LAW JUDGE: That wouldi' n

l 5 ,, have an offcet on the high users' rate?

e f

6j THE WITMSS: It uould have an effect on f

7y the hign users, but I think one has to look at the totality 3 of the prcblam, the level of revenues that we are dealing  ;

a ,

?) eith and heu much of a difference either methodology would, 10 ( in fact, have en the individual customers cnd whether the 11 ) industrials , irrespective of which methodology you used, i li  !

12 4 whether the total revenues being provided by that class of i fi l i 13 ll,, cuctocar were equal to or in creess of the cost of providing

("J L

P 14' service to them. That still remains the name of the game.

15 i.i TE ADMINISTRATIVE LAW JUDGE: And also: ,

4 1

16l the fact it is a temporary provision?  !

i .

la 17 'j TE WITGSS: It is a tamporary provision n

16 j and will be corrected, if it should be corrected,at the P

19 ; tima the final rates are set in the base rate proceeding.

ii l Even the cost of service methodology used 20l r

21f,.

in a base rate proceeding requires an awful lot of judgment 22 i by the Commission and by a lot of other parties and there 1

h 23:i is aething that makes anyone particular basis the right 24f basis. It is the best basis that men of informed judgeant b 23j d

have at the tima, but it is not fair to say that because it

'4ChaEACH ts 14?JtSHAL. It:C. - 27 N. LOCMWILLCW AvZ. - 14ARMisc E2 tw 17t12

EGferarec*ro.%

. - . . . _ _ _ - - - - - __ ._.1743 ,

E . Wcs in enirtO cce it therofuri: Mc p2rfect.

e- p-* ,* .p 74_T k. . 7 : ..., . ,.->--.y~.;~. .

.. y,,.-, .. s

. ..~ . .1 s in . . u. . ,. -2 1 rafar to recou.anant. 7he compcny hr: indiccte5 thet _.r. tb O

..' temporary rata cenplaint procading it is us;.ag; in sddition te i

5 ene other submission, thct it is uzir e future test year dacc. li 5 Eu are you going to recoup on the basie o f future tesc year i T l date, or if you are not Going to recoup on the basic of i

C; futura tect year datc, shut meched implemancing facmioreni.

I F , are you suggesting and what evidence have you given in chich an i I we would pcce/ equitable or proper recoupnent provisiont 10 I

11 THE WITKSSS: Well, I think first of all,;! -

12 4 the real question that the Cocmission, I think, was -

t 1

13 k anticinating or certainly providing for in their order when 14 they established the procedures for recoupment was will the h 15 1 rctes that va are setting at this ti=2, that is January 1, 4

I .

16 ' 1980, reduced by the $25 and a half million, be rates ubich i ,

17 ara just and reasonable or provide an appropriate result.

I e

le] The test of that occurs by looking at the actual period of l 19 dme and the actual finar.oici condition and operations of the t

20i company from June 1, 1980 forward. Uc supplied the most 21 ii recent available actual data chen we supplied, for exampic, l

22 j the September 30, 1980 data to deconstrate the levels of 2? ' cove rs g e ,. the levels of return that were actually being 24d crperienced by the company under the tecporary.ratec vnd .

25i demonstrc.te that the rates were not.adecuat . -

'p

.te::..C ACH t. :4 Art cHAL. ??:C. - 27 N. LOC.3/r L OW A'v L - A/.*t R n e u n G F A. 17110

Hafer-recrose 1744 =-

F

E r

There aceds co be a determinstion of t he ym, l~ '

prepar rates to be charged in c bare race proceeding ned : rill 3 ,

a i be made, I gucas, in the base rate proceeding and for thet 3

e,. purpcsc, us have subuitted both the historic cnd the future 1

n 3j test year and are relying on the future test yecr ended il 6G March 1981 for a finding by you of a totc1 rete increase, ,

7

?l but I don't know whether there cre cny particular legc1 or i.

1 technical hangups in using the September 30 data that people C ld. =

? !l are trying to rely on but the real test comes from a I

l R

10 Il prcetical sense of looking at whether or not the rates being l 5 i 4

i Il y charged by the coepony are sufficient to meet reasonsble  !'

s t f

133 objectives--if they are adequate to recover costs, if they

.I

{} 13 ' cre providing sufficient returns on capital so as to assure 143 that the company will be able to go on with its normal i

13 J

business and to be cble to retain its credit. Then thcc is ti 4

16 ! really the ensuce se it and. again, ne are dealing with 17 temporary rates. We are dealing with the judgment which has 4

18ad to be made and for which c final determination in a normal 4

19 j base rate proceeding will come reasonably close behind.

, t 6

l 20 j TIE ADMINISTRATIVE IAU JUDGE: Mr.

k 21g Barasch.

I -

22 [ , MR. BARASCE: There was one question that f

23 ( you put to Mr. Hafer that.I think might crecte some confusiod 6

24i on the record. I would like to ask him a question rising out f\. N

(_/ l 25r of yours.

W h

I edCMM ACM t. f tAMSHAL. sic. - 27 74. LOCKWti !.OW AV 2. - HARRIT%RG P A. 171f2

=

t _ .

hafer-recroca

. - _ _ _ - . -_ ,g .

1 1 DY MR. RARt. SOP-

.5 - Mr. Mcfer, T. 2a ci e hst y o't are "ecy i

g

? } setively involved in the Mat-Ed proceading st 1,3.D. 6 'e .  ;

i 4' L Ies.

i f' Q And isn't it correct, sir, thet the races ,

d that were cet or initially proposed to be set in R.I.D. f 36 .

'l that never, in fset, took place were :ot the result of n i

t: cost of cervice cnslysis but rather the result cf a n

P, settiament that uas signed by all the parties in R.I.D. 626? '

0 10 h A I am not sure that that is a fact. It  ;

ii l

11) was not the result of s cost of service determination by the!

li ', Commission. The rates established in 626 were the rates set c

.9 13 : , up in a settlement agreement. That does not necessarily 14 imply they cere not consistent witb/ cost of service method- l 15 ology. i

i. .

15 Q But would it be fair tc say in terms of f

17s t the last time thic company had ever had any indication from '

d 18 g the Commission as to what the Commission thought about your 4'

19l cost of service study, it would have been the prior rate 5

20j proceeding at 434 because there was a rate structure 6

21i settlemeat at 626?

h A I am not auare that meant the Commission 32 [

,.3 o; ;

or its staff did not examine cost of service or rate design 3

2s f to assure that they were comfortable eith the settlement.

q#~ a

[

Q MOHRDACHIL MAft$1tA' Suffices to say in the order of R.I.D. 625, U;O. = 27 ![ LCCKWeLI OW A /E, -*

64 a RRIS B U RC PA. 17812 ' g

Enfer-recrose 1746 f;

. 1; g uhich I thinh came out on March 22nd and eas entered by the 2' 'l Corcission two days sfeer che cecident, all that was cene citik l

S d eho rate structure ecs e settlement done by all parties H

0 3 including the Consumer Advocate and was accepted as s catter of I!

3l fact. There was no discussion of cost of service in tiut

• f order and whether or not the rates uare in conformity with t

it k cost of service, is that a correct statement?

Ei 00 A Thct is a correct statement, yes. ,

S k EY MR.131.LY:

0

,o Q If I may beat a dead horse a little more, k

11 ! Mr. Eafer, the complaint against temporary rates says 4

^^ ! essentially the base rates the Commission set in May are too d ..!i low, is that right?

. 1

1. g' I A That is correct.

h 15 ;b l And the Ccemission in May did not take Q

'l.,

16 l the money out? The money it took out on a INH besis, is that e

17 j correct?

^ 0 l'

[ A That is correct.

1 19 4

1. Q Now you propose to put it back in on a k

20 0 KWH hasis?

r

-ti d; ,

A As I understand, that procedure was i 22 d suggested by the Commission.

! y N! J Q I am not sure it was suggested by the

"', lil Commission, but that is how you propose--

p ,

4 25 l A The Commission said they will correct the McHREACH &n f!AftE}4AL. I:3C. - 27 ft. LOCKYl3LLOW A VE. " MARRISEURG ~PA

. 17112 6 -

Hafer-recrocc . _ _ _ -

1747 -=

I I- problem by racrating the deferrea er rg/ balance and I an I' saying I find ist to be a rem.ist6.e propositien. g 1 O Tbc Cecniccion simply sected i:: t:en]d

! restete the deferreo energy baluace, is th:: right?

.. i

> A '

The trords are very clear.

I 0'

Q And if you take money out on either a  !

I o

l I ,, percentage basis or coct of service baais, but not on s j l

i 3'

KG basic, cnd put it back in on e IG?d basis, you are going I O

to effect customers differently had not the money been taken I 10 out in the first place, in that right? In other words, bad i

i 11 ; the Carmission in May set rates at a level they think you

, set l 13fshould/them,itisgoingto affect customars differently

,. .n

( than if you got the mony now but on a KWH basis? .

-*. S. (Testimony continued on next page.) &

,, i

• • i l

l l ., s .

O' i

T '7 1 ~* <

! p 4

18 ) '

l

\

[*

I 10,i'.

l

~" s L I

20s! ,.

II l

31 1' h,

I l!

r 23f 5 I

2; s

I r

~

u b MOMR S ACH L ?.Le ggAL, [r C. - 27 !!. LCCK WILLOW AVE.- M A R .ilS E U.~t C PA. 17112 -* O

Hafer-recross 1743 A Yes, in th2ory it will, but keep nomethins i [. 1  !

Ci e finmind,thattheadditionai.amountofdeferredenergy a an

]whichiscreatedbythisrestatement, in the case of Met-Ed ea g'essentiallygetsaddedtotheendofthelinewhileyouare 4F j in the process of recovering deferred energy so that it makes "2

) that recovery process a little bit icnger.

6 l!

Met-Ed's amortization of deferred energy 7'

was designed by the Consission to take place through the t G bl 9l year 1981.

4 By the restatement procosc we would be adding 10)isome additional costs to ultimately be recovered presumably 11 i sometime in 1982.

12 !

So, yes, if you take something out of rates A 13 l V honewayandyouputitbackinratesanotherway,ifthetwo 14 !!

h,methodologiesarenotthesame,obviouslytherecanbe 15 j s differences. ,

16 j i i

f But there is also going to be at lesst one 1? b1 y and maybe two full base rate proceedings determined before 18 y d you really get to dealing with those dollars.

19 (

BY 1"rIE ADMINISTRATIVE LAW JUDGE:

20!

i j Q You are not putting them back in the same way 21 you took it out? In other words, when you made a reduction 1 22 b' l

8 you made that as a one-shot thing? You don't ; opose to 33 ;

You e 24 k, replace that under the restatement of the energy cost?

} are not going to have the customer pay that in the same 25 )

e 1-McH7tBACH O M A* SHAL. Ilic. - 27 II. LCCKWILLOV/ /.VE. - H AR RIS P URG P/ 17112

~~

.i749 p

' rerooortion thct their rctes were reduced?

• i

. In cther words, they could have a longer

period of tine?

r Suppose it was six :uonthc . You will hcvs h

. , ' rore chan six months to reolace tha:7 l 4,~ i A It does not necesecrily work out thct way. ,

e ,r.  ;

The only point I was trying to make was that the company right S '

,.,' now has c provision in its rates for the acortizction of e9  ;

g{deferredenergy,fortherecoveryoftheaccu=ultteddeferred!

n energy, cad if we do nothing, it will take thmugh the year .

,, p 1981, approximately, before Met-Ed recovers the deferred to I w

4 energy which is on its books today. It will take much longer at e 9 for Penelec.

12 5

, l If you restate deferred energy to take care of the recoupment problem and aske the balance that is on , g

,, ) the books bigger, then what happens is that this process, 12 ;

j thic acortization process which is in rates, is just elloued

,61 1 .

17 !', to run a little bit long at the end of the period and

,8 x >; ultimately recover those costs that you restate today.

fi mj

-p But that recovery will take place then 5 somatime in 1982, and my point was that if you are worried 20k

!)

i about whether the rates are going to be in balance when you 311 4

1 again recover those costs, you are going to have a full 22 L i"

23 } rate determination of all components of cost in the base 5

rate proceedings that are ping on right now, and in all 2l.' i*t probability a second determination because of the new case g

MoHReACH & te APSHAL. Utc. - 27 N. L6'SKWfLLOW AS E. - H A P.f'16 P U R G P A. 17152

Hafer-rcerose 1750 I i i g which will be filed following this one, i

] $ {t; So there are a lot of things that can happen. j I

Ii THE ADMINISTRATIVE LAW JUD3E: Anything h

4 [ further, Mr. Kelly?

!! i 5i >R. 12LLY: No, Your Honor.

6[ THE ADMINISTRATIVE LAW JUDGE: Anything i

7tI further?

3!  ! MR. OGDEN: We have nothing further at this 0

9I' time of Mr. Hsfer.

u C

10 #

t THE IJ>MINISTRATIVE LAW JUDGE: Let's recess li jI until 2:00 o' clock.

12 7 13

]f ,

14 .l b

j (The hearing recessed at 1:00 o' clock p.m.)

IS 3 16 1 AFTERNCON SESSION 17 ]

q ...._

4 18

! (The hearing resumed at 2:27 o' clock p.m.)

19 ln g

20 i i

! 21 ]g" THE ADMINISTRATIVE LAW JUDGE: The next 22lg consolidated hearings will b~e held January 5, 6, 7, 8 and 9 23 and 12, 13, 14, 15 and 16, if all that time is necessary, if n

i

~

24 h not we will cancel such periods of time as may not be nececsary, E

'] 25jandifwerenintodifficultiesonthe15th,whichisMartin

' P.f CM.'tS ACH & F4AMSHAL, !?!C. - 27 FL LCCCV/fLLOW AVE. - M s.P Mis e p R G pn. 37332 l

.e * *

- - n . , , , , -- , , - , - - e , - - - - -

1751 g ( Luther King Dcy, we will make an adjustment as cc that date. l

1 IR, OGDEN

Your Honor, could we go off tr.e g" l i G

record a second?

e. !! THE ADMINISTRATIVE LAW JUDGE: Very well.

,q 3

h

( Discussion off the record.) l 6j THE ADMINISTRATIVE LAW JUDGE: Yesterday we a

.c had fixed the time to file briefs in the complaint oroceedinga oj,,onDecember30. At tha request of the ccapanies ne will i

p ] er. tend that to December 31.

il 19 l MR. OGDEN: Mr. Carroll.

9 THE ADMINISTRATIVE LAW JUDGE: Before you l s5 f; 13fputMr.Carrollon,Mr.Ryanwasnothereandecyhavenot

)!

p 13 f known that there vill be some testimony on the rate structure g ; matter in the compicint proceedings.

Is Mr. Hafer not here? h 75l$Hashegone?

16 $ MR. (I; DEN: Mr. Hafer has left..

t

$$l Ig!; TEOldS L. CARROLL, recalled as a witness on n

n 19 R behalf of the Respondents, having been previously sworn y

20 I according to law, was exnmined and testified further as i

21 f0110WS*

I 22 f 4 REDIRECT EXAMINATION 23 ]C 3<t

+. g EY MR. OGDEN:

25 ; Q M-. Carroll, there have been marked in these M

17112 t.1C}4ftt3 AON & NAMSHAL. INC. - 27 N. LOCKWILLOW AVL - H Af!RISBURG PA.

Carroll-redirect 1752 Thev .

,,I.

=

proceedings Penelec Exhibits Nos. B-lll-4 and B-153. I were marked this morning. Were those exhibits prepared by j

,fyouorunderyoursupervision?

o,

,. j A Yes, sir.

,. ) Q Now in addition to that I believe you c -le t

_? prepared a response today to a request for E-1, Part 8, page 1

,a r.

l

.i presented in a three plus nine format.

c I believe in connectio'n l

J i glwithyourtestimonyWednesdayinthatregcrdtherewasn j i

ejfurtherrequestmadetoremoveTMI-lfromthatpresentation,  ;

! j fthatis,theresponsetothethreeandninerequest.  !

- 9

,1 A Yes.

zl ]

R q ii Q Could you just indicate for us what the 3

13 g

! results of that removal were in terms of net income as

~g opposed to the Part 8, Exhibit B-1 presentation absent TMI-l?

..p f A Yes, sir, as indicated on page 2 of this ,

,5e 1 l 4 .

Oc r j response, after taking out the net operating income for  !

!TMIournetutilityoperatingincomeamountsto$75,797,000 44 !!

l'

,6jascomparedtoournormalizedoriginalbudgetof$77,529,000.

2 ,.

.. f A9, MR. OGDEN: Thank you. That is all we have d

' 20 ;h of Mr. Carroll at this time.

a THE ADMINISTRATIVE LAW JUDGE. Commission 21 l,.

C Staff?

22 j l MR. PANKIU: I will defer to the Constxner 23 l Advocate for now, Your Honor.

24 lg d 25( 2

?

THE ADMINISTRATIVE LAW JUDGE: Very well.

MOHRS ACH 6- f.f M 9H AL, !N O. - O, N. LOOK W ALOW AV2.- NARRisBURG P A. 17112

Carroll-recross 1753 f

, l RECROSS-EU.lGNATION l j

t 3..EY MR. Bl.RASCH:

Q Good afternoon, Id. Cr.rroll. May I turn your ;

g

~, 1

,.., g. attention to your Erhibit B-154, please, and if you could also!  ;

y at the same eime, sir, take a lcok at Penelec Exhibit 3-1, 6 P6rt 2. page 1. Do you have those documents, sir?

i

-[ay A I believe the last item you referred to was gkPart 11, pege 1 of 2?

gl Q Part 2, page 1 of B-1. j A Yes, sir.

10 il

q Q Now we will take a look at B-1, page 1, Part 2. In the first column under the line item, Plant in 12

~ i,!

the conditions as 73 ll Service, for measure of value per budget, p, ] of March 31, 1981, I see a figure of $1,636,898,000 for plant g in service. Do you see that item, sir?

15 J

16 j A $1,636,898,000?

!i

,,i Q Yes.

tk e

is j A Yes, sir.

i I l l Q Now when I look at your Exhibit B-154, the Ls 20 last paragraph of that response, there is a sentence that 21y reads as follows: By March 31, 1981 the balance is expected 22:

t be $1,633,727,000. Do you see that, sir?

23 !e

!j ^ Y88* Sir

• I d y Q Now ns I compute it there is an approximately 25  ! $3.2 million difference between the measure of value per book I l'

M CH3D ACH & M An 9H AL, INC. - 27 M. t.OC1'W!bt OW AVE. ~ }l ARRf 5 BORG P A. 17112 I

l l

. . Carroll-recross 1754 g and the balance as represented on B-154?

O zl K

^ 18et i= correct-

,q Q It appears to me that the budget presentacion

~ !! l s, 'xd in this case has turned out to be about $3.2 million higher gkthantheactualexperience,isthatacorrectdescriptionof 6 ] what is going en?

i I 7: A Yes, the intent of Exhibit E-154 was to gy indicate as of right now where our expectation would be 8

9 h by the end of the filing period ,

i 1

g. Q And it is your expectation --

A That we are going to have a shortfall of

! uhatever number you stated, 3.2 or whatever it may be.

37 13

~

Q Does the $3 million approrimate difference O p between your original budgeted figures for the test year

}

73 !

and what you now expect to occur, does that difference i

16 relate to either Three Mile Island No. 1 or Three Mile Island 17 No. 2 investments? Would that be correct? An element of i

sg ) those in there?

a l

Let me ask the question in a simpler fashion.

19 hli A G ahead. 1. c' hink I understand.

20 l R

Q I will try to rephrase the question and 31l, make it simpler. I asked you an are-you-still-beating-your-wlfe 22 l

.g. htypequestion. How much of the $3 million difference is b

y related to shortfalls in capital investment in TMI-1 versus h 25 the budget and how much of it is related to shortfalls in 17312 MQ)4MBACH er BSAnCHN ific. - 27 N. LOCfCWFLLOW AVE. - 84 4 R RIS B U R G P A.

1

carroll-recross i?55 .

.;,capitalinvestmentrelatedtoTMI-2,ifany?

, i: A I could say that the shortfall represented o i.

1

. by the $3 million would be in the shortfall in generation o; .

g~hexcluding TMI-l and 2 and the rest of it vould =ost likely be in distribution. l 5 .

n a j 6g Q Is it your testimony here that to the best  ;

a

, ,i of your knowledge, informetron ano belief none. of that $3 l

'3 2

g, million difference between your original budgeted data and p p the data that you now expect to actually be the result of 0 i g test year operations, that none of that $3 million difference 10 3; is related to any change in expected investment at _ either

-9 9

- !ThreeMileIsland1or27 y2 s i

p 33 A Mr. Barasch, that was one of the items I p

Il looked at because of the shortfall and after checking with h our generation people and our T&D people, the,7 are indicating gl!  :

g to me that that is where the major portion of the shortfall g is going to occur.

3g Q I am having trouble. I am not understanding I

]

19g y ur answer.

l o 20 A If there is a shortfall in TMI-l and 2 at l

this point, and related to those numbers, I am not aware of 21 22 j them et this moment.

1 23 q Q And it is your expectation the.c the greatest k

24 j part if not c11 of that shortfall would be related to other 6

generating programs of Pennsylvcnia Electric Company or T&D 25 g

McHrtDACH h tt ArtSHAL. It(C. - 27 t!. LOCKWiwLS'.V AVE.

• H ARiteS B URC P A. 17:12

carroll-recrosa 1756 .

t

,[ expenditures? l 4( l i A I am saying that basically cost of that  !

j 3e ,

I

!!; $3 million are in those two areas as I spokc before.  ;

.: ]

MR. EARASCH: Can we go off the record for

+lc.

,] a second, Your Honcr?

~

(Discussion off the record.)

o[<

b 4 BY hTt. BARASCH:

7s

,0 Q To the best of your knowledge, Mr. Carroll, l

o ') .

3 Eg is the entire 53.2 million shortfall all related to non-  !

!! l

! Three Mile Island investment, that is, other generating to 0 li i! investment and T&D investment?

11 y

! A That is correct.

12u e!

,... Q Now could I turn your attention to your

! Exhibit B-157, please?

14 I ..

b 11 A Yes, sir.

-15 i!

h ' MR. EARASCH: Just for clarification for 16 j  !

d 47 !) Your Honor's sake there is an interrogatory that B-157 l

$ constitutes the response to. Thc interrogatory was consumer

S q g Advoccte Interrogatory 36 Part of tha question asked for i

i the expected date for use for certain coal reserves and the

! I question I asked relates to that because ~I don't believe n

a the answer we got in certain important respects -- it

22 l c ancwered many questions about those coal reserves but in l

23 a.  !

44

,j terms of the expected date for using those reserves and p

25 ; the plant with which those reserves would be associated hcs s  ;

0 MOHRB ACH & f4ARG!!AL, INC. - 27 N. LO3KWILLew Av2. - H Art rtis e t.,R G PA.

l 17131 -

Carroll-recross 1757 . ,

t

/ I

.: Lnot been answered, and that is what I would like to direct t

3{thewitness'cttentionsonow. '

g e

THE ADMINISTRATIVE LAW JUDGE: '!ou may proceedi.

.e a.

e:.BY MR. BARASCE:

Y !! i

i 3 Q Take s. look, Mr. Carroll, at page 3 of Exhibit,'

c., B-157 regarding the Reesadale coal reserves, in the middle ofl y the page there is a paragraph that begins with a sentence t

i gi that reads as follows: Due to their locatico and accessibility t

p 5 of rail transport to Lake Erie I believe it is supposed to  !

,1 -

10hhe-- .!

y ',

A That is correct. l

-: l 17 -] Q These reserves could be used at the planned l 13l4Cobo station.

Now I wonder if you could clarify what you 9

g Ee mean by could be used. Is it the company's specific intention a

u. ;l to in fact use these coc1 reserves at the Coho station when u.,! and if it; is ever built?

4 17 .5 9

ig f (Transcript continued on next page.)

t!

19 'l,  :

I 20 a f

21l t

5 23 !!, ,

.4 Sk E

25 e

I g

F MCMMBACH & MARSHAL. INC. - 27 M. LOCTYrILLOW AVE. " M A M M IS U U "< f. PA. 17112 ----

l

< . Carroll-recross 1 1758 e ,

i A Let me state it this way, Mr. Barasch, O

V i , that at the original date of purchase of the Reesdale 5 b oronerties, part of the reserves , cecause or. the location of i a 4[theReesdalecoalproperty,couldhavebeenusedattheplen*?

?

5fCohoStationatthattime.  ;

I O] However, the coal coming out of that mine !

s i 7 h could also be used at our Secard station, our Shawville  !

v i 2 station: Homer City station because of the centralized I n ,

>n i. position of the proposed coal mine3 so while I am saying in 3

1 10 & addition to all those plants it also could have been used at t.

, 51 d, Coho station. ,

p 13 h Q What is your understanding of the plant j 13 date of the Cobo station at the present time?

]%j l inservice A 14 L0 I don't have it here in front of ma, but  :

to {

if :) 1 uculd assume, not cssume, but I think that the Co'ao station l s

16 l is probably outside of the 10 year plan. l

't i E7 i Q We should erepect at least it would be  !

c l

18hsometimeinthe1990's?

E I

. l A E, A Yes. I would think that would be correct.!

h 20 $ However the Reesdale coal propertics, due to the calibre of I

21 j the coal or the BTU value and the quality of the coal can 2E also be used to set the various standards set at Homer City ,

n

• 23 $ or at Seward.  !

24h Q Seward 7? -

~ 2'e b A Seward 7 has been deferred fora couple of MOHR34CH C MARSHAL. IMO. - 27 tL LOCKWr. Low AYE. - tit R RtSO URG PA. 17112

. ._ . . . . - _ . - _ . _ - '. m- . c iu.- r.s rm e a v. .e, c,.

. s years, bu- it in still withi" ;e ho n-v e ra nl p . .

, I a- n:- :rn ' m n *nre i r- n . ,z. < ~; . h

,.:  ; I a~ jur- tr.:ine to # i r e w.6 a r feu mear na" cci sr 4 '., used aT S e' ard .

i nre you re.lkinr abov: use .c s e c.rd "

3 A IT possibly could be t'se.

n: s? ard

S

' ac rell ;'t 7he present f acility a t Senard .

' .e have Er existing pinnt et :se' card.

i

.e. .

e i

' 'hn: crecific plans does Penslec have at

?' ,

the norent to develot the reserves at Reesdalei e

1 10 ( A 1

I guess I don' t quite know v' hat you mean, : 1 11 j! sir, by snecific nlans. ~

i 12 i 0 c

s  : ell, where do we stand in the develcraen-

'l

". 3 '

{

m.

of the Reesdale mine? Are e nov in the process of doinr; the'i k:

1.i p ~ork to make that mineable to nroduce normal quantities of a

8 l

1

.e! coal"

-s l 25h A At a

i the monent there is not an oneratins  !

17 f mine at the site . I

n. .

is h Q 7 hat specific plans does the company 19 y have for the upcoming period for use of that faci.lity

A 20 ') It

[ I can say this, that the quality,and the

,n

core drillin

s have been going on for a number of years i

i 22 *Yi j a

. testinr the locations of 'rhere the slepe and the cortal '

r .

f 2? b develonnent wculd be, but at this Scint in tine I can' c be t i

h l' enecific as to hov' far alenc they are. I could re t that  ;

t3 ! information for you later, but not nos.

a t

N O!-tR P A":ii C L' 9 5 F M Iff C ~ 3 I N' 8 0 3KV 13'.O*.. 4. \ E. -- ;4 m *,tt s J' Tic. FA. 17112 J

.m-> e

Nav n11-wenence 1760 I

. 4 1

i '

i1 '

4 Do you know what alans the company has i 4

4 i

. , . . in terms of when that nine would be ready to start nroducing

I 3[coalforany of your facilities at its nornal ratee u

l i

j ,5 A Let ne scy this, in order to develop a l g - mines it takes approxinately five to six years. '.!e know that a

<t 1 j 4 '

. 6 y Gerard-7 has been deferred, but i; is still within the ,

a '

y 3 ten-year plan, so at this point in time we do Save l those l,

', c ,k nroperties tied up, but to give you a full definite answer, I 4 -

I e

o

. I would have to get back to you later.  ;

1 g  !

4 Are you saying you believe it would take Io {t l 13 .) five to six years to develop the nine into a comnercial ,'

i  !!

j e 12loneration a

13 a A Yes, sir.

1 1)

E

! $ Q Does the connany at this noment and time

~4 0 gn 1

1 i

13 l> have any definite plans fcr the beginning of the connercial e

16l develonnent of that nine?

b 6

17 f. A I can' t answer that, sir. I can get that l

I 13 [a infornation for you. ,

i*

t'

! 19 h a how if I could turn your attention.tc d'

r

[ 20 } GPU Drilling, which.according to youtB-1, Part 2, Page 5..

2 3ilt has a value in rate base of about 1.8 billion dollars.

• b

's #

22 a A Yes.

S

• t .

(

93.4a 4 Reading the descrittion in cxniolt 3-157  ;

i

? ,

l (. 24.j you describe this particular operation as being on a hold j i E i l

i 25 f status and refer to linited feasibility studies that have -beer

H F

i wasnarca a uxncut, eac. - :: n. LecnnL'cw Avr - su.nrasucc. ex. tri s:

I l

I b .

, . . . . _ IfiECOll.r r_MT_QQ.f. ___

.l Cr are bFiG-r cCnduc ted. I elCn:?ir if VOu cCuld enli2ht9'a uG as TC hc' far 91onf WE are I #* ^*

473 fenSi' Cili 7 CNdi9S 3

and what th e results Of TI'cS6 ETudieG I'.a ve S h C 'i'n t o M T 9 "-

,1 "he Studi0E '.ren't Contleted V9t, n' e thC /"

e 52 1:

C>

C2 r- i

8 t.,l o'

u s

And you also indicate that the acrual .

?R tarre ting of the resulte for Dresent and future plans ~culd I 3

5 .{ be 6ependent upon "nine econonics"'

I 9i  ;

d

'~' hat is corn e t. i w[;

• I lell'erhen'villtheconnanybeinapositihn e

y

_i L

I to advise us as to the results of any study of the economics ,

12 [ of those mine developments?  :

.. l 13 A As a result of the exnlorations, tu re ar s g 14 l.l annroximately 12. 0' ') acres containing an ectinated 40 millici

'l 15 y d tons of recoverable Ocal that "an acceptable to the GPU j

16 I. Service Cornoration Resources Group and thene are recoverabid i

17 [e tons and are located in t'fo coal fielde located in Infiana f.

.i. g ,j )

< County and too are located in the '.lestnoreland Ocunty area.

3 19 [n 4 Jan you tell ne what you mean by a

20 q' li recoverable coal? Is that in answer to the question of mine h

21 ; econonics?

h i

22 j A " hat is right.

a Recoverable coal is tha t 23 )

. coal that is actually reccverable from the nine. "nat is 2," the}

coal itself rather t%n the roc'r an? there are sor.e areas in j i

25, the coal nining business, there are sone areas as you no +.hrough 1

e

.OFIM_'f.CM D *NE II 54k+ I $ O*

• NI 5

• L G W t*L '

A'/K* " P' F "'* '7l ~

woll .renme 1762 I

i the mine digging out the coal, there are some arear that you O

V 7 .- cannot take the coal out of. '

?

y- Q I understand that, but I'am asking you ,

s i

j, p when you describe the results today as indicating 12,000

' f,i .

L [ acres containing 40 million tons cf recoverable coal, I want '

6 to know whether the ad,iective recoverable includes within it [

7 !!! an assunntion as to the cost at which those resources of s l coal could, in fact, be mined or are you just talking abou c {

g q a geological fact? h j

C I

19 j A I am just talking about a geclogical fact 11 at this time. I

i 12 i Q Getting back to the criginal question i i

i 13 which was in terms of mine economics, I wonder if you could 14 advise me as to what resulta you have presently about the 15; economics of cxploring those reserves? -

fi 16 l A Are you talking in terms of dollars, i

17 l quantity of coal or tons of coal?

H 18 f Q I am talking in terms of economics of it, l.'

19 { sir, which I assume relates to dollars.

20] A Let me say this, as far as the economics 31 1 ,

is concerned, that the coct of exploring and acquiring the 225 12,000 acres, which contain an estimated 40 million tone of i' s

M. . recoverable coal, approximates about 10 cents per ton and

, 2.h the overall cost of maintaining these reserves is approximateIy 25f,3625000 annually.

s MCF;MSACh C: M Afte t.K,., IM O. " 07 fi. LCOMWILLO'.* # Y2. - e4 A M P*t3P W "'7, .e A. 1781.7

~

ar-e $ e-+ ytw r p ~ y -

e

Carroll-re cros r

.,63 le ..

S

i 0 Are ycu tellinc me The coer.?

g

, . 'lhat it ecs tr - ezplore I's c 5 c .

, W Yes, I undcretand, but --

c value c.i_ rne

? a Are you asking me ..n e to ta_., -

l~

s 'd coal in place in the ground?

1 l h ,

6 ". Q No. ilhat I m.1 trying to understand is 73 what the sentence: "Targsting the reserve to the precent i

s and plants would be dependent upon mine economics ac ,

s -

9 ,? determined froa a mins economics study." ,

11 i

10 [ tlhat I want to know is targeting those 1 -

8 11 k reserves dependent upon nine economics. 1 4

4 I 12 ) A The mine economics would be those dollarsi t' Y

(- 13 L to find out what other coal is available within the proper ' h G

I

.I4 y I

economics of .the average value of the coal company. f s

i.

If k Q And that study has not been completed? i c

16): A That is correct, it has not, l i

1 .

Q Fine. Do you have any idea when that

• 17 { 4 1C[ study will be completed?

0 19 [ A lie have a period of five years. The li 20 coal has basically been explored and we know the coal is I

21h there. I will back off of F.y answer. I will have to get it d

6 i 39 4 for you later. -

t f

7$ Q Are thece facilities, these resources, 2e. the type that would be nined by striptining techniques or ggg 2S[ deep mining techniques?

b _ Mct;.*Dt.CN !ta"iEH AL. f?!O ~ 27 W LCCdilMO?' #VE ~ N AI' ISEUI *' '

i7ll

~

m

. _ ,C a n n o_1_l - r e_c r o g s _ 1764

~" A A combinationof both. i h .

2 ,' ,

Q ilnen does the company presently  :

i n

5 d k

anticipate beginning the construction of these mines,  !

6  :

4 t.

i.

acquiring rights-of-way and beginning tne process or grading {

5$ thece facilities for commercial development?  !

6l It A Encically, Mr. Barasch, I am unaware of

)

e 7 j the fact that the ccmpany will be building any of the mines. !

it  !

8 U What we are doing here is developing reserves and at which 1

p -

9' time when the mine is to be built, it most likely would be n ,

?

10 l built by either a firm such as R & P Coal Company or Helen I; j Mining Company, but the company GPU itself would not own the !

{ l 12- deep mines as such. All we are doing is helping to develop  !

p) 13 ), those reserves.

ii M EW Q You are not going to actually own these 3

15! l!l mines if and when they ever do come to a point it is believedi i

g- '! they will be economically mineable?

1:

U i 1jk A I don' t believe so, but we will own the 1

13 ,; reserves at this time. 1 i

+

Q l 19- l.. And at the present time you have no plans j 20 to begin the commercial development of those facilitiec?

h 21 E 4

A At the moment, I am not aware of any.

nh n Q And what plants would coal coming from these 23 ;3:: reserves be going to, sir?

uh A They could possibly go to the Homer City  :

23 Power Station, Shiwville, Seward. They could alco go to the 4

[d( h$ 3 ,q,, b e. 4 8 b ** *

, . . . =

~ w- . % ..~

g -

m c c., 1765

. Seward-7 plant, whica vroul; barienl y be the Farn: locaCcr

. as the Seward almt.

O c O S UC plantr t0CI Sanctime in the futura, sure. ~he coal

.a h areas are situsted basicall.v in the .iddle of just about. n' 2 2

9 03 of those plants. As far as the transportatien is conc arned.

2

j it i5 not too far a distance from any one of those plante, r

o o ,.

Can I also assume that the answer you 3 E gave me eurlier about the Reesdale coal fields , that tne n i

.. .. ,;, " time teriod recuired for the commercial develottent wculd

'i

5. 3 y also apply to the fields you aprarently have uncovered as 12 a result of your drilling operations? Tnat is it would taks

' fl 13 p five to six years to develop those mines? f, y A Tne rule of thumb today, as I undarstand f c s

.. .r . it, takes about five to six years to develor

^ a deen mine.

1 p3 j ?nat may not be the case for stripmining. Stripnininr; would 17 iti be much faster.  :

J '

18i; 4 Do you know how many of those 40 million W

V 19 l tons of coal are associated with stripmining techniques and 3 2O [ how nany will be associated with deep mining techniques?

1 3: } A I do not have that information with oc. ,

e t

v.l

~m Q To make sure I understand this, is it I, I.

g n! your testimony that GPU will own the reserves that are .

u  :.i' devcloped on these facilities b.:t actual mines , nining li operations themselves will be owned and operated by persons

,- , _ . . ...c - ~ . - = - a - ~ - - - --

g

Carrol l -me, an r. 1766 F ,

b

y other than GPU?

-O) v -

t,. -

i 23 A That is right. Bacically the sada as our j

?

3 [ precent agreement we have with the Homer City Peuer Station u

i 4 ilp whereby R & P Coal Company, through their Helvetic Mine,  ;

r I.  ;

5 g minec the coal for Homer City ca. . sell as the Helen i

L 6 l Mining Company contract with the Homer City Power Plant. I N

7 ij The same thing also exists at the Keystone and Con 2:augh iI 0 j plants and they arc on the same type of agreement. ,

j 9ig Q Finally, if I could direct your cttention t

10 [ to the tripartite agreement, which is sat forth on pages i

111 4 and 5 of your Exhibit 157, now what plants would these i

12 coal ficids be utilieed for?

([ 13 A f_1 of these propertics are basically an l 14 attempt by the company to get c long term supply of coal i

15 !

racervcc due to the energy problems throughout the 16 world today and the oil problems and coal, specifically in 17 the western Pennsylvania fields, could very possibly be very 18 hard to come by, especially large tracts of coal reserves.

I 19  ;

1 The coal program that uc are under is trying to protect the 20 l future ability to tie up those coal fields.

21 Q Do you have specific plants in mind for I

i 22 the coal that night come out of this tripartite agreement?

l 23 $ I believe that is the quection.

l4 24; A Other than thoce sate plants that I told It rv i 25 you, plus some others within the system, yes.

I l

McHRBACH & MArtSHAL. IMO. - 27 N. LOC 10 WILLOW AYE. - HARf'!EBurtG. PA. 17112

+

Carrell-recross 1767 0 .

i, s - o the sans general ancrer vou gave ce t

for G'eU Jrilling and Reesdals: h 2 ;. A Right.

s i

-1 .' Q Now here, ae well as in our discussion of t

t ii Reesdale, there was reference for the need for economic ,

r 2' studies to evaluate, I guess, the ecst of production from .

f f 4

• t these facilities. I take it thos e s tudies haven' t been .,

o at C4 completed yet, have they?

i k

p: A That is correct. i n

10 E Q And I also see apparently originally the I

?

1 idea was that this coal would be available for supplying the 1?- 3 Seward 3 tation, is that correct, sir?

J .

i a

(. 13 n A That was the original intention, yes. l O

~

k  !

14 C I would say that Seward-7 would be ene of the recipients of d

153 that coal, right.

4

i p -

16g Q And those negotlations hava now been i e ,

e i 17 @ terninated because apparently the company has come to the I a

l L

13 j conclusion there are more f avorable coal prices available l i

s ,

i  !

19 !! than developing these reserven.

J s

20 [ A That is. right, but the reserves themselvec

• i 21 {i are good coal reserves and possibly could be used in the a

n 5 future.

-) ,

i i 23 - 0 But at the moment the economics say there ';

! l

,.;- are other things that are chcaper that could be developed  ;

v 1 25/ at loaer cost?

• = C'-;ns/.ON & id A31 C F AL. 6H O. - 27 .. L DOW NLCa* Ne'E " . ! d. 7.7.5M C . M- W 12 - ~ ~

h

r

+

_Ctrroll-recross 1768

~

7, A That is possibls5 and the fact these coal 2 reserves ars proven reserves, I am saying that the ccal is r

3* there. Ne know it is there. We know it can be reccvered 6

4I and at some point in time, possibly within the .'. ext fcilowind.

s i

9 5; year, if inflation keeps up, those coal reserves could be .

F k

/ I 6l economically profitable.

, ii G It could also take ten years before it l 3; became economicelly profi"able, couldn't that be true? I 4

e 9l A I can' t venture a guess.

t f:

10 l

Q But specifically in your own testi: cony anq.

l in this exhibit you indicate negotiations for developing '

E ,

13 l those reserves were terminated when it became evident that  ;

h

(.m]s 13 more favorable coal ~ cites wers available?

f' fl 14 2 A At the present time , plus the fact ,ve  !

H i n i 15 were trying to conserve our cash flow. j i

16 l 2 I also assume from f.e.tripartitl as well l T.

t 17j; when anc if an economic study is concluded. that determines i ti I

18 p!. it is desirable to mine or develop these fields, that it  !

'i 19l le will take five to six years to develop as well, is that  !

8 i 20 ;C correct?

P 21 A If the determination is made to develop I 22 [ a deep mine, five to six years is a good estimate. I would L

-t i 4e>  ; . .

say, however, if you are going to strip that coal then it g s -

le d coulu be much less than that. It could be a year or two.

{

t 1 25h Q Are these mines that would be stripped I T

- ,m.smes m.,e,.c. ,~c. - = m t.mu .x c.s. - meemu.

- l

1N9

...- .- ---Carr

..ol.l-recross

. or nines th .t wou.1.d be d%p nined"-

_1 Tn1"1 1 13 L CCCDinat1C':1 Of DOtnr O

1- I think I answered that before.

.:, , Q Uell, for some other r.ines you did.

t .4 Rignt.

s i r -

.- w . , . .

- d ao It woula..ce a period of years, up o 7[ F.

si:: perhaps, if they are deep nines, fron whatever the date

! )

i;; is that you cots to the conclusion that these nines are no- '

~

at a price thct would indicate that could be econcnically a.. !

4

. ,j

.. r. ,' developed? 4 a

f'

., 3

A That is right.

u ..

F.

>.- MR. BARASCH: That is all the c.uestions ,

e i I

s o

-- t 5

I have. I P  !

n. ,., K THZ ADMINISTRATIVE LAU JJDGE: Comm.is sioni y .-

w. ,

- c. n!.

b s .

l

..j ?..

MR. PAEIM: Ne questions, Your Honor. '

i s '.; r THE ADMIIiISTRATIVE LAll JdDGE: Any

• t isI .

furi;her cross-exanination?

I i

19 l> MR. FRATER: Nothing, Your Honor.

. I 20$ LIR. MORRIS: I don t believe so.  !,

• u .

31i .

THE AD*,iINISTRATIVE LAl-l JUDGE: Anv redirect?

, e n[ Y MR. OGDEN: No, Your Honor. Thank you. i t 9

13 Mr. Carrolle e

F

_m. , . 1

'* n"G AC F, t. .< /.* 5 : f AL. gt;c. ~ 27 N. L 9C4 Wit LC'P. s.Vt. - K*J..t ?GtJ.*C. P/ 17111

1770 1 LR, OGDEN: Your Honor, I just want to note 2 s, one thing for the record as a preliminary n:atter.

a I distributed d 1 3 is to the parties and for the record Mr. Carter's Penelac c

4fState=entC-1,supplementaldirecttestimony. In reviewing il 5jthattestimonyIfindthatnotonlyhashetestifiedwith

'i 6 j respect to PURPA standards but he has also supplied some n

? ] responses to various portions of Conmissioner Johnson's i!

E[ motion, d

i Pf So I juct want to direct the parties' ,

i l 10 attention to that, i i

11 !

0 1;

12 1 DAVID L. HUFF, recalled as a witnese on

{ 13 behalf of the Respondents, having been previously sworn i

14 according to law, was examined and testified further as follo9s:

1 l

15l l 16; DIRECT EXAMINATIGT 17 BY MR. CGDEN:

18 ! Q Now, Mr. Huff, I have had marked for 19 f identification Met-Ed Exhibits Nos. B-144,149,150 and 151 i

20 Were those several exhibits prepared by you or under your 21 supervision?

l 22 h A Yes.

5 -

23 .] Q I believe you also supplied a respot.se to 0

24 { su outstanding request fer Part 8 of Exhibit B-1, page 1 done li l 25 g on a three plus nine projection basis, and in connection with I

McHMBACH 0. MAR SH AL. INC. - 2? t!. LOCKWILLOW AVF -- H A RRIS t u R C P A. 17112

Huff - direct 1771 t

that yesterday you t:cre requested to show thtt data icith  !

l i , ' TMI-l removed. l l

1

• i

• Could you just indicate for the record whac l

,f

,.I the result of that recoval has been in terms of net income

! i' '

l 3 as against the Part 8, B-1 format with IMI-l removed?

se A Yes, the net utility incoce exclusive of 7 . TMI in the three plus nine normalized is $37,880,000. The l

gfcomparablenumberinthefilingis$38,470,000, 7k MR. GODEN: That is all we have on direct, l b I

l

'O g g;

Your Honor.

.L, 11 ?

t .:

12 [ CROSS-MAMINATION l

l

?

I

' 13 s( BY MR. KELLY:

~.

14 Q ETnat are those tuo numbers agsin? g A If you have the response to staff revenue 13 ]

expense Interrogatory No. 4, page 2, down at the bottom. l 16 1

Q The far right-hand corner?

\

'7 (i T.

g A Yes, and in the parenthetical expression on 19 line 34.

L i

20 l BY MR. MORRIS:

i

~l

'

• Q Mr. Huff, without laying aside the exhibit 1 k which you vere just discussing, would you turn again to l 22 23 Exhibit 132? On page 3 you show interest charges and preferred y7 dividends at line 17 for the total company as booked.

1 Do you l 25 ! see that figure?

l Y u

6 McMRBACH a ro ARC:4AL. IMO - 27 ft. LOG:< WILLOW AVE - M ARRISBURG P A. 174t2 l . . - _ . . . ._ . - - .

l

Huff-cross 1772 _.

+  :

1 A The sixty-six million? l

. i

2. f Q Right. *

l 5j A Yes.

l

-l i c.- i Q ilould I be roughly right order of zngnitude  !

- t

! lif I broke that det:n as forty odd million for long-term debt. l 3

6

• F4 f*aen odd million for short-cert debt and ten odd :aillion  ;

e 7 i for preferred dividends? ,

i i 6} A Yes, that is correct. It is shown, Mr. Mo ris!,.

t

? 5 in th2 quarterly cratement that was handed out this morning.

i 10 ! Q That is where I got my figures from in part. f a t i l 11 iThen if you have in front of you page 2 of Exhibit 132, can

)2  !

11 j you tell me whether the cost rate under the caption Long- j a

(mfs 13 ' Term D7r.bt of 7.78 percent included the short-term debt?

} 7

• 14 l A No, it did not.

1 15 -a Q Where would I find tha short-term debt 4 ,

i e 16 : reflected if at all on page 2? 1 i I 17 j A It is not, and I believe ths: was also i

18 j covered the last time we discussed the subject, Mr. Morris. I e

19 l Q I misunderstood you and that is why I asked i

20 i the question again. You indicated that you had not allocated 3

31e I the RCA or the short-tenn debt --

Q 22 ; A That is correct.

23 $ Q -- on page 3 but I did not understand that 1

e o Mi it had not been cocted for pureoses of ratio, and that in turE

,i 25 h would mean with respect to page 3 of Exhibit 132 that all of M

ECH"tS ACM 8: 'A AR$ MAL. IMO. - 27 P1. L9CCWtLLOW AVL - H A R A!5 P uit C P A. 17tt2

Huff-cross 1773 --

the short-term debt, some $15 milif.on in interesc, ucu_c be j 1i  !

>; included in the figure 41,7757 2=

3 ?,

A That is correct.

lll Q It is true, is it not, that were it not for l A k',: .

,jTMI-landTMI-2andtheaccidentpertciningthereto,that the

=2

,1 short-term debt uhich you now bear would not have been an  ;

o i

_b order of magnitude of $75 million? I

?d u

,y

! A Are you referring specifically to the u li

?yaccidentatThreeMileIsland2?

i

! Q And the ensuing events.  !

10 p j i A I think that is a fair assessment of the 11 !

16 s, hsituation. It would probably not be to the great length 4 It is not unusual, however, to have 13 ) that it is currently.

} high levels of short-term debt in times of construction 14 @

1. periods for very short periods of time.

h s e if i

5 Q For present purposes, in order to establich 16 i

, d the level of short-term debt which might ordinarily be out-l 17 )

5 standing but for TMI-l and TMI-2 would it be fair to look at 15:i btheyears1978andearly1979?

19 t4 i A No. One would have to look at any forecast 20 1 i

21 g that was done prior to the accident for that ensuing time frame to determine what the levels of internal sources of I cash were and what chalevels of construction programs were 23 f

• and the extental financing of long-term debt. I do not have 24h

'~

l 6 that prior foreccst with me here, 25 3 II

• IdOMMB ACH & MARSMS IN C. - 2*P N. LCEKWW. LOW AVC. - HAstMEEURG P A. 17191 g

Huff-cross 1774 . _

f But you must understand that during the

• !!O O- J frame of 1978 there were construction programs going on

' which would have generated some needs for short-term debt s

e lj,rhtt maybe necessarily high or lou, in trying to determine the normalcy of the current period.

50 g a

Q Is there an enbibit in this record which 6F E represenco such a forecast prior to TMI-l and T)& 2, essentially

? !!

e i prior to January of when the accident occurred? l E

i THE WITNESS: Your Honor, we are checking to

=

0 see if Mr. Graham had put anything in on that.

10 In 4 THE ADMINISTRATIVE LAW JUDGE: Very well.

11 -

_l uq THE WIINESS: It is my recollection, Mr.

pv -

Q Morris, that there is not an exhibit in this case reflecting

% r.

g that estimate of short-term debt prior to the accident.

14 s

!BYMR. MORRIS:

15 p

, Q Would it be possible for you to make that 16~

! forecastcycilable without any great work -- I assume it 17 !

L exists -- and it could be furnished to us either formally

• 1C M horinformally?

19 j A Are you looking at what time frcme?

20li l Q Let me tell you what I am interested in. I ,

21 l' am interested in what your short-term debt, cud therefore U s 23 h your interest expense, would have been most likely and on the basis of your own forecastc, for the test years ending po 24 g n in March of 1980 and March of 1981, had it not been for the 25:

d MOHR3ACH & f.t ADSHAL. INC. - 27 N. LOCKWILLOW AVE. - H ARR LS tuR3 PA. 17112

Huff-cross 1774A e  !

1 g accident at TIG-2 cac tne subsequent events whicb affected e

r both TMI-l and TMI-2.  !

+

h

! l c .

,; e

,{ (Transcript continued on next page.)

w

,n 1 h I t

9' $

's 1 .

4 I o '

k- ,o

.f .

i

< ,' I 10 1 J I 4

T1 g

~

.n

]..

14r d 3

e .i t if::

-s

(

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16.44

,~'

- i:

t  !

6 18 t i

4 19 4 j;

l 20 !!

. .g ,

es 22 i

o g .11 b

k*

s. i y

N 2:se -

s (;

'L - MCHRB ACM L MARSH AL. LtJO = 27 N. L@CICWIL.LCW A VE. " H ARF'fSO URG F A. 17132 l

Hu FF- r = crc.e : 1775 e .

b  :

a

i. I I. [ G. 03 DEN: Mr. Morris. you are getting into 2.; an arec of a witneu that is r re properly

'~.r. Grahec 7

't i

i int Mr. Esrascit raminded m:- that ti:ars ma:7 be at erhit '_c e

4 ,.

4 f. from the last proceeding at 79060303 which may Ecve that cvpel 9 i i

5jt of ar. exhibit in it.

1 Why don't we check and see if that is '

i 6 l available? That would be the most ready source of any such f:

? nil data.

il 8y i VR. MORRIS: Could we agree thct if there is l  ? such an exhibit for briefing purposes I might use it?

1 2 ,

10 .k MR. CGDEN: I think that if there is such an V .

L 11 s exhibit, we will produce it for you.

I:

12 k MR. FORRIS: Thank you. I would appreciate it 13 if you would ,, and if not, some estimate.

P 14 l BY MR MORRIS:

t I

E 15 Q Mr, F.uff, I want to refer again, havir.g t

16 :3,' had the benefit ofyour previous answers , to the matter of o

17 f Exhibit B-132 at pcge 3 on line 14, which is income taxes. I il l 18 Excluding TMI-l and TMI-2 on the basis of the computations 19 k that you have made, column 7 suggests an income tax as an

< R 20! p! expense in the amount of $31 million some dollars. Do you e

s 21 f have that figure?

?

b 22 5 A Yes, sir.

e .{

23 !, Q It is a fact, is it not, that es you i

24 E report for both Met-Ed and on a consolidated b, sis for GFU g g 25 t chat there will-not be an income tax liability of tdCHMBACH E -: ARSHAL. guc. - 2; 34. LcOKb. J.c n ave - wsR%suunG 7# 17312

, - ~ - - - -- - - - . - - + - - - - . - . - - -

Huff-recross _

1776 r  :

I 1 .:31.829,000? j 5 'vell, the 331,329,000 as s umas the ,

ggg 5' adjustment to achieve a requirea return in Colu:nn 8. In l 4

i 4> cotal, there trould not be a $31,000,000, no. However, che  :

5 , $31 million represents the purge if you will, of the effect  !

6' of TMI-1 and TMI-2.

i

?) Q It would be fair to characterizc tnat as 4

S]assumingthatifyouexcludedTMI-1andTMI-2,notonlyfor

i 9$ rate base purposes but for tax purposes, you would then 1

I 10 generate in accordance with the assumptions on B-132, a 11 f tax liability of some $31,800,000?

s 12 l A Yes, that in effect sayr that Met-Ed, E

1 In effect it is a company without TMI.-l f TMI never existed.

14 or TMI-2.

a 15 $ Q Or to put it another way, it is as if ,

i i

16 ' we reorganized the ccmpanies and cercplete.ly separated for  !

s 17 ll taxes, as well as rate base purposes,TMI-l and TMI-2 from the fe 18 !:

! remainder of the Met-Ed operating facilities.

, s 19 -

MR. OGDEN: Your Honor, I would have to 3

5 20 ( object to that. I think reorganization, that is eartaiuly

!I 21! a legal implication whic't Mr. Huff is not qualified to i

22 h adcress and ie not part of this proceeding.

9

'l 23 L THE ADMINISTRATIVE lab? JUDGE: Well, a

J 24 ; I don't think it was referred to in that aspect.

_. y 25 g MR. MOREIS: I didn't mean the cuestion M OHRB ACH & f,* AR $HA1.. IN C. ~ 27 f t .a =/ :.e&W AVE,- H Ap nis tN p c pm 371i;,

Huff-recross 1777

. i d

10 to be tricku or legal. I ~iurt van:sd to estsblis'r -- l O

s-il j

S it THE ADMINISTFATIVE LAW JUDGE: Maybo i

, 4  !

6 you better rephrase the question.

f 4  ; BY 13. MORRIS:

}

5j Q Establish my understanding of the e

il 6 !! theory of the witness. It would be possible to state k

7 l Exhibit B-132, page 3, and I am not asking you to do so, B! to reflect the removal of TMI-1 and THI-2 from rate base, t

9I but the actuel income tax liability in Column 7, would it I

10 i not?

li 11 g A If one were to assume that the benefits 4

12 of the taxation of TMI-1 and TMI-2, certainly one could make 13 6 any kind of assumption.

14 Q Precisely what you would do, you would 15l attribute to Met-Ed what tax benefits there were in the a

16 j present situation with respect to TMI-1 and TMI-2?

17 .h g A Certainly, and that does say that all

[ IC l costs of TMI-1 and TMI-2 will not be borne by anybody.

i II

! 19 f However, the tax benefits should be flowed back.

20d Q And, in fact, isn't the case, as you 21 h actually have filed and will file your income tax return, i 22 ! that you will claim that tax benefit?

I 1 l

A Certainly.

23 [

J-24 ' Q And then so that I can impress some l v[)

l 25 g order of magnitude on the figures, the total company as t n r

l wonne4Cu a u AnsHAL. INC. - E H. LOCKWILLOW AVE. " H A R R IS % ft G PA. 17112 r

l 9

Huff-recrose 1778 , ,

e 1 ;boched showed $7,425.000 parenchecict.11y ss as inecu.s tu 5;obligctionn, correct?

h 3, in ocher veras, c negative figurei  ;

e, a Actually through rieptember, exclusive of l 5 j any revenue requiremente in Column 6. ,

I i 69 Q Uculd that order of magnitude likely ce l

) the 7 ',the sa.% to/best of your estimatio; for a test year ending in -

a C I.ilarch of 1981 if it would have been so stated?

E 9h A It is in the range.

j i 10 .

Q That is good enough, in the range. Nou i

11 J I would like to have a similar understanding as to the 12 i, expressions on page 3 of B-132 respecting your calculation a

( 13 and attribution of reserve capacity expense. You will note O

14 that in columns 2 and 3 you have included in a parenthetical i!

15 lor negative expression reserve capacity expense attributable 16 i to TMI-1 and TMI-2 and aer.c.ed them, if I understand your 1

h 17 j calculaticacorrectly, out of 0 & M?

i!

16 9 A Yes.

L ll 19 ll Q Would you just briefly describe for the 2O [ record hou reserve capacity expense or its parenthetical 21[ the negative is generated?

d 22 a A Well, that is an area that Mr. Newton hcs

!?

22 2testified on in this hearing. De is far more an expert in i i 24 that area. The record is replete with his testin.ony, w u 25 l incluning that of Wednesday.

il He is the one that determines r.;cuacAcu a ru.nsuAL. triz. - e t i.oew u.ow ave. - " An ni+ + 'R C PA. 17112 h

Huff-recross 1779 _

il 4 L that, not I. ,

2; Q I am only trying to make sure it is h

I [, related to ~ he c exhibit that you sponsored, and I assumed d

i 4 { you knew generally enough to relata it to this exhibit. l 5 llI A It is whatever 1tr. Newton produced in 6 l the rate case is reflected in this item here, as stated in the

, O

? 9 footnote.

8jl Q Is it fair in sum to say as to TMI-I r.,"

I 9pll TMI-2 if in-service you would have expected to be able to d

10 h generate a reserve capacity figure which was negative or 1

11 g parenthetical as a result of TMI-1 or TMI-2?

It 12 'I MR. OGDEN: I think here again we are s p 13 ! getting into an area --

t 4

14 l MR. MORBIS: Mr. Newton again, p .

15 .'. .

MR. OGDEN: I think, Mr. Morris , if you 16 [ look at testimony from this past Wednesday, Mr. Newton had il l 17 i some rather extensive redirect in that area.

18 MR. MORRIS: I was briefed.on it. I just i

19 [!want to make sure I understand it in terms of Exhibit 132.

20 i BY MR. MORRIS:

Q The question to you, Mr. Huff, at the 21l 22 ,b1 time I believe Judge Matuschah asledyou to prepare B-132, k

23.c l and I was not here, was that it be done as of 9/30/80. Had n 24 you done a simila thibit as of the end of the actual

%F 25I test year or March 30, 19817 .

i MOHRDACH & f.tARCHAL. INC. - 27 N. LCCKW!LL.CV/ AV C. - H A R RISE 9 R G PA. 17131 1

Huff-recross 1730 . .

A So, sir. It is noc necessary.

• 1 f:

Z 0 end unen you a2: ic is not r2cercsr, llh f

I luhat do you rasun by that? '

F 4 .! A '.? bis was at a point rad tin.e in the inter jx. <

e 1

i 5 j of the petition and it was in rceponse to Judge Mrcuseimh  !

That is solely what i 6 wanting to look ct the Septmeber datc. ,

7 ' this enhibit nortravs. -

i, l

Ei a Q I was not suggesting that it was j ifreguestedoryouhaddoneit. I just asked you f you had l 10 9 done that.

11 h A It is not necessary, u

12 $; Q I don't know what it is not necessary n

f r' 139means. Does that mean you were not asked?

U g

.14 0 A That is correct.

4 i s

15 ] O In order of magnitude, can the same f l

Ao projection that appears on B-132, page 3, be developed by 1 17 l. racios from existing statements witn respect to the end of i 11 18 >i the test year? Order of magnitude, not precisely, i

19 A I haven't icoked at it in that light.

20 h My response will have to be somewhat clouded, but I would 21 k g think that the ratios may be somewhere in the very large a

22 ?i range.

k So it would be possible for one examining 23 l Q 1

La : the statements as of the instant test year and using As h 2il similar ratios to develop order of magnitude similar data?

1:

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. . . s

l

,, - .=

nuff-reeross 1781 s

t ,

i. e

e. Of course in the rcte cases THI-1 end '

q i 5 TM1-2 are spelled out individually.

i '

5 G Yet, th:re ucs not en attributica of i

4. ; ecpic 1 in the sense that is here generated?

c 5 A That it true because it is not required i 1

l 1 6 & in the rate cace filing.

7f Q Right but if onc were to develop it and

/O ,

4 l C E if it had significance, we could develop it by using the j i

9.; ratioc suggested en page 3 of B-1327 1

A It would be one approach to get you 10 l la 11 q where you want to get, yes.

12l li Q And would it be a reasonable approach?

.f i

13 ' A Not knowing the full intent, I am not I

19 $ sure I can respond to whether it is reasonable or not. It

r 15 l.l is one approach which certainly you can use. This is one n

u 16 l approach we hcve used for this exhibit as a means of getting a

17 f at a number for thepurpose of what we are showing it for.

18 1a. MORRIS: Thank you. That is all.

19 , THE ADfINISTRATIVE LAW JUDGE: .Mr. Frater ?

i l

20 MR. FRATER: Nothing, Your Honor.

21b MR. BARASCH: Nothing, Your Honor.

0 22h bE. PANKIW: I have'some questions, 0 .

i 23 f Your Honor, with respect to Mr. Graham's Exhibit E-28 which l

g 44' displays the levels of short term debt expected by the V

25 g company in various conths.

idoHitDACM c. f4M 5H/.L. IMO. - 27 !!. .0 Cit % LOW AVL ~ ** AF'tish M C PA. 17132 i

i

4 Fuff-recross 1702 4 1 B? MP. FA.N G ;: ,

E Q 1ae onckup for schieving er plottir.g j e, the graph of chort ccra dcht is th cor.pany's source und i i

/

1 9, appil. cation of funds statement, is tilat ecrrect?

a 5' A I do not have the exhibit before as, i

O I presume thct is uhcre he got it rrom, yu 'a this I e ,

en '

something tr.sc was filed todcy?

E

• Q Let me ask you this. Are you familiar I I

o

~

f with this Exhibit E-23 nhich is the backup for cn earlier  !

1 .

graphical display of the levels of short term debt?

10 j;.

~ .i 14  ?

6 A I have seen it. That is cil. I have dO' ll not had occasion to work with it.

(,

1# :1 Q So the figure here as to internal g

1. ll cources of funds, net income after payment of preferred  !

e  !

5 g.1

--' T dividends for cach of these months, are you not the l i

16 ] source of c:.ese figures?

i 1 1

h 17' A The source of these figures comes I t i 16: from a corporate finance model for which Mr. Grcham has the 9

wa

-' y responsibility for it. Our budgeting process is a part i

20L of that overall process. 'Ibe final calculation is through f

21 l Mr. Graham's department. We, in turn, utilize those 22 corporate finance codels.

23 -

gd h

25s! '

17112 Ib M cH A B ACH C6 L'.t.RSHAL. Rf C. - 27 74. LOCz wtLLCn AVE. - *. *.R R i$ b U N J PA.

l

Huff-cross 1733 r

r

'.; Q Are you aware of what assumptions regarding Qs .

3(stateandfederalincometaxesaremadeinarrivingatthe {

!i i 3,' net inecme after preferrad?

4. [i A Some, yes.

n i 3l Q For the year ended Dacamber 31, 1979 the  !

3 f 6 f income taz liability of the company was approximctely $10.3 7 million as reflected in the annual report, is that cor: ect'?

i 8( A Yes. I have to accept --

{

it gl Q Would you accept that figure subject to ebeck?'

i 10 [; A Yes.

E 11 l Q The $10.3 million figure is composed of i

12ijbothcurrentlypayableinconetaxesanddeferredincome 13 taxes, is that correct?

,14. l A May I see that statement you are reading 15 from? Yes.

16 :, Q Could you briefly just explain why there is 4

17 i

a difference between currently payable and deferred income

' I 18 4 taxes 7 i

19 A Could you restate that a little bit for me, l

20 Perhaps, to clarify it?

']

31 Q All right. The difference between the 22l$10.3millionoftaxecreflectedontheannualreportand 23 the amount of income taxes that aro currently payable for 2<. that 12-month period, is that reflective of the difference, 25' for one item, between the straight line and the accelerated 5

h M c HR B A ':H ts f4ARSI:AL. INC. - 27 P!, LCC CWRLOW AV::. - W AR ntFS L'R G P A. 17192

~

Huff-cross 1784 . - -

< l

,;', method of calculating depreciaticn?  !

A Yes, it is. ggg Q Ncw with respect to the ecc;cny'r projections}

3  !

,9 of tar lichility that go into making up itr source and j i

et 0 applicatica of funds, could you tell us what level of incoce l ,

u .

4 tcx liacility tras assuced for the yecr 1980? Would it be o ;,

1 h l the scme level of tc liability as would be reported on the  ;

?4 o

,;- cor;any's annual report for 1980 if in fcet all the projection!s i

! were the same as could have been expe71enced for the year 1980?

I 9f 9 l

1. A You are talking income tar liability, you .

,04 2 1 9 .  !

What I think you have there'

1l,j are talking 1980 on this report.

4

,_$ is a forecast. I cm not certain what Mr. Graham used in his L& w

_ 0 forecast as to whether or not what would be reported in 1980

(~ 10 s

%. 3 2 4 :,

[ on the annual report would be precisely the sane as he I 'i forecasted.

15 1 1

, , ,i The accelerated depreciation aspect of it zo ;

t

'l probably would be recsonably close, since during 19S0 we 17;I) f have added not cn overly, large amount of plant. So I 26 a b could have to expect that the accelerated depreciation

_9 1 a F

j piece of it which gives rise to the deferrals perhaps may be in the reasonable range.

N Q Mr. Euff, I am trying to get some under-42 )

2a, r) standing of how the source and application of funds statemant

.( was put together and it was my understanding that you would 20y i

~

,o >, N be able to answer questions clong these lines. In particular lll

" MOH2DACH 3: MAR S hat., It!O. - 27 f;. L.SCK W4LL e ',/ t.V E - M a *Rt9 3 vf!3 PA. 17 12

O Huff-cross 1 ras ___

~

2.

1. I was interested in determining what level of income taxes

't i V 3 was assured in n.cking the eonthly projections that are dispicyled llinanenhibitsuchasE-23.

1. h E A The problem, sir, I have nothing with ce that gf-aven talls me of tying into that number so I am shooting in 3

6 6 j the dark as to what those numbers precisely represent.

g

,, $ MR. OGDEN: In fairness to Mr. Huff this is 4

gp one of Mr. Grcham's exhibits and I think Mr. Huff testified 9

g. ] that this kind of projection is scmething which is in Mr.

0 Graham's area of responsibility. I think he does it for the 10 li l glwholesystem.

J g) THE WITNESS: Given the data that goes behind m that, yes, I can help you.

) n!

3 ( sv Ma. PAtaru:

il 15 ji Q Well, let me get at it another way. Do you 4

expect that Met-Ed will have a positive tax liability for the 16 l

7i) year 1980?

0 yg l A I e cpect predicated upon a lot of data that to " we have right now as of this week that we probably would be 20, in a tax loss position at the end of 1980 of perhaps $15 i

21l million or $16 million. That would be the taxable income, h

y i The tax effect would be appror h tely half or in the sevee i

! r t eight million dollar range, 23!

n yj Q Do you have any estimate as to whether Met-Ed p..- l V 25 a will have a tax loss in 1981 as well?

E

' 17112 McHRBACH e MMtSHAL, tMC. - 27 f t. LecKWtLLew AVE. - HARRISBVRG P A.

-.._u o me e e = a

Huff-cross 1786 _

, 6 s

, . A ' believe e gusatica was asked of me the

-) I

, l other day on che scand thich I could uct answer at that tima  ;

~i

_ !: that cas asseming full rate relief en Fay 1, weald we be in i

llh s;  !

J

+ c) a taxable income or taxable lors position.

. I have checked  !

i

_? that out and indications coming ba ck to me, utili=ing what  :

l 6 ; data oc have now, and certainly it is not flaite by any means, i

7 we voeld be in a taxable income position of somauhere in the j l 1 t g :i ceighborhood of $30 million for 1981.

j h I p,q That is assuming the full rate relief granted i

10 n May 1 l

,, l Q Has GPU filed any amended tax returns for 9

12 Prior years?

13 A I believe we have an exhibit which addresses

4fthatissueasaninterrogatory,ifImaytakeacomentto lll t

3,!j find it.

_ 4

!\

If my re llecti n is correct, I believe it 16 d a

y, j said we did not file amended tax returns, we filed another

- . ij f rm. It is not as if we filed a 1020X, I think it is a 18 1

l

,e yd 4159 or a form such as that.

1 20 Q What is the effect of that filing? Does it i

21 alter the taxliability for prior periods?

22 j A Yes, I guess it is similar to a refund type 1

23 f application.

l l

4 h- Q For what tax years would this filing be 1

4 l

\

,,* applicable?

MCP'tf* %M o MAR 9t!AL. INC. - 27 N. LeCXWILLCW AE - 14 A R RIS S U RG PA 17tl2 l

l

Huff-cross 17g7 y A I cannot respcud. I do not remember. It ic f

h, i o , in that exhibit.

3; Q Could you cite the number of that erhiit?

e 4j  ;

A No, I cannot at this time. I have lost 3 track of it.

3 j! Q Is it one of your exhibits?

e i

7j A Yea. Perhaps my counsel can help me with it.

1 gh MR. CODEN: I am diligently leching.

O p ,, BY MR. PANKIU: l

)

50 [i Q If y u could find that and provide it later g that would be helpful. Mr, Huff, when Met-Ed has a tax 12 l1 loss it receives cash payments from its sister companies A

L! 23 }0 in the GPU system to the extent they are able to utili::e

~

p,jthosetcr. losses,isthatcorrect?

l 13 l; A That is correct.

j 16 Q Since y u don't have the backup data behind il 37 p the source and application of funds forecast you would not i

16 g be able to tell me now whether such a cash payment has been i

i 19 [ reflected or not reflected, is that correct?

l r

h 20 t A Any anticipated payments would be reflected, i

l 21; yes. That is part of the source and application of funds i statement is to recognize the accruals from the income 22 j 23j l statement and the timing of the payments.

24 Q To the best of your imouledge would that be O' 25n i reficcted in net inco:ne after preferred or changes in working b

- MOHRBACH 4s MARSHAL. INC. *7 4 L.OCXV"LLCW AVE. - H.a n g;s pu n G P A. 17112 i

l

.=

Huff-cross 1733 =

1 I

, 4 capital? l C A The accruals for income can would be in the lh 3

y [netincotsafterpreferred. .!

R  ;

gj Q And the cash psyments for tax losses surcaineo;

~U  !

g, i by Mat-Ed, for example, would that be within -- l 5 t 6i A The payment to or from would be part of the y ;! corhing capital number as would be variances in cash outiny -

g for accounts payable, accounts receivable, payroll, inter-6 p 4 change, et cetera, et cetera.

e i

il  !

10 d Q Mr. Huff, I have one question here I would

I 1,0likeyoutoanswerandperhapsyoucanfindouttheinformation u  :

12 i for me. What I am interested in is in the source and i e application of funds statement that would support the 13 ggg 14 company's E-28 c hibit, in f.he calculation of the level of 13y income taxes could you tell us whether the forecast assumes 8

16 the actual income taxes that would be reflected in the compank's '

17 l annual report to stockholders or is it a level of income i

18 !! taxes assuming some cort of normalization adjustments or 1

a 19 ) pro forma process related to the income statement data?

E 20! A I will check it but let me give you a general 21 statement. The income statement that produces that net 22 k income after preferred, if in fact that projection by il 23 j December 31 were perfect, that in all probability would be i

24: uhat you would see in the stockholders' income statement.

25 j p

Q If the answer is other than that, would you 9 MOMRBACH 2: M Aft $'d AL. INC. - 27 !L LOCKYnL4.OY/ AVE.- M Aa rttS 9 0RG P A. 17112

Huff-crose 1739

=

t I!.! please let me know? ,

l v st g

A Yes, but I can use no reason why it would be i

y.llotherthanthat.

ll

.:;, y MR. OC-DEN: Mr. Pankiu, I think ue have 3 1 located your exhibit.

6) MR. PANKIW: Could you cite the number, please?

0 l T ;! Mil. CGDEN: It is not an e hibit, it is a i

G h response.

s i 1 l C ,. THE WIT'TESS: Response to Pennsylvania FUC 10]StaffTazInterrogatoryNo.2.

D 11 h, MR. PANKIW: Thank you.

e I:

12hBYMR.PANKIW:

G[ 13 i

Q Now for monthly budgets'that are reflective 14j cf the months of 1981, would they reflect an acortization of

?

15.'l the income tax czpenses associated with the year 1981 or would b

16 ) they reflect a projection of the tax payments that would be d

17 j! currently payable during that period?

3 18 II A That is a very confusing question but let me d

19i '; break it apart. When you talk about amortizacien of income

\

20 l taz I assume you mean accrual on the income statement? (

i 21 Q Yes.

1 22h A And you talk about cash payments, the forecast n

23hofbothofthem. The accrual of income tax is on the income i

24l statement. "; hat is what our estimata of the income tax is O

V I" 25a assu: Ling all of the items in the tax calculations.

ik MOFRBACH & M ARSH AL. ItaC. - 27 N. LOCICY?iLLGW AVE. - H AMrtis puR G PA, 17112 l

Iluff-cross 1790

?

5

~~

2 Part of the income statement, however, includes l

3 non-cash items such as depreciation. It also includes in the i r tc= calculction some deferals.

g So the tan payment part of it would also be 4f a 3 iforecest as c payment in the source and application of funds 4

,3 !,' stctement and it is a mattcr of matching the ticing that you l J

j accrue it and the time that you pay ic.

P 3'] Q So the accruals would be reflected within the p]Enet income after preferred? I E

c ij A Yes.

E

7 l} Q Would the actual cash payments co the IRS E

12 { depository, or wherever, he reflected within the changen in

{ 13 vorking capital? g A Yes, and in the line item --if I could 14 d h

3yexpandthatcashworkingespitalonastatementitwould i,5l shou a reversal of the accruals and then replace it with Y

17h payments.

d

~

is The idea of that is simply to get you to a 19 eh position where you ;an determine how much cash you have i

20 i generated internally to support y>ur construction program 21landthentodeterminewhatshort-termandlong-termdebtyou 8

22 l need in order to support that program.

3 23 ! Q The cash payments for income tax liability i

2.Fqaremadeapproximatelyfourtimesayear,atleastfor 25  ; federal income taxes, is that correct?

g MCM.19 ACM & bW!GH 4.L. INC. - ?? Is. LCONVr.LL O W AVE - H4RRISBURG P A. 17112

m. -

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Huff-cross 1791 A Yes.

O And the budge' feraccst, scu.'d Obat reflect

('

payments in c:17 four months or .culd it sprece chose four c

, [ payments over 12 months? l

-? f A No, che payments usuld be made in uhatever j a -]

, y statutory month that it is called for. Otheruise, if you o eit f got into a spreca cf tha paycent.s you would be back to wha t i t, 4 3, hyou accrued on the income statement, perhapc, or close to it, Cp 4

'i so thet ycu have not accomplished what we es11 cn internal 9hs

1. source, which is to mtch what is coming from the income i 10 :i, ,

lstatenent to uhat is actuclly taking place en the cash flow, is !

- !j

_ ij m. PANKIW: That is all we have, Your Honor.

u,i 1

THE ADMINISTRATIVE LAW JUDGE: Anything 13 g ufurther of this witness? ,

14 E

,,j 9 (No response.)

R :l ll THE ADMINISTRATIVE LAW JUDGE: Any redirect?

16 4 Ii MR. OGDEN: No, Your Honor, no redirect.

.7 l8 Thank you, Mr. Buff.

18 h 4 THE ADMINISTRATIVE LAW JUDGE: Do we havo 19 h I!

20lj snything further? t h MR. OGDEN: No, we have nothing further this 21 l afternoon, Your Honor. I might note we have a couple out- '

22 l, standing requests on the record. I am not quite sure how we 2.,> .,

a If we can get a respcase together between

. 24 [j can handle them.

O ,lnowandthenextsetofhearingsparhapsuecouldforwareit 9

noucacu ,. nesma mc. - n n. tocueuoc m - ==cua a ima

.- _ _ . - _ _ - - - - - = - _ _ _ _ _ _ . -. .._ _ -

through the esiis e.nd then Ecve the uinnesaes J.d meify i; i s .

vhen dr; ecx neck ca the stato up it, t

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5 d give cdvance distribution it woulc acke it cacier for :Se n ' cther parties to prepare. .

g i If there is nothing further we will adjourn a

e

' now until .Janur.ry 5 ce 10:00 o'ci.cek. t 10 L .

i f

14 .

(Tha hearing was adjourned at 4:08 o'cloe.k p.m.)

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,if taken cy ac durir.3 t?.e nearing cf the within c cre, and 2c- j v II .

I, this is c tre? :nd correct transcript of the snu .

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