ML20062J592

Transcript of 801020 Hearing Before Board of Public Utils in Newark,Nj.Pp 1619-1751

ML20062J592
Person / Time
Site:	Three Mile Island
Issue date:	10/20/1980
From:	NEW JERSEY, STATE OF
To:
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ML20062J591	List: ML20062J587 ML20062J592
References
NUDOCS 8010310480
Download: ML20062J592 (133)

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1619  ;

I VOLUME 15 , -2 NEW JERSEY DEPARTMENT OF ENERGY 2 BOARD OF ?UBLIC UTILITIES f

3 NENARK, NEW JERSEY ICNDAY, CCTOBER 20, 1980 4

5 In tho !!ntter of tho Petition of )

6 Jorsey Contral Power and Light Cen-) CAL DOCKET NO.

pr.ny for Approval of an Increase in) PUC 3518-80 7 Ratos for Electric Service and for )

Acondmant to the Levelized Energy ) EPO DCCHET MO.

8 Adjustment Clauso and 7 actor for ) 304-235 Such Service. ) 807-488 9 - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _)

10 3EP-)RE 2 H0;i. STEPHEN G. M.USF '.L 3

ACMIIIISTRATIVE LAW JUEG.:

j 11 12 l I AP7EARANC3St 4 13

For tha Petitioner, Jarsay Contral Powcr i 14 and Light Company, appears i

5 15 KIRSTEH, IRIEDP.A'T & CHERIN, ESQS . ,

i EY JACK 3. KIRSTEN, ESQ., and i 16 DOLORES DELA3AR, 230.,

17 Acadony Strcot 17 Novark, New Jersey 18 and ,

19 WILLIldi F. 3YLAliD, 250., of Counsel JM'.ES 3. LI3EMnN, ESO. , of Nunsel 20 For the Copartment of Public Advocz. ,

21 Division of Rata Counocl, appears:

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~~

ALFRED L. NIJO2LLI, ESC. ,

Deputy Director 23 10 Ccnnerce Court Newark, Scir Jursey 24 J. H. BUEHRER & A2"0CIATES 25 24 Comncree Streat Newark, New Jorsey (201) 623-1974 8010310 %

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1l A P P E .'. P. A !! C E S (Continued) f. ,

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For the Staff of the Board of Public 3 Utilitics, appear: ,

f CA*1LA '/I'CTd! UCLLO , ESO. , I Deputy Attorney General l*

5 I. PAUL SLEVI!!

6 l supervicing '.ata Ana17c't j i

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Al 1G21 l Il JUDGE MARSliALL: Goed morning, Counscl..

2 This is the continued hoaring in the matter of 3 the Petition of Jersey Central Power and Light 4 Company, OAL Docket No. PUC-3513-50, with 5 Stephen Marshall presiding as Administrative j

6l Law Judge.

I 7 Before we continue with the cross-examina- t f

8 tion of Mr. Baldeccari, I would as% the partica l

9 if there are any precedural or other catters 10 that you wish to bring up first? I t

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11 (No response.)

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12 JUDGC 2%RSilALLs Okay, there being no g

[ j 13 l cther matters, we will continue uith the crosa a

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14 --- I'm sorry, Mr. Kirsten?

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I 8 15 ;  !!R. KIRSTZU: I think it night be worth-i 3 i

. t 16 l while to put en the record, our discunsicna i

17 as far as futuro scheduling bafero we ctart

< 18 this norning.

19 JUDG2 MARSHALL: All right, 20 4

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31 1622 MR. XIRSTEti: l We have tentatively agreed 2 that the hearing temorrow would terminate at 3 cno ' cice to acccm= date Mr. Nardelli and the hearing on tha 23rd be cancelled. Mr.

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"5 7 tatively Fred'3afer'. testimony on tho 27th 3 and 23th and/or c'Ibject to his schedulo, which 9 I'n not cornletely sure of at the moment.

"is tastimony vill he : rally. It will i

11 not be profiled toctimony on the general policy area, i

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13 The cchedule of 10r Cdvard Ucuton en i

14 the 29th ron;cnda to questiona in respect to 15 , engineering. Ha's Vice-President --- I believa i

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- 16 i; his titla la in synton planning to cover nest of the areas that :-:r.!!ardelli has inquired 18 ahOut.

19 U2 havn schedulad Mr. Robert Arnold for the af ternoon of the 30th to reapend to quas-21 tiens in recpact to the status of TMI.

22 Uc have no witnesses right new scheduled 23 for the 3rd of Ovember. We're holding that 24 open for clean-up and nisec11aneous.

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a Ohcrc's a possibility there may be acco

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i 1623 i j additional witnessos nacasaary to respond to 2 questions that may ariso. Tho 4th la a holiday.

3 Wo have ccheduled Stanford Deic for the

,3 3th and Gth of ?icvamber, that's rata of return) 5 and we're scheduling :fr. Carter en the rate 6 danign for starting on i?cvamber 10th and lith,I i

7i if nococsary.  !

I g P.R. NARD 2LLI: The lith is a holiday.

9 ME. EIRSTEN: E:ccuse ne, the 10 th, 12th; i

10 l and 13th, 2nd that should conplete the Ccmpanyf s

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v LLE 6. '~'.inL. : Is there any .ay of 2l enti atinr, roughly hou lans it will take Rate I

31i ..,cunsel to prevere ice teaturn.it 4 ' 12. 1;.'OLELLI:

.- .inyba e can 30 off the 5.l recorc I

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.pJn;; p.u ;tt,,;;; c.ff -he record.

7 (Whereupen, therc is an cif-the-recard 8

diacussica.)

9 i JUl:CI' MAT.SHALL: uack on th3 record. l t

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rescnes the sennd.

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liminary quescicas.

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u. Mr. 3s.ldassari, did ,rou .aracara en e::hi5it la l .

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3a lku a:ai-dir :c:- 1525.

g resp,mse to date Gounsel request rcised durint; the hearint I -

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~ c.t secocar oca rcrerr:.c to at Ar.3nscript l,a~,es 15.2 to l

3 1535 rqardia-; the char t- t er:t barrm;in p of the Conpany j curinr, e.nc yc:2ro t 9. 73, , 7 ,, , , 7 7 c,a v, 4 7 a, .>

5 A Yes, i have.

6 ;G . 1;1F.31'L;i: May ;c aavc that enhu;it I i .,. u . " ti .a.i JC "lY I

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12 ! desponse to late C mn*:cl !'ec; test, at Trana-2 l

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A Daldassari - direct 1626 4

1 A (Continuing) The numbers which I have for 2, September actual are in the forr.at of Exhibit 302D. I will I

3 give you the line item entries and the dollar amounts that i 4 go with them cn that basis for the month of September 1900.

5 MR. MAEDELLI: Do you have August also'?

6 THC WITN2SS: Yo's, I do.

7 MR. MARDELLI: Why don't you do both 8 montha?

9l THE WITNESS: Fina. I thought va al-10 ready put those into the record.

! A Construction for the month of August is 7072.

. 11 E

12 September is 7,745,000. Contract retentions for the month 8

13 of August aro 461,000; for September 2,234,000.

j g4 j Sinking funds for the month of Auguct i  !

l 5 15 ; are seros for the nonth of September, 180,000, bring the i  :

! 16 total application of funda for August to 7,533,000, and for g7 Septembor, 10,250,000.

Sources of funds, internal cource for 33 39 the month of August are a negative 11,713,000; for the ncnth of September,-27,314,000.

20 Internal a urces appli able to tha base 21 rate increano for the month of August is 5,246,000; for

22 23 "E "" #' ' '

• i Long-term debt, both for August and September is':oro and the change in short-term debt for the 23 '

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1 i J2 a Ballasuari - direct 1627 I conth of Augusu is 13 =illica even, and for Septenber a nega-2 tive 22 uillica even, a Octal sourca of funds for the month 3 of August, 7,333,000, and for Saptecher, 10,250,000.

4 Snor;-corm dcht cutstanding as of the 5 r.cnth onds on a nat hacia, 142 million even for August ,and

. 6 123 nillion for dapt' her.

7 CROSS EXA!!INATION 8 LT Mn. :i.UQ::LLI:

9 l 0 Mr. Daldassari, would you know what the defar-10 j g red fuel balanco was for September?

. 11 i A The end of September, the accumulated deferred 12 5 onergy balanco in total was 128,633,000 dollare, of which 4 13

537,272,000 was attributablo to energy ccsts incurred subae-i 14 '

l 1 quant to August of 1977.

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Eight-six millien ---

3 15 16 l Q A 272.

17 i 0 Could you give us the August while you have IS

, thcaa figures 7.

I 19

A For the month of August 1930, the total deferred i 20 energy balance was 139,883,000 of which 96,009,000 was at-

, 21 ,

i tributable to onor gy costs incurred subsequent to August of 22 1977, 23 of Q So, in the month [ September,. the deferred 94

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enorgy balancs went dovn scue S10 millien?

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A That is correct.

c; . Enldaccari - cross 162B

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O Uhile un'ra en thic number then, !ir. Ea

dassari, l

2l could you onplain to us that accounted for the deferred energ!f i l

3 alance going dcun frem 96 million to 96 million during the i

4 month of Co., ton':er? Do you have sceu kind of breskdown of 5 that?

6 A Nell, I belicyc principally it resulted frera 7

a situation that I referred to pra~icucly en creaa-examination 8

r_nd that was th3 salac for the .cnth of Se';torber along with 9 the cash recaipts to : losser e:: tent, but cales for the conth I  !

I 10 i I of September var,a significanti-f higher thin had Scen forecast.

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3j  ;,t;tt ,j , .n. 2 def 2rred ener';j blanca chan;. ;es based u on i

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hibito. -o yo'.: can see, durin', CE.e cont'a of Octob r, as 5 **- ~

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1! i 1.1 that correct, Mr. 3altanzari? ,

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this nernin; as JC-321, d.ich a.c prepared in response to L

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cha .. rear 1974> and early 1975 whcre it :aa difficult > Lf not 03

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debt to rise to cincificant levels on an intaria basis and,'! -

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l t I 1l 1a fact, has paid do:a ahort-tern debt on four acpcrate i i

i 2i o: c.iaions d arit.;; the r.c Jin3 pctl.3d.: until the une of 1973 '

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3! wh ro it w1s plannin;; a financing for the c.1rly pcrt of f 6

i I i 2 41 1979 c:'-ich had to b2 postponed ca a result of the accident I

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,a 1 Tialdassari - further direct 1633 1 A (Continuing) I think that if ycu look at the i

2' months of the year 1975, the year 1975, the year 1977 and 3 1970, th2y shew J. relatively normal ucs of short-term horrow-4 ing within Jersey Central's financing plans.

5 MR. MAnDELLI: Mr. Baldassari, when you 6 say planning a financing for early 1979, you 7 mtst mean tha Spring of 19797 8 T;I2 UI'J.'22S: 'ics, that's. correct.

9 0 Was ther2 one other point you wanted to cover?

10 A Mo, that's it.

11 , MR. KI2STE!!: '2 hat's all I have.

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, 12 j FURTHER CROS3 EXA'.iINATION 4 13 3'l M3. HAPJJZLLI:

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O Nr. Baldassari, let's 1cok at 3013. Well, be-t  ;

15 l l j j f ore wo do that, Mr. Baldassari, can you tell us, especially ,

l 16 l l aince this may bc your last day on the stand in this proceed-l '

i 17 i i ing, although I trouldn't bot hugo sums of money cn it, could 18 you tell us your latest estimatos of the Oyster Creek situa- -

19 l tion in torms of whether we can anticipate it could be run-20 ning until April of 19817 21 A As of Friday, the 17th of October, it was my 99-

~~

understanding that our appropriate engineering people were 23 still in the process of correspending and providing .informa-o4

~

tion to the Nuclear Regulatory Cc= mission, and as of this a5

~

point in time thara still had boon no word as to whether or j

b 1634 2o 2 ' Baldassari - further cross i l not our proposal to extend the outago frem the end of this year until April of next year would be accepted.

J

'1 MR. KIRST2N You mes;ul postycnad outago?

l 4 Ti1E WITNESS: Postponed.

5 0 I had asked you to refer to JC-3013, Page 1 of 6

2. Can you toll us the actual ascunts spent on nuclear . fuel in September of 19607 4

A During the monta of September, the actual dol-9l lars for nuclear fuel exponditures was $3,740,000.

10 Q You have already givoa us a figure of 0591,000 i

k II actual for nuclear fuc1 in August as co= pared to the $374,000 3

l' ahown on 3015. Now, you aro saying tho actual .for Saptecher l f

1 I3 ,

is-3.7 million dollars as oppocad to the 05-1/2 million ahown i

I4 for September on 3013.

5

$ 15 !

! f 16 l.

-17 J

18 19 20 21 22

\ 23 I

de 25 l

1 i -

7 3aldaccari-cro.;c 1535.I i i  : .

(Continuing.) In li.ht t of your actual nuciccd i

2; fuel am;cadituraa, do you ctill think : hat Jersc7 General i i

3i uilt apend 15.9 uillion in 1330 on r: clear fuel?

4 A 1 believe th'.t th w 15.] c:illion uns a ' cod .

5' .mtincta of the level of totc1 expenditures for tbc yecr 6: 1969.

l 7; Eccp in ri;:d tnat th i Cos;-2ny has been con-I i

8 tlr uic; to do datcver it can to atretch out certain of its i

9 c:tpencitures . Of cource., nuclec fuel would be one crea j 10 ..+...,--u* cout ',.e a m...m.... w. , ~a u ~ .>.

11 Th'a ', sH. 11 ' '-i-~'a .u " '.v. . ,m_ -

11.

.m. . .b]

• o l

12 ! -.e riae cecati3 . t ,2 . to 1:hst the various cham;ca wara .eichiri 2 i l

13 tho zaclaar Juel accounta, do, I cct't st:te n this point!

I

,i l'I  !

Le e' a that any diffarence between the 1 v21 of expendi-  !

33

.s turc3 in the a: cath of ScptebSr vill not be pic':cd up in  ;

'l Sch'30C;uent 200thG. j i

II '; Q Turn to the ne::t pa32, 2 af 2, oc 2013.

l IS !, a

- y  ! -

.ec.

y You're projecting that Jersey Ccetral vill I9 f oo ! apend 13,i c:illien en nucien fu:1 in 1?31. F.alf of chat "1

c:~i; case is n. ro.incad for Octo'acr of 1931.

. Could .vou tell oo

-- I us aanthing rors about that October +nc. ence!

23 ' a

v. , . Ce %.. _ J- 9 , ' .n.1, .'. 3 eo , c a s e _# o .- . . .M. _ ., -

l  ; .3 _

o'g

~

fuel c:tpendi ures during tha ranch of Oc::ober 1931, about 25 ; 3,600,000 is attribu:abic to the Gyatar Cr:2k afualin3 i

l J

il

t 1

l 3aldassari-cross 1636.

1 Q What accounts for the other 19 ples million 2 of nuclear fuel in 19817 Uhat's the basis of thael To be 3 more enact, I p;uess I's aaking about the other 10 million.

! 4 You've nou, of the 18.4 million, you've accoun:cd for 8 mil-4 1 5 lion.plus as being tied in with Oyster Creek.

6 I'm asking you about the other 10 million for 7 19dl.

i 8 A Well, first of all, the GB.6 million which I 9 '

gave to you for Oyster Crock refuelin3 uns in connection 10

)

ulch e::penditures ocbedulad only for the month of October.

11 The total enpenditures for Gynter Creek for 12 i: the year 1981 would bc S10.2 million,1 caving a balance of

'3 1 abcut $3 nillica to be accounted for.

I4 Of the $3 million, about $A-1/2 n1111on is 5 15

, g attributable to future purchuscs of uraniun' pursuant to

- I 16 various contracts uhich the Company has uith nuclear fuel I7 suppliers. About $2-1/2 million is attributable or assigned I8 .

to the Forhed River Unit 1 initial core.

19 I think that i it's inportant. to note there that -

'O

~

! that basically represents AFC accruals on uranina inven-21 l tories thich are carcarked for Forhed River.

o,

'~

So, whether that really chows up in the i

23 i

l uranina inventory acccunt or as it is non assigned to the 24 Forked River project taken little difference. It's essen-i "5

~

tially AFC accruni on dollarc previously enpended for l

l r

y - - - . . - --

3aldcasari-cross 1637.

3 uranium inventories.

2 Are you saying that if Forked River is aban-Q 3 doned on Februnt 1st, that you uould still have the expen-4 ditures of that $2-1/2 millica?

5 A rem saying that the capenditure icyc1 is 6

basically accruals of allowance for funds on dollars pre-7 viously expended for nucicar fuel inventory.

8 Their nucicar fuel inventories are currently 9

carnarhed for the Forhed River project irrespective of the 10 accounting treatacnt that you give the project itself. Tha II k

nuc1 car fuel inventories are still there and would still I

be accruing allowance for funds. They are currently acaigne i

{ to Forked River that could be assigned to sc cching else.

14 i Q But were Forked River abandoned, that car-15

narhed uraniun could also be sold or it would increase the 16 cossibility of the Ccapany seeking to sell it because of no 17 longer needing it; correct?

A That is correct and, in fact, to the en:cnc 19 that there are additional sales of uranius out of the 20 Company's inventory that are enraarhed for Forhed River, 21 you would onpect to see these AFC accruals go down accord-n, -

~~

ingly.

23 1 belicyc that accounts for all but about 3-1/2 24 million of the nuclear fuel expenditures -- encuse na, all 25 but about 1 million.

l

. .- - _ - . - ~_. .- ... - .

Baldacecri-cross 1638.

1 That #1 million which remains is carnarked .

2 for the TMI ~Jnit No. 1 reload.

3 Q Due to take place uhen?

4 A That reloed would be scheduled to take place t

5 in late l'382.

6 Q To the entent that I:11-1 was not restarted 7 in the cu==cr of '31, would that increase the likelihood 8

4 of that $1 million expenditure being daferred?

9 A 'Jall, if TMI were to start prior to July of' 30 1981, it would accelerate that need and the opposite would t

II

also be true.

I2 To the extent that it is deferred, there i

f could be sean deferral of those dollars, although I have a

14 l

[ to admit I don't kno: preciaaly v. hat the dollars are being h 15 g opent on and they may be contractual in natura.

r 16 Q Uhat about the $4-1/2 million you've pre-

viously told us as being spent pursuant to contract in 1981?

' Would the slippage of the THI-l restart data influence the 19 ,'

Company's plans uith regard to thst contractual obligation?

l i 20 Would they possibly be able to defer thag too?

l 1 A I don't believe so. I believe that the pur-22 chased contracts to which the Company is a party v.; hen 23 negotiated co2ntime in the past.and, accordingly, do not i

i 24

allou for flexibility in delivery as a result of the un-l usual outage situations which the Coopany has been L

l l

I

r Baldassari-cross 1639.

I e:pariencing in the last two yccrs.

2 Q Chay. Could you turn to JC-305A, Page 1 of 27 3 Do you have actuals for August and Septcaber 4 of 1980 for that exhibit?

4 5 A We have actual information available.

6 Q Any figures that ara casily substituted for

7 the ones on 305A7

8 A You =can specifically the coverage nuchers, 9 or are you looking for the --

. 10 Q All numbers for August and Septccber on that i

j 11 page.

12 JUDGE E dSHALL: Off the record.

i 4

13 (A discussion was held off the record.)

i

~ :=

14 JUEGE ;%EUALL: 3ach on the record.

4 i

{ 15 A What I can give you, Mr. Ucrdelli, is the i

16 fifth line down on the page, uhich is the operating incesa 17 with the interin rate increase in it.

. 18 Q That would be helpful.

19 A Okay. Actuals for the sonth of Aut"ast and 20 September -- for tha =onth of August, it would be 100 --

2I 1 have to take that back.

l l 22 I have the adjust =cnts for the conths of l 23 January through Decc=ber for the year '81 for the effect of 24 the Au3ust/ September cetual. We did not bother to cenpuce 25 the remaining conths of this year since the coverages would

Baldacuari-cross 1640.

I not co=e up above tuo ticca. .

2 So, I can give you comparabic infor=ation for 3 the year 1981, but if you want the specifica for these 4 months, I'll have-to calculate those for you at a break..

5 Q- I will take at this point the numbers for.

! 6- Page 2 of 2.

7 A The operating income with the rato increase 8

4 as shotm at Lino 5 on Page 2 of 2 wculd read na follous for 9

the conths of January through Dece=ber: January, 127,464,000; 10 i

February, 130,393,000 ; thrch , 133, 717,000 ; Apr il, 149,392,00:);

, j 11 2 ,7130,866,000; June, 165,046,000; July, 177,915,C00; 12 i: August, 173,3C3,000; Septc.uber, 177,151,000; October, I3 1

131,617,000; Nove=ber, 136,192,000; and December, 192,201,000.

i i

=

14 15 i,

16 17

• 18 -

19

, 20 l'

t 21 /

22 s

23 l

+

l:

24 i i*' , e 25

^ -

'I 9

.p lh,r ,

}

! $,I i

,t,

/-,,,

5 *

~,' s 01 Daldaccari - further cross i. 1541 1 Q Do you ha've the cavorage ratio?

2 A Yes. There will be no change in the annualized ,

<j 3 intercat regtIirenents which, Arc she:m further dctm en the

/ h4 page. There are somt; rainor changes in the non-operating in-

,/ s5 come nunborn if you vould llko those read on the record, I s.

\t6

..'; 0 Yes, please.

.) ,

7c , A Tor the month of January the total adjusted Ni ,

'8 L 'non-operating inco::.c which a-pcars on Lino 9 on raga 2 of 2, 9 2xhibit JC-305A la as follcws:,., January one,sevan nillion 13Q.

.. i- 'l 10 Q .That'a 17 million? '{, .

I i i 11 A That's correct; February 14,002,000; March, 12 11,274,000; April,'11,003,000; May, 10,333,000; June, k 13 11,019,000 --- excuse me, 029 thousand; July, 10,624,000; ,

t I j 14 August, 10,430,000; Geptember,- 40,,209,000; Cctcher, 10,4C3,D00, l

10,350,000; and Decerbcr; 10,546,000 3 15 ! Noverboy,-

. 14 i

ir i (Whereupon, thoro vac an off the record 16 17 discussion.) g 18 (Whereupon, a'rocess was taken.) .-

y,>

19 JUDGE 'mSHAIL: Back en the record, f

20 , THE WITN2SS:'..-Shall I continua?

3 -v . '

I b 21 O YC3+ ,

. m A In connection with the operating income and

.n

, s I,23 other income ncabers which I have given you adjusted for

.,! t1. '

24 August and Sehtenber actual for the.purpocca of coverage

' \, y:t 25 h y

Y s 4 p. l  ;-', l l e~ - .

j - g,' f

{

[

j.

.<,. -/

f.

l M , - . - - . _. - _ _ . , . _ , ,

c2 Baldassari - further crou 1642 1 determination for the yuar 1981, the following would be the 2 cc= parable coverag2s which would be calculabic from thoco 3l nunters haginning with January 1921, 1.32 ---

4 Q :icu, relata rc.c to a number on ? age 2 of 2 that 5 you aro Cubstituting for.

t 6 A Substituting these nuuhors for the coverage 7 ratio ---

8 ;iith rata increase? l C

l

/ 9 A ;Thich appc.ars under the caption liith Pato In- !

! l 10 ;l creace, i I

.' 11 I Q  ;?ith hou much of the 60 or 1737 l

12 . n Chic would be the full measure of rato incr:asa

i

13 llccrparabic to tha numbcra en Page 2 of 2.

a

' 14 i C Finc.

l j

15 A Cha r. cath cf February -~~

I

/, I 16 Giva na Jancary. j Q

17 A Jcnuary la 1.32; February,1.96 3 Earch, 2,07; I

18 l April, 2.21; May, 2.23; June, 2.44; July, 2.60; August, 2.573 -

1 19 Septenbor, 2.59 ; Octobar, 2.63; !!ovember, 2.72; Deccabor, i,

20 2.80.

21 ,

22 ,

23 I i

l 24 I

1

+

. 25 g

• / 'i I } > ll i is j ob

n1 Daldascari - further cross 1643 1 A (Continuing) In connection uith the conths of 2 1930, which are outlined on 2:thibit JC-305A, Page 1 of 2, 3 I do not have tha specific operating incc a numbera ac they L

j 4 would appear on an adjusted basis, but I can give you soue 5 fooling for how the coverages on a with rate increase assu=p-6 tion vould chaage.

7 rcr the conth of Auguat actual, the cover-8 age ratio was 1.73 as ccaprad to 1.69 shcun on the exhibit.

4 9 If you'll notice, the covarages uhich.I've just given yea i

10 for the year 19S1, at least through July of 1981, tend to

$ 11 differ frem the coverages which vara on P2ge 2 of 2 of 305A i '

12 by about .03 on av2 rage.

13 You could incroace cach of Ehc coverages j

a i 14 shown en Page 1 of 2 by that .08, and that would be appro::1-13 i  !

cataly the level of covaraga which Jarcoy Contral would ex-

! r 16 pcrienca if thic scheduta "* c updated for Ah.. .

'nd Septem-17 bor actual.

i 18 So that th2 September.covcraga would ba '

l 19 approximately 1.76; October would be 1.73; Nova =ber would be 20 1.32; and December sculd be 1.36.

i -21 Q For May of 1931, vould you give ne that nu=bor l

22 one more time? ,

23 A The coverage numbor?

24 C YCC* ,

25 A 2!ay of 1931 would be 2.23.

i H2 Dalda::::ari - further cross yg4 I Q The puz; ling thing about that la that it'a 2 lower than the number that you have there of 2.25, while all 3 the others are highar. I think tharo uay be a nictaka.

4 JUCCL 1:A"41IE L: Off the record a coment.

5 (A discussion was held off the record.)

~

6 Ju;Gn ;n;c;iALL: Eack on the record.

7 A '2ho coverage ratio for the month of May should 4

8 bo 2.33, and an additional correction to the operating in-9 ccmo nu:aber which ! previously stated on the record as ,

10 150,866,000 should be 138,35G,000.

2

'. . 11

! P

,, 12 3

E j 13 ll i i i  : 14 i

b 15 3

t 16 17 l 18 19 20 21 22 23 I

24 25 I l l

y . _ . - _ . . , , _ ,

. . - . - , . - . , _ . . _ _,__y . . - ,

.. .-_ . . ._ . _ _ _ _ . _ _ _ - = _ .

I Baldansari-cross 1645.

1 Q .\11 right, Mr. Baldassari. h" nile ne are on i

2 this line on operating incene with rate increase and be-4 3 ginning uith the 11ay number of 158.8 millica, in June nc

4 Co up 8 millict.; in July wa go up 11 million; then in [

, 5 August we go drran 2 ni11 ton -- I am nou talking about the 6 actuals you have been reading into tha record -- while en 7 JC-305A, your original numbers shcued an increase of 8 7 =illion in July to August.

9 Uhy would all of a sudden the actual in

10 August go dem fren July? Lo you follow that questica7

! I t j 11 .i Yes. Dasically uhat you have is a situation j  ; 12 t

! where you have to keep in mind that you are usin3 a 12 cen-13 4

secutive calendar scaths for calculating the 12 aenths' 14 f operating incore. Tne cenths of August and Septc=ber verc j 15 i: greater en an actual basis in 1930 tl'an was originally cen-16 templaced in this forecact.

17 So, therefore, all of the nenbers for the 18 casuing 12-month period would be greater by those amounts.

19 Mien you cene to the conth of September or August, c:ccuse 20

ae , 1931, that additienal increase to the carnings which 21 we have been reficcting goes away because it's no longer 22 1 within the 12-month calculated period; so you end up re-  !

23 versing the number and reducing it by that increased ccount.

24 Q .Do2a that explain why -- l 25 A If I migne amplify on that, Mr. Hardelli. If,

. _ _ . - . _ ._._- _=. _-_-

I I

Baldassari-cross 1646.

l 1 you look at the conth of Sepcember where there is a full

! 2 recognicion of this 12-month calculating phenomena, if you 3 uill, you uill note that the coverages frcm Septenber 1 4 through Decenber are idcntical to that originally shown in 1

5 2:dtibit 305A, Page 2 of 2, and that'.a because the inpact 6 of the actual versus forecast earnings change no longer 7 cniats.

J 8 Io it possibla that when ne had October Q

9 nuchern, Octob2r actuals, that theco nunbers fer Sept:nber 10 ca vould change on JC-305A7

$ ll- A For Octcher actual?

12 g Q Yes.

~.

I3 1 A To the extent that the October result of i

1'8 i operations en an actual basis are different than forecast, 15

? yes, there would be a similar changa carried in all the

16 cenths fren October 1930 through to Septenber 1931.

17 Q Now staying on Page 2 of 2 of JC-305A, icn't ,

18 it trua that' for the purposes of this exhibit, you hava 19 asst:ned that Forhed River would be abandoned and uritten 20 orf on February 1st, 19317 I 21 A That's correct.

29

~

Q And isn't it also true that if Forhed River is not abandoned, coverages uculd be higher than those 9'4 shown on this exhibit?

25 A Well, perhaps 1 should have clarified my re- l l

\

K

- - - -. .. - - . - - = = . .. _ _

i J

Baldassari-cross 1647.

sponse that indeed these exhibits do recognize an abandon-I 2 cent write-off of Forked River beginning February ',1980, 3 but they likewise reflect revenues as a renuit of the Ecard's 4 potential February Order sufficient enough to cover tha 5 write-offs; so there uculd be an offset, if you vill, be-j 6 fore you act to the operating inceae. . .

7 So, if I cake an assumption there is no write-i t

8 off and then also =ake an assumption there is ao revenues 9

or are no reveneca, there uculd be no change essentially 10 in coverage.

Il g Q Hr. Baldassari, don't cost utilitics hava 12 i retained carnings?

13 l

2 A All utilitics raintain a ceccen equigrposi-I4 l,

tion with respect to their capitalization as indicated on 15 l: their balance sheet. That cor=an equity position is 16 genarall:t in the area of 35 to 45 percene and is also I7 j generally canprised of three co=ponents; ona, the value of ,

18

)' their ccaron stock supporting the equity position; two, 19 their receipts of cash in excess of the par value of their.

'o o

ccanon stock; and, thrac, a level of retained earnings.

21 So, I guess the answer is yes, almost all 92

companies maintain a level of retained earnings. .

l 23

! 24 I

25 i

i I _ ,.

J1 3alda ari - furthar crous 1643

- all l- 1 C

.nd it' alce trua that almost/utilitica do i

) 2 not pay out all of their income in dividends, correct?

Any utility system which has cc=cn stech out-

') 3 A

, 4 standing ant. pays dividends on its cem=cn stock generally a

t 5

tries to maintain a payout ratio which would not execed GO to p

6 70 percent of its total not incc=e, and that philosophy is

,i 7

consistent with the G?U Systen, of which Jc :cy Central 13 J

8 a part.

9 Jerscy Central in and of itself when 10 1cohad at separately cannot be cc: pared to the industry stand-

' ards, becausa it has no pu*alicly hall cor:3.cn stock. Its l 3j a  :

COnnon stock is outstanding through General ?ublic Utilitios l . 12 3

4 13 Corporation, k

J Q Let's leck at J0-316, Paga 3 of 13.

I 14 Isn't it true that for the first quarter d 15 4

i 16 of 1331, Jarscy Central is projacting a dividend of $10 mil-37 lion whila it not incera is caly 9,473,000 for that quarter?

18 A Your numbora ar2 correct, Mr. Hardalli, as theyl .

i 19 appear on the first quarter of 1901, on Paga 3 of 10.

I 20 I think that it is i=porrant to give yet,t l

a foci of how these dividend numbers are placed into tha fora-91

~

,, cast.

. l I believo, aa ! indicatad earlier, tho 93

~ )

1 g

.cc=cn dividends which appear in tha =onths of rchruary, May' ,

to ,

i August and Novc=ber of 1931 arc dacignad / apprcnicate the i ,

. -o.5

.  ! i ig i l

.i i

4 0' I I ,

J2 Daldassari - furthcr cross 1649 l total not income of Jersey Central for the specific quarters within-

,/which those months occur.

The significance of tho months in which 3

the dividends are budgeted goes back to a time when the parent 4

1. " *E* 7 # #

"2* Y' #** '

5

• ***"** * ** * ** ' * * # *** **" * ** ** 0*

• 6 GPU normal dividend datos.

7 That is an assumption at least with re-8 spect to tining which is hard:iired into our ccmputer progrs=

9 and it requiros a aanual override, if you will, in order to -

10 I -

i shift the dividendo around into cpecific months, once it's '.I

. 11 a

tdatermined when the Ocnpany is going to make dividend pay-

', 12

_8 ,

4 rants.

4 13 I

- \

l So, I'n not sura that I would take any o 14

. j particular significance from the fact that thors may be a

• 15

! few hundred thousand dollara ' difference in any given quarter 16 i versus the dividends that are paid, nor vould I tal:o any 17 particular difference betwcan a few hundred thousand dollars ,

difference for the year and for the dividendo shown for 19 that 'carticular year.

20 Q In fact, Mr. Ealdassari, Jersey Central in prob 21 jecting a totn1 dividend in 1931 of $51,000,000, while its 22 net ince=c for 1991 is only 50.1 millien, correct?

23 A Those are the nunbers uhich appear on ths 24 schedule. ,

25 ;i l

i I

-l l l

, ., m t, . - - , - - , . - - , -

)

J3 Daldacasri - furth3r cross 1650 I Q Yes, and that's Page 9 of 13, 2 A That's correct.

3 Q On Page 1,543 of the transcript, Mr. Xirsten i

4 states that GPU's rolicy over the years has been to provide 5 Jersey Central with equity capital in as much or more than 6 the amount of the dividend 3 paid by Jorscy Central to CPU.

7 Do you agree with that statement?

8 A I believe that that is probably an accurato i

9l statement if you leek at the history of Jersey Central up t

10 until the tima of tha Three Mile Island accident. You ray

~

11 recall as stating earlier that Jersey Central has not paid l

12 any dividends to GPU since tha accident.

! I Accordingly, their equity position is s 13 w

l 14 changcd rather cignificantly through the growth of retained d 15 . carnings in the past 20 cenths or so.

! Has GPU made any centributions to Jersey Con-

16 l 0 17 tral in 19307 No, it has not, and I night add that one of IS A 19 the reasons that GPU has not mada any contributions since the t 20 accident to any of its operating ccmpanics is that it has no 21 had the cash flow as a result of dividend payments to it hy 22 its operating olectric utilitics.

23 Q For 1901, you're projecting a dividend paymont 34 from Jersey Central to GPU of $51 million.

25 l Aro you projecting any capital centribu-i I i  ;

t I

.s

_ -9

. , Baldasaari - further cross 1651 1

tion frc= G?U to Jersey Cantral in 1981?

2 A In this particular forecast, I am not.

3 0 Uhat about 1932?

a 4 A With respect to 1932, I have not prepared 7de-5 tailed ferecast as to the icvel of not income which would be 6 realized by Jersey Central or the a: cunt of comr.on dividends 7 that it would pay to GPU or for that matter, the level of 8 contributions which it vould receive back from G?U.

9 I have indicated that it would appear 10 that for the foreseeable futurc, ths caly scurco of &quity l 33 funds for Jarsay Central uculd be its carnings, and I have n

also indicat:d that those earnings in terms of increasing

[ 12 13 the c-- en equity pecition wculd be utilized to either re-g4 tain within the Ccmpany, to make dividend payments to G?U,

{:

f and to have such dividand pnyments returned in the form of 15 5 capital contributions.

16 Q Go to Paga 4 cf 13 on JC-316.

37 A Ycs. '

18 l Ucw, I beliave you've given us August actuals 19 0 as a a ons uction raquircrents go. Uculd I be correct 20 g in thinking that the comparable number to the 7,S37,000 for August of 1980 is 7,072,000?

1 2 conparabic .ntnbcr is 7,072,000.

23 Q And the actual for contract retention would

, 00, w.h

• odd mahc do conparaMa not consWtion I25

05 4 Daldasaari - farther cross 1652  !

j 1 i requirenent 7,533,000 for August of 1920?

o A Thcse are the conparable nurbara as ! indicated 3 thia morning, I would, sincc there is c significant differ-4 enco point out that onc of the itcus indicated here, namely 5 ths 3,023,000 of contract retentions which wera contcaplated 6 in the forecast on Paga i of 10, 2::hibit !C-216, is repra60 . 4-7 tivo of come $2 nillion of construction payr.cnts to be raado 8 via contract to Corbustion Engineering for czpenditura; pra-l 9!  :

viously bocked a3 construction.

i 10

. 11 I

f 12 f

l. .

14 I

- I i

1 15 '

I

' j 16 '

17 IS '

19 20 21 oo

~~

23 24 .

25 l

1 l

4

i n1 Daldassari - further cross 1653 1 A (Continuing) During the conth of August of thi,s I

year, that payment to Ccnbustion Engineering ua inadvertently 2

f 3 accounted for and did not show up as a retention itec, it was 4 captured in the acath of Septenber in a revercal. So, the 5 nanber for the month of Auguat were very close but thero was l

6 an accounting adjustnant as a result of a discrepancy betwcon 7 the cash enpenditure and the becking.

8 0 Could you give us tha Septeuber actuals that 9 are ce=parabic to the numbcrn on JC-31G for construction?

, 10 A They wculd be as I indicated this morning whsn I 11 I read them into tho ::ccrd.  ; uculd point again thera van s

12 a significant diffarence which chould'ba brought to light.

I 13 Ihere is nome $12,600,000 of construciten en7anditures chorn I $

! 14 in tha forecast on Page 4 of 10, Onhibit 00-31G vernus l

d 15 l $7,746,000 which I gave you on an actual bacia thic norning.

i.  :. I E

16 ] Q That's $7 millien what?

I 17 A $746,000, 2nd the principal diff 2renca botucan 18 thoac tuo numbers is in connection with scne thrco to $4 ,.

19 million of enpendituras which vera to be nado in connection 20 with enrich =cnt prccessing centracts related to ths Forked 21 River Project. Similarly to what va dcacribed, uc vere at-

99. tampting to do-for a accand tima uith cartain enrichnant 23 contract expenditur23 scheduled for Deconbar 1900, we ap-94 plied for an-ontencica of these expandituras to the Depart-

'5

~

mant of 2ncrgy and w2rc granted a enc-year entension of thoso s I

t l

l I

.h ,-_y-- . ve, -

---m- y w

Baldascari - further crose 1654 3

oxpendirurus so that 03 to $4 million has boon shifted from ugust --- cucun m , 5 ptember of 1980 to September of 1981.

2 0 "# "

l 3

"

• E "* 7 " " " ~ ~

curring throughout the rent of 13G07 4

5 A Cthor than the largo ones scheduled for Decem-6 bor, which va previously discussed, 'I don't know of any other 7 possiblo shifting of thosu types of contract arrangements, 8 0 Tha shifting of the ons in cecamber 1300, that 9 vould be until December 13317 10

^ ^ **T'*" *

• E# ' Y "*

i 11 l Q Now, Jorsey Contral sold some nuclear fuel as-

12 acciated with Forkod River. -

1 :

A Yes, it has.

4 13 e

i 0 And there was a gain on that calc.

14 l i

3 l

A That's cor set.

15 i

16 0 Ecw is Jorscy Contral treating that gain for

, l,e ratancking purposes? What's it's treatment in this rato caso? ,

18 g

A For the purpcaca of my oxhibit, I bolisvc I pointed out beforo that I have mado no assunptions as to the cale of the uranium since these exhibits wero prepared prior 21 to a complation cf that sale. As those dollars received by 22 Jersey Central would affect my exhibits, wo are talking j 23 about a dollar for dollar reduction of the short-term debt i l

24 levels which arc carried as well as a prchably dollar for 25 l .

1G55 23 callassari - further creas l 1 dolla.: reduction in connaction wi-h the level of credit availa-2 ble to Jersey Central during the period.

l Thera could be a different way of handl-3l 4 ing thc:n within the c::hibit, if you wich to reduca construc-5 tien enpanditures at ler.st fcr theco sales which are anticipated I i

I 6 to be made cut of futu c dellrorias of nucicar fuc1 and to l 7 account Jor the gain 23 an . int 2rnal cash factor, but the re-8 suits 'icula he the :ar.2. It's bit r. ora cini;1c to reflect 9, en the nu: 1 bars on a total gross basis and apply to the levolm 10 c1 Jhort-term debt. iilth rcso ct to t' a claim of tha Co=pany'I l

11 I as such, it will be put forth in the rate caco for its ac- f.

t y ,

Oc3 i..,* ,

g - .7<.= ' ,-

--e - ' p--M-*

--" 'rculd be a r. ora 12 counting treatsont, 3

~.

4 13 l .?ppropriate 'iitnocc en that.

i i 14

~ l

I 3 15

~

16 i I 17 I  !

s 18 19 20 9.

e A 99 4

23 1 24 25 t J i il i

if

2K 3aldascari-cross 1656.

I 3 Q Looking at JC-3023, Page 2 of 2, this shous 2

$50 million of long-term debt projected for August of 1981.

3 f Isn't it true that Jersey Central has a certain atount of 4

, ficxibility regarding the ti=ing of the issuance of this 5

j debt?

i' 6

A When you say Jersey Central has an amount of ficxibility with respect to timing, I an not sure 1 under-5 8

stand what you =can.

i 9 Q Uell, couldn't they also sell it in Septtebar, 10 i

Octobar, Novcabor, for c:cccple?

~

11 i A Well, Jersey Central, cocusing that its i securitics are an acceptabla invast=cnt in the =arketplace, 4 13 i  ; can sell in any conth that its pro forma coverage ratios i 14 i vill support a level of financing.

15 l j In the forecast we have here, the $30 million j r 16 which is conterplated for August of 1931 under an assucp-l 17 tien of full rate relief is based upon the fact that Jersey ,

18 Central would not have coverage on a pro forma basis 19 significantly before that tLac in order to allow it to 20 issue the securitics.

21 Q Zut there is nothing magic with the month of i 22 August in terms of that. Jersey Central could just as well, l

23 under your assumptiens, soll it later that year; correct?

24 A Jersc~-- neral could carket the issue when-25 cver the particular timing appear right given its overall

Baldassari-cross 1657.

I financial plans, assi:aing, as I ::cid, it's an acceptable o

~

investment in the marketplace and that it got its pro forra l 3 Coverage.

4 Q Right. Well, let's talk a little about the 5

acceptability of this $50 million debt issue. Is it realis-6 tie to talk about such a sale of debt without also discuss-7 in3 when 241-1 is going to restart? Do you sea any tie be-8 tuacn those two events?

9 A Certainly, and I think that there is, as we 10

. have indicated before, an assisption within this particular

. 11 4

! erhibit that Unit 1 at Three Mile Island will be back in i 12 l l service offective July 1, 1931. I an not sure that that 3 13

. unit actually being in service necessarily carries any par-i 14 i-ticular ucight eno usy or the other with a financing, but 15 j certainly ::cuc level of understanding as to the direction

16 of the HRC hearings uith respect to start-up would have to 17 be available in order for potential investorn to be willing 18 to invest in Jersey Central securitics.

19 Q Well, you are saying that in order to make 20 that $50 million sale, TMI-1 would either have to be re-21 started er there would have to be a reasonably clear indi-22 3

cation that such a restart uns incinent?

! 23 A I don't think I said that. I believe what I I 24 was trying to indicato is that core information than ve have 25 today uith respect to the return to service of Unit No. 1

l 4 >

Baldassari-cross 1658.

I uill be required. It's i=possibic for me to be able to 2 predict what icvel of information will be available en that 3 aubject as we go into the spring and early sumacr of next 4 year.

5 go, te n s also difficult for ne to make an i

6 assumption as to whether or not that informacion which 7

uill be availabic will be acceptable to the potential in-8 vcators. 3ut, more than is known today will certainly 9

have to be known.

10 Q Since you and I ucre last at the hearing to-

~

11 gethcr, the restart hearings. on TMI-1 did cecaenca.

j I bc-4 1

i lieve they began October 15th.

. 13 That's corract.

j { A I  ! 14 i Q In light of what transpired at those first i d 15

; few days of hearings, is the Coupany's and your best esti-I 16 nate on the restart of Itil-1, is that still July of 1981?

17 A I as not personally involved with the ra-start hearings but it's my understanding that rost of which 19

., hac transpired thus far has been procedural in nature and I

20 othing of any particular substance has been reviewed which l 1

21 l uculd give us any indications as to a different in-service l l

22 date at this time. l I

23-MR. KIRST'al: I might add that Mr.

. . 24 Arnold will be testifying more specifically ,

I 4 25 .

on that subject. The official position still l 6

6 l

. n. ,- - , - . , , , , , , , , - - , - , . , - - - - , , - - - - - . - . - - - - - - . ,. -l

Saldasaari-cross 1659.

I is that July 1 is the date. I think Mr.

2 Arnold's testi;aony cay indicate that there is 3 some doubt about that as a practical 2atter, 4 but the position is still -- the timing is 5 still designed to put an in-scrvice date of 6 July 1981.

7 8

9 10 11 12 l

!. i 4 13 i I

a i 14 l d 15 16 17 18 19 20 21 22 23 21 25

I L 3aldassari-cross 1660.

I MR. Ih1RDELLI: Did Mr. Arnold have any 2 pre-filed testimony? Will he be giving any 3 direct testinony of 2.at he's turned over for 4 cross-e: anination?

5

12. KIRSTIh Just a short statencnt j 6 of tha status of TMI start-up activitics, 1

7 status of the hearings, sonething which would 8

be nore or lass respcasive to conc of the 9

issues that hava been raised so far.

10 OY la. IL1RDELLI:

i

[

ll Q I'm going to take aucther stab at this, Mr.

12 g Baldassari. Focusing en this projected sale of 50 million I3 1 in August cf 1981, and I realice that we are in an area I4 whern there's a lot of conjecture involved, but I'n trying 15 f

to set as specific as possible for the record as to shat r 16 chcse prospective investors of that $50 million debt issue I7 would hava to know about on 'E11-1 in order for you to cen-18 stt~-nte that sale in August of 1931.

Can you, given what I'm going after, is there 90 anything nora you can add as to what the investors sculd

• 1 have to knau about the tining of that restart and the status

~

92 of TMI-1, and by what time they have to know it so that 23 you would be able to take that sain?  :

24 1 A Well, I believe that there's no way for ne 1 "5

~

to outline for you specifically shat the investors wculd

1 3aldascarl-crenc 1C61.

l 1

have to 'tr.on, but scac' of the things that th2y do not Ir.ov 2

t teday shich are of interest to thy.a is ac uhat point in 3

tba TAI-l will again be recognizcd for rate raking, at 4

uhat point in tine there will be an indication as to the 5

return of that unit to cecnercial operation.

6 I beliera thac those tuo factors and all the 7

peripheral 1:au23 dnich curreend thts are tha rain con-8 cerns of future investor 3. To v.at entent they will be 9

antisfied alth inferratica :s it becomes availabic ic in-10 I possiblC for Oc to pr? dict, 31nce I Cen't predict thO

~

11 3

achedules with respect to r_ta accion chila liRO actica 30 i

ra;prds starting.

13 i

12. KIRSTII: I unne to say,!!r.

14 i IIcrdelli, that Mr. Reis will be better able 15 g

, i to cn.;uer that question : cra specifically.

16 1E1. IM EELLI: All right, and I cer-17 tainly uill pursue it uith Mr. Rais.

18 l's going to ask Mr. Enidassari enc '

19 or two more questions in this area and if ha 20 wishes to defer then, he certainly caa.

21 3Y !!R. PA.DELLI:

22 Q You centioned two basic concerna of investors, '

23 one when TMI-l veuld he recogniced for ra:0 nahing ;arposes, 24 the other uhan it uould restart, than it i?oulf go con cr-25 cial again.

1652.

Baldasscri-cross I Dealing with that first one, when TMI-1 would 2 be recognizes for rate making purposes, isn't it fair to 3 aay that as of now there is an Order of the Ncw Jcrsey 4 Scard dated April 1 of 1980 that saya that IMI-1 will not 5

be recognized fer rate making purposes until it returns to 6

cc==ercial operation?

7 A You're referring to an Order which came about 8

in the second phase of the Ccapany's spring Lcvelized Encrgy 9

Adjustment Clause proceeding?

'O Tcs, Q

i j

II A Those cro the words in the Crder, yea.

19

~

g Q So, at least as of now, investors have that 13 2

guideline. What I'm suggestleg is that the state of the 14 i situation neu is that the two concerns you mentioned are d 15 g

really identical; that there's not going to be rate making 16 treatment until it returns to cennercial operatien.

17 Wouldn't you agree with that?

18 A lio, not necessarily.

19 Q Well, when you don't agree with it, is it 20 because you're suggesting that perhaps the 30ard vill chsnge 21 its April 1 Crder in same way perhaps as a result of these 22 proceedings?

23 A Perhaps. There is a position on the part of 24 tha Conpany that the Unit lio,1 of' the Three Mile Island 25 plant should not have been recoved froa rate base.

.-. . - .__ - . . - - . . . _ - - .. ._ . - - .- - -_ . . _ . .. =- . -

i Baldasscri-cross 1663.

r i There is alco a position nithin this pro-2 ceeding on the part of the Company that it should at icest 3 again be recognized for rate base purposes effective with ,

i l

1 4 the effective date cf this Order. Given the fact that the 5

l Conpany has taken these positions with respect to that 6

j issue, I would believe that the reasonable invastor would 7

l hold out some measure of opticism that the Company vill be 8

able to be succeasful in these fronts and that the date 9

l there would be a restoration of the revenues associaccd 10

, with Unit 1 and the data that that unit actually returns i

j II to couracreial operation =ay not be the same.

, 12 i

j 13 j 14 5 15

, 16

-l .

17 18 19 1

20 21 22 23

. 24

, 25 i

i 9 & ,i ye --.= ,rv-- 4 ---

--e ,.m, , - - ,.,-. -- - ,,-e -- ,.--

i j 2L 1 Daldassari - further cross 1564 j Q All right, but can va agrea that inve tors wil:

2 probably know the annuer to the first part of your concern, 3 nancly, when T:1I-1 will ha recognized for ratemaking purposes, 4 uill probably know it some timo around February 1st when the 5 Board lasues its decision in this proceeding?

6 A AscEaing the Daard addresses that issue in the 7 proceeding, I would have to say yes. They'll have a further 8 indication as to what inpact Throc Mile Island Unit 1 invest-9 ment will have en the Cc=pany's return.

1 10 0 In fact, avan if the 3 card dcca not address it

! 11 in that procanding, that = cans thcre would bo a continuation

, 12 of the status quo, which is that TMI-l is not recognized for

[a 13 ratemaking purposcs, correct? .

i

> d

i j4 1 U211, I think to answer you, Mr. Nardo111, I i

, d 15 have to know what the 3 card would he saying about that issua.

. i i 16 JUDGE l'.r.SHA.J.,: Off the record.

17 Gi discuacion was held off the record.)

jg JUOC2 XARCHALL We'll reca33 until cna -

1 1

39 o' clock.

s 20 (A luncheon recess was taken.)

21 22 -

f 23 24 25 l -

1

Baldassari - 1665 ul 1

AFT 2RNOON 5ESSION 2

JUDG2 MAR 3 HALL Back on the record.

MR. HARDELLI: Judge Marshall, I was 3

f asked when Mr. Knudson might be cble to filo 4

5 his tactimony. My suggestion is that ha filo I

6 it by Wednesday, "ovember 19th, for cross-examina-l tion the wcok of November 24th. There are three 7

g hearing days that week, the 24th, 25th and 26th, 1

sinco it is a Thanksgiving neck.

9 10 (Wharcupon, thcre was an off the record'

. 11 discuccion.)

12 JUDGE MA..SIIALL:

' Back on the record.

2 MR. EIESTEN: We woro supposed to have l 13 some reference to Mrs. Eva 31rd's problem this, j 34 i 5

m rning and I 1m happy to report that the j 15 i Ccapany has been in touch with her and have i 16 worked out an arrangc=ent with her, and she 37 33 is procently receiving electric service under -

that arrangsment. So, that has boon rcoolved gg to her satisfaction.

20 JUCCE MARS *dALL: Off the record.

21 (Uhoreupon, there was an off the record 22 23 discuccion.)

i 24

! 25 ', ,

i ,

I l l I i  ;

l l l  !. .

l

1666.

N Baldasacri-cross j 1 JUEGE MARS 11ALL: Back on the record.

l 2 liR. KIRSTEN: Off the record we had a 3 discussion abcut a littic scheduling probica, I 4 and in order to acec:=odate Mr. Rober, we 5 have agreed that the hearings acheduled for 6 Uednesday for Mr. Ecber's contiauad cross-i

7 enamination would be put off and it uould be 8 handled en Thursday morning frcs 9:00 a.m.

9 j on. Ilopefully, we'll be abic to finish be-i 10 fore 1:00 o'cloch.

l

~

3 j

lI JUDGE MARSilALL: Mr. Daldassari, are 12 g

you ready for core questions?

j I3 Tile UITirESS: Yes.

a

• 14 1', .

CCliTIMUED C200S-E:C'J11'IATION

?

I BY IG. UARDELLI:

1 16 Q Mr. Baldassari, I'd like to rafer you to 17 JC-304 and 304A. -

t 1 18 Refresh my memory as to when 304 was prepared.

19 A Exhibit JC-304 was prepared in the spring, 20 1980. It included all ferecast material with the exception 21 of the month of January 1980.

22 Exhibit 304A was prepared during August of 23 1980 and included actual information through the nanth of 24 '

July.

25

~

Baldascari - crocc icG7 01 Then JC-304 vac essentially the nine and threa j Q [h 1980 budgot?

2

't*

A With sono adjustment for actual information, 3

i

' (

that is correct.

4 t 0 And JC-304A is essentially a sin and six for ,

5 '

L

! 6 1930, six months actual, six months forecast?

2 7

A It includes covon months actual information i 3 and it includes a forecast for the remainder of 1980 and 9

for the year 1981 uhich is generally consistant with the 1

j I

riginal budget but which is adjusted for known changes. ,

10 I

! Q Nov as ! Icok at 304 and 304A, I do sco sub-

. 11 tantial changos. For exa plc, in 1980 not inecme after pre-i 12

I ferred dividends dccreased by 22 porcent between 304 and

! 13 i

j l

304A, while in 1981 it increased 43 percent between thoso 34

! i So, the linc of questioning I will be pursuing two cahibits.

- 15 l nov 13 going doUn for each year 1980 and 1931 and having you explain tha major assumptions that you used in the initial

< I_s g

development of this exhibit JC-304 in both years 1980 and 1

1981 and than describe the changes you made in those ascump-39 i

tions to get to the numbers that arD Contained on JC-304A,

' Why don't wo start right at the tcp 21 i

with thab base revenuas.

22 A Uoll, befora va go into a serias of explans-

23 i

tions for cach of the lina items, perhaps it-would be botter i

24 it for me to prefacc7Eith a general statement as to why you havo 25 t

l

_ . _ - _ . , . ..-.m.- . .. -.~p - _ - _ _ _ - _ - -

._ . _ - = - - . - ..- .. . - .

')

1 ,,

l o2 i saldassari - cross 1566 1 a significant reduction in not incomo in tho year 1900 and 2 an increaso in not income in tho year 1931 en Exhibit 304A 3 as oppcced to the originally filed exhibit 304.  :

4 With respect to the year 1980, again

5 thers is six months additional actual infermation contained

6 within the forecast as filed within 3

thibit 304A. You may 7 recall that there have been a series of revisiens to the fore-8 casts of sales of electric energy to tha customers of Jersey 9 Contral frcm these forecast which ucre previously embodied 10 in the original budget. Theco salus reductions have account d

$ 11 for a loss in base revenues of about $9 million for theso

. 12 ci:: additional months uhich vculd account for most of tho

13 reduction in net incccc for the year 1930 ac ccmpared to tho i 14 year 1980 on Erhibit 30<1, i

• d 15 l One point I should have made in connec-

! l i 16 l tion with Exhibit 304A is that it has bean prepared to ad-4 17 dress the full measure of rata relief requestod in tho Com- i 18 pany's petition, namely $173 millien, whereas Exhibit'304' 3

,]

19 was initially filed in support of the Ccmpany's intarim t' 20 request for $60 millica and made no assumptions as to a '

21 second step, if you will, in Fobruary of 1981 when the sJj]

22

.Doard's Order in connection.with this proceeding is expectedh ~ .'

23 So, therefore -- .

24 i

25 -

/

, I-- _ - .

7 g k .#

?,

~

1 P Baldcasari-:roca 1669.  !

1 Q Sut, Mr. Baldassari, just at that point, that ,

't ' t 2 vould only affect 1931. - -

L

(- 3 A- That is correct.

Y ,

4 Q. That would have no effcet upon 1980; correcc? '

s 8

x' 5 A That is correct, which.1 phy 1930 goes down i.

6 and 1981 goes up.

7 q 1e t the difference in the castr:.ptions re-s

' 8 garding the base rate base?

t

[

r 9 A

, l That is correct. '

IG

, , , Q To'ba decided in February?

= fil A That is correct.

12

Q To be hopefully decided in February. Okay.

.r I I3 1 Uc11, thank you for that general enplanation beccuse that's a

- 14 j .. helpful.- ,;

, t .

8 15

. I would like to now examina some specific

.  : s i

', 9

a) 16 '

Tha base,revenuas fer 1980 are reduced by 2.7 perecne itens.

37 betwcan 304 and 304A, and by four percent in 1981. Cculd I8 you apell out the;. basis for that decreacal I9 I':2 perticularly interested in any assr=ptions

'O

~

regarding sales'that may have led to those decreases.

og

~

n A Well, the adjustnent with respect to the re-

, o,

~~

4

- (,. vised sales forecast applica to those 1930 and 1931 as 9

' ~3 . t >

'. ?.'., thoac ceriods have been,53 recast in these exhibits. For the

.* , . "'t : n~ 'g

., 'q'; six-conth period,'Februhryj,to July, and as I indicatcd

'i 95

~

earlier, there is abcut a 79 million reduction in base

+

4 l a ,

( ' 4

.\~ ,

f.,

, Ba dassari-crocc 1670.

'I revenues attributabic to the difference between actual 2 versus forecact, and this is due to a lower than expected i

1 3 1cyc1 of sales.

. t ,

4 For the rencinder of the period, August to t<A,,

5 December, there's a further reduction of about $7 million i

6 on the forecast

• versus whct was criginally contempleted in

> f. i s

• '  ! 7 '

Exhibit 304, and this is as a result of a continuation of

, .r >

g s the assicaption of reduced sales levels. ,

So that the total reduction on 3rhibit 304 10

. for ba e revenues as to Exhibit 304A is about $15 nillicn.

II

[

That sales reduction assumption is carried 1~9 t

.,i on into 1981 and in 1981 accounts for a reduction in base 13 s

2 a

revenues of approxt ately $24 million. >.

14 l/( 'f i Q And those cro the figures that produce the i3 15

/ ,;-

decrease of or I should say the reduction of 2.7 percent.

3 .

i 1 i' . Iti 4

g, A That is correct. '

Q In the '80, and tha: 4 percent in 1981.

^

A That is correct. , ,

19 Q What asst:nptions regarding custencra and use 20

per customar have you made, if any? Do,ary stich asstsepptions 21 account for the reduction?

f.

22 t' A These types of assumptions woulf hava to be 23 -

dealt with by l!r. Raber, who is the coy, that has provided 24 the sales forecast material for purposdn of preparing cy.

l 25 exhibits.

p$

L- ,. - --

3alda: sari-cross 1671.

1 Mint I can suggest to you is that the sales 2 forecast Unich has been utilized in preparing these a:d11 bits 3 for the base rate case are constatent with those which ucre 4 reviewed in detail during the proceedings in connection with 5 the Septecher LLiC filing.

6 Q Are further changes to your 1980 and 1981 7 sales forecast now being contemplated?

8 A At this particular point in tino, the sales 9 forecast whh.ch in currently used in these e::hibits atends i

10 at the official forecact.

i

~

11 12 4 13 0

14 d 15 3a

16 17 i 18 e

19 i

20 1

21 l 22 23 24  !

25

2p 1 Baldassari - crons 1572 j Q Now, hasn't thers been some mention of Data 2 nascurces, Inc. giving you econcalc information? Nhon I say 3 "you", I mean the Company.

4 A I believe that there's been sc a discussion on 5 that, but I'm really really not completely familiar with it.

6 0 Well, what I'm wondering is, you know, fore-7 casts were being nado in July of this year based upon cor-8 tain econcaic forecasts, econcalc projections, and I'm won-9 dering if you're getting a continuing flow of ecoacmic pro-l 10 joctions fron Data Rasources that night lead to further j gi i changes in your forecasts?

i i The peoplo who are responsible for preparing 12 A cur salas forecasts are continually reviewing their assunp-

, 13 14 tiens in their materials to insure that the forecasts which j-15 ar being utiliced within our financial planning are as re-

! asonable as can be c::pected.

16 17 Q Ncu, the line for rate increase on 304A, for Is 1991 that shows a 93 nillica dollar increase ever 304.

g3 39 that the added assumption of the February rata relicf that 20 we'va discussed?

A That lu correct.

21 0 What about the reduction chcun for energy clauso 22 rovenues in both years between 304 and 304A?

23 A Tha reduction in enargy clause revenuca is 7

brought about significantly as a result of the acsumed reducq

'5

> 1 t

l

t. l

- - - - - , . , , --- ,t . , - , ~ , - . .~- -

2p 2 , saldassari - cross 1673 1

tion to negawatt hour salen for the Ccepany.

0 How, turning to the first iten under operating 2

3 Expensea, fuel, purchased power and interchange, theac nunber3 4

declined on JC-304A by 6.5 percent in 1980 and 12 percent in 5 1981 fron the 304 levels.

6 Can you tell us --- first of all, can 7

you acccunt for bearing in mind what basic asaucptions may l

g have changed regarding amounta of internal gencrated power, 9 for c::anplo?

10

, 11 i

12 3

3 a 13 Y

d j 14 A 15 3

I 16 '

17 19 20 21 22 23 24 25

1 Caldaccari - cross 1674 1 A Basically again, we have a situation where the 4

2 contomplated cales reduction over and above the level of

, 3 salas which was previcualy forecast contributen to a lower 4 need of energy required. That lower need translates into 5 a reduction in purchaso in g neration such that the attendant 6 CLM cocts would be likewise reduced. In additicn to that, 7 as I stated, the oncrgy coats, the sales forecasts which are s being used within this particular financial forecast are 9 consistent with those which were discussed during the Septem-l 10 bor LEAC proceeding and also recognized scue reduction in l

5 the overall cost lavals from those which were criginally fore-gg

. 12 cast back in the spring of this year,

$ 13 O I'll get back to that in a second. What abcut i

changes in assumptions regarding outages? Were there any

{: 34 5 15 such changcc and, if so, what impact did that have upon this

, e

• l 16 cahibit?

37 A For the period 1981 I don't recall any changes 18 in the outage schedules of our major units from those origi- -

39 nally contanpla 2d in 2nhibit 304 i

o0 Q Do you recall any changes in the assumptions regarding operating ratcs of your various plants?

21 A N' I n t' 22

,,3 Q Mow, gatting back to sc=othing I believe you

,s .

nontioned, what about tha cost and availability of purchased power? COuld you clahoratG on that a littic Corc?

5 ,

i e

i e

_4-, - - _ _ . , m_

t l

Q2 Baldassari - crcsa 1575 ,

f 1 A In general the energy ccsts, as I said, which y i n 2 aro utilized in this forecast arc consistent with those fron :l 3 the previous LEAC prccceding and recognize the levels of pur-  ;

l . chases outside of PJM which have been nado available to the h 5 Ccmpany, reflact an incrcaced level in those purchasen over h C

6 and above what was previously foreca$t. It also conte = plate ls o J

i 7 continued gas availability as well as additional gaa avalla-8 bility as a rasult of the centract which was entered into Ic=

! 9 cently betwaan the Company and Elizabethtcun Gas. All of 10 !

those various factora uhich were discussed in detail during

l 5 11 the LEAC proceeding have been included in Shese energy coat 12 numbars.

' 3

-$ 13 0 Okay . - ;iould it be fair to cay that the assump-Y

]  !- 1,5 tions undorlying this enhibit and particulcrly the lina we i

d 15 havo bcon talking about en fuel, purchased pcuer and inter-e 3

! 16 change, reficct the Ccupany's pocition as to what theso ecstla i

17 will be during this perled?

j 18 A Ycs, it does. -

19 l C Moving to the next iten, def2rred energy, ua 20 onca again cce a substantial reduction for both 1980 and 1931 4

betracn tha two enhibito, 304 and 304A. Could you run through 21

! 09 . any changes in nanumption: that land to those reductions?

.23 A Well, the deferrod energy balance or entry on the incomo statement is purely a result of what happens Ln 24 l

25 the other two itens uhich we provicualy' discus cd, the energy l

1 { .

.l .

l t

---w- -n- a -

- ~ - - - - - - - - - - g

Q3 i aaldacnari - crocs 1676 1 clauco revenuca and the fuel, purchased pcuer and interchange 2 c:: pense .

3 17e have a situation where as a result of 1

tho calca reduction, there are icwcr energy adjustment clauce 5 revenuca. Uc have a situatien uhere becausa of the scles 6 reduction and becauca of other cost f actors, there are lcun:

7 fuel, purchared powcr and int:rchango exponaus. Ch3 dafar-8 red energy change 10 norely a raduction of tha changes in i

I 9l th0cc t*.co prior nudera.

l l

10 '

.: 11 l. ,

, 12 l

4 I

4 13 ;

i  ;

i  !

14 i

- i j 15 l' 16 '1 l-1 l

17 j t

IF l'

a hi

=a 99

==

' 23 24 .

25 .

I e

2Q Baldassari-cross 1577, 1 A (Continuing.) I uculd point out that there 2

is a piece of that energy or the deferred energy nucher 3 which is associated with a revision in the icyc1 of the 4

energy adjuntment clause factor which was to have gene into 5

effect on September 1 in that initially Exhibit JC-304 6

contemplated a 5.7 mil. increase in tha:: clause, and the 7

actual nu=ber uhich was filed by the Co=pany and was re-8 flected in this exhibit was 6.3 cils.

9 Q That's reficcted in JC-304A?

10 A p,,gg e s correct.

( 11 Q But this torning you did tell us that the 12 g

deferred energy balance has gone dotm in the last coath; 4 13 9 correct 7 I

14

[ A This corning I told you the deferred enargy 15 '

balance as of September, the end of Septecher, was less 16 than it was as of the end of August. I believe I e::plained 17 that was principally due to a above nornal icvel of sales d ich were billed during the nonth of Septc=ber in a period 19 d ere the Ccmpany's total net syste= requircments was de-20 clining becauce of a seasonal change in its load.

21 Q In light of your actual 1980 experience to o,

date, how does that $34-1/2 millien of deferred encr;"j look 23 to you as an esticate for ycar-end 1980?

1 9

A Maybe I an a little confused. L' acre do you l 25 i i get the number $34-1/2 tillion?

3aldassari;cro:3 1673.

1 Q I ca gettin;; it off JC-304A for 1980, da-2 farred energy.

2 3 s\ axcuse c.c.

4 Q It chcus a reductics of $24-1/2 million.

5 MR. KI.GT3: Off the record a romnt'l 6 JUEGE liMGIdaLL: Tas.

7 (Uhersucon, titare is sn off-the-record 8 discur.sion.)

9 JUDGE IDR$MLL: Iktch on the record.

10 BY M2 IL'CO3LLI:

j 11 Q Mr. 3c161 acari, la: ce reph ase ny question.

2 12 Jc-304 chored cn incrasse or nrojacted an inersase in de-

13 ferred xicrgy of alroat $50 nillion dollcra for 1900 and i 14 J0.;c4A projects au ine cu3e of aene ;34 1/2 r.illion in i

15 j 1980, cad I zu aakin3 how that est'.rt.to of 434-1/2 nillion a

16 looks to you today.

17 A Well, .fidout being abl2' to predict tha futurn, 18 I bolim a this corning I gria you a ntcher of $128-plus 19 nillion na the ltval of deferred cnerg ;Aich hid See;:

20 eee, ,. lated as of Sept:cher 30, 1930 acc:tal.

If you refar 21 to E.tibit Fo. JC-303-A *inc a I have a cht.rt depicting de 22 ~

forcenet lcvel of deferred ener~,7 per ny various asst =pt1ons, 23 nd you icoh at tho month of Septenbcr, you will r.ote that 24 j

the dcierred energy balance 1:aa forecast to.be in c::ccas of 25 4120 nillion cnd that vc had also foreccat a uitmificant

- s- e - -, , y , - - , ~ --. - - - - m. <,= . - .=

3cidac c :.ri-croas 1579.

I rc+ action on the order of 015 to J13 elllion for the coach 2 og gepce;3c;,

3 War we did not cperience during the t.onth 4 of Septczber vac the additicaal J3 or JG cillion of reduc-5 tion to the deferred ener;y balcnce rhich rould heia taken 6

place he1 the Cog any's request for an increens in its 7 g_,,, ,,1 ad d' nqf Adjustacnt Clauce enhen plcca in the caut i

8 of 6.3 mila eficctiva Sc-tzscr 1.

l I

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i q 13 !  !

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19 20 .

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21 22 23 24 l i

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, 21 3aldassari - crocc 1680?

I A (Continuing) So, I guess what I have to say 2 is that with tho anception of the loss of additional 12AC -

4 3 revenues for the rc=ainder of the year, the 34 to 35 million l

i 4 dollar inc.:cano in the deferred energy halance for the year 5 1900 utill appears to be a very reasonable accu =ption.

6 Q Moving to the ite:n payroll and cam, once again l

7 uo cao an increece of 10 parccnt in 1980 and 30 percent in i 8 1931 batucen the tuo enhibits, 304 and 3042..

l l

9 t

Can you Ji va un 3.n iden as to why thoce '

i I

10 l cnpencos incracced co much in ;uch a shcrt paried of ti:007 I

I 11 A Nell, with r2cpect to the year 1930, al= cat i

12 th 2ntire incroac.2 in OEM expcnso la due to tha difforenco 3

4 13 batv22n actual 05:1 levola 2nperienced and tho.so which hava

14 hocn forecaat at thn ""o of pr2paration of t'1o original on-1 hibit JC-304, and I believe Mr. Prais has gone through no

:t 3 15

• 16 of tho33 changes as to Ort 12Vols in detail under his. crocc-I se e exarlinag1on. $

18 Mith respect to tha year 1931, tha noct i

19 significant pertion ci tha increase in the Os*1 engences chcun 20 on Inhibit JC-304A as op;cced to Exhibit 304, is attributa-21 ble to the assumptica that una made for purpoacs of this fore-22 cact as to the Vrite-off of the investment in the Forked-7.iver Project.  ;

23 24 Q Ncw, with regard to these payroll figuros, do i

i 25.1 these figuros includa both Jersey Central employaea and out-  !

n s

, i  ;

I I i i n I

, . - _ .. __ ___ . _ , _ . . _ _ _ _ _ . _ _ _ - . ._ . . - . _ . . _ _ . . - __i

Baldausari - cross 1681 R2 q I sido contractors and consultants.

2 A The payroll numbers themselves would not nor-3 mally include outside contractors, but for preparation pur-4 poses on the schedule, we have ccabined payroll and O&ft as 5 one itam and, therefore, the number would include it, ycs.

6 Q liow, what assumptions are you making about the 7 level of outsido contractors in 1930 and 1991, because I as-8 sume that that affects tha figuras that appear for that item.

9 Stated another way, is a projected in-10 creaso in tha level of such outside contractors one of the reascns why the figures did increaso from 304 to 304A?

l 11 12 A Well, I don't have the detail sufficient to s

13 let =c tell ycu whether or not specifically there are in-j 14 crcased levels of outsida contracters, 5 15 Let mo attempt to break down the change I

i

$ 16 in the payroll and O&M nt:bcr a bit finar fer you.

I 17 Of the total difference betwcon Z hibits f

18 304 and 304A, sccc 036 million is attributable to the assump- -

19 tion with respect to the rcrked River write-off. Ab0ut 4-1 2 1

20 million is attributable to O&M expenses which aro expected to 21 bo incurred in connection with the Ccmpany's master lead 22 management plan, which had not been included in the previous 23 forecast and, lastly, about 5-1/2 cillien consists of a 21 change which I bellave Mr. Preis referr d to carlier with i

l 25 respect to the write-offs of the Atlantic Station of about

x3 Salda: sari - cross 1662 1 1-1/2 million dollar 3, and increased O&M lovels in connec-2 tions with units No. 1 and 2 at the Thrco Mile Ialand Nuclea" 3 Generating facility, totaling about $4 sillion.

4 5 l 6

7 l 8

9 10 i

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5 11'l l l

,, 12 1

.i 4 13 a5 5 14 i  !

5 15 !

5 }

~

16 I l

i 17

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18 19 20 21 i

22 '

23 1

24 2s - i lI 1

l

1R 3aldansari-cross 1683.

I n (Continuing .) Tae only are2 that ne have

,l

-I where thcre could ct.nceivab1v Le increnscc so far as out-3 cide c atractin<g are concerned wculd be in that increaae 4 1 in TA1 OCf. -

5 I do not have a cecplete breakdmra on stcre 6

that ccacs frem. I do kncu tha thcae ucra che latect fcre-I i

casts available at the t be for OEi! for these tuti:3.

8 Q How cuch was associatad uith the load nn:u;2-9l nant, Mr. Baldascari? .

I I 10 -

A About H-1/2 cillieu. I I

1 II i j Q Hou fira d.o you sec. that #4-1/2 aillion being;l lo- . ,

i now rirn load 2nnagemente 13 i

i i

A I think that the fir =ccc as to the level of l' i

14 1 ,

i i upandi:ur:3 for a lord cana3-nent is secu;&at dependent  !

4 t

3  !

g 15 li upea the outccre of this proceedin3

~

16 At the tire that chia particular icvel er ,

t 17 '

enpenciture was davelo,ad and filad sith the Beard, Jerse.r !

18 I i Central had not yet tr-dcrcone tha rencval of Turce M112 l 19 I Island Unit 1 frari rata *: ace 2nd th2reby a reductica in ita 20 I c irnic;;s capability.

o1 Sinilarly, there hcVe been arneral develep-nanta in Pennsylvania t:hich have caused Metropolitan Edican I i 23  :

Cc.n.oan~J to restrict its cash e:;enditures aa did Jarcey l o,I i Central in the sprin;3 of this f ear.

25 i Both of thoac factor haveucrk2dagainstthej

- l l

.e

n Baldaccari-cross ,aco. b

.v I full 1:;p1;m:ntation of this progrcm. So, I believe that  ; ,

H 2 the certainty that can ha attached to this icvel of ex-  ! L i.

3 I penditures will Se dependant upon the outeene of the pro-I

! 6 4' ceeding.  !

5l Q lir. Daldassari, you're saying as a functica I

i 6 of the proceeding but --

l 7 A Uell, perhaps I citould clarify that and say '

8 it's a functica of carnings and whether or not this pro-9ll ccedin; provides carntngs ror the Ccapany or nat. l

- t i

10 l Q I'a trying to recall pravicus testinocy on ,

i

1 i

e 11 ;

1 this lead nanacamcut nrogres either by you or Mr. Finrroc.t ,

i 12 >

y.here it cc's to ac Lt Jaa c:pressad that there was a fair

I3 m;ent of indefinitene;s abcut these prc;rers and when they i i  ;

i j

. 14 l cauld begin, and co isn't the firmnesa to a 1cr;c degrea  !

• l

I5 based upaa tac fact that you haven't orscnined thase pro-

- s 16 l >

grarna for a soca -- a near-Scsinning date?

i i

l~' l

A U2 11, 1 believe that the previous tastinony i i .

18 l ,,3tc3 7curereferringtovcanine,andIthink1 indicated [

r 19 ' , I l that c.ae to:pany had not ,reen ab,ic to pursue tais progren l

1, 90

~

na vir;crously as it had hoped as a r2sult of a severe c:ch

'l situati:n which d2velopcd in the spring of this year.

~

oo I think 1 alao at that tine referred to c s

'3

~ 1 i

ainilar situation uhtch had core rucently developed in the j '

1 i 0 \

.4 case of Pennsylvania and that thoce two in;tances have, l o5 I indeed, delayed the type or the level of implenentatica of i i i

l I

Baldacuari-cross 1635.

l 3

this pro.gran which we vould have desired.

2, Again, I guess I vr.cka the scac statcr.cnt that I

3 the level of the Cenpany's carnings and its ability to j i

4 g2nerate cash to inple:: cat ch2se prograns are the real queci I

5 cions as to how quickly cud hau fully the Cetnpany will in-6 volve itcelf with its load nanage acnt plan.

7 Q Le.:'s icok at Pa?,e :To 134 in the September ,

l 8 Operating Report, specifically account 'Jo. 926, Ec ployce i

9l Psnsicns and Benefits.

I j .. . -

10 .icu , J. see for tn.2 n.?ntn c:_ dept: r.er or ly,c,,0

$ 11 ; there 'cas a 29 percent increase over the cccparable nanth ia 12 1979, and for the year to date, there's benn a 21 percent

l 4

13 increase betracn'30 -- 1979 and 'GO. j as'  !

i: 14 l 1

Can ycu explain ,ihv this acccunt isincranalrj

, t 1

15 i like Sat? i 1 i  !

.cr exampic, haa Jersey Central Scen hit uithi 16 ;

17 ! a raah of early retirc=2nts in the last year?  !

18 ;  !

19 20 21 l

.m.

s 23 24 25  !

i l

t i I

)

,a 1 Daldassari - cross 168G  ;

1 A No, I don' t believe that that's the cause for 2 the increase. I don't have any details hero with me, but I 3 uould beliove that that la simply reflactivo of the Ccapany's 4 continued need to finance its unfunded liability of the pen-5 sion fund. I can certainly check that nunbsr for you.

6 Q Yes, if you could perhaps provide your Counsel 7 with soma sort of a breakdown as to why that account is in-8 creasing, 9 Moving down to interent expensos, I so-a 10 that --- end I'm referring now to total intercat expense ---

j 11 that it was reduced by 4.5 percent in 1930 and 6.7 percent is

, 12 1931 betwcon the 304 and the 304A e::hibits.

13 Could you explain that in terms of what 14 assumptions are you making regarding the levels of dabt in d 15 these yonra both 1cng-term and short-tern?

16 A fle11, tha assumptions as to the levels of debt.

17 outstanding would be consistent with the level of short-torm l

debt which is shown to ho cutstanding at month and on E:chibit 18 19 l JC-302B, and with the level of long-tern debt which is cur -

20 rently outstanding less sinking funds, with the addition of 21 $50 million of now debt beginning in August of 1981 at an 22 assumed rato of 14.0 percent.

23 Those are tho basic assumptions for the 24 debt le vels which create tha interest charges.

25 As to tho difference between the levol l

3r 2 Daldassari - cro38 1687 l 3 of interest charges shown on Enhibit JC-304 versus 304A, for 2 the year 1980 there was about a tuo million or so reduction

1. " * """ ^# ~

1. ' " ## " " * "" Y **"

! 3 i

4 parienced and for: cant for the remainder of the period vorau a 4

a highar level of short-term interest rates which were fore-5 6 caat early on when the original exhibit JC-304 was filed.

l 7 The off00t to that was that there was 8 a cignificantly higher level of chort-term debt cutstanding 9 during the actual period than had been previously anticipated in 2xhibit JC-304.

3; So, those two adjustments net out to the 12 n t reduction, if you will, on interest for uhe year 1900.

f, 13 , The same is trua, by the way, for the year 1991.

0 ;7all, could you bc specific about that tho.n in f: 34 i

g 15 terns of at least the rates you wara accuming cc the tuo ex- 1 4

i  !

16 hibits 304 and 304A, the rates you were projecting?

l,e A Yea .. At the time Exhibit 304 was prepared, we were still using as c base the original budget and we wore -

n a ga r- nterest rate of about 10 percent, 19 which wo did in fact ---

0 In that for 1990?

21 A That's correct, and for 1981.

22

, Q Yeah.

24 .

. 25 4

r- e = w

• w- r -,--e---r,- ,----9 . - - - - .w- --e- -m--- - +-, ,- - - -.-- e- e - - - - -

S Ecidacca:1-cross 1633. .

I A Uc have no abilitf within the program to very l

2' tha ratas frc= year-to ycar. 'Je caly get one shot at the '

3 assunption and 3cuerally for the purposes of our pinnning, 4 unlesa we cro f.n the fast-cevin~, cari:ct for rates,t:e reculd

_i 3

utill:2 whatever the current level of short-ter:a interect 6

rates hanpens to be.

7 At the OL=o the interest rate tssucption waa 8

nada, uhtch was rhe latter part of 1979, interest ratas 9

were riaing and we used what we thoudit was a sufficiently 10 l l high rete of 13 percent. Tn2: mrned cut to be cn t=dar- l

. i l II

$ ectinnte Cn rata.

l'~ '

g

! Ilowevar, the rata was not as lect;-lived as no I

13 l uccid have anticipated, so en balance the interect accrualsI

a i

!- 14 :i f en that rate vera c= aller.

l i

O i

15 ;

Q For 1930, JC-304 .is mned la percent cud ,

16 i s

! JC-3C L a m =ca 14 percent; correct? '

1 17 1  ;'

A 11 percent on ahort-te n 6cht, 14 percent en 18 '

Ice 3-:or:a debt.

Q Mcw, what abcut 19811 Any differcnce?  ;

og l A Mo. Tac asat=.'ptions uculd he identical.

'l

~

JUDGE WJ'31LEL: Off the record.

oo

~~

(Discuscica off the racerd.) ,

23 Gihereupon, a races; was tr.kon.) l i

24 i - _ -

! i 25 ! l

! JE GE E uSE\LL: Back en the record. i I

_ . _ _ _ _ . _ _._--_-_.-_____-________m_ _ _ _ _ _ _ _ _ _ _ _ _ - _ . _ _ . _ _ _ _ _ _ _ _ _ _ _ _ - - _

3aldassari-croas 1639.

j 3Y LM. I!!aDELL1:

2 Q Mr. Baldassari, as I 1coh at your 304 c <hibita, 3 I gather t. hat the effective incene ta:: rates have been 4 changed between 304 and 3042 For excnple, in 1980 it wentj i.

5 from 13 percent to 8 percent -- excuse ze - ycs, frca 13  !,

6- percent to 3 percent, and in 1981 frca 13 percent to 27 l

7 percent, the second nt=ber in cach ecco being on 304A.

8 Elou did that happen? W.at usat=ptiens re-9! i suited in ycur asstraing that ycu vould pay at a hi;her rate ;

10 in 1981 than 19307

, 11 l

i 12 s i

f 4 13 l  !

i t i

14'l 15 l 3 i i

16 ' '

i 17

~

i 18 i 19 20 21

~

22 23  !

i I

24 i

25 ' .

l

1630.

, T 3aldacsari-cross I

, 1G. MRLELLI: Valle Mr. 3aldascari is 2

i calculating on the record, I thiuh I'll clarify 1 3

) it a littic bit.

4 Exhibit 304 assu=cs that effective ta:t i 5 rate in 1930 of 13 percent and for 1931 of 15 6

percent, while 304A ascunas an effactive can 7

rate in 1980 of 3 pcreent and in 1931 of 27 8

percent, and I'm ssking Mr. Baldassari to ex-9 plain these changes.

. 10 "

! 3

.*. Well, l'a not quite certain hou yeu've calcu-i  ; 11

! lated your effective tan rates, but en Enhibit JC-304, an 12 i  ! incone ca:: a;2 cunt of cone $18 =1111cn was forccast for the 4 13

". voar 1330 and 2xhibit JC-304 contemplated the interin rate i 14 i, j rellaf of $60 million which was rcquested by the Coapany and 3 15 F i

i j granted by the 3 card on i!ay 13, 1980.

] 16 I Likewise, E:fnibit JC-304A also reflects that i

' - l 17 1

1 level of interim rate relief, hcuever, as ycu ray recall 18

uhen we ve.: through sone of the other adjustacnts, as a'-

19 result of the reduction of base revenues, which we have se2n 20 3'

in the cceparison of the recults of actual orierations vercus 21 forecast and the centemplaced continued reduction in base 22 revenu2s because of the revised sales forecast, the incccc tax anount shown en the incene statencnt uould be expected 24 to decrease.

25 I should point out that in the year l'3SO no I

4 I l

, - . , - . - - - ,, . - - . i<-- ._.w_

y , ,

, ~ . - , - , ~ . , - - . - - -

Baldsacari-cross 1691.

I tanco are expected to be paid, as I believe is the tera ycu  ;

2 used a feu minutes ago, with respect to the reference of l

3 the effective tan rato.

i l

4 ', In the year 1931, there 10 cn increase in the i

5' i income taxes shoun on the inccme statement from sene 425 6

million shown on Exhibit JC-204 to 51-plus millien dallars l t

7 shown on Exhibit JC-304A, ra:;ultic3 in a changa of abent 8

1

$20 millica. Again, there are tro factors affecting that --

9lI t Q Before you cuplain, uhat specific line are we !

i 10 en ecu en JC-30', \? j

~

11 A Oa Irhibit JC-3CAA, uc are looking at tha 19

~

g I

line belov operating inccue, before incena tax, referred to l t

13 i  !

! ua inccca cancs.

i 14

! lI

[ Q .And we're discussing 1931?  !

15 '

= 1 A 1981 versuc 1931 en Z Sibit JC 304, which i.

~

16 I

! what I belicve t.hc questien nac.

17 !

l Q Yes; right. /.nd that number uns -- .

18 i

! \ Represents an increanc.

19 i '

1 i

Q -- of scue $26 uillion?

20 l 1

A That to correct. That increase is brought 21 about principally as a result of the addad rate increase 22 assumption, nanely, full rate relief cr $173 nLilien as 23 opposed to the assumption en JC-304 which caly included the i i

24 I

interia sucp of the increase of scre J60 aillica.

25 !

Q Fine, and you noa have answered cf questica, l

____ _ _ _ _ _ _ _ _ _ -____-I_-

dalduccart-croas 1592.

I at lcnet have begun to.

i 1

2 ilhat about any invert =cnt tax credits to re-3 duce those taxes in 19817 In other vords, are you really 4 expecting to pay that =uch in taxes in 19317 5l A Under the assu=ption of a write-ff of Forked i

6' River, which has been included for purpocas of thic par-I ticular precentation, thera would be no payacnts of incemo 8 tanca nado under a full rate relici scenario.

t 9I Q Let's assure fcr the ncment no writ 2-off of l

10 Forhed River in 1981. Uculd the Cc peny still have encugh ,

1

• l

11 i invectcant tan credits to subatantially, if not cecpictely, i  ;

i g

l '-)

! reduce the amount of actual taxes paid La that year?

13 2 A Mo. In fact, if ycu look at the year 1951, a

14 '

j i on 2nhibit JC-3023, encune me, JC-302 for the year 1981 --

+

15 l  ; that's Page 2 of 2 -- there is 2 line s:hich shows under  !

i 16 '

"5curce of 2nnds" the cash effect of the interin rata re-  !

i II lief of $60 million.

l 18 1

19 '

20 21 22 I I

i i

23'l I 24  !

25 ! .

i l

l

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~

U1 Baldascari - cross 1693 g A (Centinuing) At this point there had been no 2 assumptions mado ca to the final disposition of the balance of $113 million pending in the proceeding, and if you look at 3

4 tho ---

0 Arc uc on Page 2 of 2 of JC-3027 5

6 A That's correct.

7 Q What line?

)

8 A h'c are looking at the lino antitled Interim Rate Incroaco under Sourca of Funds, and if wa look at the 9

total of that line for the year 1931, wo sco there is a 10

. 11 cash effect realized from the 60 nillien dollars of rata in-craases f 736 nillion. That in partially reduced by taxes 12 le 13 other than incono tanca but there is also a reduction for in-

, j 34 conc tan paynants nado as a result of the Cenpany having J

- 15 utilised all of its invastaant tan credits availabic.  !

i f  :  :

i S 16 would also point out that tha reasons that happens is becausd 37 of the assumption within these forecasts that the Cc=pany received an additional lovel of energy adjuctment charges as 18

' a result of the September LCAC filing. In other wordo, al-19 o.0 though we utill:cd deferred energy accounting fcr financial

, y1 presentation purposes, your tax accounting would recognize s

those L2AC revenues as ta::able income at the time they are 22 1

• • • • '* * *' *** * * ' ?*" * *U '**Y 9 ***

• 23 I

taxabic ince=c to.which you then apply all available invest-y4

=ent tan credit and, therefera, the additional ravenues fren 9

.a

4

. Baldassari - cross 1694 1 a basa rato increaso would fall subject to tax payments.

2 0 Mr. Baldassari, you have pointed to this figure 3 of $36,300,000 on Paga 2 of 2 of JC-302, and'you are saying 4 that's what is left aftar taxes of the S60 million annual 5 increase?

6 A That's the amount that is left after applying 7 an interim increase to the old level of salos and after de-8 ducting out gross receipts tan payments which would be dua on 9; a cash basis rolativa to the amount of revenues collected 10 during the year 1930 and after roflecting actual incone tax f 33 payments which would have to be made during the year 1981, i

12 i YO

5  !

$ 13 l O Now, that coans that there was seco $23.7 mil-

{ 34 lion taken up with theco two tax offects you havo just men-i J

- 15 tioned, the gross receipts and incene?

s

,i g A 'That's correct.

1,, O Can you give us a breakdown of the $23.7 million7 I

A Of the approxinato'S24 million, about $4 million 18 1

gg was for gross receipts and the other $20 million was for in-CCmQ tax purposes.

21 l

l 22 23 24 l 25 , .

t i

I l

2u 1 Baldassari - crosa 1695 1 Q Let ne ack you to make the folicwing assumptions, g

2 Kr. Baldassari, before asking you a question about an c!foc-3 tive tar rate in 1901. I'd like you to assume that the $60 4 million of interim rate relief was made permanent in a Board 5 Order arcund February 1, 1931, but that this Board Order for 6 $CO million of permanent rate relief included $25 million forl

7 the amortisation of Forhad Rivar. Given that ascu=ption, my i

8 question to you is what would be your projection for whether 1 9 or not Jersey Cantral would ba paying taxas in 19817 10 A Uc11, I think it has to go a littic bit beyond

$ 11 that, :ir. Hardelli. You nay recall I indicated that one of 12 tha reasons that thoro were tax paymants acacciated with tho lY 13 base rato incrance was bacause the Company was essentially

!: 14 operating on an even bacia uith its enorgy adjustment clauso

d 15 in that it was 1cohing to hava becn en a current clause ef-e

! 16 factivo Septceber 1,1930 and, therefcro, would have anortised 17 its attira deferred energy balanco during the year 1931,

18 tharoby resulting in a high loval of tanabla incone because 19 of the energy clausa revenues. That is not going to happen 20 as a result of the Board's most rccent decision to not grant i

21 the Company's raquest for a 6.'3 mil increasa in its LEAC ef-fective Septcabar 1. As a concoquanco, it becc=es a little 22 23 bit difficult for no to adject the tan payaents status when I an nly varying _ ne or tu Of the a atmptions.

24 ,

I 25 Q Well, cince I am still locking for an answer to l

4 i

, I.. l ,

.c 2 Daldassari - crons 1696 I ny question I will ask you to make an additional assumption, 2 that the deferred encrgy is --- the deferred energy balance is I

3 written off between September 1 of 1980 and August 31 of 1981.

4 Would that enablo you to answer the question I have been pos- .

5 ing?

6 A Are you asking me to assume ve got the G.3 mil 7

increase effectiva September 1?

8 Q No, I an not.

9 A Than that can't be donc.

10 0 It can't ba done en March 1st of 19317

$ II A no, I don't think so, since in general the 12 energy adjustment clause is granted for a 12 nonth period, t

2 13 thereby amortizing the balance over 12 renths it uouldn't j

l 14 take place ccepletely within the year 1901.

d 15 3

I 16 17 18 19 20 21 22 23 l 24 i

i 25 l I

i 5

i ,

I

U ..' ,. "

i' r - 1

,y V Baldassari-cross ' <

1697.  ;

I You don't think;rn se's beca some indication Q

2 ,that Jersey Cer. tral is now;on a six-conth cost?

3 _

i j 3 A It seems to no~.that the last LEAC Order cer-4 tainly did reference six conths, but as I recall there uzs 5

vncvpr intention that the deferred energf balance be amortiaaf.

3.- .

?

-6

• in six months within tha'r order and that's uhat you just 1 ,'

7 '

d cc to aaitne, ,  !  ;

t b

4 ,

,Q Hr.Baldassari,'heur,ca\sucr's ta ne in the last l 79 -i 1 'L / ,

~:

f,feu ninutes" arc ~gnatning' thad , t the Monpany's energy costs 10 \ .

Qill be wh5t they proje'eted and not what the Board and che i A -

II l Advocate erh proj ecting. '

j 12 i ' h' I ask you to =che the as'staption that the

~

2 > -

13 , *

{ Ceapany's energy costs were what the Board's 9:dcr indicated 14

#cr the sin conths frca September 1, 1980,'to March 1, 1931, 5 15 s

j j to the effect that Jersey Central would not need an increase, e -

16-

-and then asstacc that in an order en March lot, the Board's i 117 order allowed for the acortication of the deferred energf.

'Is '

s 1G. KIRSTEli: On what tern?

19 i i MR. NARDELLI: For heu long" of a period?

'20 ,

i MR. KIRSTIM: .Yes. R ac's the key-i 21 - t

• A 7m .

lquestion. That'.r that he just responded to',

' ,i' i s A'22 ithe Ecard Order was for the amortization of i 23 , i

! ' deferred fuel on a 12-nenth basis. Are ycu ,

24 r'N A suggesting -- asking him to assina that on I_

,,3 . , ,

e 4 .

.[.

,- ..- s- -

j.g,'l^ ',

MarchList.the Board nould provide a L2AC whichj

.i

, ' }

u, .I ;

A g, ,

. v '

, . - , . -- . ~ .

I Bald.:cccri-cres a 1693..

> i 1:

I

.ould prcvid2 sn enortizatica on a ain-r.cnth :I i i 1

2 basis? '

I 3 121. UML3LLl: YCS. .

I i

4 A Well, it goes beyond that .n;a in . Yeu've asked ne l 5 now to asmne a set of productions for tan purposes other 6 than thor.c ,;hich uc've already assm ed in the for3 cast, und I

7  ; don' c 'c.cu what 'that icvel 10.

i, 8 >$t. MAP 1ELLI: Occid we go off the i

9l record? l 10 ; JU"G3 itla31MLL: Jera, i

I

i

. 1I !

I (Whereupca, a discu:sica una held off i

12 g  ! the record.)

i

13 l JUDGE r M IMLL

112'11 go bach en the l i I 14 l l i.

record.

. l

! l 15 -

i

.e: . . L ~taa . ...5 : Can ycu asc. ni:n a ques- t r I 16 f .

tion to put that discussica c:1 the record noul I

1 "'

MR. UldlSLLI: Yeah. I thy.ght I uss I' i

18 going to ach a acnarining question. f 19 MR. K12STU: Chay.

"O Q Ue're interested in hacwing, Mr. 3aldasse.ri, t

<> 3

~ I uh ather if there is a write-off of Ferhed Riv 2r in 1951, '

oo

~~

and ev.:n asseling that the 3 card does not allow the t. rite- ,

o, 1 i

off to the entent that you have recucated hut allo;s Lt to i I

o4 come de..'.ree lesa then that,*culd that not acan that ycu {,

o5

. i would not en-f any tanes in 19312 I'm answ.ing a perr.cnent  :

I I I

I '

i

3alCassarl-cross 1699.

I rate order of 450 million on Fchruary 1 of that year.

2l A The accuaption that for acccunting purposes I

3 la Porkad River project is written eff wculd constitute a 4 aituation uhcre under our assumption of full rate relief 5 which haa carnarked $50 million specifically to cover the i

6i write-off, there would be no tanas payable by the Conpany.

7 To the c:ttent that the revenuca --

8 .iR.

KIRSTFJ: You didn't say tha year.

9 A (Continuing.) In the year 1931 or in any i

10 ll year that such assu=ption takes pisce, uithin this forecas: 1

I i

I

i 11 '

l period, to che catent that. the 3 card cuthorisca a icval of i i i

12 l revenuca lecc than that requested by the Cer.pany in connec I 13 s

tion wi:h tha write-off, it .iculd not chanar thc.t particular; i

! I4 ! ta::able situation.

l 15 V:e acccunting for tan purposes ucrks uholly '

~

I 16 '! apart frem the rate making.  ;

17 IS l

19 20 21 22 23 i

i

! 24 ,

t 25 I i

l

naldassari - cross 1700 OV L 1

MR. KIRSTCN: Hay I just cay scmething 2

to clarify this, becauso I think the record is 3

ntill confused, and if you'll boar with me, the year that wo are allcwed to write-off Oyst2:

5 Creek --- I mean Forked River, regardicas of

~

6 how we acertire the write-off, .for tax pur-7 pesos, the deduction will all be applicable 8 to the year that tha write-off is made.

If that is in 1981, we will take tha 9

10 entiro deduction for the entire write-off in

If we do not have sufficient earnings

! 1981.

11 a i to offset that deduction, there will be/ carry-12 forward of the writo-off to futurn years.

13

! As far as the ratomaking effect is con-

, j.:

I l d 15 corned, the write-off --- the tax benefits s

! will be defarred, in offect, be amortized out 16 at the scme rate that the amortized period is 17 18 permitted for the write-off, so that tha tax benefit will be realized the year it's charge-19 able, but it vill not be booked for ratemaking 20 purp ses er charged for ratemaking purposes 21 until the write-off is made for ratoraking 22 23 P"#P 8*8' Q Mr. Daldassari, if Jersey Central writes-off 3g Forked River in 1981, it will not be paying any taxes in that j 4 *5 b l

! i

!, i l'

i 2v 2 Daidassari - cross 1701 i

i 1 year no matter uhnt hind of rate order it gets from the Board 9 that v.en:: correct?

3 A That is correct, however, I would point cut 4

that its carning can be significantly affected dspending 5 upon thc type of rate order that it rcccivas froa thu Eoard 6 and, thereby, its ability to finance.

7 0 :Icw, do your figures en 20D. Or 304 incorporate l

8 any accumpticas regarding tha ner.calization of cortain levels

< of e::penses?

i 10 A 2 y c:dit it JC-20 '.A and for Eut mtter its I

gi precedescor, 304, don' t have any nor::.cli ing adjuatacnts in l

.t t 12 1 them.

!' are .

13 Chay / intended to be a rgrosentation

s. we i: 14 0'2 c:genses -shich%culd anticipa:a incurrin;; at the tinoa

• that m trould anticipate incurring thcn and in rhose ancunto.

15 I

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16 17 18 19 20 21 23 24 l

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t

I Baldaasari-crosa 6

i 1.702.  :

ili i 1  :

i 1l t. (Continuing.) They do not take any attempts j ,

i i 2i tobriagintotheperiodexpensecfreeotherperiods,ortol '

l I

3 taka thee out. 6 4l Q Is there any chan~e d in ycur assucptions re- i 5l I garding TMI-l that eche place betvcen 3C4 and 30/J?

I 6l A To my recollectien, both enhibits contenplaced 7

the July 1 in-service date for T.!I-1.

8 Q Mr. Baldassari, are you familiar with Mr.

I 9l Prcia ' Exhibit JC-10l? ,

1 10 l A Ccacrally, yes. I i ,

i j II ;l Q 'iew , in looking at that exhibit uhich is c:2-19~l' narabta to the 304 cxhibits, at leaat the profit-2nd-loss 13 l  : part of tha Freia exhibit -- l l

!- 1'1 l JULGE 2tMLSP.ALL: Cff the record.

j li j 15

(Whereunen, there uns a diacusaica off !

1 I I 16 f the record.) '

i 17 I ,

JUIGE luRSliALL: Sack en the record. I I

18 l- l l Q Comparing the three exhibits, it ceca tnat i l, 19  !

Mr. Preis has prencnted a more optimistic pictura for 1930 i resulting in a much higher net inccne figura. In fact, a

'l

~

60 parcent variance betwcon 101 and 30!,A.

2' ~

Well, atrike the "50 percent" figure. Mr.

93

~

Preis does cete up 91th a net utility operating ince2e of I

'4

~ i j #114,352,000 cccparedtoyour0138c1111cnfigureenJC-304aj.

95 I cu tecndering about how many of Mr. Preis' accumptiens  !

Ii

l 1703.

3alducccrt-cross 1 rege.rding such things as 'Ei! lessens ler.rned c::pe.ditures, 2 ygygt gf x7 7gyggg _,

3 ;3, g13373;; Arc you rcforring to the A as budgated colu:.ml 5 yg, 3333ng;; 7cg, 6 3G. KI3STEl: I think uhat Mr. Freia 7 cano up with was not tha as budgeted. That's 8

uhat he started with. I :c caly referring to 9

)

the fact that you are acjing uhat kir. Prcia i

10 - ith aa if this sa; Sts cenclusicn. i

, came up  :.

~

I  !

j 11 That wcs tha budget figure unadjusted. All l 12 :

i right?

13 ,

12. !LLVELLI

i Hight.

a

}fR. K125T23: Cha/.  !,

, i 15

i JUEGE bLLRSt%LL

Off the record. i I

E 16 l Gihereupon, there usa a discuscicn of f :.

i 17l the record.)

18 OTncrcupon, there was a reccas tchen.)l 19 20 21 22 l 23 I I

24 I

25 i i

l l

l l

Daldaccari - croso 1704 x1 0 Mr. 2aldassari, uhnt I'm 1 coking for is a recon l-1 2

ciliatien between RC-101, Schedulo 1, Page 1 cf Mr. Preis' 3 exhibit and your c::hibit JC-305A, ? age 1 of 2.

4 In particular, I thcught we might start 5 with the 127,562,000 figure as budgat2d for cperating in cca 6

before incere taxes on JC-101 and the figure of 118,403,000 7

for operating inccas with rat? increase that appearc on JC-8 305A.

9 Can you rcccccile thoro tuo numbers bung before you do, can ycu --- and in 20 doing, can you tall us 10 in 33 hcw cenparable th2y arc and whether that / a cocd starting point?

12 2

4 13

14 I

• I 5 15 !

i 16 17 l 18 19 20 21 22 .

23 j 24 i

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1705 i Y1 Baldasaari - cross ,

A I think so. For starters, Mr. Prois' lovel of 1

2 operating income beforo income tax was based upon a budget 3

which was prepared in the latter part of 1979 and it repro-4 sented a full forecast period for the year 1300. Sinco the 5

time that tho original budget was prepared and since ---- cr 6 nora appropriately, when viewed against my onhibit JC-30tA 7

which is the Income Statement and also contains the operating 8 incemo before incomo tax number, which you referrod to, thoro 9

wars a number of actual events which took placa which vero 10 different than thoso which had been forecasc.

gg My c hibit 304A includad seven months ,

l e

12 worth of those actual occurrences in devaloping my year's l

?

total of operating incomo before incccc tax. During that 13 ,

j I

j seven months actual operating incomo before incomo tax was i ja !

d some 13.3 million dollars loss than whnt was contemplated for 15 s

E 16 the first seven months as -budgetad which was part of Mr.

17 Preis' numbers.

Similarly, there were assumptions mado 18 19 with respect to my forecast material Ohich woro not a part of 20 the original budget. If wo used tho $13.3 million as our 21 starting point for the difference I believe that va can num-marize the changes which came about as a result of tha as-22 23 sumption differences and ccmo up with the full S9 millica 24 differential botueen Mr. Proic' number and mino.

l My exhibit contemplates a rate incroaco f 25 i

1706 Y2 Baldassari - crocs assumption which is consistant with the icvel of rato incrasso authorized .on an interim basis by the Board en Ilay 13th and  ;

4 for the remaining five forecast monthe of 1980 that amounts

- 3 to an additional level of operating income before income

4 taxes of ucce $24.4 millien.

6 7

8 i

9 10 I e 11 j-  :.=

4 ., 12 4

!e i s 13 a 14 I i

t 8 15 I-16 17 18 i

i 19 r- 20 t

21 22 23 24 25 l

,. - - - ,. -- m,,_ , . - ,, .,,. .-- - - .- . , v- -r .-.

1 i

Z Ealdausari-cros 1707.

1 .\ (Continuing.) I have already stated that l

2j actual results of operatica for the first neven conths re-3 culted frem a decline of $13.3 million. So, at this par-4 ticular point, we are $11.1 aillion cver Mr. Preis' number.

5 In addition, the reaaining five mcaths of my i

6 forecast contemplates a cantinued reduced level of sales 7 vhich vould also reduce the level of the base revenues which 8 would be billed to custeuera cad the secuct that cdjust cnt 9 for the rcraining five ncntha in ny forecast is 913.6 i

10 l sillicn.

j o

11 That $13.6 21111on subtracted froa the 11.1 ,

g 12 million-dollar balance, which I previcucly stated, 7n:a cy l

13 l nu=Ser at 2.5aillicnbelowMr.Preis'cr:ber,cudthefinclj i l I4 major nacumption change vis-a-vis my for cast la the re-l.

f

15 l naval of TMI-1 from base rates which occurred in Septe:ber i i

16 of thic year via a Roard Order which was not centemplated  !

1, j at the tine of the preparation of the original budget for l I  !

18 I the remaining five conths of the forecast period. f i

I9  !

That results in a reduction of oporating in-I 20 ce=c before ince=e cance of 5.5 aillica. The (6.3 tillion 21 added to dbe $2.3 millicn I previously stated totals cn 99 approximate $9 millien difference between my forecast and

• 3 that of Mr. Preis for the year 1930.

24 1 d also indicate that each of these major f

95

~

j assu=ptiens which I hcve used in the forecast =cnths are  !

i t

6 Balda ssa ri-cros s 1703.

I in large pcrt respencible for the difference in actual 2 veruua forecast in the prior seven months.

3 Q Lat's turn, Mr. Baldassari, to JC-312. First i

4' of all, has d:e Company 2ndo any changes in these esticat2s?

5 A Basically, Mr. Hardelli, the estimates which 6

ycu referred to en Zxhibit 312, center around a level of 7

capital requirements which are anticipated for the years 8

1d22 through 1035. In particular, the icyc1 of construction i

l 9

l requirc=2nts which are indicated here are outlined en 3:t-10 l hibit JC-Cola nd there have been no changcc to chase par-i II ticular forecast nuubers.

12 i

l a

j 13 ii I Y

14 l, l

$ 15 l .

l l

c ,

f 16 ' l 4

1 17 j 18 19 20 21 22 i

l 23 i 24 .

25

~

T i

.2. , 3aldassari - cron 1709 1 A (Continuing) I would hasten to point out that 2 the 1cvel of exponditurco for those years, namely 1982 to '85, l

3 do not carry uith them the saco lovel of precision with which 4 the budget year and first innediato forecast year are put 5 together and, of courco, are subject to some variance. The 6 purpose of this oxhibit la to provido a basis for gauging the 7 level of capital requirements which vill be required by the 8 Company through dio year 1935, 9 As to the level of internal source gene-10 ration, no have assumed for these purposes that the fundamen-t tal internal cash would be generated through depreciation, l gg p, amortization of nuclear fuel, deforrad tarcs and the reve l 13 increasa requested in this procacding in connection with the

{ 14 a:sumption as to an amortication of the Forked River invest-i 5 nont. Thera havo likovice baca no changes in those assump-15

! 16 tions at this timo.

37 Q The entry on JC-312 which reads " External capi-gg tal requira=enta", explain that again?

gg A 2xternal capital rcquiremonta are shown on Exhibit JC-312 represents the difference between the total 20 pital requiraments for Jersey Central in cach of the fore-21 a t years loss tha level of cash which uculd be generated 22

'3,

~

via the four major internal sources which I have indicated ,

l

.proviously. In other ucrds, external capital requirements

• E" E08 #0 " ** # #* *U U #"9" *

• 25 l l

l

1710

..t,2 Daldaccari - cross 1

capitalization of the Company which would have to take place 2

in order to finance an ongoing construction progran.

3 0 Uhy wouldn' t retained earnings be a fifth 4

major internal source?

5 A AS a Practical matter retained earnings could 6

unil be' viewed as an internal cource of cash to a company 7

but for the purpocas of these exhibits I have not tried to 8

estinato the level of earnings which will be required or could be expected over the four-year tinc pericd. I an 9

10 simply trying to cccop out a capital structure and attendant capital ccsts which would result in attempting to acct this

$ 11 type of program. In so doing, I have to reccgnize that a 12 8

13 r2tontion of carnir,3 by a ccapany will incroacc its commen f 34 equity position of its capital structuro. but i

0 Well, certainly forgotting about 1905/for 1932 f 15

! 16 you would be able to nahe sono accumptions regarding the re-tained carnings of the Cenpany, would you not?

.17

.1 Given specific cocurptions about rate reliof, 18 certainly.

39 t

20 i 21 22 23 24 -

25

1

'Jaida s cari-cros s 1711.

2n.\

1 Q What is the assucption underlying JC-312 re-2 garding rate relief in 1981? l t

i 3 a 312 itself does not carry with it any par-4' ticular assumption about rate relief other th:n the Cetpany'a 5 carnings are sufficient en ugh co as to allow it to cect 6 its capital enpenditure progran. .

7 In subsequcnt exhibits, 1 atecepted to ahcu l

8 uhat le cla of return *ould be required in crd2r to meet 9i specified financin3 criteria to facilitata this program.

10 Q Uow, sticking once ; gain with 1932, if the

i Cntario I!ydro project acre not started in tL2c for thera to i

11 l

i y

12 -:e cny expenses in 1982, that vould anount to a coaciderablej i I3 ; reduction in the censtructica requircuents, uculd it not, I4 Ear 1952?

I dcn't belicve that ycu can cake that ccennp-!,

}

15 l A -

i 16 tion bcccuse to the entent that Ontario dydro would cave to !

I7 he significantly delayed or eliminated as a viable project 18 l for the Cocpany, seca alternativa prcgrac uculd have to be 19 put into effect in order to make up the loan of capacity i oo

~

in conncetion uith not going forth with thac project.

91

• So, I den't know at this particular paint in o, If I hcd to guess

~~

tine what the dollar trade-off vculd be.

'3

~

nnd ue ucre talhing about the Company adding its own capa-  !

i 94

~

cir, as opposcd to buying capacity, the dollars ceuld hu j o.a- l CDrG. 1 6

9

Dsidassari-crocs 1712.

1 Q Uhat if an entity othcr than Jeracy Central 2I vore to ecnstruct the Ontario IIydra trancaicsion line?

I i

3 A Then I have to assene they would ciso be en-4 titled to the benefits of it.

5 Q Uell, isn't ic within the recia of possibility 6 that uhoever finnnced it would get a return on it but ceuld 7 cell that power to other entitica, including Jersey Central?

8' A I cuppose there are a whola host of possi-9 bilitien in connection wid1 a third-par:y involvccent with 1

10 j the Ontario ilydro project. I cn unabic to na%c any dn- l 1

i

11 l i tarnination as to how that would affect JerJcy Ccntral'c l I

+

I2 , construction prcgran unle:S I knew to uhat ent nc the i i a

13 l capacity aculd be available to Jeracy Central.

$. $4

l l 15 i l

l'

16 l i l

17 l I

IS i l

19 l i

20 21 22 I

l 23 ;

I j 24 l t

1 25 l 1 l

33 Galdaasari-creas 1713.

1 Q Since this usy ycur last dsy, do you have 2 anything else to add to che sestus of the Ontario Hydro l 3 project since the last time you cppeared? In other worda, 4 there's not a latter of intent, la thera?

5 A Ho, there is not.

6 y Are you any closer to it chan you were the 7 laat time you testified?

8 A Since that was caly cbout ten days ago, I 9 think it'a safe to an ver no.

10 j .Q Now, JC-312, dcas it assu. a any dividend to i  !

! 11 l; CPU? j

- 1 l

3 12 l A Likewice, toayrecpenseuithrespecttoratel .

I I3 j increases, 312 nahaa no ascuuption as to dividenda to GPU.

i i

j I4 l ,

All it's intended to do ic to point cut a nec !

i o I I 15

i change in capitalization thich nust take place in order :o <

16 l fund an en:;oing construction program.  ;

1 "'

Q Mr. Saldassari, let ne show you ; hat is narked 18 j gc.333jg i 1 19 A I have one. i i

I 90 Q Yeah, but you dcn't have this vercien.

91 JULGE WJISHALL: Off the record.

99 l l (A discussion was held off the record.)

93

~

j JUEG3 MA2SIIALL: On the record. This l o'g

l. ,

I, exhibit shall be narked JC-3033. 'l

! I i 05 ' '

(One-page docenent entitled " Jersey l l r

I

1 l

l

Baldassari-cross 1714.

l Central Pcuer & Light Cenpany, Deferred Energy 1

2 Balance and Bank Borrowings," referred to 3 above by Mr. Hardelli,10 received for 4 identification cnd marked Exhibit JC-3033.)

5 Q Mr. Baldassari, the document we have marked 6 3033, can ne agree that all this is is your JC-303 laid on 7 your JC-303A, subject to check?

8 MR. KIRSTEN: With the exception of 9 one line.

10 MR. NARDELLI: YOch, there is an ex-j 11 ception. In September of 1981, there's a g

12 dotted line, a vertical, running down fron 13 1 30-something million to zero.

I4 But are you saying yes, at least from a pre-Q l

15 liainary look, that secas to be the casa?

16 A 3033 appears to be a ceabination of E:thibit ' i 17 JC-303A uith an overlay of the short-tera debt outstanding 18 uith rate relief and with 50 million of first-nortgage i

! 19 bonds that was used on Exhibit JC-3033 "O

~

Q Now, looking at JC-303, isn't it true that 21 t

that left the company uith some S40 nillion of deferred 22

! e ergy at the -- excuse me, at a icvel of about $40 million 03

~

of short-term debt at the end of 1981? That was your May

• 4 l

~

1980 forecast of your short-term aebt level. l 95 That's correct.

~

l A l l

3c1dassari-crosa I '

1715.'

Q And 303A brings ycur short-tera debt icvel 2 {

doun to zero in September of 19317 3

A Tliat 's correct.

4 Q

'5 llow, what led to the change between 303 and 203A?

6 A

7 The ascumption of an additional @ll3 millica 8

of rate relief effective February 1,1901.

Q Thnt's the sole differcnce?

9lI A Yes.

There are sc2e mLr.or differencea as ae 10

~

11 !

I indicat2d on the incccc statcuent with respect to fuel, 12 purchased poucr and interchango, sales reducti n, that core i

i of thing, bu:

4 13 !

basically r e'ra talking abcut added earnings I. 14 na a result of the full rate relief assenption.

d I 15 i

r 16 17 18 ,

19  !

20 21 22 23 24 25 i

i 1

Baldassari - cros: 1716 Q And to the extent you couldn't get full rate relief, un could anticipats that the deferred --- excuse me, 3

that shcrt-term debt level would not be reduced to zero.

A To the entent Ehat I get a dollar less in rate 4

increase revenues than I havc forecast here, consistent with the rest of the accumptions, there would be an amount of short-term debt incroacc, yes.

' Q This 0113 million of additional base rate relief, 8

how much cach dcca that generate? Doesn'titgenarateinthel 9

vicinity of --- in the 50 million dollar rango?

~

A Did you uant to knew hou much cash generated 11 I*

! frcs tha full 170 million dollar rate order offective February 12 i

17 13

)

a Q Yes.

i 14

, A Cn Exhibit Jc-3023, Page 2 of 2, in the last

15 l

~

column, the lino entitled banc rate increaso under source of 16 funds, I shcu a level of cach generated from the rats in' crease 17 of $151,200,000 18 Q And that's also based upon certain assumptions regarding the amortisation of Forhed River, correct?

20 A That's correct. The accumptions that are used 21 in all of these exhibits are consistent.

22

Q Now, ever the last feu times that you've testi-

! 23 fled, when no were di:cuacing your assumptiona regarding 24 the paycent of dividends from Jersey Central to GPU, ycu-25 l

i 4

\l so Baldascari - cross 1717 4 Ii.

always seemed to tio that payment with the receipt of these i

p i

2 base rate revenuca. Ic that not true?

L Ucll, I said I believe at the timo that in order A

i j 4 for --- well, I bel 3cyc I was responding to a quection from you, Mr. Hardelli, which asked whether er net Jorney Central should be making dividend paynent to CPU given its poor finan-cial condition, and my respense was that vc have nada an as-4 sumption for forecast purposes here that we received the full i

9 arount of rato incronra uhich we have recrucated effectiva '

February 1 and given that acataption, Jersey Central's carn-j ings vould be such so as to nost likely want dividend pay =ents 11 to GPU.

12 a

13 a

ei

i. 14 I 15

16 3

17 s

18 19 1 20 21 22

, 23-24 25 l

=, _,-.-,.-:--. ,, w . m., . , - , , e --- ._ -- ---,y--w , y -,

CCl Baldascari - cross 1718 1 Q Sut if you do get the full amount of base rato

~

relief according to your own projections, acme $51 million 2l i 3 would ho sont frcn Jersey Contral to GPU in 1981, correct?

4 A The bacic assumption within ny forecant is 5 that Jersey Central would resuna its policy of paying out 100 6 porcent of its nat incc=o to GPU in i361, that it would rely 7 on GPU to provide equity contributicas for its equity capital 8 neads.

9l Q Yes, but in your projaction: and in your cn-i i

10 ' hibit: when you shcw the $51 nillion going frca Jarney Central

l 11 to G20 in 1931, you dcn't show a cenparable centribution frcn

[

2 12 GPU to Jer cy Contral. Ic that not true?

I 4 13 i A Yes, and that's because you can't 100% at just i

a l j 14 ; one year. You hava te lock at a 1cng paried cf tiro ac to

j ,

d 15 j hon a Cenpany's equity hac been maint:ined vorcus the level

. 1 i 16 l I of dividends it paid out. I believe that what you vould find t

17 if you 1 ched at Jersey Central ovar a 1cng pericd of tina IS is that its level of centen. equity increase vould be cenoistent 19 i with tha tantion ratios of nest utilitics that actually paid i

20 dividands to public conmon stockholdcrs. The fec: that thera o1 numbers may not coincide exactly in any one givan yec: decs n t really carry with it any significance.

22 23 0 Going back to I guess we can 1cch at 3033, j

,- which shcws tho May 1980 forecast bank be,r cuings cespared

,4l

- i

n.

_a to subsequent forecast , a= I not correct in thinking that ,!

l i

. 1

3aldaCGari - 0:0 3 1719 CC2 1 that line and the assunptions that make up that line, that there is no as:urption thero of Forhed' Elver being uritten-2 3 I off?

i

. 4 A With renpoct to the liny 1980 forecast line?

5 0 Yes, 6 A Chat's corract. In JC--303 there vac only an 7 acsumptien as to interin rata decision in the amount of 760 8 million. Tharn were no acau=ptienc as to the remainder of 9 tha Cenpany'a requast in this procaeding.

10 C And we earlier today had a discuccion al.out

~

11 how the $60 millicn of interia rate rellaf n:.ght ha dividsd

~

12 and you were projecting 1981 that you would %sep 035 nillion 3

illion. That was roughly the 4 13 a nd 20 : he taxed another $24 i

14 anlit?

d 15 A Yes. That was in 2nhibit JC-302.

i

16 O And what was the asst =ptica underlying that 17 split of the $60 million cf interim base relief with regard 18 ! to Forh0d Rivor?

l 19

\

A There was ne casumption in JC-302 with regard 20 to Ferked niver. Forhed River was in a status quo position 21 at the tico and D:hibit JC-302 was only prepared to show the

.n..o offect of tha $60 nillion interin rate increase and did not 2 go beyond that and nahe any accccptions uith respect to the o4

'Forhed River Froject. .

25 0 Then if Fc had 2iver ucre written cff there w

V JC3 Baldaccari - cross 1720 1

uculd be an additional $24 millica availablo, would thoro not, 2 of cuah?

3 A Without any revenucc to ccvor it?

41 0 No, assuming the sama $69 million.

I 5 A Assuming that the $60 million uns used to 6 cover tha writa-off instead of provid$ng earnings as it was 7 intended by the 3 card?

8 0 Yos, that the 5G0 million was divided in :c=3 9 fashion botucen earnings and fnnds te cover the write-off.

A I don't have a precina c-"1-" den on that. I 10 11 chink I can any.ror your qu20tien with respect to the tax

! had

. 12 censequence tha canc as va/previoualy in that ct any point 4 13 in timo that you nahs an assumptien of a write-off of any f 14 invostment en the books of the Ccapany, all the tan con:c-15 i quane ts are addressed at that particular point in ti=c ir-f

! 16 respectiva of the ratccahing which folicws that writa-off  ;

37 decision.

18 19 20 f 21 22 23 24

• I 25 l 1 1

i I

1>

2CC Saldaccari-cross 1721. '

1 A (Continuing.) If ycu are asking ne to ce=nent 2 ou che cash flou effect of that, I believe ty respense uculd 3 be that rcther than to crecte au cdditicnal cash flow for 4 the acount of the tan dollars, uc probably uculd end up with 5 a aorse cash flow becauce we would be in auch a pathetic 6 carnings situation that it is highly unlihaly that uo could 7 get len ers to provide additional capital requireacnts even 8

on a chcrt-ter= bacia.

9l Q iTnen doca the enistins revolvin?, credit agree-i 10 n2ne 337 :1 37 j

11 A Sy its terns, the ::volving credit 23recnant 10~

g reaches a final naturity on October 1, 1931.

13 1 Q And it vent into affcc --?

i I I4

! i A Ca June -- 1:'a datad ec of June 15th,1979,

, I

3 but it's ny recollectica that 'ocrrenings care first affected!

16 Ii cn it a uc2h or so charenitar.

I 4

II Q And that has been the average rate of interest 18 undar that RCA, roughly? I an not 1: ohing for an exec:

19 figure.

"O It's been roughly 103 percant of the daily

~

A 91

~

averaga prima rata sinca ne went into the revolving credit 22 agree: cat.

93

~

Q Can va say that --

94

~

l A Actuc117, it's slightly higher than char be-o.o I -

cnuse you have to include a portion of the ceccitment fee, l

I l l 1

5 1

3aldasscri-cross 17-e.

4-I I

f j but in rcund n=bers, say 112 to 113 percant of the average '

l 2 dai1+; prine rate. l 3 Q And so for che period it's been in existence, l i

4l tha bu:Qs have been receiving interest for the most part 5 over 15 percent; c.orrec t? I

.. t 6 A Acil -- .

7 Q Speaking rcughly, again?

8 A I don't have tha dsily avera:;e prine rcta 9 since the revolver went into offect, but I uculd say that 10 the pri.ac rate certainly has hit new highs in the last year

~

11 or so and 13 cercent doasn't ecund at all urnasonable au 3

12 tha avcrase rata of interest that's been paid.

4 13 I would point cut that for the tvce of credit i

j

. 14 l a3- ac-:ent it ic, that rete of borreving er rate of boncu-I 15 ! ings is not at all uncrnestitive with what is cvailabic in

i i

16 the narhat far other utilitica.

17 Leaving that aside, can ne agree that the Q

18 33..;.3 ;ade a fair ,cc a t of nonty under the RC.'s?

19 A I can't an:ver that question. I don't knou 20 uhat they had to pay for the noney to lend it to na.

~ 1 Q Tne banha hwe c:ntinued to land r.oney =dcr 22 the ll0A; carrect?

3 A Tne b:nha hava on occasion halkad at lendin~, j i

24 '

I, core =cucy under tha Revolvian a Credit Acrecuent pri--aril,.

5 l as the result of prior Orders of tria Ccruissi:n and in i

f l

g*

ee

l 3aldacanri-cross 1723.

1 Pennsylvania. But, nevertheles:, as a result of subsco.uont i 2 rate decisions, it did provide whatever level of banic loans 3 ucra raquirad.in order to ccet the cash requircments of 4 Jersey Contra 1, ycc.

I 5

Q Do you have any recsca to ancicipato that the j 6 banha, given the ncncy chey have made on this RCA over tha a -

past tuo years, uould not continue to ha involved in c 8

l Revolving Credit Aarsecent uith Jercay Central?

9' A Mot assuning they have recaen to belicvn no

' 10

, will be abic to cencinua to pay them ar.d the rest of cur j 11 L creditors, tha: will be dependent 1. holly on the typa of rate l' ~

y decisions which are hcndad dava st.bcequent to this proceedi:! g.

i i 13 Q Now, you are no: cquating any particular icvol i

14 I j , of ahcrt-tern dcht with the continuance of the revolving i i

l 15 l cradit 23:2r. nt, are you?

16 l A l

Well, I a:1 not nahing any particular ansex.p-17 tiens for the purposes of these cahibits as to what trans-18 piros with respect to the ravolving cre.dit 23:2ement. I 19 hava nada an asst:aption that credic vill be avcilcbic to 20 Jersey Central subscquent to Octcher of 1901 in sc=c fashion

'l

~

c.nd that is dependent, of course, upon my assunptions of 22 rare relier. .

0

~3 Q Ycu have previously testified that the sale

'4

~

of the MO nillion of first-ncr gage bond in August of 1931, ,

25 I t that the timing of that sale was not related to the axpiraticn 4

-- n m - -. - . - - ~. ,

I 3aldascari-crosa 1724.,.

1 of the prasent ECf. in October of 1931. Do you recall th c testf=nny?

i 2!

l 3

4 5

6 7

8 9j i

10 '

~

a l

~

i 11 3

,, 12 !

a i s <

4 13 I s  ! i

14 :

i I

$ 15 '

! l i ,

16 l i

17 I I I i

18 !

I i

19 l l

20 '

21 22 l 23 l

1 24 25 l l

l,

aL , 3aldassari - croca l ,e22.

1 A I recall addressing the timing of the 50 cillioln,

'2 the first nortgage bonda in that it was placed in August as 4

3 a result of that being.cne of the earliest months in which 4 ,

the Ccapany would be ahlo tcrcccca the capital narkets en the s

5  ! basis of its earningt tact:

ascontainedinitsdebenturein*l

_h dentura and that that veuld indeed allow the Company to olini-7 nate its chcrt-term daht position in its entirety within a 8 vary short period thereaf ter, and that it uculd be the hcpe 9 of the Company frc= that point en to utili e short-tcrm debti 10 as only an interin financing vehicle in =coting its capital

/

11 enpenditure prcgram.

[ ,

I don't recall making any particular 12

$ 13 i statenant as to the tining of that sale c,ti'd: r2spect to the s

October 1 naturity 'u dar the revciving credit agreement.

j 14 _

i j 15 Q  ! don't think thoro's any disagreement en Page

( ,

! 1,532 cf the transcript. I said that C-302D shcus 50 til-16 l 17 lion cf long-torn debt projected for August cf 1981. I then I

18 asked tha quastion is the timing of the long-term dcht predi-19 catad en tha fact that the ECA cxpiras in Octcher of 1981 and 20 your answer is ne r it's not.

You don't diccgree with that answer? .

21 A I don't disagree with the answer. I didn't 22 9.3 recall having been that rnehatic shout it. ,

i 0 nell, in f 4.:noss to you I will say that after 24

,a-you say, "No, it's not", you do go en to anglify. -

i

l 1

1

,02 ualdassari - cross 1726 !

1 A O'kay .

2 Q So, you are not suggesting for the record that 3 the renewal of the RCA is contingent upon getting a chcrt 4 torn debt loyal down to =cro, correct?

5 A That 3 a littla different question.

8 6 MR. KIESTEU: That's background.'. Excuse 7 me. If the ahort-tern debt level goes down to 8 :oro, you wouldn't have to ranctr the RCA.

9 If the short-tera dabt lovel is not down 10 to nero, you're going to have to renew the RCA,'

i j 11 Whather you're abla to or not ic tho question.

2 12 Jhat you just said is the revorce of what uculd j 13 happen, I think.

a j 14 M3, LARCELLI:  ;!aybe I can raphrace tha 5 15 questien.

e I i 16 0 In order to --- well, turning to JC-3033, you 17 do chcv bank borrcuings going to cro in Septocher of 1931, 18 and than in Octcher of 1331 the borrowings resune again.

19 Is there an assemption that the RCA was 20 renewed at that point? .

2 A  !!o . I believa I-tired to indicata carlier that 22 all I have ascusad is that there is credit available under 23 this scanario and I hcVen't mada any particular assumptions

~

o4

~

as to uhero that credit cenes from, 25 Q Okay.

DD3 331dascari - cross 1727 A I beliavo that I can cuggest to you that unless!

the Cccpan1 is in a pcsition where it can demonstrato its earnings are cuch as to allow it to do financing of a pe man-ont or long-term nature, that it would be very difficult to 4

cecure further credit to clicw it to fund its ongoing programs.

6 8

9 Ie 10 g 11 12 k '

3 i

a 14 i

5 15 1

16 17 IS 19 20 21 1

22 23 l

24 25

2DD 3aldassari-cross 1723.

1 Q All rig,ht, but the radiction of th2 short-2 tei2 debt level to scro in about Septcaber of 1951 is not a 3 requirenant for you to get the credit ycu aced later in the i

4 yaar be it for the RC.A or any other arrangement, is it?

5 You'r2 not representin;. that to us?

6 A I'm representing to you that unlass thia 7 Co.r an,r has a leval of ecrnings sufficicr*. to allcu it to i

S recure netstl financing, it is h1 3'117 unlihely that it vill -

9! have a very difficult time in rencaing any fern of credit e.s.,.e c u~,.a,3 ,,,7 a _ n i

10

. .. i <. t .<.

. -.. ,, , ,, g . y ~3 c _. .u m ... ._ m e ,

4,

. . . _ . - ,. 4.,u ., c_ m. a a. e_

i 11 i

i egrec. snta or ccher baths uhun this rsvolving credit agrce-

+

i 30 g

~l nant t.atures in the fall of 1931.

1 j 13 i i Q Mc11, firs: of all, ycur 157 1?CO for'ocast of

. ,t 14 '

!.  ! snert-te:u dabt did net cccescol:te a reduction to caro

=  !

S 15 I; us.d it net.7 i

i 16 ! 3 Mo. but it con:n.31atsd that the first sta.o ,

l I' I of an increase which nas requestod by tha Cc=pany, r.cnoly, i 18 hiO aillion, uns sufficient cr.cu?_,h to prcvids a lwel of 19 ca ninr,s which cculd suppcrt a cale of bends in the it.etar 20 part of 1931.

21 1: was also represented in cy testL.ony at 92

~

that tina that that $60 nillion vecid put the Co :. pany in a 23 positien such that a final rata detarminaticn all: wing 24 additienal icvals of ravenues in the early part of 1931 25 wculd produce ccverage icvels sufficiant to let it rasu.aa  ;

i 1

i

Baldassari-cross 1729.

I a more nor=al mode of financing.

2 Q Mr. Baldassari, assu=c that the Crder of the 3 Board in February of 1931 allowed the Cc=pany to keep its 4

level of short-tern debt on an even kcci of about $40 million.

5 A For what purpose?

6 Q E:tcuse me.

7 A For what purpose?

8 Q Dut in addition it should,hacping it at an 9

cven heel of $40 millien, the cc2pany cculd do sc2a of th2 10 other things that you've centionad uculd ba nacessary. Tac 5

g 1I carnings would be aufficient to neat its enternal -- e::cusa I '~

g ce, it would meet its constructicn requircr.cnt and so forth.

13 A l'm not sure that's a consistent asst =pcion.

14 j If the Ccapany were in a positica where it could not fin:nce 5 15 e

so as to eliminate its full level of shcrt-tern debt cut-16 standing, whether that 2= cunt be $50 c1111 n or whattver, 17 then I would suggest to you that it's icvel of earnings 18 vere insufficient to attract future potential investsrs cr 19 to entice the ban'ts to continue to c:ctend credit.

20 Ue'd be talking abcut a ccrpany that would be 91

~

attempting to financo at the barest of the mininess of its o,

'~

legal limits.

23 Q Mr. Baldassari, if you urite off Forhed River, 24 and that's given, and you're allowed to do it by the Beard 25 and it's given treatment for ratecching purposes by the 3 card,

1 Baldassari-cross 1730.

I you'll be able to reduce your icvel of short-ters debt down 2 to =ero, would you not?

3 A Are you referring to the treatment that I  :

4 have assumed for purposes of this forecast, that t':3 in-5 vestment is written off without a re. turn?

6 q yes, 7 A To the entent that dollars are provided for 8 that write-off, there would be a positive cash flow to the 9 Ccmpany, I believe that's indicated en ny E::hibit JC-312, 10 for future periods as ne go on and, indeed, those do11cra i

i 11 could be used to reduce the shcrt-tern dabt icycls.

19

Irrespective of that cash flou and sisilcr to 3 -

13 i instances in the past whera the Cc=pany has been forced to

14 j eenvert its base rates to energy cdjustasnt clause re-15 coveries, although it's cash flew has been made constant, I 16 it's earnings have datarierated drastically.

17 18 19 20 21 22 23 24 25

l 3DD L Baldassari - cross 1731

A (Continuing) It's that earnings detarieration 1

J 2, which has caused tha Ccapany to be in a position where it is 3 unabla to go out and accept long-term scurcas of capital.

4 Until it's ablo to do that again, it will not be able to 5 carry on its ongoing construction program, and it will not 6 be able to reduca in its entirety iti level cf short-torm 7 debt.

8 Q Lir. Baldassari, you're not r2prasenting that l

9 tha Ccspany is going --- that G2U could sell equity in 19817.

10 A I wasn't awara that I regrasantad anything about G20 for 1951 at this stago.

13 12 i l

Q All right. Go, uhan you talh shout financing,

.I

e. i 4 13 l 1cng-tors financing, you'ra talking about Jersey Central e

a I i: 14 selling debt?

d A I'n talking abcut two things: Cne, Jersey Cen-15 0 i 1 i 16 I

tral selling long-torn dabt and Jersey Central's carnings 17 being restored to a point uhera there is sc=2 abasis for 18 equity gr vth in its capita 11:sticr..

19 Q But in order for Jersey Cantral to call long-20 term debt, all it has to nact ara the coverage r2quirements, o1

~

correct?

A No, it's not ccrrect. That's all Jersey Can-22 tral has to do to legally maet the requirc=ents of its in-93 I denture to soll short-tarn dabt or to sall long-tern debt.

y4

~

For Jersey Central to actually market oo-

3dd 2 Baldassari - cross 1732 I market thoce types of securitiac, it will hava to secure so=a 2 mcacuro of invcator ccafidance which wculd not noccasarily 3 be there if all tha Ccepany can do is to =cet the absoluto 4 minimum legal requircrents.

5 Q Didn't you soll debt in June of 1979, shortly 6 after the accident?

7 A Yes, ua did.

8 0 Uhc do you Eb. inh you'ra going to be solling 9 this debt to in the semner of 1931?

10 l A It's difficult to say at this pa:.t1 :ular point

l in time what the market vill b'o for thace securitias.

11

. 12 It would be honcful that a minie ':'. the 4 13 i, orivata niacanent avenuas wocid b2 availabic to the Cenc.any.s 1

14 given tha fact that its earnings varo en tha road to recovr2:Z.

I 15 In any evant, the cno thing I can s,nt2 i

K 16 cmphatically 13 that abcan: earnings, they'll ha no rarhat 17 anywhera for these securitian at any price, t

18 O Are we talhing about first mortgago bcnda, by 19 the way?

20 A In all likelihocd. .

21 Q What does that depend on? I maan, if it's not 22 first nortgage bonds, it could be debentures?

23 A I would say for purposes of the forecast, I 24 haven't mada ny specific evalnation of the precise type ci 25 security. I would call f.he.s first nortgago bcnds for now. i I

1 3dd 3 Daldassari - cross 1733 ,

1 3

Q Are you z.aking any acetapticas regarding a pri-2 vata or public salo?

A At this monant, ac I just indicated a minuto ago, 3

I would have to suggest that the privata placement coctor 4

5 1cched more doabla than the public marketpinco.

6 Q Do you think ---

1 A That uculd ba due primarily to the fact that the 8 Cc=pany- na"2 not 2"at bc in a position in the middle of ne::t 9 year to urite a cceplete disclocura document for the general public in the form of a registration statenent Ehat would 10 gl = cat the approval with the ' Securities and E:: change C enis-1n.

3ien, and that the offaring d:cunant would more likely have to a in a fora of a purchaas agrc?.ntnt uith a, quota.knowl-I E

13 i cdgeabla investor.

14 g O 71culdn' t the key fact being able to cell this

- 15 I e

i 16  ! 50 million ---

A I'n sorry?

37 18 Q Wouldn't the hay fact whether the Compan*y vac able to cell thia 50 millien be whether TF.I-l was back in 39 20 21

- 99 m.

23 24 or

.a , i l

a l

4DD 3aldassari-cross 1734.

3 A No. I think the key fact as to whether or 2 not this Company can =arket this particular issue will be 3 the level of earnings uhich it will actually be abic to 4 realize as it goes through ne:ct year.

5 The reason that 'LII-1 is even an issue in 6 the mind of the investor is becausa the ratemaking treat-7 ment that's been afforded that particular project and what 8 that rate =ahing has done to the Cetpany's carnings.

9 On n prospectiva basis, I would believe that 10 if the Cc mission were to allen it an a:cune of revenue t

l 11 sufficient enough to restore the Ccapany's carnings to a

12 level sufficient to support a nor

a1 fincncing package,

13 that uculd be indicative of a nove en their part to support a

i 14 Jersey Central as a viable corporation, cnd there would in a

5 15 all li'celihcod be a market fcr those securities.

16 Q I'm a little ccnfused by your term " normal 17 financing package."

18 Is that a word of art? I ccan, could you ba 19.

more specific?

20 A Well, a normal financing pachage as I have 21 used it in this state =ent wculd be scrething which 1:ould 22 allcw the Ccmpany to issue scue fo a of debt security in 3

quantities sufficient to allon it to caintain an appropriate 24 capital structure.

o5 In order to do that, the Cc=pany =ust have

Baldassari-cross 1735.

earnings. If the Company has the earnings, it will be able 3

2 to maintain its equity position as well ue knou that capital 3

The ecmbination of the issuance of security 4

5 and the earnings additions uculd be a financing package.

6 Q Talking about the perception of investors 7

Which uill enable Jersey Central to market this S50 million 8 debt issue, you seen to be focusing on capitalization of 9 ratios, icvel of earnings.

Would it not be even = ore inportant tc 'the 10

$ 11 perception of investors as to work the regulators, in this 12 case the New Jersey Ecard of Public Utilities, whether 5 13 they plan to keep the Ccapany going?

$ i j 14 A I guess I was inferring frem my ecznent uith a

i 15 respect to achieving particular capital structures and

16 levels of earnings that that in and of itself uculd be in-17 dicative of a posture of the Board, a positive posture as 18 it relates to Jersey Central.

19 MR. KIRSTTil: I might add to that that 20 the perception of not only # hat the Con-21 mission but the uhole regulatory schema, in-22 cluding Rata Ccunsel's attirude in these 23 things, have an effect.

24 I might also point cut that at the 25 tine of the TMI-l case, Mr. Fardelli argued 1

Baldassari-cross 1736, I that Rate Counsel would be receptive to the 2 idea of an intaris application to keep the 3 Company going, and indacd at the tice appli-4 cation was filed and testienny by, I believe, 5 Dr. Grygiel and Mr. Z2rillo recem= ended 6

$45 millica of rate relief and 015 million 7 of acceleration of the deferred fuel balance, 8

and in that testincny there was reference to 9

an additicnal rate relief contenplated in the 10 anount of $60 million in February or perhaps 11 earlier, and if I recall, Mr. Hardelli cup-19~ I. ported that positien and he gave the indica-5

'13

- tion that that kind of tr:at=cnt, including a

14 i the additional rata relief even earlier than 5 15

February, as I recall the stattnant, wculd I 16 '

Si ve the Cenpcny the ability to finance in 17 the fall of 1981.

18 19 20 21 22 .

23 24' -

25

En 1 1737 1

R. KIRSTZH (Continuing) I think 2 that's part of the perceptien that the public 3 has.

4 HR. NA2DELLI. I should add that I car-5 tainl" zreen11 suc.cortina to scme dedree the 6 interim application of IC0 millicn. I don't 7

recall ever gstting into any levels of perman-8 ent rate relief, juct the fact that February 9 was scon enough to daal with the prchlem.

i 10 3Y MR. NARDELLI:

~

11 j Q  !!r. Baldassari, you are act suggccring that

! i 12 !< Jersey Central will not b2 able to call 050 millica in debt 4 13 ' in the summer of 1931 if it dcas act. get tha full $173 mil-E l 14 lien of perman nt rats reli2f en Tchruary 1 cd that year, are s

$ 15 you?

Uhat I am suggesting, Mr. Ucrdalli, is that A

16 17 the Company has requested a level of rata relief which it 18 feals is the minimum level appropriata in order to put it 19 in a position which vill allow it to financa, to maintain 20 a pro forma coveraga, which vculd be at about the icvel main-21 tained by a BAA utility and that uculd put it in a posture o,

where its carnings were sufficiant to provide for equity thn 23 grouth as wall. To the c:< ent that / Joard orders a 13 vel of revenues.less than that, it's impossibla for me to ducar-24 25

! nine c::actly what tha rar.ifications uculd be unisso I kncu j 1

1 II i

. Baldascari - cross 1738 1 what a= cunts they were talking about and what their overridinlg 2 assu=ptions ucre for doing it.

3 0 When you pich a number of $173 million, which 4 la a rather big number, Mr. 2cidassari, it loads one to ask 5 the question whether you have boca consulting with any particu-6 lar group of invastors that leads you to conclude that it 7 ta%cs $173 millica and lands you skeptical about any a= cunt S less than that, and if you hava consultad with any spacific 9 invcators, could you plassa senta that on the record?

10 A If you racall, the base rate filing as it was

$ 11 sada, the Ccspany establishad an cvarall leval of cparating I

. 12 and maintenanca enpondituras which appeared to be raflective

< 13 i of a lavel which would ba incurrad during the year 1980. It 5

i: 14 also pub t gethor a list cf its various investments which it d 15 believes it should ha earning a return on, which is called

a i 16 rata base, and then it prcycsad or put forth a level of 17 capital which it cnpocted to hava cutstanding, It was simpic 18 a:ithmetic fron that point on to determine the nucher of 19 rata incraase dollars which will be necessary in order to

20 provida a return en the cctnen equity, 21 Indacd, tc the entent that the Ccapany 22 has been viewing other utilities, to the entent there has 23 been general input from financial publications and so en l

94 l as ucil as onpsrts in. the ficid, the Cc=pany requasted a I

25 I level of roturn on its cc==cn equity of 15-1/2 parcent.

.3 321dassari - cross 1739 1 That's where the $173 million cano frem.

2 Q I see from JC-3033 that you are projecting a of 3 level of about $10 million 7~short-tcrn debt at year-end 1931, 4 correct?

5 A It's nora lihn about $5 or $G million. That's ,

6 closo enough.

7 Q tio, I prefar your " figure.

8 A The nhort-torn debt nurthers which were used to 9l plot JC-303A and 3 are included on ny exhibit JC-3023 as the 10 last line entry on Pages 1 and 2. Similarly, the overlay line 11 , which you plotted in for 9 2 ?!ay 19E0 forecast fer 3033 'can a.

12 he found en 2::hibit JC -302. '"he caly rencon for the correc-4 13 tien was that tb. level che:m there for Docenber 1981 is to' l 14 $5,300,000.

5 15 i

Q 1:cw, this 1cv21 cf $5,500,000 at year-end '31, e

16 isn't that Icuer than --- a lavar 10ve1 than Jcrsay Central 17 has historically had cf shcrt-tars debt? And, we can --

18 M?. E!?ST?'i: New we are getting bach 19 to the sane g estion which was pesed to which 20 this graph was cddressed, which shows the his-torical' level of debt, o.1 MR. MAP.DELLI: AC Mr. Kirsten has pointed 22 23 out, tha historic $1 level can be derived f ca JC-321 uhich I believe we narhed today, and o4

~

4

-~~

25 l,

1 1

\

l l

24 Baldassari - cross 1740 1 MR. EI2 STEN: If you are talking about 2 tho average level or because it goes up and down i l

3 as shcun on that exhibit ---

4 M2. :n2DELLI: Mc11, I readily concede 5 it goes up and doun.

6 0 Isn't it fair to say th'at for the cost part in

~

7 the la:t four yaars it's been at lovels higher than 55-1/2 8 millica?

9 A As it cas for the scat part of 1981 in this 10 forecast. Ucu can't loc % at any given point in time and sug-I 11 g33t that that's nocascarily indicative of the averaga level 12 of short-cara dcht outstanding, I think JC-321 shows there 3 13 are varices paaks and valloys incurred during a normal period

i. 14 ! of businacs for the Ccencnv. but that in an! event it's level

I 1

15 of ah rt-torn borrowings v2s ct a vary, very low level, namely

16 balcw $10 tillion, for probably 12 or 13 months during the 17 three ycars of 1375-7 and S. So, I don't think that when 18 1 coking back it historical Jersey Central financing practicca 19 it is fair to may that wa never target for zero short-term 20 debt outstanding.

21 22 23 24 .

20

-l

2EE Baldassari-cross 1741.

1 Q It vould be fair to say, though, that Jersey 2 Central has not been et the zero icvel of short-term debt 3 since August of 1973.

4 A Yes, and that would be brought about primarily l

5 as the result of the inability of Jersey Central to sus-6 tain the level of racccaking which it had been awarded in 7 February ot 1979 as a result of acticns taken by the Beard 8 subsecuent to the accident at Three Mile Island.

9 Q You have menticnod the need for the Cccpany 10 to have available to it credit specifically cf the shcrt- ,

i: 11 tena type. llave you been negotiating with anyone, either 1

1 12 within or without the present RCA agreenent for a continua-i

13 tion of your capacity beyond Octo*aer of 1931?

! i j A No. Quite heneat17, it's been a full-tine 14 l

i 15 j job negotiating with thos2 people juct to hoop what we ham I

16 ,I right now.

17 Q Uc11, assuming you set your $173 millien in is February of '31, whar do you anticipato about the rencval i

19 l of the RCA7 20 A If Jersey Central ucra to get the $173 million, 21 I think that it would put it in a position wharc its carn-22 ings would suggest a return to a reasonably sound financial 23 ' posture. In that contant, I do not believe that Jersey l

24 -

Central would have any difficulty in making arrangements 25 Whether those arrangements would be undar the for credit.

i t

Baldassari-cross 1742.

1 Revolving Credit Agreccent or outside the Revolving Credit l 2 Agreement, it's a littic bit early to tell.

3 Q But you wculdn't key the rentual of the RCA 4 to the granting of the entire $173 aillion, vould you?

5 A We keep ccming back to this. I think I indi-6I cated earlier that the renewal of d$e Revolving Credit 7

Agreement or the extension of any credit, whether short or 8' long-term, is going to be dependent upon the Cczpany's 9

ability to earn. We have rcquested an ancunt which, based i

I 10 upon targeted capitalization, forecast of C6M 1cvels, based ,

z II upon the icvels of investment that ue have cade in cur busi-i

12 l ness, uc have requested returns which should produce earn-i 13

{  ! ings sufficient to allcu us to do that financing.

i 14 To the entent there nra changes nada to that i

d 15 '

= i recec= ended approach, I cm unable to assess exactly what will

I

16 ~

be the ramifications.

17 Q Turn to Page 2 of 2 of JC-303A,1!r. Baldascari.

IS

. Will you accept, subject to check, that given a Doard Order 19 f I on February 1, 1931, of $60 million of permanent rata rellei l 20

-- in other words, converting the $50 millica of interin 21 into $60 millien of permanent -- that the coverage ratios 22 l would approxinate for the months, and I an going to recd i 23 '

, fren January through June, the follouing: 1.S3, and that's l

24 l '

for January of 1931; 1.83; 1.34; 1.91; 1.99; and than for 25 June of 1981, 2.02; 2.03; 2.03; 2.01; 2.04; 2.02; and for

~

Baldassari-cross 1743.

1 December of 1981, 2.02?

2 A Well, I haven't done the precise calculations 3 but I would be willing to cecmit that the $60 million in and 4 of itself would produce a Icyc1 of coverage appronizately 5 two tLnes throughout the period, yes. ,

6 I would also volunteer that that level of 7 coverage would be insufficient to issue any aucunt of appre-l 8I ciable long-term debt thr:ughout the period.

9- Q Regardless of the status of EII-1?

10 A Based upon the legal require =cnts under tha l 11 Conpany's Debenture /Indanture, the 2.0 tices coverage, Mr.

2 12 Mardelli, uculd have to be realized on a pro forma basis 13 after reflecting the annualized interest requir2:ents en ned a

i 14 debt to be outstanding.

d 15 i The $60 million in and of it'scif uill no i, I.

16 1cnger, as a result of actual operations which have trans-17 pired since the original JC-305 vas flied, as well as the 18 various other assumptions uhich we have discussed previously, 19 produce a level of earnings sufficient to support financing.

20 Q Now, earlier today you read into the record 21 increased coverage ratios for this exhibit. Eo you recall 22 that, as a result of scue actual results?

23 A I believe I indicated that the ratios increast 24 on average by abcut .08. For the change of -- resulting 25 ' fran actual operations for the sonth of August and Septenber versus what had been forecast, that's correct.

I

aco 1 Baldassari - crocs 1744 Q New, the numbers I askad you to accepu subject I

2 to check were basad upon your exhibit as we had it at that 3 time on JC-305A. Can we agree that the changes you nade this 4

n rning would also raico the numbers that I have just asked l

l 5 you to accept subject to check?

6 A Only up until ---

i 7 0 Through August of 'Bl?

8 A Yes, up until August. Again, not an accunt in 9 =y opinien significant encugh to allow financing.

10 , 0 aut that number of 2.03 that I gas,. you for f gl August of 1981, that would be scmething higher than that, would it not?

12

$ 13 I -

MR. KIESTEU: We have gene through this f 34 16 tin.ys already and va agreed if it was oight 3

J coints hieher it would ctill get no higher thaln 15 :i 16 l

2.12 and 2.12 would not ba'cufficient to issua l_e

$50 million vorth of bonds.

0 na varag ra do you need, Mr. Baldas-18 19 A Lot's even go beyond that. First of all, yon

,,0 could not uce August numbers for financing. Undar the in-dentura you havo to use a realized icNel of earnings which 22 has taken placo during a consecutive 12 menth period out of the 15 nonth calendar nonths i =cdiately creceding the 24 financing and there is goed reason for that becauce finan-25 l

. l l

3ee 2 Baldassari - cross 1745 1 cial information dcean'u bacona availablo instantancously, 2 uo as a practical mattor, the best you could hope for would 3 bo June or July financial numbars to basa the coverage nus-4 bers for tha cale ca. Asida frcm that, you are talking about 5 a situatio.u wharc the Ccapany vould be at a ccverage lovel l l

6 which would be approxicately 2.1 tiinas which might support l

7 on a lagal calculation se 2 share in the neighborhood of 1

8 530 million of financing d2pending upon rates. Given that l

l 9 kind of information and given the facc that inmediately l

10 subsaquen to such a aale, tha Coupany would have again j 11 enhaustad all of its financing capabilities and in fact would 12 ha heading inec a dotarloracing carnings positien, it is t.

13 highly un113217 thaa'anycno would be intarasted in purcha

:-

1 J  !

- i

14 ; ing those securities.

f 15 Q Cne ccra question on this area. Fcr July of i

1381 cn the original JC-305A, you shci; coverage ratics with 16 l 17 the rato increase of 2.43. Do you sco that?

18 A Yes.

Q And the nur$ar ycu read into tha record today 19:l 20 uns 2.50. Did I get that down correct?

21 IIR. KIRS'2EM: 2.60, that's corract.

22 0 How, tht.t's come 17 --- well, that's .17 23 higher than the 2.43. Could I add that .17 to my 2.03 to l

24 como up with 2.0 approximately for July of 190l?

25 ,

A No. I would say that I t;culd have to leck at i

Baldassari - crc 33 1746 3ce 3 ,

l 1' the calculations for July to develop the coverage nur.ber I 2 gave you this :norning. It looks too high to r.2 in comparison. I 3 If you would givo ::.e about tue acconds, I can giva ycu ths 4 corrected calculation.

5 Q Fine. Zhank you.

6 JUDGE 7225HAI.L: ~Off the record.

7 (Wher2upen, ther2 was an off the record 8 discussion.)

9 10

. 11

12 a 13 i

d l 14 E 15 16 17 IS 19 20 21 .

22 23 24 25 I

.l

• 1747.-

4EE' Baldassari-cross 1 JUEGS MARSHALL: 3ack on the record.

2 THE WITUESS: That corrected coverc3e 3 nu=her, Mr. Hardelli, uculd be 2.52.

4 Q For what month?

5 A For the acnth of July en a with rate increase 6 assumption, and also updated for the =cnths of August and 7 Septcaber actual. That cempares to the 2.60 which I gave 8 to you this scrning which was incorrectly calculated.

9I Q You are changing the 2.50 to 2.52?

10 A That's correct.

3

11 Q Then could I estLsate the new nucher for zy

i 12 number for July to be in the vicinity of 2.12? I ca asking i i j 13 l this to maka Mr. Kirsten happy.

14 MR. KIRST.SI: Thank you. I appreciate f

• 15 it! It's about tiae someone choved se=e i

16 i respect. I sat no respect here.

17 THE WITNESS: I believe I previously IS indicated that the adjust = 2nt to coveraga 19 for the cenths that are affected during 1931 90 is abcut .03 for the results of actual opera-21 tions over forecast for- August and Septc2ber oo 1980 and, yes, you may directly add that .03 93 to any of the coverage numbers indicated on 04 f the erhibit. i l

o5

- I l Q Mr. Baldassari, ne would like to finish the l

i

Baldassari-cross 1748.

I day with an information request. It's for essentially up- ,

E dates of cr revisicas of JC-305A and JC-3023.

3 Looking at 305A, Mr. Baldassari, ne would like 4 you to make some assumptions. Ona is that there would be 5 no construction work in progress in. rate base carning a 6 re turn. Ycu would be taking AFEC cn all construction.

7 Also, that you vould be -- I will be asking you to be =aking 8 this assumptien under different lavels of rate reliaf, but 9 you would be a=orti=ing Forhed River over 20 years e:: cept 10 instead of the number you have for Forked River, you uculd i

11 be taking cut the AFEC since that day La April of 1979 that go ycu suspended construction on the project. So, you uculd g

i 13 be a:crticing the accent you had en Forked River as of that a

14 date.

T l

15 A You are going to give me some revenue assump-

16 tions to go uith that?

17 18 19 20 21 -

22 23 24 25

l i

3aldassari - cross 1749 Sao 1 l 1 O Yes, and the three levels of revenua assumptiens ara $60 millien of permanent relief on February lac, 2

3, $30 million and $100 million.

4 A What ancunt of thosa revenues do you want m3 5 to utilisc for purpcscs of address ng i Forked River?

6 Q The amount that you gador that you need. by using a 20 year ancrtization. That's what we ara locking 7

8 for en JC-3C;A. Do you understand that?

9 A I believe so.

Now, could you turn to 3023. Ucw, the levels 10 0 I 3

j 11 of rate reliaf on February 1, 1931 underlying 5023 would be 12 tha cano, tho ?50 millica, $30 nillion and $100 millicn.

4 13 Tihat we are specifically 1 coking for there is the breakdown i: 14 of the internal scurca under cource of funds on 3023, tha -

$ 15 breakdcun that you have dcna on Page 7 of 13 en CC-016.

i

16 For enanple, the internal scurces devr. in the retained earn-17 ings, defarred tattes, investnent tax credit, depreciation, 18 anortization. .

19 You will saa it all en Pago 7 of 13 of 20 GC~310*

21 Do you understand that rcquest?

99 A Yes.

I o Q Could vou giva us an actinate as to when we 1

24 w uld- have this stari21?

A Eccefully bv the end of tha voek, Thur: day, o.a r

Sco 2 Daldasaari - cross , A.

I Friday.

2 12. 1:.uDCI. !: Judge Ma.rchall, I don't 3 anticipa:a nacding 'r. Baldacnari again but 4 as Mr. Kirsten has point 0d cut, liover.ber 3rd 5 is an open day. Na ha"e a hearing but we havo 6 no witnecc. I':a ucadering if Mr. Saldassari 7l can tall us if he is availabic on that day if 8 we should decido ha ic the best way to spend 9 it?

10 7 2-,

. - . .4

. ,.r. ._..2

.r a..._

a.3.3.

~

11 MR. :CS.DELLI: i?a hava no furthar quec-1o

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3 2

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. u'.'..' .. _d .%., . ' . s'ceoa *- - S ,

.I j 14 Staff hs*/a any que:tiens?

5 15 ('Io ros :cnce.)

a.

16 o'.!E ~.J' :D 2SH.EL : " hank you very nuch 1, .or sw u:u e .,._a s

.s_. . .:

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20 21 29 24 25 i

1,/;_. '

l' EXHI3ITS l

2 30, in: SCI? TIC'!  ? AGE 3 ;c.321 Graff of Jersey Cen:ral Power &

Li3 ht Cenpany short-ter borro::ings 4 1975-1973, in laspence to Rata Counsel Request, a Transcript 5 Page 1532-1535 1623 6

JC-3003 Cn2-page dccuat.nt enci.tled " Jersey Central Power & Li?,ht Cenpany, Deferred Energy 3alance and 3:nh 8

r ngs W-W 9

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

10 I IUDEE

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14 [ Uy . .Ar . ,A:.rs t en 16 a, ,

i l 1630 d 15 l 2y 'Ar. Nardell4 1527 3 1633

! 16 1660 17 .

18 19 20 9 21 22 I

23 24 25 1

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