ML20094D436
| ML20094D436 | |
| Person / Time | |
|---|---|
| Site: | Hope Creek  |
| Issue date: | 08/07/1984 |
| From: | Rader R CONNER & WETTERHAHN, Public Service Enterprise Group |
| To: | Atomic Safety and Licensing Board Panel |
| References | |
| OL, NUDOCS 8408080389 | |
| Download: ML20094D436 (132) | |
Text
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,,a, UNITED STATES OF AMERICA 7 '
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NUCLEAR REGULATORY COMMISSIdN~
,j
- Before the Atomic Safety and Licensi1Rh Bgmr_g 40:52 Public, Service Electric and
)
"'T*"Am i * :i Gas Company
)
)
Docket No. 50-354-OL (Hope Creek Generating
)
Station)
)
APPLICANTS' ANSWER TO MOTION BY THE PUBLIC ADVOCATE FOR EXTENSION OF TIME TO RESPOND TO APPLICANTS' MOTION TO COMPEL Preliminary Statement On July'30, 1984, Applicants filed a motion to compel the Public Advocate to designate his expert witnesses and to make them available for depositions or, alternatively, to dismiss the proceeding.
Applicants noted that its counsel had been unable to determine, either by way of discovery or
~ informal inquiries, the identities of the Public Advocate's experts who supposedly would support his case on the three admitted contentions.
Unable to obtain any firm commitment following eight months of apparent inaction by the Public
' Advocate, Applicants asked the Licensing Board to compel identification of witnesses and to set a deadline for their
~
favailability for_ depositions.
In a subsequent motion for an extension of time to respond to the motion to compel, the Public Advocate now fully _ acknowledges that absolutely nothing has been done to obtain expert witnesses since the tentative admission of OMH4 D
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-three contentions L at the prehearing conference on November b.
22, 1983.
~
Rather'. than attempting to cure his inexcusable dilatoriness,'the'Public Advocate has asked for more than an additional' t.wo months just to begin preparation of his case.
-This extraordinary ' request more than confirms Applicants' worst fears that delay.by the Public Advocate, if permitted uby.the Licensing Board, may very well jeopardize the sched-
-ule for issuance of an operating license for the Hope Creek
~
Generating Station.
c:.
For the reasons discussed below, such an extension
- should.be -denied and the Board should grant Applicants'
^
motion to compel, requiring designation of expert witnesses and their availability for deposition during the week of i
August 13, 1984 or, alternatively, dismissal of the proceed-
.ing..
Argument Notwithstanding the protestations of the Public Advo-cate-that he " fully intends to identify our expert witness-es," 1/ his reasons for the failure to id'entify witnesses to date remain implausible and fully unpersuasive.
It is clear that the Public 1.dvocate now admits that he had no basis for the three admitted contentions other than the speculation of 1/
Public Advocate's Motion for Extension of Time to Respo'nd to Applicants' Motion at 1 (August 3, 1984).
~
m
3 X his counsel at the'special prehearing conference.
Even now at.this advanced stage of the proceeding, the Public L
Advocate cannot state with any assurance that an expert will be o'tained on any or all of the three contentions, or that b
experts consulted will agree to testify in support of those
. contentions.
In previous. discussions with counsel representing the Public Advocate,'it has been somewhat unclear whether and to what extent particular witnesses had been contacted, or how
'far the process of their selection had advanced.
The motion by the Public Advocate filed August 3,
- 1984, however, unequivocally states that 60 days will be required "to
. assign counsel, select and consult with expert witnesses,
-e and allow the expert witnesses time to familiarize them,
proceeding."2_/
- Thus, selves with the specifics of this
.notwithstanding his total' inaction over the past eight H,
- months, including a-six week hiatus involving only the internal assignment of a new attorney to the case, the Public Advocate states that an additional two months, for a total in excess of ten months, is required before witnesses 3
.can even be selected, let alone identified.
The request by the Public Advocate clearly flouts the r
Special Prehearing Conference Order of the Licensing Board 2/
'Public Advocate's' Motion for Extension at 2 (August 3, 1984).
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' issued.Decemberf21, 1983, directing the. parties "to commence T4 In M
, discovery limmediately and to proceed with expedition."3j p
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1effect,- the. LPublic Advocate is. attempting to usurp the
~ in-establishing a reasonable Licensing; Board's function
)
~
j
- discovery
- schedule. ' The ' Licensing Board is plainly vested
- with authority.under-'its broad powers to shape the course of
.a-: proceeding and. develop the issues.O
~In matters of s
v scheduling, the Licensing Board has particularly broad discretion.
In'its' Statement of Policy, the Commissioners
~
L 2have emphasized that "[t]he purpose of discovery is to n,
expedite'.. hearings" and that~ Licensing Boards should " manage
' anda supervise : all discovery". within the general framework
- established after the admission'of contentions.6_/
l Various boards have ' denied requests-to extend the time for discovery responses under circumstances far more compel-
--ling '.than. those pleaded ' by the Public Advocate.
In the
-Clinton proceeding, for example, intervenor's explanation W
L~
4
.-- 3f Hope Creek', supra, Special Prehearing Conference Order
- at 19-(emphasis added).
4/
See generally Offshore Power Systems (Floating Nuclear
~
~
Power Plants), ALAB-489, 8 NRC 194, 201-208 (1978);
~ @.
Public Service Company of Indiana, Inc..(Marble Hill Nuclear Generating Station, Units 1 and 2), ALAB-459, 7 NRC 179, 188.(1978); Consumers Power Company (Midland Plant, Units 1 and 2), ALAB-468, 7 NRC 465, 468 (1978).
5/
Houston Lighting & Power Company (South Texas Project,
. Units.1 & 2), ALAB-637, 13 NRC 367, 370-71 (1981).
+
6f
- Statement of Policy on Conduct of Licensing Proceedings, CLI-81-8, 13 NRC 452, 455-56 (1981).
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that'i;itS lacked. ~ expert ' personnel to assist in discovery was
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.. rejected by the -Licensing Board as showing " good cause."
As n
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lthejBoard there' aptly.noted:-
"The need of [intervenor] for Q.
expert" personnel has b'een evident for more than 6 months."
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. As ;; indicated here, there has' been over ten months during
~
L Advocate has ' admittedly been unable to
_ :.y
~
L which.. the Public 4
pypi_
secure : expert? testimony or opinions which would support his efb
. contentions,1although'the need for experts has been evident
,vu RON j.throughout. 7j
' The Public - Advocate also ' errs in assuming that the
- schedule ~ for discovery in the -licensing proceeding is
. dependent. upon or.- even related ~ to plans for commercial Joperation of the Hope ~ Creek: facility demonstrates a serious y
misunderssanding of licensing procedures.
Fi'rst, Applicants h
[..
require l an: initial ; decision by the Licensing Board which
'will? support, issuance - of an operating license on or about y,3,
o
' January; L 14, - i 19 8 6. :
At. that.. time, not~. December 1986, Hope
-t
- C r e e k w'i l l ~ -l o a d fuel. and commence low-power testing for o,
Lwhich it.will: require an operating license.
Second, licens-o
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-ing boards have consistently' held that
" delay of the
[
proceeding,"~not'. delay of operation.of'the facility, is to
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Illinois Power Company (Clinton Power Station, Units 1
'7/
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. and 2), Docket Nos. 50-461-and 50-462, " Memorandum and 6
order (Denying Joint Motion for Extension of Time to
' 1 Complete Discovery)" (July 16,1981) (slip op, at 3),
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- be considered by the board in evaluating the potential for
" delay."8_/
~The' urgency -of ' compelling the Public Advocate to gIE identify,and produce his expert witnesses is highlighted by his : ::testimo'ny - regarding the status of the Hope Creek
^
-facility before the New' Jersey Senate Energy and Environment
' Committee and Senate Legislative-Oversight. Committee on May
~
4 p
~
, 1984.1/
In ' his _ testimony, Mr. Rodriguez categorically 10
' stated that his position with regard to the admitted contentions in this proceeding was based upon consultation with' " experts,"
and the-~ same
" experts" have apparently
. advised the Public Advocate that he should limit his "n-
'p'articipation
.in the licensing of Hope Creek to monitoring."
As~
shown
- below, the Public Advocate's
. characterization of his own role as " monitoring" creates serious doubt as'to whether this intervenor truly intends to litigate contentions or is merely utilizing his intervention as-a mea'ns of being apprised of ongoing actions by the NRC and'hpplicants relating to the facility.
8f Detroit Edison Company (Enrico Fermi Atomic Power Plant, Unit 2), ALAB-707, 16 NRC 1760, 1766 (1982);
Long Island Lighting Company (Shoreham Nuclear Power Station, Unit 1), LBP-83-30, 17 NRC 1132, 1146 (1983).
9_/
A copy ;of entire record of the public hearing of May 10, 1984 is attached.
Mr. Rodriquez was the first of several witnesses who testified before the two Senate Committees.
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For example, in describing his position vis a vis Mr.
' Potter's formulation of the contentions, the Public Advocate stated:.
- '4 COMMISSIONER RODRIGUEZ
My position
.is one that has come about as a result of consultation with all our experts, and from.what I could legitimately prove
- if,.in fact, as a lawyer with a decent responsibility to the Code of Ethics and the taxpayers' money, I was called upon to prove my case.
I am simply stating the position we are taking as a result of studied effort; and, I am here to
' state that position.
10_/
Thereafter, the Public Advocate further stated:
COMMISSIONER RODRIGUEZ:
We are raising the issue of the safety factors
-t at the plant; we are raising the issue of the environmental impact of the plant; and we are raising the issue of
'the competency of management for the plant.
They are the issues.
Incidentally, generated from the Salem outage,-- where we did bring an action
-- we have, as a result of our experts'
=
- opinions, arrived at certain s
determinations in the case.
So,. we certainly weren't silent when that occurred.
As a
result of
- that, s...
questions were' raised regarding Hope Creek I,
and we are into those matters now;. they are in litigation.
So, I
-would assume that would suggest
' affirmative action. 11/
I 10/--Public Hearing Before Senate Energy and Environment Committee and Senate Legislative Oversight Committee on (Review of-the Status of Hope Creek Nuclear Power Plant) at 5 (May 10, 1984) (emphasis added).
11/
Id. at 8 (emphasis added).
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I When " asked what the - Public. Advocate hopes to achieve
~before this Licensing Board, the Public Advocate responded:
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COMMISSIONER RODRIGUEZ:
As a result
?
of the latest conversation with all our
- experts, a monitoring-function.
. SENATOR STOCKMAN:
Monitoring?
COMMISSIONER RODRIGUEZ:
Monitoring, which we are doing.
. SENATOR STOCKMAN:
That would be true o f..the. safety questions Hope Creek I
' presents to.the public; that would be true of the environmental. issues that are raised; and,.that would be true of the question of. management competency of Public Service Electric and Gas to operate a nuclear power plant?
COMMISSIONER RODRIGUEZ:
Right.
,The Public Advocate later reiterated his position that
' his office would be limited ~to a " monitoring" role on the contentions because his " experts" so advised.
Asked if
. additional funding would be requested to obtain experts to 1._
.. testify in this proceeding, he responded:
COMMISSIONER RODRIGUEZ:
I will not, because'my experts have told me, as late as yesterday, that I would simply be trying to make myself the NRC.
They have suf ficient ' confidence in the NRC, as a' result of recent dev&lopments, that it would be a-waste of taxpayers' money for me to use $3 million to duplicate NRC's service.
SENATOR STOCKMAN:
Do I
understand that to mean the Public Advocate is going ' to back out of the proceedings before the ' Atomic Safety and Licensing Board?.
COMMISSIONER RODRIGUEZ:
No, I
am saying that we are going to continue to,
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-y It o n i t o r - t h e m, but-we can't become the
'NRC.. M/.
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. Noting that one of his admitted contentions had already w
- been dismissed because of a lack of any basis to support it,
[
the oPublic Advocate virtually conceded that he had not yet i
ad'uced proof on:any.of the remaining contentions:
d COMMISSIONER RODRIGUEZ:
But, Senator,
~.
ycu can't-forget that I.am a lawyer.
The Advocate, to make a claim, has to make a charge that he then has to prove.
I simply by How do I go.'through there virtue of my.. of fice?
Or, do I make a charge, a complaint, an allegation, or a
. contention, and have. them say to me, j
" Prove it?"
Then I must produce the proof, or-the contentions get dropped, as some of them already have.
So, I am suggesting that what should be done in behalf of the public interest, calls for
.a-very careful analysis.
I am suggesting to you that I have been going through
.a two-year effort on this.
M/
1, Near the end of.his testimony,.the Public Advocate finally-(confirmed that he had no basis for any admitted x
contention and -is still waiting for "something we can i egitimately move on, with a contention'and with an expert."
iHe " stated:
gj ".
COMMISSIONER RODRIGUEZ:
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r Now, what I am suggesting to you is, to monitor until we see there is
'something we can legitimately move on, 3
'M/ ?H. at 9.
13/
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'with a contention and with an expert 7
we are there.
But, I am not going to create an issue, to then spend money in order to see it it is there, when the NRC is now doing that unless I can challenge the credibility of the NRC, and I-am not yet prepared to do that. M /
The testimony of the Public Advocate before the New Jersey Senate Committees indisputably demonstrates that no casis now exists or even has existed for any of the admitted contentions.
It also proves that, while unnamed " experts" have been ct.
.lted over some period of time, nothing has come.out of their reviews.and analyses which has provided the Public Advocate with "something we can legitimately move on, with a contention and with an expert."
Under these circumstances, which irrefutably show a total abuse of the e
intervention and discovery processes, the Board should act immediately to' prevent further delay.
Conclusion
' o, y f' For the reasons more fully. discussed above as well as
'f in Applicants' motion to compel, the Licensing Board should i
w deny the Public Advocate's request for a 60-day extension.
Qk' 4
- Rather, the Board should require the Public Advocate to Q 1-Q designate expert witnesses on his three contentions and make
'lM the witnesses available for their depositions no later than the week of August 13, 1984.
If, for whatever reason, the
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\\Public~ Advocate-does not meet this basic discovery requirement, the proceeding should be dismissed.
Respectfully submitted, kj
...o CONNER & WETTERHAHN, P.C.
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Troy B. Conner, Jr.
Robert M. Rader
~: i Suite 1050
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1747 Pennsylvania-Avenue, N.W.
Washington, D.C.
20006 202/833-3500 t
' August'7,'1984 1
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UNITED STATES OF AMERICA P~
6,6D NUCLEAR REGULATORY "'TISSION
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Before the Atomic Safety ant Licensing Board Public Service Electric and'
)
~ Gas? Company
)
)
Docket No. 50-354-OL
.(Hope Creek Generating
)
Station)-
)
CERTIFICATE OF SERVICE
~
- I hereby certify that copies of " Applicants' Answer to Motion ' by. the Public Advocate for Extension of Time to
. Respond to Applicants'. Motion to. Compel" dated August 7,
1984 - in the captioned matter have been served upon the following.by deposit in the United States mail on this 7th
- day of August, 1984:
Marshall E. Miller, Esq.
Atomic Safety and Chairman Licensing Appeal Panel
-Atomic Safety and U.S. Nuclear Regulatory
-Licensing _ Board Panel Commission LU.S. Nuclear Regulatory Washington, D.C.
20555 Commission.
- Washington, D.C.
20555 Atomic Safety and Licensing Board Panel LDr.~ Peter A. Morris U.S. Nuclear Regulatory
. Atomic. Safety and Commission Licensing Board Panel Washington, D.C.
20555 O.S. Nuclear Regulatory Commission Docketing and Service
+
Wishington, D.C.
-20555 Section Office of the Secretary i
Dr. David R. Schink U.S. Nuclear Regulatory a\\ ~
Atomic S.afety and Commission 4,'
1 Licensing Board Washington, D.C.
20555 5
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'U.S. Nuclear Regulatory N"
LCommission
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- . 4 Lee Scott Dewey, Esq.
Office of the Executive Legal Director.
U.S. Nuclear Regulatory
' Commission-Washington, D.C.
20555 Richard Fryling, Jr., Esq.
Associate General Counsel 1Public Service Electric &
F Gas Company P.O.' Box 570 (TSE)
Newark,7NJ 07101 R. William Potter, Esq.
-Susan C. Remis, Esq.
State of New Jersey Department of the Public i
-Advocate
.CN1850-Hughes Justice Complex 1 Trenton, New Jersey 08625 JCarol Delaney, Esq.
Deputy Attorney General Department of Justice State Office Building
'8th Floor:
820 N.' French Street
.Wilmington, DE 19810 s
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Robert M. Rader
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Jijl 311984
,901p p-gb@
g PUBLIC HEARING before SENATE EERGY APO ENVIR0f44ENT C994ITTEE 9
,.. 3 and SENATE LEGISLATIVE DVERSIGHT CDPetITTEE 4
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(Review of the Status of Hope Ereek Nuclear Power Plant) t
?
~
f Held:
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Hay 10, 1984 Room 348 s
State House Annex Trenton, New Jersey B
EMBERS E SENATE ENERGY & ENVIR0f9ENT C904ITTEE PRESENT:
Senator Daniel J. Dalton, Chairman Senator Catherine A Costa, Vice Chairwoman Senator Peter P. Garibaldi MD4BER W SENATE LEGISLATIVE OVERSIGHT CDB9tITTEE PRESENT:
Senator Gerald R. Stockman, Chairman 6
ALSO PRESENT:
Mark T. Connelly, Research Associate Office of Legislative Services Aide, Senate Energy and Environment Committee G # 9 5 9 9 9 9 l
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TABLE OF C0NTENTS Page Commissioner Joseph H.' Rodriguez Public Advocate 3
l Roger-Camacho~
Director Division of Rate Counsel Department of Public Advocate 23 Leonard S._Coleman, Jr.
' Commissioner Department of Energy 46 Dr. Bharat Patel Directer Division of Energy Planning and Engineering Department of Energy 49 Charles A. - Richman Director Division of Energy Planning and Conservation Department of Energy 54 Edward H. Hynes Conmissioner Board of Public Utilities 67
-William Saller
' Public Service Electric & Gas Company 70 Stephen A. Hallard Senior Vice President of Planning and Research LPublic Service Electric & Gas Company 71 APPD SIX
. Decision and Order (Hope Creek Inquiry)
?+ ?
submitted by the Board of Public utilities 1x Statement of Leonard S. Coleman, Jr.
Commissioner, Department of Energy 7x Statement of Edward H. Hynes Commissioner, Board of Public Utilities 28x
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.TDH:1-45 38:46-85
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SENATINt (ERALD R. ST(D04AN (Cocheirman):
I would like to begin ; this hearing.
I understand the Public Advocate has a time l problem, -and we would like to try and accommodate him.
We will, in fact,1 put. him on first.
'I will introduce myself.
I em Gerry. Stockman, Chairman of
. the Senate Legislative Oversight Committee.
To my right is Senator j
b
>0 alton, Chairman of the Senate Energy and Environment Committee.
To my
- left'.is'. Senator Cathy Costa, a member of the Senate Energy and
. Environment Committee.
7 Before I read a brief statement to explain *y we are here stoday,. I.would like to say that I am always pleased to sit beside Dan i
Dalton,~who is Chairman of the Energy Committee.
He has shown a great
. deal of interest in this area.
The interestof the Oversight Committee s
- relates back to discussion of the Cost Containment Agreement.
I think ithis ~is 'a kind of cooperative effort between committees in the Senate,
-and that.is. the way it should work.
You will hear from Senator Dalton also.
The issue of the need and the cost of the Hope Creek I Power
' Plant has, 'in different ways and at dif ferent times, been the concern the Senate Energy and Environment of? both Committees here today Committee, and the Senate Legislative Oversight Committee.
The Senate Energy and Environment Committee dealt with Hope Creek I in the course of the deliberations concerning the Certificate of Need legislation in 1982, and the Senate Legislative Oversight Coanittee deals with, and has dealt with, Hope Creek I in its
' examination of ' the Cost Containment Agreement, entered into by the Department of Energy, the Public Advocate, and Public Service Electric innd Gas.
The purpose of the Cost Containment Agreement was to impose a limit on the steady cost escalation, which had been a hallmark of the
. years during which the plant was under construction.
The Committees hope to learn today how the construction of the plant is faring under the Cost Containment Agreement.
But, the Committees would also like those most involved with the construction of Hope Creek -- Public Service, the Board of Public 1
si
~.
Utilities, the. Department of Energy, and the Public Advocate to discuss the plant in a context that is somcwhat broader than the Cost Containment Agreement.
The last year has not been kind to the nuclear power
' industry.. - In our own State, we witnessed the highly-publicized circuit breaker _ failure of the Salem I Plant, and the Nuclear Regulatory Commission's criticism of Public Service's management and operating procedures.
In the pages of Time, the Wall Street Journal, the New York Times, and Fortune we read of plants denied operating permits
'because= of safety and quality control problems; plants abandoned because L of high costs and lack of need; impending " rate shock" on consumers as-the multi-billion dollar plants are put in service; and, utility companies, with heavy nuclear construction programs, brought to the brink of bankruptcy.
- t The Committees are' aware that each utility company's problems are,.to a certain sense, ~ unique.
A virtually identical nuclear power
. plant could bankrupt one utility company and impose intolerable costs
. on -its - rate pages, - while presenting much less of a strain on another utility company, in dif ferent financial circumstances and with a
-different' service area profile.
~
We realize, in short, that Hope Creek I is not Shoreham, or the ' Marble Hill Plant in Indiana, or any other of the many nuclear
. plants now in trouhle across the nation.
At-the same tirne, however, it would be irresponsible for us to ignore the troubles that are plaguing the nuclear industry and utility companies nationwide and hope, "That it doesn't happen in New Jersey."
We are looking at almost a $4 billion investment, which we
'will have to contend with for the next 30 years, and the earlier we are aware of what the future holds the better.
The most obvious issue we are concerned about is this plant's effect on ~ rates:
What will it do to electricity rates in Public Service's service ares?
We also. need to know what steps are being taken to assure quality control, in both the construction and operation of this plant.
We have seen our existing nuclear plants sitting idle for long periods of time -- but these plants cost a fraction of Hope 2
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i-Creek I's cost. - A $4 billion plant sitting idle would be an economic catastrophe. We also~ need proof that Public Service is addressing the shortcomings which the Nuclear Regulatory Commission identified as being related to the problems at the Salem I Plant.
We hope that these, as well as other issues which will surely be" raised today, will be fully discussed, and will enable us to form a clearer picture of dat impact Hope Creek I will have on New Jersey.
I would now like to turn to Senator Dalton, who may also want c'
to say something further.
That statement was prepared for both of us, and only one of us could read it, so I took the honor.
Dan, do you
- want to add anything to the statement?
SENATWt DANIEL J. DALTON (Cosairman):
I think the statement says it all, Gerry.
As a result, I am looking forward to hearing the testimony from the Executive Branch, as well as from PSE&G, relative to how this plant -is coming along.
So, let's get to it.
SENATOR STOCKMAN: Okay.
Joe, why don't you come join us? I would like to tell you at the outset, Joe, that I asked Bill Potter to be present and available to share some information with us on this question.
I'just heard that for some reason he can't be here, is that correct?
COMISSIWER 33SEPH H. E10RIGEZ:
Well, I imagined that you wanted me here as the Public Advocate, as the person who states the policy for the Department; that is why I am here.
SENATOR STOCKMAN:
That is not what I was talking about.
Let me ask the question again.
It is my understanding that Bill Potter has
~
been deeply involved; and, in your behalf -- as a matter of fact, back during the time we first discussed the issue of the Cost Containment Agreement -- was a key figure in the Public Advocate's office on the policies set from the time of the Cost Contsinment Agreement, up to the
~
present-time.
On that basis, and because of my understanding of his awareness and interest in this area, I asked -- and I believe I was if Mr.
Potter could be here to joined by Senator Dalton participate.
That was my question to you.
It has nothing to do with you being here.
I am delighted to see Joe Rodriguez, and I understand the buck stops with Joe Rodriguez, vis-a-vis the policies of the Public Advocate.
But, I think this is a separate issue.
3
COMMISSIONER RODRIGUEZ:
That's true, the buck stops with me, and I state the policy for the Department.
I spent the last two weeks making sure that the policies we established two years ago, when we entered into the Cost Containment Agreement, were still accurate and viable, as far as my responsibility to the public is concerned.
That was-reaffirmed, as late as yesterday, with the experts I have talked to. -
Now, I am not only stating my personal opinion, I am stating the opinion and the position of the entire Office of the Public Advocate.
SENATOR STOCKMAN:
Including Mr. Potter?
' C0mISSIONER RODRIGUEZ:
I don't know whether it includes
' Mr. Potter, but let me say this to you--
SENATOR STOCKMAN:
(interrupting) How can you talk about the full Public Advocate's office if it doesn't include Bill Potter?
COMISSIONER RODRIGUEZ:
Because I set the policy, Senator Stockman.
Let me simply say this to you, I think I know what you are after.
If you want to produce someone who finally feels that the presence of a nuclear plant is repugnant, you will find that kind of testimony.
SENATOR STOCKMAN: From Bill Potter?
C0MISSIONER RODRIGUEZ:
From whomever.
If you want
- testimony as to the balanced responsible position of the Of fice of the Public Advocate, one that has to deal with taxpayers' money, I am here to state that position.
SENATOR STOCKMAN:
Well, if Mr. Potter isn't going to give balanced and -- I forget the other word you used -- position on the subject, certainly I don't want him here.
If it is your suggestion that he wouldn't, well, that is news to me and we will have to deal with it, and the public will have to deal with it.
Joe, when you said it is the Public Advocates office's position, and the position of everyone in it, I had to ask that question.
I gather that the position you are going to articulate is not Mr. Potter's position on the question.
4
.e;
- y COMMISSIONER RODRIGUEZ:
My position is one that has come
-about as a result of consultation with all our experts, and from what I h
could. legitimately -. prove if, in fact, as a lawyer with a decent responsibility to the Code of Ethics and the taxpayers' money, I was call'ed upon to prove my case.
I am simply stating the position we are taking as a result ' of studied effort; and, I am here to state that tI position.
= SENAT(R STOCKMAN:
Again, the Code of Ethics and things of that sort-1 We may be getting far afield.
I won't belabor the point
- y now.. I 'am disappointed -that Mr. Potter isn't here, and I think I can
- speak for Senator Dalton when I say that we both asked for his W
presence.
But, let's get on with some questions since you are here.
SENATOR ' DALTON:
If I can just jump in for one second, Gerry--
I.think the point that Gerry is making and tha*. I would like to make, Commissioner -- and I have had the opportunity to work with you on many different occasions, and I have worked very well with you e
-- is that we would like to hear. from a person with whom we have had the opportunity to hear from before in the Energy and Environment
- Committee, someone who has given us testimony -- and I think it was balanced testimony -- on some of the concerns we were addressing.
We, as a result, asked him to appear today in order to continue to hear from him.
As a result, his not appearing today is somewhat of an affront to us, because we wanted him here. We felt that we, as the Legislative Branch, should have the opportunity to hear not only: from you -- because we certainly wanted to hear from you today --
but from someone som we have come to know as a person who has a great i.
deal of interest, and some very strong opinions. We felt that in order to get the complete story, we also wanted to hear from him.
L COMISSIONER RODRIGUEZ:
Senator, you are free to call Mr.
Potter.
What I am suggesting to you is, at the outset you said you wanted to hear my position, as a member of the Executive Branch -- I and, more important than being a member of the would assume Executive Branch, as someone who has some responsibility to the ratepayers in this area, and who will make a rational judgment 5
..~.
n.
4
. regarding - independent analysis from experts.
I am suggesting to you that's exactly what I have done. You are free to hear from anyone.
SENATOR DALTON: We are not debating that, Joe.
SENATOR ~ STOCKMAN:
Joe, doesn't Bill Potter have that same a responsibility to the ratepayers and to the responsibility public?
You are confusing me more and more.
The more this exchange goes on, I can frankly tell you--
COP 94ISSIONER RODRIGUEZ:
Listen, I am the Public Advocate; I
- state the policy for' my Department.
The thing is for you to challenge the information I have, and not simply to produce someone who you think
'is going to challenge me.
SENATOR DALTON: We intend to do that, Joe.
The thing is, we also wanted to hear from Bill Potter.
We, as the Legislative Branch, think we should. have the opportunity to call on any member of the Executive Branch to appear before not only this Committee, but before Senator Stockman's Committee as well, in order for us to be able to get their considered opinion.
COP 941SSIONER RODRIG'JEZ:
And, you are free to do that; you are free to do it.
SENATOR DALTON:
Then why isn't he here?
SENATOR STOCKMAN:
Mr. Public Advocate, I don't think you
- meant to upset us by telling us what our responsibility is.
Hopefully,
- we can grasp that."
So, I want to diminish--
I think the record is clear now as to your position.
Mr. Potter isn't here.
We will deal with that.
Let's get on with the subject at. hand, but before we do, I would like to invite Senator Costa to make an observation.
SENATOR COSTA:
Yes.
I don't know this Mr. Potter at all, but in~ 1istening to you just now, it seems he has a different point of view insofar as nuclear power is concerned.
I think it is very important that we get all points of view, so I would appreciate it if someone would call this Mr. Potter. Maybe we can also hear him today.
C06941SSIONER RODRIGUEZ:
You are certainly free to hear from him.
SENATOR COSTA: You are in charge.
COMMISSIONER RODRIGUEZ:
Yes.
6
m
- = 7
~
0 SENATOR (X)STA:
You have to give him approval in order for
- him to' be here, because he is going to listen to you.
Am I correct in that assumption?
p C0f041SSIONER RODRIGUEZ:
You are certainly free, and I
-indicated that to Senator Stockman,.to hear from Mr. Potter.
-SENATOR STOCKMAN:
Joe, under tne terms of the 1982 Cost Containment. Agreement, agreed : to - by. Public Service Electric and Gas, the Public Advocate, and the Department of Energy, the Public Advocate
- 6
',agreedinot to " challenge the need. for Hope Creek I before any Federal
- or St' ate agencies...."
The Advocate is currently challenging Public Service Electric and Gas' application for an operating permit, which is now before the Federal Atomic Safety and Licensing Board.
The Advocate is challenging the permit on safety and management competency grounds.
. The. Atomic Safety and Licensing Board is a three-member panel, from which - a utility must receive 1) a construction permit; and 2) an
. operation permit.for a nuclear power plant.
The Atomic Safety and
- Licensing Board conducts judicial proceedings, similar to an y
Administrative Law Judge. -My question is this:
What' are the issues the Public Advocate is raising before the g
Atomic Safety ~and Licensing Board. concerning Public Service Electric and Ges'; application for en operating permit for Hope Creek 17
'C0pt4ISSIONER RODRIGUEZ:
Do you want me to expose all the details : of-our litigation here?
We are in litigation, so I would assume-you would have to give us enough credit to suggest that we are doing something.
1 SENATOR STOCKMAN:
Is that your answer to the question?
C0petISSIONER RODRIGUEZ: Do you want me to expose the details n
of the litigation?
i SENATOR - STOCKMAN:
Mat I would like is an answer to this
. question:
What are the issues the Public Advocate is now raising
. before the Atomic Safety and Licensing Board concerning Public Service Electric and Gas' application for an operating permit for Hope Creek 17 Now, are-you suggesting that is something the public isn't entitled
.to know?
7
t COMMISSIONER RODRIGUEZ:
We are raising the issue of the
)
safety _ factors Lat the plant; we are raising the issue of the
' environmental impact of the plant; and we are raising the issue of the
- competency of management for the plant.
They are the issues.
Incidentally, generated from the Salem outage -- where we did bring 'an action ;-- we have, as a result of our experts' opinions,
~ g arrived - at certain determinations in the case.
So, we certainly
~
>weren't silent when that occurred. As a result of that, questions were
' raised regarding Hope Creek I, and we are into those matters now; they
.arefin litigation.
So, :I would assume that would suggest affirmative
' action.
SENATOR STOCKMAN:
Can you describe for us the Public Advocate's' activities in general, to date, before the Atomic Safety and
- L'icensing Board?
COMMISSIONER RODRIGUEZ:
Filing the necessary documents to
.get a hearing on the issues I have just mentioned.
SENATOR STOCKMAN:
And those are safety issues, environmental issues --' and what was the third?
- COMMISSIONER RODRIGUEZ: Management issues.
Public Service SENATOR STOCKMAN:
Management issues
- management? -
COM41SSIONER RODRIGUEZ: Yes.
SENATOR STOCKMAN:
What does the Advocate hope to achieve by its involvement in the Atomic Safety and Licensing Board proceedings?
COMMISSIONER' RODRIGUEZ:
As a
result of the latest conversation with all' our experts, a monitoring function.
. SENATOR STKKMAN: Monitoring?-
COM4ISSIONER RODRIGUEZ: Monitoring, which we are doing.
SENATOR STOCKMAN:
That would be true of the safety questions Hope Creek I presents to the public; that would be true of the
- environmental issues. that are raised; and, that would be true of the question of management competency of Public Service Electric and Gas to
' operate a nuclear power plant?
COM11SSIONER RODRIGUEZ: Right.
8
ST:.
I f
- q, x-g,
^
- SENATOR STOCKMAN:
How much will the Public Advocate's
~
Tinvolvement yin the ' Atomic S.fety - and Licensing Board's proceedings
~
Jcost? Is'_there adequate money in the Department's budget to cover this
?
_ cost?!
C0MISSIONER RODRIGEZ:-
1 ~ just made that analysis with our foxperts, yesterday, and to do it the way I know you would suggest we do
- 1 w
it, the : amount 'would be in the neighborhood of $3 million.
SENATOR STOCKMAN:
Is that'already in your budget?
y,
9 '
- COMMISSIONER R00RIGEZ:
No.
SENATOR STOCKMAN:
Do I take from that you will be appearing d*
- before > either,the Joint Appropriations Committee or the Legislature with a request for a supplement of $3 million to accomplish this?
COMMISSIONER RODRIGEZ:. No..
SENATOR STOCKMAN: You will not?'
COMMISSIONER RODRIGEZ:
I will not, because my experts have
- told me, ~as zlate as yesterday, that I would simply be trying to make myself; the NRC.
They have sufficient confidence in the _ NRC, as a result of recent developments, that it would be a waste of taxpayers'
+
Lmoney for me to use $3 million to duplicate NRC's service.
1 SENATOR STOCKMAN:
Do I understand that to mean the Public Advocate ' is going to back out of the proceedings before the Atomic Safety and Licensing Board?.
COMMISSIONER RODRIGEZ:
No, I sm saying we are going to
. continue to monitor them, but we can't become the NRC.
SENATOR STOCKMAN:
I misunderstood you.
I didn't think you said that' with_ $3. million you would become the NRC.
I thought I asked you what.you. would need to be effective in--
COMISSIONER RODRIGUEZ:
(interrupting) To monitor it?
SENATOR STOCKMAN:
Let me run through this again.
You said your. purpose was monitoring, monitoring very important issues, namely safety, environment, and management.
I thought you suggested that in order to do this you would need $3 million, and I assumed you would be asking for that amount.
You now tell us you wouldn't, because that would turn you into the NRC. How much would allow you to stop short of turning yourself into the NRC, but be effective in monitoring these major issues?
9
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c.d.
COMMISSIONER R00RIGUEZ: We have the money now to monitor it,
~
innd to react if something goes wrong.
But, if you are suggesting that I should go there and examine the piant in order to determine whether it is safe or not, I would need
~
the ' capability of. 23 disciplines to go into that plant and duplicate
'the NRC.
I am suggesting to you that unless you have a total lack of confidence in the NRC, New Jersey shouldn't duplicate their work.
We 1should monitor; we should never once yield our position to monitor in order to see that' safety 'is taken care of.
You - can't.suggest, as a lawyer, what issue I raise.
What
' issue do I raise?
SENATOR STOCKMAN:
Joe, I am not a lawyer here.
For the benefit of everyone 40 is here, Joe and I go back many years as trial lawyers.
That is really kind of. semi-irrelevant.
Joe, make no F
t
' mistake, I am not here as a lawyer.
Forget, me as a lawyer.
I don't understand--
COMMISSIONER R00RIC'JEZ:
But, Senator, you can't forget that I'am a lawyer. - The Advocate, to make a claim, has to make a charge that heT then has to prove.
How do I go through there -- simply by virtue of my office?-
Or, do I make a charge, a complaint, an allegation, or. a contention, nnd have them say to me, " Prove it?"
Then I must-produce the proof, or the contentions get dropped, as some of them already have.
So, I am' suggesting that what should be done in
~ behalf of the public interest, calls for a very careful analysis.
I am suggesting to you that I have been going through a two-year effort 5
on this.
I suggested, two years ago, that if the concern was that great,: the Legislature should have moved for a moratorium, because there is no legal--
SENATOR STOCKMAN:
(interrupting)
Some of us did, Joe, but
'it takes 21, 41, and 1.
C0MISSIONER RODRIGUEZ:
(continuing)
--forum to which I
. could go as a. lawyer.
There are preemption statutes by the federal government.-
I don't know what you want me to do with the law.
I certainly can't twist it to my benefit.
But, there are legitimate l
l 10 l
^
g;
% 3-
, 7, t
.g h
. things; IE can.do.
. We did it at Salem.
We monitored.
We got the
. agreement. D We are going to' be there,- and the experts tell me there is
,g y
nothing further 'to do. -We then translated that, to make sure it didn't happen -inJHope Oreek.
We are there; we are monitoring; we are f.
ilooking. ' I don't know what else you want us to do.
m SENATOR STOCKMAN:-
Joe, I; don't think at this point I
. suggested ianything.
, That is what this hearing is all about.
Maybe when iit. is over, based on your testimony and the testimony of other witnesses',;I'and/or the Committee will have something very specific to
?suggest. But, we are not ' at that point yet.
COMMISSIONER RODRIGEZ:
I beg you to put up *atever funds ere' necessary in order to contact whatever experts ' are available to
? arrive at-'.the, determinations that will satisfy you.
I. beg you to do lthats.
SENATOR STKKMAN:
That's what we are trying to get at.
As I
' understand it, you have enough money in the budget -- I don't know what
.e
' that 11s. yet, and ' I don'_t know whether you can tell me -- to move
~ '..
- forward with. this. challenge before the Atomic Safety - and Licensing Board,. and,. in fact,
- you are doing that.
I gather you are doing it to
' monitor. the ' safety, ; the environment, and the management skills of Public Service. 'I simply asked you, to start this whole dialogue, what V
-thet sum was, or if you needed more money.- That's where we seemed to--
~
That's Were we are.
J,
. If you :have enough money -- you are ' telling me you have
'enough -- that is one thing.
I am not looking to spend, and I am sure r
this Committee is not either, unnecessary money in that area.
But, if you don't have enough. money, we certainly want to know it because the stakee'are high.
r.:
- I gather your testimony is - that you are in there, you are pressing.the public ' interest before that Board, based on safety
-concerns,= based on environment concerns, and _ based on management
'. competency concerns; and, in your opinion, you have the funds to 4-
' adequately staff that participation.
Is that your testimony?
C0MISSIONER RODRIGUEZ:
Yes, but I want you to completely o
.. understand it so there is no misunderstanding.
To the extent we are L
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there monitoring within.our capabilities, we are there.
If you were to
. suggest to me, however, that - you ' really don't know it was safe -- if they are meeting the containment agreement -- because they are cheating on safety, I. think that would be an irresponsible statement and an
' irresponsible position for me to take, without fo' lowing it up with the
. $3 million it ' takes to look for what I don't know I'm looking for.
Now, dat I am suggesting to you is, to monitor until we see
. there is something we can legitimately move on, with a contention and with an expert -- we are there.
But, I am not going to create an
' issue, to then spend money in order to see if it is there, when the NRC is now doing that -- unless I can challenge the credibility of the NRC, snd 1 em not yet prepared to do that.
SENATOR STOCKMAN:
I am having a very dif ficult time
~ understanding you,. Joe.
It may be me this morning.
My difficulty revolves.around the question of just what you, on behalf of New Jersey, are-'doing concerning this monitoring of safety, environment, and management.
On the one hand,- I get the impression that you are
, suggesting,x"Look, the NRC is competent; I have faith in them" -- and I am not here to say they are not competent or that I don't have faith in them.
However, you seem to be saying they are doing it; we should respect that. ~ Well, that is a position you certainly have a right to take, and 'if that is what is happening, the public should know it and we should decide whether that is what we want or not.
On the other hand, you suggest that you are in there; you are j
- participating.
In a certain sense, we are trying to get to that -- to
~
I
-what degree are you participating?
'C0mISSIONER RODRIGUEZ:
Let me be brutally frank, because I understand what you are trying to do.
The question is--
I SENATOR STOCKMAN:
(interrupting)
Tell me, what I am trying
'to do?
C0MISSIONER RCDRIGUEZ:
(continuing)
--with child abuse, I move in on it; I prove it; and, I put the person in jail.
I don't sit here and say, "I can't prove child abuse.
Why not let me come back?"
, ife bester:
"Oh, I can't prove it; let me come back."
What I am W
12
w[_
~
2 L
i suggesting to you.is, when I
see the
- problem, I
will move 1
~ aggressively.
But, ' when someone says, "You know that thing isn't
- safe," I want to know sy, how, and what do I need in order to prove it?'
_iA.
What I am suggesting is, if I am to simply duplicate d at has been 'done' in that statement that some people accept and
['
legitimately, because there are people do have individual points of view, and I respect them-- My job 'is to balance the public interest.
If there is now thing I can show, such as Salem, we are there.
~K Why are we in -Hope Creek then?
Because we are trying to carry over the~ problems of Salem, to be sure they don't occur.
Will
- x they occur? I don't know. Are we there? Yes, we are there.
If there f
is a problem, I will be there again. We were there at Salem.
.- But, I can't have someone throw me a generic statement, that 7
some people went to -believe, and be held to prove that statement with Lthe taxpayers' money, when there is no other reason to direct me there
.but~that statement.
That is what I am saying.
So, if I were-to a' tege child abuse and lose; wife beater and losel neighbo: bester and lose, violent person and lose, I am mugging
. scmeore with my legal abilities.
But, if a man beats his wife, I will put hist, in jail.
You see, that is the difference.
So, we are there.
We are there.
I am not suggesting to you that we are there for any
- single person's reason; we are there because of my responsibility to the taxpayers of this State, utilizing their money.
That is the difference I' am talking about.
GENATOR STOCKMAN:
Can you tell me, or can you give me an estimate of how much of their money you are utilizing in this monitoring effort?
g COMMISSIDER RODRIGUEZ:
It is hard for me to say, but it is within our budget, and we use a roeponsible aimunt to represent their interest.
I haven't calculated it all out, because some of it is a strain.
This isn't money you can charge to the utilities.
The Rate Council charges utilities for their presence before 2t.
This would simply be the Advocate's budget, where the entire budget for tre five divisions is only $2 million.
l
~
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[
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SENATOR STOCKMAN:
I would appreciate it, and I think the Committee would also, if you could supply us hereafter with a brief statement, breaking down what the actual cost for this effort on the part of the Public Advocate is.
COMMISSIONER RODRIGUEZ:
And, I would appreciate someone telling me what it is I am not doing, from a legitimate direction, concerning the problem.
SENATOR STOCKMAN:
Well, I don't know how to answer that, Joe.
COMISSIGNER RODRIGUEZ: What is it you want me to find?
SENATOR STOCKNAN:
I thought I asked you to get us the amount of expenses the Public Advocate is--
COMMISSIONER RODRIGUEZ:
(interrupting)
Okay.
I will do that.
4 SENATOR STOCKMAN:
In the 1982 Cost Containment Agreement the Public Advocate agreed not to challenge the "need" for the plant before
" federal or State agencies which may have jurisdiction."
The tegislature is not a state " agency," and therefore the Public Advocate is free to discuss the "need" for the plant here today.
In this light, 2; you believe that the Hope Creek I plant is needed to meet the electrical needs of Public Service Electric and Gas' electricity customers, or the State's customers?
COMMISSIONER RODRIGUEZ:
Let me relate to a conversation with an expert, because I don't profess to know the answer myself.
That is why I sometimes feel my personal credibility--
SENATOP STOCKHAN:
(interrupting)
That we are beating up on you, right?
C0mISSIONER RODRIGUEZ: Sure.
SENATOR STOCKHAN:
We don't mean to beat up on you.
C0m ISSIONER RODRIGUEZ: My experts tell me this: Hope Creek I is a 1,000 megawatt facility.
What is a megawatt?
Well, if one million people take an iron and turn it on, that is 1,000 megawatts --
one million people with an iron.
Now, how many people are there with irons, televisions, and air conditioners?
What does the reinvestment credit mean to Atlantic City with the influx of redevelopment?
What 14 u
f
- 7
{j}
,em e does casino mean to South Jersey?
What is my responsibility, as an L'
official, to' prevent an emergency crisis in this State? Where do they r
peak?
Well, very definitely, by 1993 they will need something.
They will definitely need something.
If we bring this plant down now, then the taxpayer will pay
~
billions in abandonment and billions to correct something else by 1990.
You see, offhand, that de an't sound like a very safe place to run now, because we are dealing witti 1,000 megawatts. What will be the cost? Well, I am going to leave Roger Camacho here, because I think we should all realize I was asked just last week -- on friday -- what the
' issues would be, and I have a schedule I have promised to some consumer groups that I have to keep.
That is why I do not have a prepared statement.
They tell me that by 1993, it would be dangerous not to have something.
So, now you have to see dat it is you do have, and how you are going to phase it in. My experts have not said to me that it would not be needed by 1993; so, I don't know *ere else to go with that answer.
This is what they have told me, and they have given me calculations.
I know that if it only takes one million people to turn on an iron, and we are' asking this State to redevelop in the South --
we are asking for commerce, we are askit.g for industry, we are asking to put people to work -- I could not responsibly say that with a one million iron ' capacity -- irons; one million irons; just turn them on --
we don't need it.
I don't know how to make sense out of that in my mind, ao I have to ' rely on others, and that is est they have told me 6
-- that is what I have.
The question is then one of cost.
Interestingly enough --
and we seem to forget that when I took office, that plant had already been surrendered in December of 1981, because it was needed at this time.
We have had hostings on what "at this time" meant.
The Cost Containment Agreement contained the figures they agreed upon in December of 1981.
We moved responsibly, I ttought.
When all avenues to defeat the plant were lost--
And don't forget, out of some ten plants that were projected, there are only four, se the Advocate has a successful record.
That successful record yielded to the need for Hope 15
p i
. Creek I in - December of 1981.
I came into office and made the horrendous mistake of questioning the need -- the very thing I am getting killed for now.
SENATOR STOCKMAN: Who is killing you?
CIMMISSI0fER 'R00RIGUEZ: Well, okay.
SENATOR DALTON:
You are so defensive, Commissioner.
We haven't said one thing about--
CO>NISSIONER RODRIGUEZ:
(interrupting)
Okay.
Please allow me. to finish.
So, we contained it at that price.
Everything I have read, g to last night - independent analysts, magazines that look for economy -- all look to New Jersey and say the reason New Jersey is a good buy is because they have been contained.
I feel rather comforted by that statement because then I don't feel as though I sold the soul of the public interest by arriving at that agreement.
The question then is, are they on target?
From everything I have been able to determine, they are.
So, sitting here two years later, I can't suggest to you that they are not on target.
They are.within that containment, and if they are, we should be
-addressing how to phase it in -- M ich we will.
Some of your questions go to that.
Number one, do we know, by 'all indications, that it is being built on schedule? The answer is, from everything I have -- from outside analysts, from economic markets that do this independent of me, you, and this Committee -- everyone says it is, and they applaud it.
Are we constantly present? Are we concerned with the rates?
Of couros we are.
Now, beyond that, I don't really know where to go.
I don't went to get into too much detail regarding the cases in litigation I think I spoke enough to that issue.
SENATOR 04LTON:
Commissioner, our purpose today is to get I
information from you as to-the status of the Cost Containment Agreement.
Now if you feel we are beating you over the head by trying to get that information, then I would suggest you are wrong.
What we are trying to do here today is to obtain your judgment, relative to this agreement.
Okay?
Now, we may have beaten you over the head because we asked for somebody to be here today who is not here, and I 16
f_
z;m th' ink we L have e legitimate tight to hit you over the head on that.
y
' regard to this issue, we are only.trying to get information.
'~
CSO4ISSIOM:R RODRIGEZ:
And, you certainly have a right to hear from him, but only after you have heard clearly from me as to the effort I have made in order to arrive at my judgment.
This is not a
- personal feeling 1 an expressing.
I think it was a responsibility I bh had to undertake _'in order to arrive et some of these conclusions.
SENATOR STOCKMAN:
Joe, I am not overly offended at you telling us again how this Committee should function -- that is, we must first hear from you before we ask any questions.
I don't think you really - mean to insult us with those comments.
You seem to feel very much under pressure here today.
When you say, "I'm getting killed,"
' and when you make the suggestion that "You sold the soul of the public interest," I must tell you that I am frankly troubled by that.
I am troubled by the old notion of -- and maybe I shouldn't bei maybe by the time these hearings are over and history is written the feeling will go
- "Thou doest protests too loudly." We are here to gather facts, and I don't really understand.
I do want to say something publicly that should be made clear, and that is that _ you are here on rather short notice, and 1 --
and I en eure the Committee does also -- appreciate that fact.
I just wish we hadn't gotten off on the foot we are on.
Senator Costa, do you want to ask any questions?
SENhTGt COSTA:
Yes.
SENATOR STOCKMAN:
I know you have to leave soon, Joe, and we don't went to disrupt your schedulet so, if you have to go we understand, and we will pick up with other witnesses.
1.:
SENATOR COSTA:
Mr. Public Advocate, on cost containment --
it sounds great to say cost containment, but I always like to take a big number and bring it down to where most people can understand what we are talking about.
I don't look at government as being any different from running my own household, only magnified many times.
When you speak of cost containment, one looks et the difference between your saying a plant will cost $300 million, and then saying you are going to contain it at $3.8 billion.
That, to me, is like -- bringing 17
1 it down to very small terms -- saying I can do it for $10, and you saying, " Hey, you have a cost containment of $50."
That's great; I
-love it. What kind _ of monitoring do we have, and where did we get this figure of $3.8 billion, when the plant costs $300 million? Also, when we talk shout the inflation rate in the '70's and the '80's escalating so much, we have to remember that we have also been able to contain
}
inflation.
Did we make any provisions as far as thet containment is concerned, or do we have to stay at the higher level of $3.8 billion?
Where is the public being protected as far as that is concerned?
C0mISSIONER RODRIGUEZ: Because the figures--
SENATOR COSTA:
(interrupting)
I'm sorry, but I feel that the Public Advocate, by signing off a cost containment at that figure, really left the public in a quandary because of the other aspects of inflation rates going
- down, etc.
That was not taken into consideration.
C0mISSIONER RODRIGUEZ:
Again -- and I think this point was missed -- in 1981, before I got here, that figure was arrived at and agreed upon.
SENATOR COSTA: By som?
C0m ISSIONER RODRIGUEZ:
By my predecessors, not by me.
Therefore, you have to understand that once there is an agreement and the cases are lost, there is no further forum.
It is just like many other cases that are decided by the Supreme Court.
I know Bay Head probably wishes they could still close the beaches, but at some point the forum is closed.
The forum was closed, so we seized the 1981
. figure that was agreed upon by others and said, "If we, in the production date of 1986, can hold them to that figure, that will be in the public interest," because it is going off at that, whether we like
'it or not.
Now, the concern of other states that are not contained is that prices keep going through the roof -- but not in New Jersey.
That's why all the analysts are looking to New Jersey and saying, "It is not happening there."
SENATOR COSTA:
I contend it has already gone through the roof, een you have a cust enntainment of $3.8 billion.
COMISSIONER RODRIGUEZ: But, you see, that was already done.
18
u e
SENATOR STOCKMAN:
That issue -- and this is understandable because you were not part of the Oversight Committee -- took three days' of hearings, and there are lengthy transcripts on it.
In all fairness to the Committee, I personally had a disagreement with -- and it is a matter of record -- our entering into that agreement.
But, I think that is beyond us now.
I think the questions really do go to
' what - has happened since, and the major changes that have occurred throughout the country.
SENATOR, CX)STA:
My point is, I don't believe we are beyond that point, or that we have to stay there.
I think there is cause for reevaluation.
SENATOR STOCKMAN:
I absolutely agree.
SENATOR COSTA:
That is why you are having this meeting.
-SENATOR STOCKMAN:
I agree.
SENATOR COSTA:
My other question relates to sen you spoke about the ability of the NRC to do it:
"We don't have the money to do it; why duplicate it?" I also heard you say that "we are right there."
Does that mean that you have someone there monitoring, someone who is
' involved with the NRC in all the steps of the way toward the nuclear plant?
COMMISSIONER RODRIGUEZ:
No.
The only way we can do it is by monitoring the reports, and being very alert to the fact that if there is a problem,, we will go in and find out what the problem is.
SENATOR COSTA:
Could we not have a member of the Public Advocate's office involved in everything the NRC is doing?
C0tNISSIONER RODRIGUEZ:
No, Senator.
I am afraid that what we would then do is--
It is like me looking at this building and The
-telling you whether that wall is going to fall down tomorrow.
lawyers aren't capable of doing that.
You would need--
SENATOR COSTA:
(interrupting)
I am not speaking of a lawyer.
Don't you have someone -- an engineer, a nuclear engineer --
who is versed in that direction?
COMMISSIONER RODRIGUEZ:
Yes, and they would have to be paid.
SENATOR COSTA:
I am not an engineer, and I don't think any of us are; however, I really feel we have to have that kind of a resource.
19
. - _ _ _. _ _ _... _.. _ _ _ _ _.... _. ~., _ _. -. _. _ _.. ~.
COMMISSIONER RODRIGEZ: Sure. And, I would suggest it would be very easy for the Legislature to determine how many people of what disciplines you need, and then put up the money to send them there.
SENAT(R COSTA:
Well, I think that is of utmost importance, because' as we see it, what is happening is, we have no one to
. protect us.
~
COMMISSIONER R00RIGEZ:
Oh, yes.
_ ell, if you are not versed in it, if you are SENATOR COSTA:
W an attorney and you are dealing with engineering problems, especially
~ in the nuclear field, you are certainly not protecting me.
COMMISSIONER RODRIGEZ:
Senator, I don't treat a patient when I sue a doctor for malpractice.
I am there to make sure that it doesn't occur again, but I am not the doctor.
Really, the point is, if the State wants to monitor what is
. going on, it has to pay people who are in that discipline, and who know that it is they are looking at in order to monitor it.
We are a lawyers' office.
There is a big difference there.
A lawyers' office means that when an allegation is made, we have to prove it.
That is
' what our law is all about.
But, monitoring should be done by someone who knows what he is seeing.
I could go myself, but I don't know what it is I am seeing.
SENATOR COSTA:
That's what I am addressing, and I am surprised we don't.have someone in that field.
You know, I come from a county government background, and that always amazed me.
I fought very hard to get _ someone do knew what they were doing when we were in the business of building buildings. Yet, we didn't have an engineer on our
' staff so was watching.
I feel this is the same type of thing as far E
as our nuclear plants are concerned.
CO>MISSIONER RODRIGEZ: We could calculate that. Let's step back a minute. Whose function should it be? Should it be the function of a lawyer, or should the State provide that capability? I don't know everything the other departments are doing.
I am saying that as a lawyer _ if I knock down someone's door, they will say:
"Where is the
'aearch warrant?"
20
[
Y_
What I am trying to say is, there has to be a reason for me to trigger the law.
I am saying that we are watching with the eyes of p
a hawk.
That is why we are already in Salem.
That is why we are already before these regulatory bodies with whatever issues we feel abould be pursued.
There is a suggestion we are not doing enough, and I say that "enough" has to be something I can responsibly look at, short of hiring experts to go dow, there.
That is why I say it comes to about $3 million.
SENATOR COSTA:
Senator, may I ask you a question?
SENATOR DALTON:
I don't know if I will answer a question, but go ahead.
SENATOR COSTA:
My question once again is, do we have, anywhere in State government, whether it be in the energy division or not, someone 40 is qualified to monitor this?
4 MEMBER & AUDIENCE:
I would like to answer that question, Senator. We do have a monitoring process.
2 SENATOR COSTA: Do we have anybody who is versed as a nuclear engineer?
MEMBER Of AUDIENCE:
What we do have is a monitoring procer,s n
where we are immediately notified of anything that occurs at a nuclear plant.
SENATOR COSTA:
I think it is too late at that point.
I think we really have to have someone on line from our State, someone who is there constantly with the NRC, monitoring it all along.
That's my feeling.
COMMISSIONER RODRIGUEZ:
Except that we have to again remember this -- and I don't want to get technical with this, please; I y
don't intend to be technical -- if we had someone monitoring and if I went down there today and said:
"I don't think this is safe," I have to then go to the NRC.
The NRC has preempted the question of safety in the federal forum.
It is not even in the State forum, unless the State does it for other reasons.
So, there has to be a tie-in with the federal forum on the issue of safety.
They explore 4 ether or not you have proven your case, or whether they will proceed.
That has been preempted.
21
p.
I l
,l Incidentally, our office, under my direction, did, in the Maren Silkwood case, as a result of punitive damages -- if, in fact, a i
- nuclear plant does something outrageous -- put in an amicus brier before the Supreme Court of the United States for this State to have the right to impose liability, and we won. So, we are not walking away from our responsibility -- please.
But, there is a limit to what a j
lawyer can do.
[
'5ENATGt COSTA:
I think you have just shown that we are lacking in a certain direction.
You cannot protect the public without a knowledgeable person working on your side -- not on the other side --
for the public.
You need that.
You definitely need it, whether it is l
in your Department or in another department.
SENATOR STOCKMAN:
There is a suggestion that DEP has some participation, and Larry Schmidt has been anxiously waving his hand.
We may be hear from him later today, but I think the point has been made.
[
I think Senator Delton has been anxiously waiting to ask at least one, or several, questions, because 1 know he has to leave.
I would like to turn this over to him. But, before I do, I would like to welcome Senator Garibaldi, who came in moments after we got started.
Things were going so hot and heavy, we didn't have time to introduce him at that time. We are delighted to have him here. He is a tireless member of the Energ'y and Environment Committee. Welcome, Senator.
SENATGt GARISAtDI:
I have some questions also.
l SENATOR STOCKMAN:
All right.
Why don't we yield to Senator
, Delton, and then we will come back to you.
SENATOR 04L10N:
Thank you, Senator.
Commissioner, has the
'- Public Advocate made any studies to determine the economic impact the operation of Hope Creek I will have on Public Service customers?
i CWet!SSIONER RODRIGUEZ: We have made en analysis of what we l
ce!! the phase-in.
That is
- y I wented our Director who is responsible for that here.
I am going to leave him here, because my time constraints are not the same as his.
SENATGt DALTON:
Okay.
Mr. Camacho, what will the financial i
impect of Hope Creek I be on the customers in the Public Service Electric and Gas Service area?
c 22
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4 ROKR OteACHO:
Again, Senator, I have to operate within certain g f.y g{ifW/sesumptione and certain presuppositions as to the future, whe k
wl4 y
n
.-9. plj[..
6 SENATGt D4LTON:
(interrupting)
I understand that.
- d af MR. CAMACH0:
(continuing)
--in essence, responding to some Af k
' jof' the, things' provided to us by Public Service.
From what our people Yi g
have indicated to me, et this preliminary stage -- and I will put many b [ ; '
}'cevoets on this in terms of many of the things that are going on -- one v
can operate within a range of--
If you assume det we are led to eseuse right now, that plant is coming in et 3.7 or 3.8.
I think you
'a
,g
.will heer_ later on today, Public Service testify that it will be e
- ' y range of from 10 percent to 15 percent.
L, 1
SENATOR DALTON:
So, there will be a 10 to 15 percent l
'incromos in rates when Hope Creek I comes on line?
MR. CAMACHO:
On a discreet item basis for the unit, with
'several assumptions -- one being another rate case disposition -- now 4
9.
and then.
That would have en upward pressure on rates.
Also, as you have been aware most recently, we are coping with problems of replacement power costs from the outages.
That too
-can be decided as being another element to watch.
I am placing cavests on this all along the line.
I am really pointing to the pressure t
points which could impact on that.
SENATOR D4LTON:
Sure.
MR. CAMACHO:
I am not saying that is acceptable on a discreet item basis either, and that it is the basis of our talking F ';
about a phase-in. We are talking about this 10 to 15 percent range?
h SENATOR DALTON:
Right.
[
~
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MR. CAMACHO:
When one looks at all the upward pressures, !
(%$ ~ '
'believe it would be wise for us to plan on that phase-in because of the f
)
oggregate effect of all this -- that is, to soften the blow.
I don't I
went to. leeve.you with the impression that I consider it acceptable et c
that ' level.
Many of those assumptions, egeln, have b:en provided by
(
i t
e>
Public Service, insofar as det will occur in that first year of L
'h.
inpact.
[
SEN4 TOR DALTON:
Okay.
Believe me, I am ewere of the fact,
,oin many cases, that your estimates are just that -- they are estimates, l
- 3 1
23 l
l I
,n,,, _,,-,,.
,r--,
ard they '.are ' based.upon certain assumptions.
To a certain extent, we
. refer to this as sophisticated crystal-balling; so, I understand that.
MR. CAMACHO:
I specifically refer to the other case -- the
,i because it requires certain
. intervening case. along those lines assumptions as to the different elements of that case and what will happen. So, it is a very rough-gauge type of element.
I think we are I
better off just looking at those caveats -- those upward pressures --
l and try to plan as best we can.
J ll SENATOR STOCKMAN:
If I may add something here, would you say that those. assumptions -tend - to be sort of optimistic assumptions?
In other words, if things go well, there will be a 10 to 15 percent
- increase.. If any' one of these many variables don't go so well, would
- that be a fair categorization of where we are now?
MR. CAMACHO:
Yes..
In other words, I couched it in terms of bringing this' plant in at the $3.8 billion level, which, as the Commissioner has testified, is our in'dication at this point.
But, the other assumptions appear to be fairly reasonable in L. terms of that.
~
SENATOR STOCKMAN:
And, the other assumptions are with no planned phase-in?. In other words, we are talking about -- if you don't
-phase in, and if everything goes well -- a 10 to 15 percent jump in
- rates when it goes on line?
MR. ' CAMACHO:.Yes. - And again, Senator, I am not saying that is acceptable, because. there are other upward pressures that we are l
going to have-to face.
Again, if we assume everything is fine, and we look -et the period from July, 1985 to July, 1986 again, the
~
assumption is this plant is coming on line in June,1986 -- I will have to [ speculate a.little. bit.
' What will happen to the deferred fusl
~
- balance withLthe raplacement power cost?
How will it-be treated? We
.will have to}go;before the BPU next June to talk about a reconciliation Eto: the next period, %ere there is an under-recovery right now -- which you. alluded to earlier on.
SENATOR DALTON:
Now, does that 10 to 15 percent figure
- include the CWIP that is presently in the plant?
MR. CAMAC. "'- Yes.
SENATOR DALTON: That the company has received?
24
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(s MR. CAMACHO:
And, Senator, the reason I am couching my M
s
.s
$$hfW h/
caveatssinD terms of the next case is, it assumes the inclusion of j
W W is ifurther CWIP in that next rate case.
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. SENATOR DALTON:
What is your assumption on that next rate J
m;Ly;;
cese?
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'MR. CAMACHO:- The assumption, right now, is about $1 billion, r
g% y groughly.---$908millionatthisposture.
@f f
{ I E think, from what I understand, if 'you ussume the figure f
w !90esito'aboutL$1.3 billion in that next case, we would wind up roughly
[M,] > l jwiM a figure of 12.2 to a 13 percent increase.
The company -- and you w
o M]d. (.kjk..M..kh;ow from ouF past. discussions that we always debate with the company yp y
DR.,.,. [,
[ jregarding hbw;much should go in -- would have great aspirations in that J
w p, / gW } :. % regard. iso,'when you get down to the low end of that range, they would Q]gg,p:hP X J assert :that they were entitled to more, in advance.
That is why I am 3.
p.
- ghjf
.p b.
beirg / so careful with my caveats.
I have to project as to what is e s x{ r ;y w goingito ha'ppen'a year from'now.
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W$O SENATOR DALTON:
I understand that.
Now, given that once a m
-k s"-
ggj Ju 4 plant ;goesHon line, the ratepayers -experience a 10 to 15 percent
" 4pv sg/f;heg.,
- a ui, E 3,,
increase..K-~ once the plant is -on line and is operating -- what would x aw (g}
- ithe - expdriencei. be, and what would the rate impact be on the j;
ratepayers?8Have you looked at that?
~'
', @ g Mp; CAMACHO:
Just in general.
We looked at the first-year s
! fMY.E.a'e impa'ct' of) thrI, in terms of the first-year increase.
That is dist I am p
s,
%y w..
, talking about in terme of the first-year increase, the impact when this g
Q.m 1 -
comes on'line.
~
g<pD $qi+
J
? SENATOR: DALTON:
Let - me ask you this, regarding the y
w
& assumptien yov3are basing this increase on:' What percent of Hope Creek 3
,2$o you assume'.will be on line in that first year?
~
& p> ; -
,H.'
. MR. -- CAMACHO: Entirely.-- the entire plant, at the cost which W
~
N is> projected under'the agreement, the $3.7 or the $3.8.
- 9.,
%n, fSENATOR DALTON: - So, you are projecting that Hope Creek will AXMi tbe entirely-on line that first year?
y s
~ m.y,
y MR.ECAMACHO:
That is built into these figures.
Senator, I U n..g
%n can't? indicate ' to you that anyone has done a study with regard to 7
that. JI don't want to infer any load-type study into that as to what
- m J W F
- r cwill go into effect at this point.
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s SENATOR DALTON:
Isn't it a fact that we are assuming that Hope Creek I will run that first year, or for many years to come, and it will be - on :line for a great percentage of the time?
Isn't the sugges'cion there that it is cost efficient and that this plant will be on-line and will provide the consumers of the PSE&G service territory with cost-efficient energy?
' MR. CAMACHO:
Those figures I read out, Senator, would be restricted to the very first. year.
When you talk about a cost study, that would go far into time.
But, the figures I read to you would assume the ' plant functioned at a 60 percent or 65 percent capacity factor during that year.
SENATOR DALTON:
Now you are saying it is not 100 percent;
- you are saying'it is 60 or 65 percent?
MR. CAMACHO:
Yes, 100 percent of the cost in rate base.
f.
. They never operate at 100 percent, Senator.
As you know, they comu "down for fuel end there are always certain planned outages that would occur.
SENATOR DALTON:
And, you are assuming there will be planned
~ outages during the first year of this plan?
MR. CAMACHO:
In that sometimes these things occur.
I might add, Commissioner, one of the--
SENATOR DALTON:-
(interrupting)
No, I am a Senator; your Commissioner is on your,left side.
'MR. CAMACHO:
I'm sorry._
(laughter)
It is an old habit I have.
One~ of our arguments on the phase-in type of scenario is, it
' would give us some ' leverage - to talk about what you are getting to:
Assume.the plant doesn't function at that rate.
That would provide us with -some leverage to go before the BPU and argue for some remedy un
~
behalf of _ our -ratepayers.
So, through that phase-in technique, we woul'd be trying to cope etith the very item you are speaking about.
If the whole plant were not phased in, in terms of total idollars,'and.should something unforeseen happen -- or foreseen, or whatever; if the ~ plant _ should go down terribly we would have
. leverage to go before the Commissioners and ask them to take some f action with regard to holding bok and maybe deferring that phase-in.
26
c Also, another concept--
And, again, we just started these l
. studies; I have nothing definitive on the specific phase-in. We talked about-incentives in our cost-containment agreement as perhaps another
-incentive.
A ~ troublesome matter was mentioned by the entire panel:
What type of incentive would keep the plant operating?
Once we are paying the capital cost, we certainly don't want to bear power replacement costs for energy. We want it to run well.
SENATOR DALTON:
That's right.
MR. - CAMACHO:
What type of incentive can one provide, or
~
think about, to keep it running well?
SENATOR DALTON:
That's right.
MR. CAMACH0:
Assume you have that phase-in, and assume the phase-in was premised on the level of operation of the plant --
i.e.,
to operate.at such and such a level, put this much in -- if it doesn't operate so well, do we say:
"Sorry, we will recommend to the Commissioners that they better not put quite that much in?"
Again,' the basic concept I have been trying to press is,
.let's put the proper incentive into the regulation.
SENATOR STOCKMAN:
Shouldn't that have been in the cost containment agreement?
MR. CAMACHO: Excuse me?
SENATOR STOCKMAN:
Shouldn't that have been in the cost containment agreement?
MR. - CAMACHO:
No, this is really the operat.lon, Senator.
Again, we are dealing at arms length with the cost containment.
Once you get the plant in, once you are building the plant and you are getting it in, then you talk about how well this plant -- or any other plant -- runs. Why not, at that point, look for any item you can reach in order to get some leverage for an incentive?
SENATOR STOCKMAN:
But, once this 53.8 billion becomes a real burden to the taxpayers when it goes on line, that does not strike me et, the ideal time to start talking about: "All right, now we have it; now it is going to cost dearly; let's try aiid figure out a way to make sure it runs well."
R' 27
p MR. - CAMACHO:
No, I separate the two, Senator, in terms of
. dealing _with construction with building.
They have started it alreadyi We are constantly looking at ways to try and improve regulation with regard to incentives.
SENATOR STOCKMAN:
But, you are not suggesting that it could
-not have been included in the cost containment agreement, are you?
MR. CAMACHO:
That and many other items, perhaps.
- But, remember, this has to be negotiated across the table, with all due respect.
SENATOR STOCKMAN:
Let's stay with that for just a minute, because lI think it is tremendously important.
You agree that could have been fashioned and incorporated in as part of the cost containment
_. agreement?
MR._CAMACH0: Only if the other side is willing to do that as part of,the agreement.
There are two sides here.
SENATOR STOCKMAN:
All right.
It could have been negotiated.
I gather it wts not at all talked about.
MR. CAMACHO:
At that posture, we were dealing with the cost.
Remember, there is a LEAC -- a Levelized Cnergy Adjustment Clause '-- in place to deal with the replacement power cost, and the l purchasing and production costs.
SENATOR STOCKMAN:
We are talking about the phase-in time, L and. I want to remind you ' that 'one of my complaints, and one of my discomforts,-expressed publicly, was the seeming speed at which we went from the question of
- ether the plant should be built, to a " cost containment agreement," and the time frame within which the Public
. Advocate -- and that is in the transcript -- got into this negotiation
-and resolved it..
One of my concerns was whether that was too rapid a
' development.
-I must say that in listening to this question about our concern regarding. this plant running well, and your strong suggestion
'that incentives are particularly important, I am puzzled as to why this
. wasn't at least ~ attempted to be negotiated into the cost containment agreement.
28
-c 4
COMMISSIONER ' RODRIGUEZ:
I will answer that again, Senator,
-as I have-attempt'ed to over the last two years. We had stipulated that
~
g.
['
- this was already put into~ the ' agreement, and we didn't dispute the
- three' point "something" billion.
Now, we are going to negotiate.
I f,
'in ifact, we had done nothing, and lost the opportunity to stop the l
1 plant;-- which -we did -- why wouldn't.we be another Shoreham?
Why i*;
wouldn't-we' be another Marble Hill?
Why should they have agreed any.
. more. to-What happened was, that figure was there, to go wherever the v
. figure would take 'it. - We capped it. - We capped the construction at a time when we..had ' already yielded the figure.
So, nothing was done
-fast.
1
?
- What.was fast, was to cap it.
Now, what if we didn't have
.the' cap, and -the costs were experiencing that upward pressure, without tho' cap?
Where might - that $3 billion be today?
It would have been J1ess responsible if I' had -left it open, and continued to pursue an avenue that had already. been foreclosed.
So, we capped it.
Th'is would. suggest that when you ask, "Why wasn't it in?
3 Why.didn't you do it?",' you are assuming that we came to the bargaining with L an'. upper hand.
Responsibility - dictated that the top cap was-already surrendered,'so make them build within it.
-SENATOR STOCKMAN:
.I cosildn't disagree with you more, Joe.
I
' am'. talking 'about negotiating 'something.
I didn't suggest it' had to be in' there,' -or; should. have been.
Maybe Public Service wouldn't have
~
stood 'still. for it --' that is interesting. But, it appears that it was not, and that _again raises the glawing question about the circumstances
' surrounding the ; entry into - that agreement.
Now, I don't want to get bogged'down with that.
COPHISSIONER RODRIGUEZ:
Wait a minute.
You don't get-the best of both worlds from me.. You don't sit here and tell me I am
~.c_
trying to assume something that is not occurring, when every
~ opportunity you get to go back and suggest something sinister, you do.
I-am~saying.there was nothing sinister in this.
2 SENATOR STOCKMAN:
What is sinister about the possibility of having--
COMMISSIONER RODRIGUEZ:-
.The gnawing concern as to what 29
_ _ ~.
happened so quickly two years ago, and I am trying to suggest to you that maybe you should have the people who surrendered the plant at $3 billion-dollars here, rather than asking me why I contained it.
- Senator, really, I am sorry; that is another question.
I am very late now, but I don't want to leave an unanswered question.
SENATOR DALTON:
Let me talk about tha future here -- the
~
present and the future.
I want to go back to this cost issue.
C0mISSIONER RODRIGUEZ:
Excuse me, Senator.
Are you going to need my presence if you are going to be addressing questions to Mr.
Comacho?
SENATOR DALTON: Commissioner, we are aware of your schedule,
-so if you have to be on your way, please feel free to do so.
Thank you for your appearance here today.
Roger, given the cost figure again of 10 to 15 percent, what I am asking you is, does 10 to 15 percent include the percentage increases in CWIP that PSE&G has already received?
MR. CAMACHO:
Yes.
This is an incremental piece, on top of what has already been awarded.
SENATOR DALTON: Okay.
In other words, let me ask it another way.
This incremental piece that you anticipate being awarded, what percentage in increase will that be?
MR. CAMACHO:
I'm sorry, I don't know if we are talking about
' the same item, Sen.ator.
What this assumed was one more addition of about $300 million in CWIP.
Again, the company provided that.
I can get 'into the technicalities on this.
There is something called "Old -
~ AFDC" which keeps accruing between the test years, which will, by then be up at that level.
This was the incremental piece after that case.
Assume that a case is decided beginning in 1976, and there is a rate award at that
. point _in time. As part of the rate award, there is an assumption that "x" amount of additional CWIP is in.
So, we are no longer dealing with
$1 billion; we are dealing with $1.3 billion.
SENATOR DALTON:
Right.
MR. CAMACHO:
Then, in June of '86, suppose the plant comes in; what is the incremental rate impact at that point in time of just that June '86 portion?
30 n
E SENATOR DALTON:- Right.
'MR. CAMACHO: So, you see, at $1.3, if you use the 3-8, it is about'one-third at that. point.
SENATOR DALTON: Right.
~MR. CAMACHO:
So, yes.
There is an escumption that one-third
.of. the plant is already in at' that posture.
N~
SENATOR DALTON:
Now, *at I am asking -- and I understand what you - are saying -- given all of that, given the CWIP that this
. lant has: received, and given the cost of this plant starting up in p
a
- 86, - given all. ' of that,. what is the - aggregate impact upon the ratepayers as far. as percentages are concerned?
MR. CAMACHO: - Again, I have that - 10 to 15 percent range, assuming--
Again, the assumption is fuel savings that first year, operating at 65 percent, and this prior CWIP in.
SENATOR DALTON:
So, your 10 to 15 percent includes all the
- CWIP that has been received--
MR. CAMACHO:
(interrupting) Yes.
SENATOR DALTON:
(continuing) for this plant, and an additional amount of CWIP that you assume will be received by the company prior to the 1986 start-up -- the cost of construction and the cost ~of starting up the plant, all.of that?
MR. CAMACHO: Right. Most of that would already be reflected in' rates by then.
It will then be this incremental piece.
SENATOR DALTON:
I understand that.
MR. CAMACHO:
Yes, under the given assumptions I have been provided with.
SENATOR DALTON:
Okay.
I just wanted to make that clear,
~ becauce I think. that is one of-the points we are focusing in on:
What
.is 'it going to cost the consumer?
And, you are saying the aggregate coat to the consumer will raise their rates by 10 to 15 percent at that point in time?
s MR. CAMACHO: At that point in time..
SENATOR DALTON:
1986?
MR. CAMACHO:
Right.
The rate case before--
We may be talking again about " ball parking" the 10 percent at that posture.
31 4
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1 SENATOR DALTON:
Let me ask you this:
How much has it Jalready raised rates?
MR.:CAMACHO:
I would say there is $1 billion of plant in at this point.
- One can generally use the 20 percent rule as to the irevenue.-. requirement generated by that billion dollars.
So, at this level, one could say it would be about $200 billion per year.
SENATOR'. DALTON:
. hat percentage is that?
What is the W
percentage increase that the consumer has already received for Hope
~
-C eek?.
7 tMR. CAMACHO:
You would have to relate at this point--
The
$1 billion. is effactive as of March -- the Board has ordered late iMarch. _ In the past, - there were graduated levels of this, coming up from 250,~ 375 --. all the way up.
I -just don't have that aggregate figure for. you, ~ Senator.
SENATOR DALTON:
So,-if you don't have that aggregate figure, how can' you tell me it is only going to cost 10 percent to 15 percent when it-goes on-line?
MR. CAMACHO:
Assuming those figures are already in rates.
They.are in 'there already. - I am not articulating this right; you are ha'ving a problem.
They are in rates.
That is in the current rate.
All that past business-is in the rate.
If one more case comes by, that
.is reflected in the rates again.
SENATOR S.TUCKMAN:
This 10 to 15 percent increase is totally distinct from rate increases that have already impacted on the taxpayers as a result of Hope Creek.
You were not able to give us that percentage, but it has to.be at least several percentage points, or
-more, I would think, from the numbers.
MR. CAMACHO:
I would imagine that.
But, I still want to make s.' point - to.. Senator Dalton, because that is dat I meant by my caveat.
That is what we-call an incremental piece.
It is the addition
.that will come on at that point in time for everything that is already reflected in the rates.
SENATOR DALTON:- ~ Roger, I can't help but ask you this:
You used the hypothetical number of 65 percent operation.
What is the experience T with the nuclear plant' Public Service is operating now, over the last year,.in terms of its operating time?
ie 32
If MR. CAMACHO:
Again, I don't have a specific figure, but there have been difficulties at the plant you have alluded to.
SENATOR STOCKMAN:
That's an artful statement, isn't it?
What would we be be t alkir.g about, 20 percent operating, or 30
' percent? Public Service might know that quickly.
MR. CAMACHO:
I guess I could defer to Public Service on that. As you know,1983 was a dif ficult year for Salem II SENATOR STOCKMAN: Was it 48 percent? How about the last 12 h-months? It has been _ worse in the. last few months, I guess, because of
.the shut-down. Can pou give us a rough idea?
SENATOR DALTON:
Wait a minute, Gerry, I still have some
_ questions.
SENATOR STOCKMAN:
I'm sorry, I thought you were finished.
SENATOR DALTON:
No.
You were talking about this cost increase. Let me ask you this:
It is a 10 to 15 percent increase they will experience when they go on line -- right?
MR. CAMACHO: Again, with all these assumptions.
SENATOR DALTON:
Okay.
Now, what would be the increase to the consumer if, in fact, we didn't bring the plant on-line, and we bought off the grid in 19867 MR. CAMACH0: Again, Senator, I don't have that information.
' SENATOR DALTON:
What would be the increase to the consumer if PSE&G used oil in 19867 MR. CAMACH0:
I guess you would have to assume certain costs at that time, but I don't have such a figure.
SENATOR DALTON:
I guess the point I am making is, when you came on and you made this agreement, or when you came on and you wouldn't challenge the building of Hope Creek I,
you made certain assumptions.
You had to make certain assumptions.
You had to make certain assumptions as to the cost of this plant, vis-a-vis the cost of oil, vis-a-vis the cost of buying power off the grid, cnd perhaps vis-a-vis Midwest coal. What were your assumptions?
MR.. CAMACH0:
I think Commissioner Rodriguez outlined that.
At.that point, the basis for the assumption was just pure pragmatism, to obtain the cost cap in order to prevent further overruns, and to try to build the incentive in at that posture.
1..
2 SENATOR DALTON:
So, as a result, there was never e look at those' alternatives by_the Public Advocate?
MR. CAMACHO:
At that point in time there was not; we really
- had not had the opportunity at that posture.
SENATOR DALTON: Okay.
I have no further questions.
SENATOR.STOCKV.AN:
The figure of a 65 ' percent operating assumption for this plant is clear and understandable to me, Roger.
I
~know you based that 10 to 15 percent estimate on that.
SENATOR GARIBALDI:
Would you clear it up for me, please? I still don't know what you are talking about.
~
SENATOR DALTON: Why don't you let Roger do it?
SENATOR STOCKMAN:
Let me try, just for my own mental exercise, and if ~ l fall flat, especially in front of this group, then we will'see where we can go from there.
- Senator, I
think the-testimony is, based on certain assumptions'-- including the completion of the plant and its beginning operation -- there will be a 10 to 15 percent increase in electric rates 'for -Public Service's customers,
- which, based on present
- assumptions, is sometime_in 1986.
SENATOR GARIBALDI: Automatically?
SENATOR STOCKMAN:
- Well, automatically, in a certain conceptual way.-
What the ~ witness said was that one of the assumptions in suggesting ~ the 10 to 15 percent is, when the plant comes on, it will
. experience operating efficiency; it will be on operation providing electicity 65 percent of the time.
Now, you have to understand that these nuclear plants don't run twenty-four hours a day, seven days a week [three~ hundred sixty-five days a year. For a lot of reasons, they are closed down at times.
Unfortunately, they are sometimes closed down ' for _ safety or for 'other reasons, but they can operate for less
- time.
Now, if.the operation of this plant -- and this is what I was suggesting -- is analogous ' with the existing nuclear plant down there,
- and its effectiveness -- which-we have been told is 40 to 48 percent --
~
I am sure the witness'would agree that the fact is the 10 to 15 percent
g
'e 1 jump would increase to something higher.
That was the point I was trying to make, because -if you have' a product you are paying for, you are paying that cost Wether it runs or it doesn't run. To the extent it doesn't run, it aggravates the cost to the people who are bearing the burden, in this case the ratepayers of the State.
SENATOR GARIBALDI:
Okay.
Well, why wasn't that factored in at the outset, at the time the range of 10 to 15 percent was developed?
MR. CAMACHO:
Oh, that is in there, Senator.
SENATOR GARIBALDI: ~Yes, but the way I understand it now, it is quite possible that it.is not; it is more than likely going to be higher than 15 percent.
MR, CAMACH0:
It could be, depending on other factors, yes.
We would have to prognosticate on how well the plant runs.
The nuclear 4
plants are very heavy with capital construction costs.
The running rates are relatively inexpensive, versus the alternatives.
So, once
-you get by the capital cost, you want them to run as much as they possibly can,.but with a safe operation.
SENATOR STOCKMAN:
What is the general experience of nuclear power plants and their operating efficiency?
Is there some general
= statistic on that?
MR. CAMACH0: Senator, I am really not conversant on that.
I don't have,a standard that I would--
SENATOR DALTON:
(interrupting)
How about PSE&G7 What is PSE&C's average, relative to their running a nuclear power plant and the percentage they are on line?
MR. CANACHO:
Again, I don't have that figure.
We have had problems recently, and, as you know, we investigate on an ad hoc basis.
SENATOR COSTA:
Would there be a change in this 48 percent
^*
operating' efficiency in the present plant? Why is it staying at that percentage?
MR. CAMACHO:
Excuse me, Senator?
Could you repeat that, please?
SENATOR COSTA:
You spoke about the present plant as operating efficiently 48 percent of the time, is that correct?
35
~--p
,,--4
- - - - - + - -
q a
MR. CAMACHO:
That was the figure given by Public Service, but - there: are some ' outages built into that.
This is a hypothetical situation into ' the feture, prognosticating about how well the plant would run.
-The better the plant runs,.the more fuel savings one acquires ~as an offset to that first year impact.
-SENATOR COSTA:
Are you saying that first plant is not
<:s'{
_ operating that of ficiently, that you expect this new one to operate a little better, which means 65 percent of the time?
MR. CAMACHO:
Yes, relative to the 48 percent.
The 48 percent, again, was given by Public Service.
There have been recent problems with the generator; there have been problems with Salem II and.
- Salem I.
SENATOR COSTA: What did--
SENATOR STOCKMAN:
We will hear from Public Service and the
. Department of Energy on that.
MR. CAMACHO:
I am using a hypothetical example -- out into the future.
That hypothetical would always be better than 48 percent,
-I;dare say.
- SENATOR COSTA:
In the future, would either one of them go beyond,the figures you just gave us?
MR.-CAMACHO:
That is a possibility also.
We have seen some plants operate, at 80. or 85 percent.
It actually depends on what happens.
_-It _ is like operating your car in a given year. One can have
- aL good year,' and-it operates well; or, it can be in the shop quite a bit.- We often argue about_ why it is in the shop, and who caused what,
- but -it 'is~ a bit of~ a prognostication as to what will happen.
You see.
in - that - first. year we have to project how much it will cost to put in
.the 2 rate base and also afford an opportunity for a return on the Investment.
But, we are to ggt credit, in essence.
When the plant comes
-in at that posture, how well will it run? How much fuel savings will it; achieve in that-year, relative to other higher cost items? And, we
' have _ to really make a guess as to how to net the two in order to reach a figure.
36
. ~
rC' gp 4
A SENATOR STOCKMAN:
Roger, besides this figure 1. hat we have spent some time on, in terms of operating efficiency, what other majur l
.hypotheticals are you relying on to arrive at that 10 to 15 percent
_ jump in rates?
MR. CAMACHO: The operating and maintenance cost would be $69 millict, approximately, for the first year in order to operate the plant.
It assumes.approximately a $230 million figure in fuel savings for that first year at that 65 percent. Again, it assumes more CWIP in rate base.
The impression I don't want to leave with you is that I believe that is a solid number or an acceptable number.
In actuality, we would like to bring that down quite a bit to face some of these other pre 9sures.
We had hoped to hold it, perhaps, at a five to six percent range, as opposed to something like this, through the phase-in.
~
SENATOR STOCKMAN: At the time the Cost Containment Agreement was struck, what was that figure? By that I mean, what was the Public Advocate's. impression or understarxling - as to the impact on the ratepayers when the plant opened?
~
MR. CAMACHO:
At that point, please realize again, Senator, that we were dealing with capital expenditures, solely.
SENATOR STOCKMAN:
That's sere I get confused.
At the time you sat down to negotiate the Cost Containment Agreement, I assume you were explo' ring all avenues -- the cost of the plant, the safety of the plant, the environmental impacts, etc. -- and you were exploring them hypothetically; that is: "Well, suppose it comes in at a higher rate, or a lower rate?. Suppose it operates at 50 percent efficiency, etc?"
I assume all of that was part of dat was described to us as sort of a landmark, negotiated agreement, or contract.
I would assume it was done with some understanding of, "Well, all right, if we strike this deal" - put in simple terms - "when the plant opens, the impact on the ratepayers will be '10 to 15 percent, with those hypotheticals." I am not beating you. over the head by saying that is right or it is wrong, but we have to know the facts.
This Committee has to know the facts.
37 l
l
0-l 4
I am saying to you, Roger, we know that as of now, based on
- those hypotheticals, these assumptions -- which I assume you think are
- reasonable = - we are talking of a 10 to 15 percent increase for the ratepayers.. I am now asking you to go back to the time that agreement
.was struck, dat was the impression, understanding, or awareness of the Public Advocate in entering into that agreement as to the impact this plant would have if the agreement was struck and if the plant were turned on?
MR. CAMACHO Again, Senator, at that point as was
' explained by Commissinner Rodriguez -- we were dealing from a very pragmatic ' point of ' view.
_At that posture 'we really had very little
- coportunity to do much about this plant, except to pragmatically try to hbld down those.expe.nditures, where we possibly could. - We were looking at 0 situation of relative runaway versus relative cost containment, a positionL of bargaining strength versus no bargaining strength, and it a very important question to me, and perhaps to others.
Are you suggesting to me 'that at the time the agreement was entered into, the Public Advocate was not in a position to be able to understand the approximate percentage of increase in the rates to the ratepayers of the, State of New Jersey? Is that your testimony?
'MR. CAMACHO
~ In general, we could calculate at that point, based on the 3.8.
SENATOR STOCKMAN: Did you?
MR. CAMACHO.
We~ looked at it in. general, and at the opportunity in terms of arguing for a phase-in.
We had no specific percentage. figure.
For example, you will find us arguing throughout,
- regarding the CWIP ' -- to hold back on the CWIP and to stress the phsse-in more.' You see, one of the parameters we have with this plant is --' and Public Service's own game plan calls for this -- not building
' much, by-Lway of - future plants, until out beyond the turn of the century. ~That gives.us some time to deal with this phase-in aspect.
/
So, one can pretty much, at that posture, make an evaluation
. and. argue for a phase-in.
SENAT(R STOCKMAN: Let me state it another way. Roger, there came a time -- after negotiations between the Public Advocate on behalf 38
l r
s 4
)
of the fpublic, the Department of Energy, and Public Service Electric
'and Gas -- when there w'as a proposal to cap the cost of this plant at
~
$3.7 million, and establish certain other conditions.
There came a time when you were close to that.
You were back in your office alone with your people -- in the privacy of - your office.
Public Service wasn't there. You were debating, "Do we sigr1 this agreement? Is it in
~*
the.public interest?
Is it not in the public interest? What are the issues that impel us to do this or not to do it?" I would assume that 2*~
before ' Joe Rodriguez signed that agreement, based on those various conditions he had to 'have some. appreciation, or understanding of, the approximate ' increase to the taxpayers -- to the ratepayers -- that would occurc if this agreement were signed,-and if the plant were constructed and turned on.
That seecs like just common sense logic.
We know now, as you have testified here today, that based on certain assumptions -- 65 percent operating capacity of the plant, when it 'is on -and certain other items you have given to me -- your best
~
' estimate is it will impact to the extent of a 10 to 15 percent increase in the-rates.
' I am trying to bring you back to when that agreement was entered into. You'must have had some idea back then.
Was it 10 to 15 percent? Was it 30 percent? Was it 5 percent?
MR.- ~ CAMACHO:
Again, Senator, Commissioner Rodriguez would
- have _ to' speak with regard to his own evaluation at that point in time.
SENAT(R STOCKMAN: My recollection, Roger--
MR. CAMACHO:
As you indicated, I was part and parcel to
^
that.
SENATOR STOCKMAN:
Just a moment.
My recollection is rather C
clear-on that. As a matter of fact, there was some real heated debate over just dio was -in on the ground floor of this. My recollection is
--- and the transcripts would have to be searched to bear this out --
.L
. that ' you get 'a cpeat deal of whether you want to call it credit or bltwe, or whatever; you were right in the eye of the storm. You were a key man.- I respect you, and I say publicly that my reading on you as a person with technical expertise and knowledge in this area is that you 39
/
l f
~have it.. ' So, I would think you must he.ve been. n on that.
You must know what that was.
MR. CAMACHO:
I was in on certain of those meetings, as you and even later on, insofar as amending those know, Senator agreements at that posture.
But, I cannot say anything concerning Commissioner Rodriguez.'s intent on this subject.
At - that point, cne could only look out with regard to the total, not with regard to ~a specific percentage, and try to cope as best' one could with the plant, trying to hold it at the $3.7 billion.
There wasn't an awful lot we could do about it at that posture.
- But,
-secondly, one can assume that we at least had the opportunity to go
' before the Comissioners and try to phase it in, try to operate it, and try to work with it at that posture..
Now, the -integral elements that went on in Commissioner
. Rodriguez's mind at that-point, and in the minds of others who were
- working on it - I don't know all of that.
I was part and parcel to
.-certein of the meetinge; in fact, I had input beyond the point when it
~
was signed 'in terms of some of the amendments.
SENATOR STOCKMAN:
Roger, I don't want to beat a dead horse, but let me suggest to. you that one of my concerr's -- and certainly one of. 'the Committee's concerne -- is, if that figure was one number at the time.and if it has increased appreciably, it just gives us more evidence to raise the question of
- ether we are heading in the right direction.
Your - testimony, as I have interpreted it, or heard it --
others will have to judge for themselves -- seems to be that you at
~
least.are not aware of whether that was something that was even talked about.- We are - talking today of a 10 to 15 percent increase in rates for the ratepayers.
I have to question tetether there was talk amongst yourselves as you led yourselves, or were led into -- or you agreed
.upon -- - the Cost. Containment 'Agreeraent.
I can't seem to get that e
answer, so we may have to ask Commissioner Rodriguer that question.
- SENATOR DALTON:
If I may, Gerry, your concern seems to be to try to provide incentives for this plant that comes on line in 1986 --
~
, to provide en incentive for it to operate at its maximum efficiency.
s.
A0
I:
A L
MR.
CAMACHO -
Senator, expanding beyond that,.all the plants-- In other words, when we throw this notion around, we try this M
at ril' postures.' We try this during each levelized adjustment clause proceeding.'
Anytime we can try to improve, and work on, those incentives we do.
.What peaks my attention to this are the most recent events I
-with regard to the_ outages.
So, I am saying there are some intervening
- factors.
SENATOR' DALTON:
-Given the position of the Advocate
.yourself and.the Advocate, because I think the Commissioner feels strongly about this -- what would be your reaction to a legislative initiative to tie together the rate of return with the performance of
-that olant?
In other words: "As a company you will get a rate of return if, in fact, you meet this level of performance," and not leave it up to the regulators or the regulated -- have a statutory initiative in this area.
MR. CAMACHO: With all due respect, some input will be needed from the regulators with regard to--
' SENATOR DALTON:
(interrupting)
I am not suggesting they wouldn't-have any input.
MR. CAMACHO:
(continuing)
--how that has to be worked out,
- because there are some legal constraints on this, in terms of a
'a reasonable ~ rate of return.
I think one would need some flexibility in such.legisistion to cope with those legal constraints.
SENATOR DALTON:
In other words, what I am saying is, instead of making it a regulation, or a regulatory practice, make it a law.
~MR.
CAMACHO:
Again, the strength of the law is always sought. One improvement that we would need is to make certain that we v
did not violate any other Inws in terms-of that, in terms of not infringing on the right to a. reasonable rate of return, because one would then have to get into what caused those problems.
SENATOR DALTON:
We 'have a law on the books already with regard to that.
MR. CAMACHO: But, I think that with flexibility-- You would have to build that in, with all due respect, to cope with the 41
=....-. a
~,
requirements. But, consistent with our theory of providing incentives, we would perhaps like to have some input on that legislation.
SENATOR DALTON:
Oh, you certainly would.
The only thing I
' have to say _.is, I appreciate the opportunity to speak to you.
I have some ' serious reservations about your 10 to 15 percent calculation, however.
MR. CMACHO: Senator, this is why I put all those caveats on
'it.
SENATOR DALTON:
Even with your caveats, I have serious reservations.
MR. CMACHO:
The point I wanted to make clear to you was the incremental piece. We are prognosticating the future, and we can be--
SENATOR DALTON:
(interrup' ting)
.Well, I not so concerned
' about: the way you prognosticated the future; I am concerned about how you viewed the past. in coming up with that figure.
MR. CAMACHO:
You can't just look at some of the assumptions
-- the incremental piece -- and I can't leave you with the impression that I think it is acceptable.
I do not.
SENATOR. DALTON:
Okay,' Roger.
Again, thank you.
We are going to have the opportunity to go around on this again, I am sure.
~ ~
MR. CMACHO:
Thank you, Senators.
SENATOR STOCKMAN:
We have just a couple of more questions,
-Roger. Senator Costa?
SENAT(R COSTA: Yes, thank you. What is your profession?
MR. CMACMO:
I am an attorney, Senator.
SENATOR COSTA: You are an attorney?
MR. - CMACHO:
I am the Director of the Division of Rate Counsel.-
SENATOR COSTA:
Before anyone signed off, such as the Commissioner, on the figue of - 3.8 cost containment, where did the information come from? On dose word did you base these figures? What was their expertiae? Was this from attorneys, or from. whom?
MR. ' CMACHO:
Again, I am privy to much of the information fcoming in.
That figure I believe was part of an estimate -- a 1981 provided by Public Service Electric and Gas at that estimate posture, way back'in '81.
A2 m
.c 4
1 Again, following through on the question -- well, I will stop at - that point.
SENATOR COSTA:. We get the cost containment from the people involved? That is where the information is coming from?
MR. Civ4ACHO:
This is the pragmatics involved, Senator,
- because:if you look at some of the other plants, you see these figures
~*
going to 4, 4.5, 5.1 -- they constantly keep escalating.
It reaches a
. point, as the Commissioner mentioned, where, from a pragmatic point of view, you do your best to try s.nd cap it with any type of incentive you have at that posture.
In other words, we were not dealing from the
' high ground then; we were dealing from down here, looking uphill at that point.
SENATOR COSTA:
We are not dealing from anywhere as far as I
. am concerned.
If you don't get your information frem the people who are involved in the technical aspects of the nuclear plant, you have nothing.
I am sorry, that is my opinion.
MR. CAMACHO:
No.
You see, the utility has to go before the BPU, and it has to prove these numbers.
SENATOR COSTA:
I recognize that, but--
MR. CAMACHO:
(interrupting)
It is a question of at some point you have to try and esp it, from a pragmatic point of view. You have seen 'some of the other plants.
You see what is going on in the nation.
It is just going up.
SENATOR COSTA:
With all due respect to attorneys, you are dealing with something that is so technical -- in an area that is so technical -- yet you are dealing on a contractual basis, based on law.
I am gravely concerned that we are not getting the proper input before o
a lawyer can do his proper job, insofar as making an agreement is concerned.
MR. CAMACHO:
Beyond this cost containment itself -- and our g
we do have the Division deals with the rate cases themselves opportunity to retain these consultants, and some of them are nuclear engineers, some of them are accountants--
SENATOR COSTA: Were they hired?
MR. CAMACHO: Excuse me?
SENATOR COSTA: Were they hired?
43
g g
i i
'MR. CAMACHO:
In the current rate case, they were in there when we presented testimony.
i l
SENATOR 0)STA:.In that Cost Containment Agreement, were they involved'in that at all?
MR. CAMACHO I don't know everyone that was involved in that. But, again, the historicral basis is important for that, because
. at that point we had several' orders against us -- we had very little, by way of a forus, to combat it.. We were looking uphill.
For us, it
- was a pragmatic position.
It is difficult to explain in terms of just reaching out for ' that incentive, to try and cap it at what we had before us.
- I think when we look at the current plants in other states,
= even at this point' those estimates just keep on rolling up.
It is not perfect. No one can ever say it is perfect.
We had to reach out.
We had 'to reach out for something.
SENATOR COSTA: The more I learn, the more concerned I get.
MR. CAMACHO:
In the rate cas'es themselves, we do reach out
- for these people -- for the experts -- and you are absolutely correct;
. we have to respond.
In our Division, we must respond to what PS says
.in its filings and in its case.
They file testimony, and we often file
,as many as seven or eight witnesses in rebuttal, and the battle is on, literally.
It is quite a thing.
SENATOR COSTA: Witnesses in what direction?
MR. CAMACHO:.Normally,'PS is asking for what they believe is g
reasonable.
We don't often see their figure as reasonable.
We are quite often very.much under their figure, and we support that, as best we can, with our experts.
. SENATGt COSTA: Experts in what direction?
MR. CAMACHO: Engineering, accounting--
SENATGt COSTA: (interrupting).Aha, we are getting there.
MR. CAMACHO:
(continuing) --finance. Realize, these people must take. the stand, and they must undergo cross-examination by the attorneys and the experts on the other side.
It is a litigation scenario. Feet are held to the fire in rate cases.
It is quite common for. them to go for 40 or 50 hearing days in a Public Service case.
44
~.
y F
1 SENATOR STOCKMAN '
Senator Garibaldi, do you have any questions?
LSENATOR GARIBALDI: No questions.
SENATOR STOCKMAN -
One other arse, briefly, Roger.
This
. question of nuclear weste -- is there, built into your calculations.
'some figure, or assumption, with regard to nuclear waste produced by
- this plant?
?-
MR. CAMACHO:
Implicit in the numbers right now, under -- I believe it is called the federal Weste Policy Act, there is one mil per KWH -that is provided to. pay for the disposal of the nuclear waste.
I don't. have the aggregate figure for that.
SENATOR STOCKMAN: The federal government, under that law, is
~
supposed to : deal with and resolve this problem, but their history so far hasn't. been so good.
There really hasn't been an answer developed yet for dealing with this nuclear waste, has there?
MR. CAMACHO. To' my knowledge, as you have indicated, I do
-not know if the federal government really has the plans for the ultimate storage of the weste.'
To my knowledge, and again, this is
. Public Service's contention to me, the on-site storage there -- and I
- will cite some figures but they will probably have much more accurate figures than I have -- would be capable of coping out into the year 2005.
The federal government, under - that law, I think in 1998, is s
obligated to remove that weste from the on-site storage to permanent storage.
I think et that posture the federal government must have a plan for the permanent storage.
At this posture, I don't believe. they have it for this particular ares.
SENATOR STOCKMAN:
And, until they do, New Jersey is stuck with dealing with, or handling, this ruclear waste right here in the State, right? -- at the location of the plant, I take it?
4 MR. CAMACHO:
Yes.
You are saying stuck with it -- it is on-site. - I am sure PS will have much more knowledge un this.
It is stored right on the site, and their contention to me is that they can
. cope with this until the year 2005, with the federal government having to act before that.
A5 L
... - -. _ _ _ _. _. ~ -,, - - _. _
.-.__,,c.--_.
s SENATOR STOCKMAN:
So, if the federal government doesn't act p
by 2,005, actually the plant could not continue to operate?
MR. CAMACHO:
Here again, I would have to defer to Public Service regarding what plan they have, or how they would cope with that situation..You can see the lead time involved in that situation.
SENATOR STOCKMAN:
You don't know, incidentally, whether the Federal government is going to think that if and when they come up with some solution, it ought to - be a cost burden shared by the states.
There was a popular notion that the federal government should withdraw from certain areas of participation, economically, and if that trend continues I suppose we could reasonably hypothicate that it would cost the ratepayers of the State-of New Jersey, or the taxpayers -- or both
-- added revenue in order to deal with this solid waste problem -- not solid waste; nuclear weste.
MR. CAMACHO: Perhaps so, Senator.
SENATOR STOCKMAN:
No figure is in these calculc+ ions for that.
MR. CAMACHO:
I don't have an aggregate figure on that.
SENATOR STOCKMAN:
All right.
We appreciate your coming in.
We will probably communicate with your Department further.
Unless the Senators have any further questions, I think that completes your testimony. Thank you very much, Mr. Camacho.
MR.
CAMACH0:
Thank you very
- much, Senator.
CIDMISSIOKR LdONARD S. COLEMAN, JR. :
Okay.
I would just like to tell Senator Costa that I am not a lawyer.
(laughter)
. SENATOR COSTA: Are you an engineer?
COMMISSIONER COLEMAN:
I am not an engineer either.
I do some engineering on Monday mornings if my favorite football team loses. (laughter)
SENATOR DALTON:
Commissioner, I would like to start the as to the questioning by asking, *at is your Department's estimate economic impact on PSE&G consumers as far as the operation of this plant is concerned?
C0lWISSIONER COLEMAN:
I think our position is similar to that of the Public Advocate.
We use the figure "up to 15%," and we use the 46
same assumptions with' regard to the questions of the rate case and
~
other factors that could become involved in it.
J SENATOR DALTON:
Does that include past rate increases relative to Hope Creek I?
COMMISSIONER ' COLEMAN:
That is correct.
With regard to the question you asked before about that, Senator, right now our estimates are.that the public is already paying for 7L SENATOR DALTON:
Okay, 7L Given our very easy and
.. readily-available perspective of the past, what would the rate increases have been without this plant?
COMMISSIDER COLEMAN:
Once again, when we say "without this plant" -- -I think that by just taking history into account -- as you know,' when we entered into the agreement, that plant was already $2.5 billion down the road.
In a sense, that $2.5 billion was going in regardless.of sether or not we entered into that agreement.
We figured that a certain percentage was already going into customers
- n. '
. paying out anyway.
SENATOR DALTON:
- That doesn't entirely answer my question.
What I asked was, given the recent past, what would have been the rate increases borne by the consumers if Hope Creek I did not exist?
COMMISSIONER CDLEMAN:
Okay, if it didn't exist, or at the
. point--
SENAT0F DALTON:
(interrupting)
Okay, I think that is probably unfair. Why don't we go-from the point of when the agreement was made?
COPNISSIONER COLEMAN:
We have capped at $3.79 billion, as y'ou know, so we are talking about an additional $1.29 billion because we are already $2.5 billion down the road.
~
SENATOR DALTON:
Okay.
Do you think your $3.79 billion target is going to be reached?
t-C(DMISSIONER COLEMAN:
Presently, all the reports that have been filed indicate that the $3.79 billion target will be reached.
We not only manitor and review reports which are filed each month by the company and the-independent consultant, but we also monitor various financial reports that come out from the financial firms.
Two of them are in my testimony; they are Salomon Brothers and Argus.
47 L
{
. SENATOR DAL10N:
I should note, Commissioner, that the $2.5
- billion-you. talked about as being already in at the time of the
~
egreement--
You testified in September of 1982 that the $2.5 billion was, remaining to be charged.
I just want to correct you on that.
On Page 6 - it reads, Joint Statement with the Department of the Public Advocate: " Clarifying certain mechanical and procedural aspects of the incentive / penalty revenue requirement agreement covering liope Creek I,
'it is indicated that there is also an additional approximate $2.5 billion remaining to be charged on this project."
C0094ISSIONER COLEMAN: Okay.
SENATOR STOCKMAN:
I just wanted to clarify that for the record.
Does the Department feel that the _ decline in oil prices during the last two years has undermined the economic premise that was used in agreeing to the $3.79 billion as an acceptable cost for Hope Creek?
COMMISSIONER COLEMAN:
No, I don't think so.
You know, Senator, earlier you -mentioned sophisticated " crystal-balling."
for instance, if we look at the home heating oil situation that we had this year, with prices going up 2% for a six-week period, it is very
' difficult to gauge exactly where all the prices are going.
The relative' stability we have had over the past year or two could change very quickly.
There also has been a tremendous increase in the cost of purchase.! power over the past couple of years which could offset the stability in oil prices.
SENATOR ' DALTON:
Didn't the Department base part of its economic analysis on the assumption that oil was costing $32.00 per barrel, and it would increase 9% per year?
C0604ISSIONER COLEMAN: We did.
SENATOR DALTON: 011 is now at $28.00 per barrel.
. C0pt4ISSIONER COLEMAN:
Yes, there is no question about that,
. and-I agree to that.
Once again, getting back to the sophisticated crystal-belling, I know that situation could change very quickly.
I. would like to point out once again that the price of purchase power has risen dramatically over the past couple of years.
48
f I
l l
SENATOR. DALTON:
Commissioner, given all that, and given the luxury of 20/20 hindsight, is it still a good agreement?
COMMISSIONER CDLEMAN:
I think it is a very good agreement.
Once again, I think we have to go back to the point that when we took
. office _ in the beginning of 1982 and we signed this agreement, this plant. was already 40% completed.
We're not talking about beginning a plant from the originating point.
It was a question of, do you abandon at whatever cost or--
As Commissioner Rodriguez stated, the plant had already been ' approved; it had been approved several times.
It was a question of, what can we best do to keep the cost down in order to keep away from that type of rate shock?
SENATOR DALTON:
So, you still think, regardless of the present cost -- specifically oil and midwestern coal -- that this is a good deal?
COMMISSIONER COLEMAN:
I do.
SENATOR DALTON:
What are your estimates as to the cost per
. kilowatt-hour once this plant goes on line?
DR. DIARAT PATEL:
Senator, are you referring to the average cost to the consumer?
SENATOR DALTON: That is correct.
DR. PATEL:
We made' a very quick calculation as of 1984.
With the -last rate case, the average cost was projected at about 9.17 cents per.(sic) kilowatt-hour.
SENATOR DALTON:
Nine point seven-nine cents per kilowatt-hour once this plant goes on line?
DR. PATEL:
No, 10.5 cents.
SENATOR DALTON:
Oh, 10.5 cents.
That was my question.
Okay, so it is 10.5 cents kilowatt-hour once this plant goes on line.
1*:
What is your assumption as to kilowatts being produced by l
L that plant?
1'.
DR. PATEL: -We have used about 5.7 million megawatt-hours for the first year of operation.
SENATOR DALTON:
Five point seven million megawatt-hours.
So, that is what it is going to be producing.
DR. PATEL:
That is correct.
49
J x
SENATOR DALTON:
Is that what you based your 10.5 cent kilowatt-hour assumption on?
DR. PATEL:- That is correct.
SENATOR DALTON:
In May of 1982, the Department's report, Hope Creek The Need for Review, stated that, "The uncertairty exists with ' respect to possible increases in nuclear plant operating and maintenance costs after a decade of operation."
Has the Department done any further investigation to determine the magnitude of how much those increases might be?
DR. PATEL:
In the testimony you are talking about, we were
~ discussing the whole issue of major retrofits that were needed after ten or fifteen years. That issue is still being studied right now, and we don't have any definitive answers yet.
Obviously, we need to look at the-experience of the existing reactors which are operating now.
. Hopefully, within the next couple of years--
SENATOR DALTON:
(interrupting) Have you done that?
OR. PATEL: (continuing) No, we don't have a final study.
CDPt1ISSIONER COLEMAN:
Senator, if you don't mind my saying this, ' we ' are coming before the Committee on short notice.
We have prepared 20 pages of testimony in attempting to present what we think
.is a profile on the. case.
Regarding a lot of very specific questions about particular things, if we had been notified in enough time, we could have come before the Committee prepared to present our case.
SENAT5R DALTON: I can assure you that your testimony will at least be read by me.
It will also be read into the record. Okay?
C0D04ISSIONER COLEMAN: Okay.
SENATOR DALTON: Let me ask you this: Given the Department's concern as stated in May of 1982 with regard to operating and maintenance expenses, at what point do the increases relative to these expenses offset the economic benefit that the Department sees in building a plant for $3.79 billion? Have you looked into that?
COPNISSIONER COLEMAN-No, we haven't.
SEfMTOR DALTON:
It would seem to me that the Department, rightly or wrongly -- I think I have had a lot to do with that -- has 50
r..7, N
s c
been. given the jurisdiction to plan for New Jersey's future.
How do you meet. that. energy future?
It would seem to me, by way of a suggestion, that as planners, it would be in your best interest to take a look at that aspect. Obviously, at some point in time when the plant goes on line --l assuming it does go on line -- there is going to be not
~
- only-the operating and maintenance costs to factor in, but there is
-also7 going to be the costs of other sources of energy that the Department would'have to take a long look at.
COP 941SSIONER COLEMAN:
Senator, we have discussed this issue.. We haven't been as specific with Hope Creek as we have been with Ne other plants we already have on line.
These others are more x
immediate'in' terms of when they will be going off.
SENATOR DALTON:
Sure.
The only question I have is, dat type 'of monitoring is the Department doing at the Hope Creek plant?
I'mdurethatisprobablycontainedwithinyourtestimony.
C069tISSIONER COLEMAN:
Do you mean with regard to the
- m s j"
construction?
Y
^
^
SENATOR DALTON: Yes.
R-COMMISSIONER COLEMAN:
We are reviewing all of the reports.
g J that come in. - Dr. Patel, Assistant Commissioner Richman, and I have 4, fpersonally toured it.
We have been talkirig with the company in regard
(
to their working procedures, etc.
The monitoring is done on a monthly m
SENATOR DALTON: What sort nf reports are you getting?
+s COMMISSIONER COLEMAN:
Well, periodically they have to file
+
{
YM" reports to the Board as to the costs and where they are.
Also, under
'h the terms of the cost containment agreement, *ich we signed, if there i
. wore any. costs which were considered -- if you'll remember the term "o
" reasonable costs"--
If there were any occurrences which fell outside p
of the agreement where the company would attempt to seek extra moneys 1
for any extraordinary event at the plant, they would have to file
~
A e
u,
' immediately.
We have monitored that - to date, and there have been no filings with regard to extraordinary events.
=/-
SENATOR DALTON:
Is it you, Commissioner, via your tours and y
H the review of these reporta, so is actually doing the monitoring?
Q
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8
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. CuMMISSIONER COLEMAN:
They are reviewed by both Dr. Patel
'and Assistant Commissioner Richmond.
. SENATOR DALTON: _ Have you in any way taken people from your
, office, as was suggested by Senator Costa, to actually do your own in-house inspections?
With all due respect, I'm an insurance agent, and _ I am certainly not qualified.
But, are your people who are doing the inspections qualifled?
C0te11SSIONER COLEMAN:
Let me say once again:
Dr. Patel
-would certainly be one of our qualified people, sbut we are not
^
monitoring the construction to that extent.
As Commissioner Rodriguez
. testified, it is with the NRC. We are notified immediately of any type of incident-whatsoever at a plant through Dr. Patel and his staff.
If it warrants our concern--
For. example, _the major problem at Salem warranted our concern, and we were in a p9sition to act as expeditiously as possible
. 2-with regard 'to our feelings as a State on that.
SENATOR DALTON:
Dr. Patel, dist is the activity of your Departner't : relative to its monitoring function concerning this plant?
DR. PATEL:
We have been monitoring the status reports of
~
mine storms that have been met by the company.
SENATOR DALTON:
I'm sorry.
I missed the word--
~
DR. PATEL:
(interrupting) Well, the monitoring is done with respect to the major components that are being constructed and are being turned over to PSE&G.
SENATOR DALTON: The reports?
DR.- PATEL: That is right.
SENATOR DALTON: _0kay.
Who is submitting the reports?
DR..PATEL: PSE&G.
SENATOR DALTON:
So, you are taking a look at those reports on a monthly basis?
DR. PATEL:
That is right.
SENATOR DALTON:
Do you thir.,,, th. il due respect--
This
- isn't tmeant - to have any reflection t.g ang.., & this room or their 4-representatives, -but_ do you think that is a situation like the fox watching the chicken coop?.
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are-doing is, you are getting reports from the
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. hat ' you n,w 4,,
3;.$N W Nib' jcompanyp >Are -there any separate reports being made within your s
a
.. R monitoring function?
$p gkj,#
E.COM4ISSIONER COLEMAN:
Senator, let me say a couple of
. -Ap m]Q o
- yf MA things? With regard to.the safety and quality, of course, MtC is there s
3.f7ES..
monitoring - full-time.. With regard to whether or not the costs are
~ '~ />
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' w;, ~
. correct, if they just go over the " cap" guideline sich has been set, M'
7 then the: containment penalties are triggered.
The only way of getting gi.., aroun[that was, they had to report expeditiously with regard to any n' < q.
v m a
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Myype of extraordinary event for which they would seek additional costs.
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' SENATOR DALTON:
But, the problem is, you may not get that e-m w c e' g,
. J,/ ' information until the plant is already on line.
b.kW @.' Dr COMMISSIONER-COLEMAN:
Then they forfeit it under the n
h,grer; ment.
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information out now,. especially with you SENATOR DALTON:
~But, at the same - time, don't you think it
%p-
[being the energy policy planner of this State?
Don't you think it
'would ; be best ' to get that
~
- w s
h1 a
llc; J[+f k -6.would.be best for. you to have that information up front?
4y',y
. J~
COMMISSIONER COLEMAN:
Yes, I'm sure it would.
If there is any type of extraordinary event under the terms of the agreement which m.
.e. a f,A:F ' T were ~ approved by the Board, it-must be stated immediately.
To date,
%e - there have not been any extraordinary events reported.
h s
, SENATOR DALTON:
Again,. referring to Page 6 of your Q,
r W-testimony _ in May. of 1982, you indicated. that such notification of y".
extraordinary events should be within six - months, not immediately.
'p
~.
.g4 What is it -- immediately or within six months?
~ -
x M.,
COMMISSIONER COLEMAN:
It was amended after that.
S A
P A,
p hd*
SENATOR DALTON: This is the joint statement.
ky, ; age9
~'.a Okay, I'm sorry.
It is six months.
COMMISSIONER COLEMAN:
y
.f 1 ? ; g SENATOR DALTON: Okay, so it isn't immediately.
IA lh,,.
COMMISSIONER COLEMAN:
No.
m SENATGt DALTON:
What I am suggesting is -- and it is very c.,
difficult l to go back and amend this agreement--
It would seem to me e
-that in everyone's best interest it should be done as soon as possible
'or inmediately.
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Lastly, it should be noted that in Chemical Week on March 14.
1984,.' it was indicated that the cost per kilowatt-hour of the Hope Creek I plant will be 15.7 cents, not 10.5 cents as was indicated by you.
DR. PATEL: The figure I gave you was for the average cost of p
the operation of the plant.
SENATOR DALTON: Okay.
CHARLES' A. RICM4AN:
That was Public Services' rates.
SENATOR DALTON:
Okay.
In other words, you are saying that this 15.7 cents not only includes Hope Creek I,
but all the other sources of energy that PSE&G will have on line at that point.
MR. RICHMAN:
That is the number we gave you.
It includes the entire mix.
I believe what you just quoted from Chemical Week was only the cost of producing power from Hope Creek.
SENATOR DALTON:
Oh, okay.
In other words, your 10.5--
MR. RICFNAN:
(interrupting)
When you take Hope Creek and put it in with other plants, the cost is' lower.
-SENATCR DALTON:
But, my question was, what is going to be the cost per kilowatt-hour of this plant?
I believe that was my question..If it wasn't, let me ask it again.
COMMISSIONER COLEMAN:
We'll send that to the Committee, j
Senator.
SENATOR DALTON:
I would be very interested in that.
I think it is extremely important.
I have no further questions.
By the - way, I would like to apologize to the other Committee members.
'I'm sorry for taking up so much time.
SENATOR GARIBALDI: He does it all the time. (laughter)
SENATOR STOCKMAN:
I have a couple of questions along the same line, Commissioner. You suggested the "up to 15%" increase, and I would like to explore the same question with you that I attempted to explore with the Public Advocate.
Before signing the agreement, what was your understanding as to the probable increase in rates for ratepayers, if you signed the
$3.7 billion or $3.8 billion cost containment agreement?
54
17 COMMISSIONER COLEMAN: Senator, I think we essentially got it from three areas.
One was our own' analysis based on reports and different data we had; second was from the filings before the Board of LPublic Utilities; L and, third was from the independent consultant's s
report of Theodore Barry.
SENATOR STOCKMAN: What was it?
- C(MMISSIONER COLEMAN:
-Theodore Barry said that the plant would come in'between $3.55 billion and $3.79 billion.
SENATOR STOCKMAN:
I'm sorry.
I'm not talking about the cost of the plant.
I'm ' interested in what your understanding was of the impact of ' approving the completion of this plant and seeing it opened 1st the $3.7 billion or $3.8 billion " cap" figure. What impact would it
- have on rates for the ratepayers?
We know the plant isn't finished
. yet, but based on certain assumptions, it is estimated by the Public 3
' Advocate that that-increase will be 10% to 155.
I tried to explore this -with Mr. Camacho, but he suggested that he wasn't privy to all
- that went on in those negotiations..Apparently, he was hesitant -- and y.,
we left it at that -- to tell me what, if any, corresponding figure existed at the time the agreement was entered into.
I am asking you, that question.
DR. PATEL: When we did the analysis -- I think the Committee we looked at the scenario of has a. copy. of s the May report
. cancellation of the plant versus replacing the capacity with something else.
In one scenario, we found out that by canceling the Hope Creek nuclear plant and refurbishing existing facilities, the additional cost to the ratepayers during the first year of operation rose about $482 mil lion. -
SENATOR STOCKMAN:
I don't follow that scenario. Would that be with coverting Hope Creek into a coal plant?
DR. PATEL:
No, it was just a cancellation of the plan and S-
- replacement of the energy for Hope Creek I purchases.
- SENATOR DALTON:
'urchases off the grid and other types of things?
DR. PATEL:
Yes.
Also, we were looking at amortizing the cost of cancellation.
55
i SENATOR STOCKMAN:
Okay.
Can you translate that to a percentage. increase in the rate?
.DR.
PATEL:
In the first scenario, we had about $482
- million.
This ~ ear's total revenues will be roughly $2.8 billion, so y
the ratio between $482 million and $2.8 billion-- Does anyone have a
-- calculator? (laughter)
Jt would be $482 million divided by $2.8--
,1 SENATOR STOCKMAN:
(interreoting)
It is about a one-seventh increase.
DR. PATEL: That is correct.
.=,
SENATOR STOCKMAN: What are the other eptions?
DR. PATEL: -In the other option--
-SENATOR STOCKMAN:
(interrupting) How about if the plant was completed based on the cost containment agreement of $3.8 billion?
What.would the increase be?
DR.-PATEL:
It is from this that we can deduce what it is.
- In : the analysis, we looked at the renario of canceling the plan and
- replacing the energy, which is 5.7 million megawatt-hours. We made an assumption ~of 60/40 purchases from--
. C0MISSIONER - COLEMAN:
(interrupting)
Senator, I think the simple, answer to you question is, with the 15%, we're still right in
- the ball park.-
'SENAT0R STOCKMAN:
Is that what it was when you started?
MR. RICWAN:
That is in the ' report which the Committee
~
received.
SENATOR STOCKMAN:
The agreement suggestad, subject to certain' happenings,. that the figure stays at three point eight. You've
~
- been monitoring it.-
Is that what the plant is costing Public Service?
a:
Do you understand my question?
In other words, is that what the construction cost is?
n C(MMISSIONER COLEMAN:
As far as the construction cost is V
. concerned, of course, there -is a range for it.
Before any penalties
- would be triggered, you've got the range of $3.55 billion to $3.79 billion. ! With the way the reports are coming in right - now, we don't
. expect the plant to come-in at a figure over $3.79 billion.
56 m
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SENATOR STOCKMAN: What I am getting at -- and this may be a 7
more 1 appropriate question for Public Service -- is, we talked about that _. figure ao being traceable. to a " cost conteinment agreement."
- forget. the cost containment agreement.
Is that approximately what it zis costing to build the plant?
s
~
1C0pt4ISSIONER COLEMAN: Well, remember in the cost containment
,o-
- agreement _ you _ also have the phrase, " reasonable costs."
So, that has
- to -go before the Board to determine exactly what are considered to be reasonable ~ costs.
SENATOR STOCKMAN:
But, what is the real cost?
If you want to defer tc Public Service, I'll mderstand that.
C0D04ISSIONEP, ' COLEMAN:
What we would consider to be a
' reasonable cost' would be if it came in under $3.79 billion.
SENATOR STOCKMAN:
Commissioner, it is getting late and I
. ' guess -I'm getting tired.
I would like to' know if you know -- you may not, : and we may' have to explore this with Public Service -- how much
- ~. ~. _
- it is costing Public Service to build this plant?
It _ may be $3.8 tiillion, or $2 billion, or $10 billion. Do you know?
MR. RICit4AN:
Their filings indicate that the cost of the plant - will be approximately $2.8 billion.
There is an additional carrying cost of about $1 billion, so the total cost of construction is
~ bout $3.8 billion.
a The costs before the plant is put into rate base would be examined by the Board of Public Utilities.
This brings us to the question you raised with Mr. _Camacho.
The plant is examined with a 1
reasonableness ' of those costs.-
At times, the Public Advocate has challenged -issues of reasonableness, just as he did with the Salem plant.
They hired an independent consultant who is now examining the costs and'mangement of this particular plant.
SENATOR STOCKMAN:
Well, I think we can agree -- maybe we 1 *S
'can't because this is a learning experience for all of us -- if the actual cost.of building that plant is less than $3.8 billion, then the Public Utility Commission would not grant a higher figure to go into the rate. base. That is for sure, isn't it?
b COMMISSIONER COLEMAN:
Right.
57 E
O SENATOR STOCKMAN:
You're suggesting to ine that if the cost
'is higher, then whatever the cost is in the final analysis, there would have to be a review of that cust, and it is the Public Utility Commission that determines what portion of that total cost goes into the rate -- 100% of it, 90%, 80%, or 70% -- right?
C0694ISSIONER COLEMAN: Yes.
SENATOR STOCKMAN:
I understand that.
What I am asking you
-- and, you may not know the answer; we may have to get it from Public Service -- is - diat, in fact, is the Hope Creek plant costing Public Service to ' build as of today?
Is it on target?
Is it costing them that, is it costing them less, or is it costing them more? It seems to me that it' has to be one of the three.
COMMISSIONER COLEMAN:
It is en target at the present time, and the expenditures are $2.6 billion to date.
SENATOR STOCKMAN:
Is that consistent with uhere they are?
In other words, are they close to being complete?
MR. RICWAN:
It is consistent with the latest management analysis -- the -independent engineer's analysis -- of being able to bring the plant on line under the $3.8 billion.
SENATOR STOCKMAN:
All right.
I have one more question.
Regarding the 5.7 million p.egawatt-hours for first-year operation, Doctor, how does that translate in terms of 65%--
.DR.'PATEL:
(interrupting) It is 65%
SENATOR STOCKMAN: That is what I thought. Senator Costa?
SENATOR COSTA: What-do you mean by additional tarrying costs 3
of $1' billion?
MR. RICM AN:
The Utility has to borrow money to build the plant.
COMMISSIONER 0) LEMAN:
It is essentially interest.
l SENATOR COSTA:
Okay.
You mentioned the consulting firm of Theodore Barry, and that he said the plant would come in at $3.8 billion. Where did he get his information?
COMMISSIONER COLEMAN:
He works just like an independent consulting firm would work.
He, for one, knows the business area of it, what other plants are doing, and costs associated with various 58
4 g
-materials.
He would certainly take the filings by the company and the
' Board to review the billings.
I should add that Theodore Barry has been our-consultant, as well as the consultant for the Public Advocate and the utility companies.
s SENATOR COSTA: Who hired him?
C0MISSIONER COLEMAN:
In this particular case, Public Service hired him.
SENATOR COSTA:
Then, is he getting his information from
.Public Service?
C0m ISSIONER COLEMAN: Yes.
SENATOR COSTA:
Dr. Patel, you said that you and the Assistant Commissioner are constantly monitoring reports, yet you are
' getting the data from Public Service.
Is that correct?
DR. PATEL: That is correct.
SENATOR COSTA:
That is what you call constantly monitoring?
You're not' doing anything technical at all. What is your background?
^
DR. PATEL: My background is in electrical engineering.
SENATOR COSTA: You are an engineer?
DR. PATEL: Yes.
SENATOR COSTA:
Good.
Mr.
Richmond, how about your background?
MR. RIC WAN: Mine is in public administration.
SENATOR COSTA:
Okay.
So, we have one person who knows the technical field.
Is there any monitoring other than the reports you receive from Public Service?
DR. PATEL:
When you monitor, obviously, you have to rely on the costs and moneys that have been expended by the company.
SENATOR COSTA:
Why do I keep getting the feeling--
The ir.eurance cunpanies were being audited and it was because the insurance companies gave their reports and--
SENATOR DALTON:
(interrupting) To the Insurance Department.
SENATOR COSTA:
(continuing)
The Insurance Department was getting its reports from the insurance companies in order to make its rates.
MR. RICWAN: Senator, at least that is--
59
j&
1 SENATOR COSTA: (interrupting) I become very concerned about that because,.with all due respect to Public Service -- I think they are marvelous; they give me electricity all the time -- the fact is that you have to have another point of view.
MR. RICMAN: Senator, I think--
SENATM COSTA -(interrupting)
I'm not getting it here.
- MR.' RICMAN:
Well, I think that is the reason.
If you go back to when Salem was constructed, there were serious allegations of overruns there.
There was an investigation and at the behest of the 1,
Public Advocate, Theodore Barry -Associates were hired to do an fL-l independent' analysis.
SENATM COSTA:
-But, Theodore Barry also works for the very
~ people.that'you are--
MR. RICMAN:.(interrupting) At some point, I think you have to trust the integrity of some group.
NRC is looking at these costs and Theodore Barry 'is looking at these costs.
I just can't believe
. that-'
C0MISSIONER COLEMAN:
(interrupting)
The other thing I would like to pay, Senator--
SENATOR-COSTA:
(interrupting)
Dr. Patel, you are an
~
electrical engineer. ' Do' you have a background in nuclear engineering?
r DR.:PATEL:
No, I. don't.
. SENATOR COSTA: Do.you have anyone on your staff to has that kind of background?
s COMMISSIONER COLEMAN:
No, but once again, Senator, let me s
say that. Dr. Patel said he is 'an engineer.
The responsibility, for example, lies with the NRC with regard to--
~
SENATOR COSTA:
(interrupting)
Are you saying that the NRC is protecting us in that instance because they have nuclear engineers on the spot?
COMMISSIONER COLEMAN:
That is correct, and they have a staff of---
SENATOR COSTA:
(interrupting)
How assured are we?
I thought-all; along that the State had nuclear engineers, and now I'm finding out--
60 s
n F'
COMMISSIONER COLEMAN:
(interrupting)
Of course, they preempt us with regard to that.
MC regulators are on the site of
)
every nuclear plant in the country 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day.
SENATOR DALTON:
Do they regulate this cost containment agreement?
C0m ISSIONER COLEMAN:
No, they are not involved in that.
y SENATOR DALTON:
I think *at the Senator is saying is that their. concern is in a different area.
That doesn't give us any great
' _ comfort -in this agreement.
But, Senator, wouldn't you want it that way --
that the NRC is there to ensure the safety and integrity of that
- plant? They don't care.about the price. Someone else is going to have to measure the price to bring the plant on line.
The NRC is there to make sure that the plant is constructed to meet every quality assurance--
y SENATOR DAL10N:
(interrupting) That is their job.
MR. RICHMAN:
(interrupting) They are not going to allow--
SENATOR DALTON:
(interrupting) That is irrelevant.
MR.-RICHMAN:
That is the question you asked me.
SENATOR DALTON:
The question that was asked was relative to the cost containment agreement.
I went to knew who is down there makino sure that the cost containment agreement is being adhered to.
I fe@ veri comforted that the MC is down there with regard to
. protecting the safety of the people in the area.
(Lonfusion amongst Committee)
SENATOR STOCKMAN:
Excuse me, my colleagues.
Someone has to run this meeting.
I am ruaning it.
Now, I have no objection to you speaking one at a time. But, in fairness to the witness, let's take it one at a time.
.I gather my colleagues to my left would both like to speau, and 1 am going to take the privilege of deferring to Senator Costa. Do you have a question?
SENATOR COSTA:
I just have one.
SENATOR STOCKMAN:
Then we will hear from Senator Garibaldi.
rm 61
SENATOR COSTA:
I would like to know who, if anyone, is monitoring.. ' We have this cost containment agreement.
They have to
- come in. at $3.8 billion; they can't go over that.
Who is monitoring the direction in which the money is being spent?
Fail-safe operation Lgreatly concerne me.
C0m ISSIONER COLEMAN: Once again, the NRC--
SENATOR COSTA:
(interrupting)
Excuse me.
Is it because they may. come in st that point?
I am concerned that after it is in operation, they may fird they haven't got a fail-safe operation.
That
.means that money is going to have to be spent in order to take care of that problem, so the rates will go up again.
C0m ISSIONER COLEMAN:
In terms of the quality of the products being put in right - now, once again, you've got NRC doing the monitoring. Under the terms of the agreement with regard tn reasonable l
costs
- en Public _ Service goes in to put Hope Creek further into the rate base, they have to prove reasonable costs.
If they put in anything that.. takes it over the $3.8 billion, and they aren't able to prove' they are reasonable costs, then the company is going to be penalized.
Withs regard to something going wrong down the road, once again, they still have to go to the Board for additional costs, and the LBoard could disallow them.
-SENATOR COSTA: But, aren't we ensuring though that this is a
~
fall-sare. operation?
. COMMISSIONER COLEMAN: Yes, as reasonably as we can.
SENATOR COSTA: Via whom? The NRC7
.CfAMISSIONER COLEMAN:
Yes, MIC.
SENATOR COSTA: Thank you, m
s' o, SENATOR ~ ST(EKMAN: Senator Garibaldi?
SENATOR GARIBALDI:
Commissioner, I gather your Department
' has developed a plan dereby this project could continue--
C0mISSIONER COLEMAN: (interrupting) That Je right.
- SENATOR GARIBALDI
(continuing)
--ander strict cost
-controls.
COMMISSIDER CDLEMAN:
That is correct.
1 L
62
- SENATOR GARIBALDI:
- And, you've been following that procedure?
COMMISSIONER COLEMAN:
We have been following that procedure.
I would also note, Senator, that it is the first plan of its type in this country with regard to nuclear plant construction. As was stated earlier, other plants at this point seem to be involved in plant overruns; but, the evidence that we have at this time indicates -
that our costs have been brought under control and are in the boundaries of that agreement.
SENATOR GARIBALDI:
Okay.
My basic question is, at any time
-- either prior to the development of your plan and the position of
- your strategy, or at the present time -- has your Department or you ever felt that the costs have run away in connection with the project?
COPNISSIONER COLEMAN:
Well, once again, from the time we took office in 1982 and became involved in the development of the plan, I think we have effectively brought costs under control with regard to
- this project.
,;,j
' SENATOR GARIBALDI:
00 you feel that at any time the costs were ih a run-away circumstance?
CODNISSIONER COLEMAN:
I do feel that previously--
We're talking about a plant that was originally being brought on line for a few hundred million dollars, and I believe the original cost was $499 million for two units. We're now at $3.79 billion for one unit.
[
Once again, I want to reflect back to the stage at which we entered and developed. the cost containment agreement.
From that point on, there haven't been any increases in the overall cost of the plant.
SENATOR GARIBALDI I have one other question, Mr. Chairman.
At any* time did you, your Department, or anyone in connection with this Y
project ever feel it should be cancelled or abandoned because of these problems?
COMMISSIONER COLEMAN:
Yes, we testified a year aM one-half ago--
SENATOR GARIBALDI:
(interrupting)
I'm not suggesting that
-that should be, but--
63 O
-.-g
-s
,,,...-----,.----,:--,-v--------
wme e----~---..,-,...,:.--,,w----.
'..e C0MISSIONER COLEMAN:
- (continuing)
We did a report with
-regard to ;ebendonment scenarios and with -regard to continuing the plant.
In that. report, we developed the idea of cost containment,
~
.which.is 'the option that we chose and were able to implement through negotiations.
-SENATM GARIBALDI: So, that is how it came about.
COMMISSIONER COLEMAN:
That is right.
SENATOR' GARIBALDI: Okay, thank you, Commissioner.
SENA10R STOCKMAN: Commissioner, I wonder if you could sum up
. your testimony by sharing with us -- because I think it is the essence
, of your= statement.- your conclusions on Page 20, which are really diat I think you wanted to.make clear.
In fairness, I think you should express:this situation to the public.
7
.C0m ISSIONER COLEMAN: I would be glad to.
I think we listed
- five points,; and they. are as follows:
^
(1)
. Abandonment of the_ plant at this point will cost iratepayers :nearlyl as much as its completion - under the current budget.
It'is 85% down the road with regard to plant construction.
(2)
Abandonment of the plant will force New Jersey to purchase 'large amounts of power out of state, thereby subjecting it to the political and economic vagaries associated with being an energy importer.
SENATOR STOCKMAN:
When you use the word " abandonment," for
- all. of our: sakes, are you talking about burning it, or are you talking L about converting ~ it to an alternate energy producing source?
-C0mISSIONER COLEMAN:
In order to convert it, we would get
' into -a tremendous expense.
I can assure you that if we followed that scenario,' we would be back before you, and you would say that we
- wouth't be. able to push forward with it.
~ -l's sorry. Go ahead.
SENATM STOCKMAN:
C(MMISSIDER COLEMAN:.Okay.
(3) As a result. of the cost containment agreement, the Hope Creek project is on schedule and within budget for the first time in its history.
fl I-
-c (4)
Substantial differences exist between the owners and builders of Hope Creek and the owners and builders of nuclear plants elsewhere -in the nation experiencing financial or safety-related
- problems.
I know.of the problems with other plants, and I think we have. to look et each of these situations individually.
Through cost containment, we have been able to bring those costs under control.
g SENATOR STOCKMAN: How about Salem? How about the experience there?
COMMISSIONER COLEMAN:
Well, I was happy to discuss it with Senator Dalton.
One of the things I'm not so happy with is -- and I think perhaps we are thinking along the same lines -- you can use a figure of 65L We would like to see those plants in operation in terms of keeping consumers' costs down.
I am not p. leased at all with the fact that Salem ran at 48%
with regard to consumer costs.
That, of course, dictated that the outside purchase of power would be necessary.
I think perhaps we are thinking along the same lines.
With regard to the cost containment agreement, I would like to point out that for the first time, it brought in an element of true
-management ability.
If the company says it is going to bring a plant on line at "X" cost, then it had better come on line at "X"
cost; otherwise, the company is going to be penalized.
Ir e regulatory arena of - what has occurred in the past, if you were in a private and you experienced any type of company -- a private business overrun, your stockholders ended up eating it.
Of course, companies go bankrupt and have other difficulties such as changes in management, etc.
As we go along, and plants increase, the general public is the one who is paying for it.
What we
- wanted to do was to add the dimension of management accountability.
If f
- cost overruns went too high, I think the shareholders in Public Service would be upset enough that they would put management's heels to the i
fire.
As I discussed with Senator Dalton, we will look at that type of management accountability and set up a program with regard to the efficiency levels of the operation of plants.
65 i
i-
.,. - -. -. -. -... _ _. _. -,,. -. ~., -...
,,--,,._,n-,
4 1
SENATOR STOCKMAN:
I think that would be a good result, among
-others,Lto come out of this hearing.
COMMISSIDER COLEMAN: My finsi point is--
SENATOR STOCKMAN:
(interrupting)
Wall Street looks favorably upon this, right?
CDPNISSIONER COLEMAN:
Yes, Wall Street looks favorably upon this. Once again, I would like to point out that when we went into the cost containment agreement, it was considered by many to be a Bolshevik ides, one that would ruin the utility industry, and one that would set
- an unwarranted precedent around the country.
We were continually
' attacked for it.
I've given evidence in my testimony that now the situation has changed, and it is being looked at as an agreement which is bringing costs under control.
Public Service is the only utility that is involved in nuclear construction today.
It has a Double A bond rating, Wiich of course, keeps the interest _ costs down in terms of their borrowing capacity. As a result, it will reflect better consumer rates.
SENATOR DALTON:
Additionally, it in a reflection of the Board of Public Utilities' function of providing them with rate inctesses.
Is that correct?
COMMISSIONER COLEMAN:
Sure.
SENATOR DALTON:
That obviously aeflects on the financial
- condition of-the company, which in turn--
COPNISSIONER COLEMAN:
(interrupting) That is right.
SENATOR STOCKMAN:
All
- right, thank you very
- much, Commissioner.
COMMISSIONER COLEMAN:
Thank you.
SENATGt STOCKMAN: I want to speak with the Committee members for just a moment.
Excuse me,' we are going to recess until two o' clock.
At two o' clock' we will return to hear further testimony.
I can't promise you how long we will continue, but I hope we will at least be able to have a statement from Public Service and a statement frodi Commissiener Hynes.
(RECESS) 66
N-
~
y AFTER RECESS SENATOR STOCKMAN:
We are going to have to recess this hearing at 2:30.
I have consulted with Den Dalton, and now we will hear from Commissioner Hynes.
Hopefully, we can hear briefly from 7
Public Service.
If Public Service has a prepared statement, they are certainly welcome to submit it for the record.
We expect to have another hearing, and the date of that hearing will have to be set by the Committee members.
We can't
. announce the date right now.
Frankly, I thought we would be further
= along than we are, but these things are not predictable.
I apologize to anyone else who had hoped to testify, particularly to Public Service and the Commissioner.
I assure you that you are perfectly free to place into the record any statements you have.
We'll study them, and we'll probably ask you to come back.
With that introduction, let's get started.
Commissioner Hynes, welcome.
C994ISSIDER EDWARD H. HfNES:
Thank you, Senators.
Having heard the good idea proposed by Senator Dalton, I would like to incorporate both my statement and our Board order, which accepted the cost containment package in August.
The final order was drafted for the Board meeting of July 15, 1983 and was certified as an official copy of the Board on Augast 12,. 1983.
This answered a lot of the concerns raised by the Senators.
"The Board has accepted this plant as needed based on prior Public Service Electric & Gas Company's rate cases, as well as the stipulation entered into by the Department of Energy, the Public Advocate, and the petitioner of Public Service Electric & Gas."
The major issue that this Board is now concerned with is the question of rate shock.
I have heard many statistics proposed by dif ferent parties here -- 18%,13%.
The Board knows it is difficult to be precise about numbers which are beyond the control of any of the
~
parties proposing these percentages.
However, the Board is very well-aware that this number, even if Hope Creek alone enters at 13% --
67 L
i e:
t
~
using that es a nuder propounded by the parties -- can be viewed by
. many people as a question of rate shock.
SENATOR DALTON: Do you feel comfortable with that, Ed?
'COPHISSIONER HYNES:
No.
SENATOR DALTON: What number do you feel comfort:61e with?
CODNISSIONER HYNES:
I have made a practice over these past
~
- six years to wait and see sat the exact nuder is.
I have found ou*
that every.. time I have tried to predict the future, I'se wound up eating crow, and it tastes horrible.
SENAT(R D4LTON:
You wouldn't even want to go at. far as to provide us with some _ of the parameters -- whether it wou t.1 be ten to fifteen, or whatever?
' COMMISSIONER HYNES:
No.
I've come to regret those kinds of numbers. I can assure you of the following thought One of the concerns expressed by Senator Stockmin was, are they going to receive the full cost containment maximum?
Absolutely Whatever they spend will be the number granted to them in rate
- not.
- base..
Two, as a_ result of our Board order, although we have accepted an agreement, the Board has been explicit in the final order by saying, "We have not relinquished any jurisdiction which the Legislature has given us to review those numbers."
Let's suppose the nuder. was 3.5, *ich is below the cost containment. The company has the burden, as they do in every case that comes in, to go _ over those neders.
At that time, it is not a stipulation procedure.
You then have to bring in yuur expert witnesses, and you have to be cross-examined, sich maken the Board Commissioners more secure.
Another area of concern is,.so looks at all these numbers?
Obviously, we must have trust'in people. We rely on management audits, which are audits funded' by the company, as well as the Public Advocate.
We have positions, thanks to an appropriatior, by the
. Legislature, to increase the Board's staff.
We have two titles for nuclear ' engineers, so we have one in place and one wie now being hired.
W. e have two other people who are knowledgeable about nuclear 68
r J
engineering, but they are not qualified for the titles because the Board only has two Civil Service classifications.
1-Rate shock is the biggest concern of the Board.
Senator Dalton, the reason why I hesitate to speak about any number is, this will not be viewed in isolation.
The putting in of this plant will be in-the context of a rete case where the company is asking for increases in operating 'and maintenance expenses for the rest of the system, as well as the persistent.pcoblem of nuclear downtime, which creates tremendous pressure on the "Under Recovery of the fuel Adjustment" clause. No matter who the Commissioners are in 1987, this will not be viewed in isolation.
La result of. our order, the Board's staff is presently reviewing mechanisms for phase-in, if necessary, in case all the worst scenarios come into plays under-recovery of fuel; high inflationary costs for operating and maintenance at present to run the entire system; and, the Hope Creek costs going into rate base.
So, we are very concerned about rate shock.
SENATOR STOCKMAN:
We have a series of questions for the Board of Public Utilities.
We hoped to explore them a little more publicly and openly at this hearing, but time will not permit that, Commissioner.
What I would like to do is to give you a copy of these
_ questions and request that you respond to them in writing.
I will distribute them to all of the Committee members as soon as I receive them.
If you don't mind, it might bei casier if you sent them to all of the Committee members who are here.
That will expedite some of our time.
I suggested a few modifications or changes
- n the cost containment agreement.
I gather that the BPU decided against any changes.
Is that correct?
CON 11SSIONER HYNES:
Senator, not only did you make that suggestion, but in fact, we included your name in our final written report and that you had made a suggestion, especially in the extraordinary events clause. Based on the input of all the parties, we decided that your concern was legitimate, but we also decided for the clear functioning of getting the plant built, that if they were at 69
r i
fault in an extraordinary clause, the Board always has the power to look at that and make an appropriate adjustment in the money that the ratepayers pay for this plant.
So, your concern was on target, and it was shared by the public interest research group. But, we thought that for the clear functioning of the system, it should be heard in a less emotional nature. Because we were trying to get the plant on line, we opted to do it afterwstds, but to give the Board full authority to adjust the rates.
SENATOR STOCKMAN:
All right.
Subject to filing your statement, and subject to your answering those questions, I would suggest-- We have decided that because of the time constraints, we are going to give the questions to them, and the Commissioner is going to respond in writing.
SENATOR COSTA: Very good.
Thank you.
SENATOR STOCKMAN:
I think that is the way we'll proceed.
Thank you very much, Commissioner.
COMMISSIONER HYNES: Thank you very much, Senators.
SENATOR STOCKMAN:
Next we have two representatives from Public Service, and it appears they have a presentation that will take a while. Do you have a slide presentation? (affirmative reply)
All right.
You've been patient, and as a Committee, we are not happy that we're under a little time constraint.
WILLIAM SALLER:
Senator Dalton, Senator Stockman, and Senator Costa, we appreciate the opportunity to be here.
My name is Bill Saller, and I represent PSE&C.
With me is Steve Mallard, who is the Senior Vice President of Planning and Research for PSE&G.
SENATOR STOCKMAN:
I see that your statement says " Good morning." You are a real optimist.
(laughter)
MR. SALLER: We were optimistic. Your letter to me a week or so ago outlined about five or six different areas and issues that you would like us to cover today.
In addition, there were many questions which were raised this norning to the other Departments, and perhaps we can respond to them.
SENATOR STOCKMAN:
Let me interrupt you.
We have a set of questions here which I would like to ask you.
We will submit these 70
m -
p to you within the next.several days; there are some changes and additions' we would like to make, partly as a result of testimony here today.
We have your statement, and it will certainly be made part of the record.- I think the Committee agrees that for the next 20 minutes, if you have some further things you would like--
MR. SALLER:
(interrupting) Senator, our request is that if we can take the 20 minutes to make our presentation, we have a number of slides to show you of the Hope Creek generating station.
Much of the information we have to give you in the report will respond to questions that were raised earlier today, and I think it will provide you with a lot of information.
Depending upon your time, we will be more than happy to respond to any questions you may have.
SENATOR STOCKHAN: fine.
MR. SALLLR At this time, I'll turn the microphone over to Steve.
STEPHEN A. MALLAle:
Thank you.
I'm going to move fairly quickly and it is going to be a Airlwind experience.
I'm naturally a fast talker and I usually have to hold myself back, but this time, I will not restrain myself.
This afternoon I'm going to focus on the following issues that you raised in your letters the current status of the Hope Creek project and our ability
'to meet our targeted costs; the economic impact en Hope Creek as we see it -- the impact on the ratepayers; our current and long-range plans for storage and disposal of high level nuclear wastel and, the results of several independent audits on both Public Service's management competence and the competence of our nuclear construction program at Hope Creek.
The Hope Creek generating station project is currently within Two budget and on schedule for aperation no later than December 1986.
point six three five billion dollars, including $481 million of allowance for funds used during construction, has been spent through March 31, 1984.
The cost containment agreement signed in 1982 by 71
PSE&G, Atlantic City Electric, the New Jersey Department of Energy, and the Public Advocate -- and approved by the Board of Public Utilities last year established a cost " cap" of $3.795 billion for the project.
Construction progress and cost are tracking right on the forecasts established almost two years ago.
This is a profound curve.
(referring to chart) There are two curves here. One shows the cost of tracking over the months, and the other shows the percentage completion tracking.
These hav' been subject to rigorous outside review by the Nuclear Regulatory Commission, Theodore Barry & Associates, the Institute of Nuclear Power Operations, and our own people -- quality assurance panole and top management people.
Our Board of Directors receives a report on the status of the Hope Creek construction every quarter. Our top management people receive a report every month.
So, this has our complete attention.
You get a dog's attention by hitting him on the head with a two by four, as you well know.
Eighty-five percent of the physical construction has been completed.
Ten percent of the start-up operations are now complete, and major construction will be essentially completed by the middle of 1985.
After that, it will be the start-up and phasing in of operations.
Significant progrese has been made over the last two years.
These slides show the cooling tower erection during 1983.
The tower is 512 feet high, and it is something that rivals the pyramids in terms of South Jersey.
While driving along the Turnpike in South Jersey, you can see it on the horizon if you look carefully.
The turbine-generator erection was completed in 1983 on schedule, as you can see in these pictures.
The next group of slides shows the completion of the reactor containment building.
The dome was fabricated on the ground and then lifted into place.
I; weighs 440 tons.
This construction technique had to be done on a day when there wasn't too much wind, and that contributed to the building being completed ahead of schedule.
The engineering design is essentially complete.
In order to better communicate the status of the plant, I would now like to show you some pictures of various parts of the plant.
72
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Here. is the' administrative area of the plant sich will be complete, for permanent occupancy next month.
People have been
? undergoing ~ training and licensing, and are poised to start up and operate the plant.
As we leave the administrative area, we have the plant itself. - We see that the plant storeroom has begun stocking supplies and spare parts to support the operation.
The laboratories are getting r.eady for operation, and instrument and maintenance shops are currently supporting the start-up and calibration of systems and equipment.
- Several plant systems have already been completed, tested, and checked out, and are awaiting operation.
Other systems are currently undergoing testing and calibration prior to start-up, or are essentially complete and awaiting their turn in the start-up sequence.
The' plant computers are operational and are undergoing final program checks, arH. the control room complex is complete.
Here is the control room; it is a " beaut."
Over 90% of its circuitry has been successfully' tested.
The control aoom, of course, is the heart of the station.
Turnover for. start-up testing -- one of the key project milestones.-- was completed on December 15, 1983, two months ahead of the original schedule.
Outside the plant, the switchyard shown here is complete. In fact, we did that in September of 1983.
It is energized and ready for services as soon as the plant is ready to send out the output.
In addition to the plant itself, in 1983, Public Service completed our Nuclear Training Center.
This isn't a very good picture of it, but if you ever get down there, it is a great place.
We have had many educators there, and they have been impressed by the facilities and the programs.
We have complete mock-ups of the control rooms of both Salem and Hope Creek where all of the equipment is working.
The operators are trained there to become plant simulators.
There are computers which drive it to make them think they are actuelly operating the nuclear power plant.
They are much like the simulators that _ airports use for their pilots.
This Center contains a complete training facility for our nuclear operations.
73
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t Licensing 'is on schedule.
We submitted our final Safety
- Analysis Report three weeks ahead of schedule to the NRC.
The NRC has reviewed - our report and has issued their draft Safety Evaluation Report. The NRC final report will be issued this fall; it will support
_ our schedule 'to receive ~ en operating license by January 1986.
That is when we hope to begin fuel loading.
We have only one intervenor in our licensing proceedingo, and sof fer, seven out of ~ the ten contentions submitted by the intervenor
- have been rejected or withdrawn by the Atomic Safety and Licensing Board.
There are many nuclear construction projects that are in l serious trouble. Why then is Hope Creek different?
The first reason is. because of the nuclear power plant construction experience of 8echtel:and Public Service. Bechtel is the nation's leader in nuclear power. plant construction,.and Public Service has gained valuable 1
experience in the engineering, design, and construction operations of our Salem units.
Bechtel has been involved with the construction of over M nuclear plants. Some of them have been on the small side, but there have.been % plants.
A second and equally important element is the. establishment of a program to bring craft labor on, with their wealth of experience, as active participants in the project.
- Finally, Sthe establishment of the cost " cap" agreement, which has been discussed
" here this morriing, has had a cohesive effect on Public Service, Bechtel management personnel, and the craft labor people.
This has resulted in a renewed dedication to bring the project in on-budget and on-schedule.
It is clear that any serious threat to the timely completion of the project would 'likely deepen this high morale, resulting in a significant. loss of productivity.
. The project is now at a critical
- stage ~where we cannot afford the luxury of lost time.
Our current estimate is that every month of delay in the commercial operation of the project will result in increased costs of approximately $40 million per. mor.th.
We must' do everything within our power to assure that the project is brought to a successful, timely completion so that our
- ratopeyers are not saddled with any additional costs.
74 L
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- I would now like to comment on our estimate of the impact of Hope Creek on our customers' rates.
Our estimate of the net impact in
- 1987,, associated with the-introduction of Hope Creek into rate base, is that.the rate ' increase could be as low as 10%.
This estimate includes
- the ' impact ~ of the ' very substential fuel savings ' associated with Hope
' Creek, ' but it; does not include other possible futuce circumstances,
- such as ' renewed runaway inflation.
I know these Committees are concerned about the " rate shock" H
associated with some nuclear plants around the country, such as LILCO's Shoreham,. Public Service of Indiana's Harble Hill, and Public Service of _ New Hampshire's.Seabrook.
Hence, I think it is appropriate for me to comment on the reasons why Hope Creek should not produce rate shock.
First, Hope Creek is ' a smaller percentage of Public Service's capacity Eend investment than is the case for some of the other companies.
For lexs,ple, Hope Creek represents about 11% of Public Service's existing generation capacity.
Comparable numbers for the companies I mentioned earlier range from 22% for Shoreham to 66% for Seabrook.- Similarly, Hope Creek's final cost represents about 88% of our existing' utility plants in service.
Comparable nunbers for others range from 279% for LILCO to 730% for Public Service of New Hampshire.
In addition to our size, appropriate regulation by New
' Jersey's BPU has protected consumers from so-called " rate shock."
The
~
~
Board has consistently recognized the need for and benefits of Hope Creek, and it has provided the necessary cash revenue increases during
' Hope Creek's, construction to maintain Public Service's financial integrity.
This' hos not always been the case for utilities in other jurisdictions.
We continue to enjoy a Double A rating from the rating agencies, and that is important.
The companies that. are in trouble
' don't have Double A ratings.
In New Jersey, when reduction in future load demand was 4
recognized, excesa ' planned capacity was cancelled.
Hope Creek II and the Atlantic generating station are examples.
On the other hand, has been supported, and this Hope Creek I needed capacity
. ultimately ~ lowers consumer bills.
75
~,--~ - -.-,_._.___._ __.
>S R, lf, v
- In your. letter to the Company, Senators, you asked that we
- explain our plans for avoiding rate shock.
My response is that such
. plans are simply not necessary because -the modest increase we expect
'cannot be classified as rate shock.
My feeling is that 107, cannot be considered rate shock.
Your next question is related to the storage and disposal of high-level nuclear weste-produced at our nuclear plants.
The Company's
- spent fuel pools, which are already in place at the stations, will take
. Salem-I to the year 2002, Salem II to the year 2006, and Hope Creek to the. year 2006.
For the longer term, the Company has signed contracts for
- both Salem and Hope Creek with the U. S. Department of Energy for the transportation and permanent disposal of spent. nuclear fuel.
The
' Company is presently paying the government quarterly for these services.- These. contracts are a result of the Nuclear Waste Policy Act of 1982, - and ' were signed into law by President Reagan on January 7,
- 1983.
The law requires-the United States Department of Energy to start receiving spent nuclear fuel by 1998.
The Company expects that our
~
short-term program will carry us into the long-range plan time frame.
In your letter requesting us to participate in this hearing, you also asked for an update 'of the management issues relating to Salem
^
II and: Salem II and their relationship to the licensing of Hope Creek.
The Salem management issues were resolved with the NRC in May 1983 by way of our. implementation of an action plan designed to strengthen our nuclear nperations.
We have had numerous meetings with the NRC starf
.to update them on the status of this action plan since that time, and in April 1984, we made a presentation on this matter to me NRC Commissioners themselves.
We feel that this successful resolution of
-the management issues relating.to Salem has strengthened our overall nuclear operations, and that we are, therefore, better equipped now to provide - for ' the successful operation of Hope Creek.
Management capacity is one of many issues involved in obtaining any NRC operating
' licence, and we fully expect to be able to satisfy the NRC's 1
requirements in this regard with respect to Hope Creek.
This conclusion is supported by a number of outside audits.
76 4
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. Theodore Berry & Associates is a
recognized national or.r=-; -- -4. l consultont firm which has performed management audits on numerous nuclear projects.
Theodore Berry has been engaged by utilities, regulatory commissions, and consumer advocates.
We first t<
- came ! across them' in the late 1970's' sen they were engaged by the
- Public-. Advocate in a case we had -with the BPU on the Salem generating
,i station.
In November 1981, Theodore Berry & Associates completed en
. independent assessment of the management of the Hope Creek generating
' station for Public Service.-
The essessment was part of Public L Service's emphasis on effective and efficient management of the Hope Creek' project.
Theodore Berry concluded in their report that "Public Service's Land Bechtel's perspective, capabilities, and experience have
~
developed a well-managed project," and that " cost and schedule managementi is extremely effective."
Theodore Berry & Associates also
" mode recommendations in areas'where improvements could be made.
. In July' or 1982, the Institute of Nuclear Power Operations --
INPO - initiated on audit program of.'three nuclear power plants, Hope a
- Creek being one of them.
The results of this audit provided several minor findings, all of which were implemented by mid 1983.
Numerous audits have been conducted by the Nuclear Regulatory
. Commission, the NRC.
The most intensive and recent NRC sudit was the
~
NRC Construction Team Inspection, CTI, conducted from September 19, 1983 to September 30, 1983.
The CTI reviewed all espects of nuclear Jplant construction' of Hope Creek.
The NRC brought in a
multidisciplined team of - specialists to review the
- quality, construction techniques,' and status of the project.
The NRC stated in their~ report, "It is concluded that the licensee's construction, quality assurance,' end on-site design control programs are effective in assuring conformance to regulatory requirements and Public Service commitments."
In November of 1982, Public Service requested Theodore Berry
& Associates to update its initial management study of the Hope Creek project.
The intent of the update was to review the previous essessment of tho' management of Hope Creek, to gauge progress on the 77 s.
e initial recommendations, and to identify and examine changes in the project and Public Service's response to them.
Theodore Barry issued i-their report. earlier this week, and there are copies available in the room for the members of'the Committees.
In summarizing their findings,
'TB&A _ stated,'"TB&A finds that the management of Hope Creek continues to be'well-managed and to compare favorably with other nuclear projects in our _ experience." They have concluded that " Based on these reviews and on the presumption that PSE&G will take aggressive action on the i
recommendations in this
- review, as they have on earlier recommendations, we believe that attainment of the cost and schedule estimate is reasonably achievable."
In conclusion, the outside audits of our management and nuclear program have been generally favorable, and some havo been laudatory. Such consistent, positive reviews from a variety of outside
/[
organizat ions -- they aren't the foxes watching the chicken coop --
confirm o Jr assessment that the Hope Creek project is well-managed and supports our high degree of confidence in its being completed on schedule and within budget.
Cor.tinuation of the Hope Creek project is overwhelmingly in the best interests of the State of New Jersey.
If the project were to be cancelled in 1984, Public Service would have spent about $2.3 billion in cash -- that doesn't include the interest on the money --
leaving approximately $500 million remaining to be spent to complete the plant.
However, the cost to cancel the project at this time is estimated to be approximately $500 million.
Therefore, the cost is epproximately the same to have either a working nuclear plant producing energy for our ratepayers for 30 years, or nothing.
m Based on the information supplied in our operating license evaluation, the fuel savings expe,cted to be derived from Hope Creek in its first five years of operation is $1.9 billion, and the estimated lifetime fuel savings will be approximately $55 billion.
To deny the people of the State of New Jersey these enormous benefits is clearly not in the public interest.
In addition to these expected fuel savings, without the capacity provided by Hope Creek, Public Service's reserve levels would 78
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i drop below any reasonable criterie, increasino the chances of brownouts and blackouts to the State of'New Jersey. Also, more energy production would be required rom our aging fossil plants and from out-of-state
.) resources,resulting in additional environmental problems.
Though our current.cepecity forecast takes into account the erfects of 1500 megewett-hours of conservation and load management, in addition to 250
- . a megewett-hours of non-utility generation, there are no guarantees that
. these estimates will be attained in the future.
Undue reliance on out-of-state resources is unwise, since it is uncertain how long other ilstates will be able to continue massive exports of electrical energy to Nei, Jersey due to the potential for tightened environmental regulations and improvements in their own economies.
In other words, their own loads woulti ~ increase, and they wouldn't have se much surplus to sell w
usySimilarly,unduerelianceonoil-firedgenerationwithintheState
. sshjects us to foreign sources of supply -- Iran, Iraq, and e sole cost of chorectors.
The associated uncertainties to such a strategy o
j~g are obvious, and I feel they are unwise.
3:
In summary, the Hope Creek generating station project is on h"
~ schedule and.within budget.
Both Public Service and an independent outside auditor, Theodore Barry & Associates, agree that the completion
+ of this project within our stated estimates is attainable.
An'/ deley l t
,*t*
sin bkinging Hope Creek into service will increase the cost of the p an and will result in higher rates for our customers.
We are now at the stage of construction -- 855 complete --
- ,f
- C]
where ' we are close to realizing the benefits of the related fuel savings from the, unit for our customers, where construction deleys of g
for detever reason -- will severely
((,
any isignificent duration e
increase the coste to our customers, and where concellation costs would be roughly aquel to the cost of completing the plant.
Public interest g
caused Public Service, Atlantic City Electric Company, the Department
'i' Q,
of Energy, and the Public Advocate to decide to enter into the Cost Containment Agreement and caused BPU to ratify this Agreement in en i 5 effort to assure the econneic completion of the plant.
The current wy 3
etatue and consequences of concelling the plant clearly demonstrate the 3-a noundness of their decision.
79 4
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Thank you for your patience.
I wasn't looking at my watch.
Did I do it in 20 minutes?
SENATOR ST(EKMAN:
Right uider the wire.
We obviously have some questions about your statement, Mr. Hallard.
We will send you those questions, and we look - forward to your responses.
It is obvious that Public Service feels strongly that Hope Creekils in the public interest, that you are on course, and that it will work out to be a wise move.
I hope for everyone's sake you are right.
.MR.
SALLER:
Senator Stockman, may I make one statement?
- Because a ' lot - of questions were raised earlier, I think it might be beneficial, if the Committee so' desires-- We would like to invite both Committees' and their aides to tour the Salem and Hope Creek generating
. stat' ions.
I think within a few hours you will see the stations -- one
. in' maintenance, one in operation, and one mder construction.
You can see the: control ~ room turbine generator - and the spent fuel-pool -- how it is handled and stored..You can ask all of the questions you want of g
the people who are down there.
' SENATOR DALTON:
That would be very difficult.
I have been Linvited.down there, and the other Committee members are certainly y
- welcome to sp down there.
If they desire to do so, they should. But,
- for people of our background to ask questions and to walk away with all
-legitimete concerne - addressed ' -- even going in there and taking an objective view - assumes a certain -amount of technical expertise.
I know I-don't have that ' expertise, and that. is the reason why I haven't taken-the opportunity.
I certainly rely not only on you, but on other
. people too. who - have the expertise to provide me with that typa of information..
. Additionally, I should, note that I appreciate Mr. Mallard's testimony; and his enthusiasm for the reports of these consultants.
In 1982, we 1 wanted to establish's Blue Ribbon Committee that would also be independent.. At that time, PSE&G didn't share our enthusiasm for a
' Blue Ribbon Committee to take a look at Hope Creek I.
We're glad that since that' time, you have changed your attitude.
You have gone on record now as saying that when Hope Creek I goes. on line, the cost increase is going to be 10%.
Is that correct?
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Y HR. MALL ARD:
It could be as low as 10%
SENATOR DALTON:
It could be as low as 10L What could it be f
as high as?-
M HR. MALLARD:
Based on a reasonable set of assumptions, it
"^
.h,
+
.,7 ~ ce91d vary a. lot, as Mr. Camacho mentioned this morning. Based on what ik,},.
a d Ne see.n nnd what I know, it could be lower than 10%, even if some of 4the variables worked out better.
I would say it could reasonably be J13% -- 10%"to 13L M
SLNATOR DALTON:
How much of that percentage is already in q rate bas $7 w-MR. MALLARD: None of that.
4-SENATOR DALTON:
None of that?
Is it because you have
. received no money from the Board of Public Utilities for Hope Creek I?
N MR. MALLARD:
I'm talking about the 1987 increase.
SENATOR DALTON:
I'm talking about diat the total increase of
- Hope Creek I is going to be to the ratepayers.
MR. MALLARD:
I don't have that figure.
SENATOR DALTON:
Is it 10%?
HR. MALLARD:
It is more than 10L SENATOR DALTON: Yes. What would you say roughly?
MR. MALLARD:
I don't have that figure because it is buried back in Pccounting. We can respond to that question if you put it on the list.
SENATOR DALTON:
That is a question, I think, which is important.
MR. MALLARD: May I amplify that a bit?
SENATOR DALTON: You surely can.
MR. MALLARD: Without Hope Creek, God help us, becauss after i
30 years: without Hope Creek, we'll be burning fossil, with all that is y
v e,. u.%., /
finvoldd.
Youjmentioned the price of oil going from $40.00 to $30.00 bN c.
j?' ' f Q"~ W, to $28.00.
It can go right back up again if we are dependent upon fossil.
If we want to have economic growth in the State, we also have
'a "
7
.to worry about old plants that are going to retire.
They aren't going
- [to last' forever.
Hape Creek is a wonderful insurance policy for the
[ State ~uf, New Jsraey.
There was this " bump" in the beginning in order 3.,
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to cover the investment, but as time goes on, the depreciation expense goes down each year.
Depending on what happens to the cost of alternate fuels, Hope Creek can look better and better.
Salem. even with all or its problems, is beautiful.
It had made money,. it is - making. money, and it will continue to make money.
The same is.true of Peach Bottom, the other unit we own in
+
It is a question of getting through 1987.
It is like paying l a kid's tuition, but coce you've done that, if the kid goes to the
~
right school and works, you get a nice-payout.
I think Hope Creek is a good bet for the State of New Jersey.
SENATOR DALTON: Two years ago, I certainly wanted to explore with the Electric Generating facility Needs Assessment Act Wether or not.'3it was a - good bet.
Unfortunately, due to the lobbying of your company and a lot _ of other people, that part of the bill was amended;
-that was the Blue Ribbon Committee which I proposed.
I wanted to have people share that type of enthusiasm with
-us. ' You can ne assured that if, in fact, they had that opportunity, I probably wouldn't be sitting here today.
SENATOR STOCKMAN:
Mr.
Mi' lard, you are an impressive
~
saleeman.
That would be my comment about you.
MR. MALLARD: Please don't call me that. (laughter)
SENATOR ST(EKMAN:
There are a lot of questions we are concerned abobt, and I don't want anyone to leave this hearing thinking we aren't concerned about them.
I repeat that I hope Hope Creek will
' always prove to be an insurance policy, rather than a nightmare for the
= citizens of New Jersey.
Senator Costa has something to say, and then we'll have to recess this hearing.
~
SENATOR COSTA:
To pursue what you just talked about regarding the _ analogy of how you get.a return den a child goes to work, I don't know if that is the same in this instance.
You're speaking of a nuclear -plant, and it aounds like once it is completed
~
- and is on line, we're going to live happily ever after. But, you and I
- know that. ion't so.
You have a lot of problems. You have the problem, 82 i
g i
again, regarding the plants, 'and of course, you also have the problem of the spent fuel.
I heard you say that you are presently paying the federal government for the disposal of your spent fuel.
Is that correct?
MR. MALLARD: Yes, that is correct.
SENATOR COSTA: How often do you take your spent fuel out of the pool?. Where do you take.it?
MR. MALLARD: 'We're not doing anything yet. We're paying the government, and the government is taking our money.
Therefore, we're buying rights from the government.
SENATOR COSTA: Do you know W1ere they will put it?
MR. MALLARD:
That hasn't been decided yet.
The government is obliged--
SENATOR COSTA:
(interrupting)
The safety routes as far as spent fuel is concerned--
MR. MALLARD:
(interrupting)
That is all part of it.
Transportation -is part of it, and that is all being done.
SENATOR COSTA: None of it is being decided--
MR. HALLARD:
(interrupting)
It is all being worked on by the U. S. Department of Energy.
There will probably be two or three
-such sites - in various parts of the United States for high-level radiation storage.
SENATOR COSTA:
You mentioned that if we didn't have Hope Creek I--
Obviously, I believe we have reached the point of no return
.now.
Is that correct?
MR. MALLARD: Eighty-five percent.
SENATOR CDSTA:
So, there is no such thing as abandoning it at this point.
Regarding the incentives of the Cost Containment Agreement, is there any chance that you will come in below the $3.8 billion?
MR. MALLARD: Yes, there is some. We hope so.
' SENATOR COSTA: How much?
MR. MALLARD:
It depends on timing.
Since we're running about $40 million per month, once we get to the point where it is I
83
_ _. _ = - _, _
I
/
o completed and we're ready to go, the cost at that time--
The $40 1
million has three components:
the interest on the money; the fuel J
savings; and, the so-called fixed costs associated with the engineers and workers at the plant.
The sooner we can get it in, the better the chances are that we will, in fact, come in under the target.
SENATOR COSTA: Okay, then you are aiming for that incentive?
MR. MALLARD:
Yes, that is *y we're trying for fuel loading
' in January 1986.
The target is based upon commercial operation in December 1986.
If we can get January 1986 fuel loading, we'll be commercial by the summer of 1986, so we'll have perhaps a half a year's advantage.
SENAT(R COSTA: Regarding Hope Creek II where the consumer is paying for the abandonment, there is about a billion dollars-- What is that figure?
MR. MALLARD:
I don't recall the figure, but I think it is some $300 million.
SENATOR Q)STA:
Three hundred million dollars.
I don't know at what stage that was stopped.
MR. MALLARD:- That has totally stopped.
SENATOR COSTA:
I know, but I don't know at which stage
. you've gotten to.
My question is, in any way -- I'm throwing this out 4
~
because I.heve no idea what it la like -- is there any chance that something can be done so that the cost to the consumers can be lowered?
MR. MALLARD:
We have done as much as we could in that we sold surplus equipment, and we cannibalized portions of Hope Creek 11 to use as spare parts for Hope Creek I.
All of these things have contributed to holding prices down.
SENATOR COSTA:
All right.
I have just one more question.
What is New Jersey's dependence on nuclear energy at the present time?
MR. MALLARD:
In 1982, 34% of Public Service's energy came by N
. way of. nuclear energy -- 34%.
In 1983, the number was lower; it was 17%. In 1984, I estimate it will be 20% to 25%.
SENATOR COSTA: And what will Hope Creek I give us?
MR. MALLARD:
It will give us another 10% to I W.
SENATOR CDSTA: Thank you.
MR. MALLARD:
Thank you.
c.
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SENATOR STOCKMAN:
Thank you very much.
The hearing is now adjourned.
(Hearing conei g )
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..x 1-5 APPEND H
AGENDA DATE: 7/15/83 7
fhatF af NFm 3FrsFg BOARD OF PU8UC UTILITIES 11o0 RAns0NO BLVO.
NEWAM. *eEW JEMSEY 0710e IN TEE MATTER OF UTILITT
)
DECISION AND ORDER CouSTRUCTION F"J S;
)
EOFE CREEK INQUIRY
.)
Docket No. 8012-914-IFRIA Claude E. Solomon Deputy Attorney General, on behalf of the Department of Energy (Irwin I. Kiarselman, Attorney General)
Lawrence R. Codey, Esq., and Francis I. Delany, Jr.,
Esq., on behalf of the Public Service Electric and Ces Company
/
Daniel F. Duthie. Esq., on behalf of the Atlantic F
Electric Company (LaRoeuf. Lamb, Leiby and MacRae, attorneys)
Joseph E. Rodr$3ues, Public Advocata and Roger L. Camacho, Directos. Division of Eate Counsel, on behalf of the Department of the Public Advocate Carla Y. Beno. Deputy Attorney General, on behalf s
Fg, of the Board of Public Utilities 4-Edward L. Lloyd, Esq., on behalf of the Public Interest Basearch Group and the New Jersey Federation of Senior Citizens, Intervenors m
BY THE BOARD On August 11, 1982, the Department of Enargy (DOE), the Public Advocate (Advocate), the Public ' Service Electric and Gas Ccapany (FSE&C) and the Atlantic Electric Company filed a action with the Board requesting approval of an agreement into which they had entered. The agtsonent, s'escribed by the signatories as the " Incentive /Fanalty Ravenue Require-ment Adjustment Plan", calls for implementation of an incentive or penalty mechanism upon the completion of the Hope Creek Unit I (RCI) nuclear generating station being constructed by PSE&C on Artificial Island in Lower Alloways Creek, New Jersey. The Agreement, as supplemented by joint statements of the parties filed September 24, 1942, February 25, 1983 and July 12,1983 (the last having been joined
. by Intervenor Public Interest Research Group (PIRC)) provides that one of the below formulas will be applied to costs above $3.7932 billion, when found by the Board to be reasonable, so as to effect a revenue requirement
/x
adjustaant thereto as follows:
for reasonable costs up to 101 over the targeted amount, ($3.7952 billion) revenue requirements associated with rate base should be adjusted to reflect 801 of such not cost above the targeted plant cost should plant cost eaceed the targeted amme t
-($3.7952 billion) by more than 101, only 703 of the reasonable plant cost above said 101 would be tacluded as part of the rate base in the revenue requirement calculation, and 801 of the reasonable plant costs up to 10% over the targeted amount would be included in the rate base revenue requirement calculation.
The agreement further provides that the signatories will accept actual costs between $3.55 billica and $3.7952 billion and thatt for costs below $3.55 billios, rate base revenue requirements would be calculated at the actual cost plus 202 of the difference between the $3.55 billica plant cost and the actual cost. This 201 will be reduced in subsequent rate proceedings as if depreciation were being accuumalated on said 701.
The parties also agreed that:
Any incentive or penalty change imp:.eaanted pursuant to this agreement shall be adju ted in base rate proceedings to reflect changes in the accumulated depreciation.
Finally, the agreempst provides that the targeted cost of BCI should be adjusted to reflect changes in the Board's treatment of Construction Work in Progress (CWIF) associated with the unit or changes in the rate at which A11ovence for Funds Used During Construction (AFDC) is set prior.to commercial operation of the unit. Such costs may be further modified to reflect increassa or sec u ases resulting from aztraordinary events. The costs up n which adjuatseets agreed to by the signatories will be effected are those costs which the k ard adjudges to have been reasonably and prudently incurred is order to place BCI into cosmarcial operation.
Af ter a prehearfag conference on August 24, 1982, acd appropriate notice, public and evidentiary heariage were held on September 28, 1982 Jeavery 21, 1383. February 24, 1983 and February 25, 1983. The scheduling of the foregoing beariass was calculated to afford due deference to legislative heariage concurrently being held on the subject before this 3eard for esasideration.-
A number of interested amebers of the public appeared to give testinsay against the lastaat agressant. Additionally, three legislators advanced positions in support of and agatast the agreement. Senator Gerald Stockman, appearing to give testimony both on September 28, 1932 and January 21, 1983, generally opposed Board approval of the agreement j3 and voiced particular concern over the extraordinary events clause of the agreement through which he believed unit costs could be inflated.
Assemblynes Thomas Covas and Assemblyman Thomas Fankok submitted position Papers to be ande part of the record of this proceeding which were generally supportive of the agreement. The scard has considered the variwus positions advanced by the public witnesses who have participated in this proceeding and acknowledges with appreciation the effort expended on their part..
. - ~
____-_.___.____.,a____,_,___
_ _. ~-
h signatories, after making opening statements expounding upon
~
- the serita of the agreement, supported their positions through witnesses
' sponsored by PSE&G and DOE. h sole witness to proffer testimony in any way contrevening the merits of the agreement (a position paper of Allen Goldberg, a gra g intervenor in many PSE&G rate cases was also r
_resetved by the Board on June 23, 1982) was Mr. Elliot Taubman, sponsored
.by Interweaors FIEG and the New Jersey Federation of Senior Citiseas.
The purpose for which this testimony was presented was to support alternative assumptions to those used by PSE&G. (Emply brief of Intervenors dated July 5, 1943 at p. 4). A review of his suggested alternatives reveals
- that naay have been implemented by this Board in previous proceedings.
For essaple, this Board has recognised the beneficial effect that increased u
. conservation..loed management and cogeneration efforts on the part of the
- s.
utilities eder our jurisdiction would have on this State, and has ordered implementation of such programs by all utilities. (Dockets 8012-914-C and 4211-1032). - The possible importation of Canadian Rydroelectric power to offset increased fuel costs has also previously been investigated by this Board in Docket No. 4111-952. This project was eventually abandoned by
)
.the company involved, the Jersey Central Power and Light company. h Board, however, is of the opiaica that such alternatives are complimaatary to, and de not negate the overvbslains evidence adduced in this and other proceedings that added capacity will be needed by PSE&G to meet customar requirements and thereby to enable it to coatinue to prov1 4 safe, adequate and proper service pursuant to N.J.S.A. 44:2-23.
N Board has had occasion to address the above issue in previous proceedings. In Docket No. 794-310, the Board permitted the.
continuance of $250 million of CWIF in the company's rate base so as to help i
-fed the construction of ICI. In Docket No. 812-76, after this issued had been joined by PSE&G through pre-filed testimonial evidence that an issue of overriding importance in this (rate)
- case is the completion of Hope Creek Unita L.) Ja the Matter of the Petition of Public Service, Docket No. 812-76. Exhibit No. F-2 at 1 (April 20, 1982),
this Board permitted an additional $125 million in FSE&G's rate base without AFDC offset based upon the fact, inter alia, that thes
-... record reveal (ed) that the Company must bring the Boye Creelr I nuclear generating station to tianly completion for capacity purposes as well as-for additional fuel cost savings. Jd, Decision and Order at 11.
Additicaally, in affixing as appropriata amortization schadele through which costs associated with PSZaG's abandonnant of Boye Creek Unit II were to be recovered, the Board, after analysis of a vol =f eus record
-Jevcloped in that proceeding, opined
...that the schedule set forth...will enable the Company to fund the construction of Espe Creek I on s
- h ly basis... In the Matter
- s :
of Utility Coestruction Flaas_, Docket me. 8012-914 Jasegan Decision, at 7. (April 1, 1982).
Both the DCE and the Advocate, through either participation in f
or separate analysis of these proceedings have obviously reached similar conclusions as evidenced by the submission of the subject agreement for Board approsal. An analysis of Exhibit No. SCC-2, submitted in this Docket by DOE in response to staff request 5-12, reveals that DOE believed that ECI should be brought to tiaaly completion and that an t r
._n__ _ _ ______.,__ _,.__._.____,. _._____
y, effort should be nede to contain the costs of constructing the project.
Counsel to the Department of the Public Advocate, Division of Este Causel, speaking is support of an amortisation schedule for the recovery of Boye Creek 11 abandoement costs at a December 15, 1982 hearing in Docket 8012-914, indicated that the schedule proposed by the Advocate was cal-culated to enable PSI &G to help fiamace ECI in a cost efficient manner.
(Docket No. 8012-914 quata. T-91 and T-161). Based upon the above, the Board meet conclude that the submission of the subject agreement is
- predicated open the need for ECI. This is further demonstrated by the Advocate's agreement thereia not to challenge the need for this facility.
The signatory parties, having concludes that this facility is needed, have i-
-fashioned as agreement through which they believe ECI can be expeditiously coupleted la a cost efficient amaner. Thus, the issue before the Board is ubether the tastant agreement achieves this purpose and is therefore
(
in the public interest.
A review of the agreement reveals that approval and adoption l
thereof will not hinder this Board's ability to carey out its statutory responsibility to determine the reasonableness and prudency of costs expended in the construction of ECI. Because this determination aust necessarily occur at a time when the unit becomes commercially operable and PSE&G seeks to include its ECI investaost in rate base, it will be made even prior to the operation of any of the incentive or penalty i.
=a4a= tams proposed by the parties. Moreover, approval of the subject agreement will not affect the Board's ability to carefully weigh all financial ramifications as amadated by statute. Its adoption will provide as added inducement for the completics of ECI on schedule, at projected targeted costs. Thus, its application in conjunction with procedures heretofore estab11 abed by the Board to monitor ECI constrt.ction costs os a anath to anoth basis (Interia Decision,,e,up,re at 8) coupled with our ability to disallow imprudent costs upon completion of ECI, will act as sa==entary incentive to the already existing tools which this Board will continue to employ to ensure the tiasly and economic completion of this project.
In order to fed this or similar anjor projects, it is essential that a utility be able to attract oatside investment at the lowest possible cost to its ratepayers. In order to accomplish this, it is important that, where permissable, regulatory actions enhance the financial community's parception of the utilities which we regulate. This is well demonstrated l..
in regard to PSI &G the only asjer utility subject to our jurisdiction
[.
which is presently in the process of constructing a anjor generating facility (see seeerally Istetta Decistoa. suora; Decistort apf Order, Docket No.-812-76 33rg, and specifically Decision and Order Docket No.
831-25 at 3 (February 24, 1983); and Order Suspendina Increase. Chasses
~
or Alterations in Rates for Servicg Docket 837-620 at 1 and 2, (July 18, 1983)). Thus, it is incumbent upcn this Board to determine the reasonablenese of the incestive or penalty mechanisms preposed by
- the signatories and the impact of this agreement on PSE&C's ability to i
[
attract outside capital fiasaciag. We believe for the following reasons.
that the proposee mechanisme will not negatively impact upon PSZ6C's l,
ability to attract such financing and that the operation of the agreement will be in the public interest.
First, the penalty and incentive provisions were agreed to by the companies which will have to access such outside markats if necessary.
Secondly, in==eh=ga for agreeias to the potential imposition of penalties upos costs which weald otherwise be fully reenverable after the
. Board deternised the same to be reasonable, a major obstacle to PSE6G's ability to attract outside funding during the construction phase of this facility has been removed. As related above, not only has the Advocate
(
conceded need for this facility by agreeing not to challenge it in any forum.,
n
-, - -, - + - - -
the parties es the carrement hava stipulated that they will c.ccept actual costs between $3.55 billion and $3.7952 billion. We view this as an indication by the parties that the appropriate time for them to examine the costs for this facility will be when PSE6G seeks recovery of these costs through rate base treatment thereof, upes couaisreial operation of BCI.
Thus, a major impediment to the constructing company's ability to obtain tiasly rate relief during the construction phase of this facility has been r m ed.
Finally, the Board is in a position at this time, when the plant is 70E complete, se a result of our continuing scrutiny of project costs to assess PSE4G's progress and to determine the probability of this facility coming on line at or below the target cost. Our present and continuing
- assessaeet reveals that absent unforseen events, PSE&G will complete the plant at or near its projected costs.
As related hereinabove, several of the active perticipants in this proceeding suggested that that portion of the agreement relating to extraordinary events be modified to identify certain events that the Board 1
deemed to be extraordinary. After careful consideration of the record i
developed on this singular issue, the Board must conclude that it would j
be inappropriate to endeavor to define or describe what may constitu e an extraordinary event before a declaration by any party that one has occured.
As recognised by the signatories, such a determination falls strictly within the purview of this Board's continuing oversight of the construction of the project. It is the Board's' belief that an untiasly definition or description would delimit its ability to carefully review and analyse the circumstances surrounding such a declaration when and if it occurs, to the detriment of the recepayer. Accordingly, as agreed to by the parties, litigation of what constitutes an extraordinary event will occur, at the Board's discretion, at the tima such an event has been declared, or when PSE&G seeks to recover costs associated with the construction of this plant through races.
Therefore, based upon the above, the Board HERZBY FINDS:
e 1.
That approval of the " Incentive /Fenalty Ravenue Requirement Adjustaant Plan" will not impair the Board's ability to carry out its. statutory functions, nor is it to be construed as an act by which the Board has relinquished any of its authority or jurisdiction; 2.
That the submission by the parties of the instant agreement to the Board constituted an endorsement of this Board's findings in Dockets 8012-914 and 812-76, which we reaffirm herein, that BCI is needed and abould be brought to timely completion at the lowest possible cost; 3.
That approval and adoption thereof will provide an added incantive to PSE&G to bring ECI to completion in a timely and cost efficient manner; 4.
That the incentive and penalty mechanisms are aFpropriate and will not adversely affect pie 4G's ability to attract outside financing at reason-able rates, if it is required; and 5.
That litigation of what any constitute an extraordinary event should occur after such an event has been declared to have occured, as agreed to by the parties and Intervenor FIEG in their joint position filed herewith July 12, 1983.
Accordingly the Board, after review of the incentive / penalty procedure set forth in the AGREEMENT OF THE PARTIES, submitted as to the Joint Notice of Nation and Nation dated August 10, 1982, and filed August 11, 1982 in the above docket, FINDS that it is reasonable i
regulatory procedure and mechanies and HEREBY APPROVES the agreement as being in accordance with the public interest.. - -
,n -
l
.c As stated hereinabove, this Board will continue to closely monitor the construction costs of this project is accordance with procedures developed pursuost to our directive in the Board's Interia i
2Edst of April 1, 1982 in Docket 8012-914 We reiterate our belief that the agreement of the parties provides an added inducement to cost efficient and timely construction of the BCI project and commend the signatories for
-the initiatives they have takaa la this area. At the same time this Board must take steps to ensure that when FSE6G seeks rate treatment of ECI, such treatnest will have as hiainal impact upon its ratepayers as is practicable. All too often when utilities complete construction of base lead projects the initial rate tapact of placing such projects in service obfuscates the long ters econsaic benefits that ultimately will inure to the ratepayers. We therefore M staff to undertake a review of appropriate markantsas through which this impact can be minf=tsed when the facility is coupleted and FSI&G seeks rate treatamat thereof.
D&2ID:
Augest 12, 1983' Bo&ED F FUBLIC UTILITIES BYs A. CUEEAM FRESIDENT k
GEORGE E.
CUR Cole (ISSIONER EDWARDI.RTNESyfLjd.t%
ATTIST:
(XESGSSIONER h
BLOS$(Et A. PERITZ SECRFIAIT t utW.9Y g
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Sesster?
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'I AM PLEASED TO ACCEPT THE INVITATION OF THESE TWO COMMITTEES TO
' APPEAR TODAY TO PRESENT FACTS ABOUT THE HOPE CREEK NUCLEAR GENERAT STATION.
SPECIFICALLY, I WILL BE RESPONDING TO THE FIVE ISSUES RAISED IN THE COMMITTEES' MAY 3
LETTER:
THE STATUS OF THE PLANT'S CONSTRUCTION: THE PLANT'S IMPACT ON UTILITY RATES: THE STORAGE AND DISPOSAL 0F NUCLEAR WASTE: THE COMPETENCE OF THE PLANT'S OWNERS AND BUILDERS: AND THE LIKELIHOOD OF THE PLANT'S COMPLETION WITHIN BUDGET AND.0N SCHEDULE.
IF.THERE IS'A CENTRAL THEME TO THE DEPARTMENT OF ENERGY'S POSITION l0N HOPE
- PHRASE,
" PRUDENT DECISION-MAKING".
AS MY TESTIMONY WILL SHOW, THE JUDGMENTS WE HAVE MADE ON HOPE CREEK HAVE BEEN AND WILL CONTINUE TO BE IN THE BEST INTERESTS OF NEW JERSEY'S ENERGY, AND CONSUMER WELL-BEING.
IN ORDER TO PLACE THE CURRENT STATUS OF HOPE CREEK IN ITS PROPER H
PERSPECTIVE, LET ME OFFER A BRIEF HISTORY OF THE PROJECT.
HOPE CREEK WAS ORIGINALLY CONCEIVED.IN THE EARLY 1970'S AS A TWIN REACTOR COMPLE s
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S
. WITH A J TOTAL GENERATING CAPACITY OF OVER 2,000 MEGAWATTS.
IN THOSE
~ PRE-ENERGY CRISIS DAYS OF RAPID LOAD GROWTH, HOPE CREEK WAS SEEN AS THE PRINCIPAL MEANS OF MEETING WHAT WAS THEN PROJECTED TO BE THE
. ELECTRICITY DEMAND OF THE 1980'S.
AS ENERGY PRICES SKYROCKETED IN THE i
-MID AND LATE 1970'S AND A -NEW CONSERVATION ETHIC TOOK
- HOLD,
- PROJECTIONS FOR 'SIGNIFICANT FUTURE ENERGY GROWTH DROPPED SHARPLY.
L MEANWHILE, RISING CONSTRUCTION COSTS AND INTEREST RATES RAPIDLY PUSHED
- UP THE PRICE OF THE PROJECT.
. IN'1981, PUBLIC SERVICE ELECTRIC & GAS COMPANY -- WHICH OWNS 95 PERCENT OF HOPE CREEK '-- DECIDED TO CANCEL ITS PLANS FOR THE SECOND GENERATING UNIT, CITING THE RISING COSTS AND SLOWING DEMAND.
AT THAT JJUNCTURE, ESTIMATES ON THE COST OF COMPLETING THE SINGLE REMAINING
. UNIT'RAN-AS HIGH AS $5 BILLION, AND CALLS CAME FROM SEVERAL QUARTERS FOR THAT UNIT'S ABANDONMENT AS WELL.
'THREE YEARS LATER, THE WORD " ABANDONMENT" IS STILL BEING TOSSED
-AROUND LIKE'A FOOTBALL.
I MUST ASK IF CAREFUL CONSIDERATION HAS BEEN
- GIVEN TO ALL THE RAMIFICATIONS OF SUCH AN ACTION, AND WHETHER IT IS
I
-3 NOT.MERELY A SIMPLISTIC AND " EASY" ANSWER TO A COMPLEX, MULTI-FACETED
- ISSUE.
- THE 0PTION OF' ABANDONMENT WAS STUDIED IN GREAT DETAIL -- ALONG WITH EVERY OTHER POSSIBLE OPTION -- IN A COMPREHENSIVE REPORT ISSU
~
BY THE DEPARTMENT OF ENERGY IN
- MAY, 1982.
AT THAT
- TIME, THE DEPARTMENT BELIEVED -- AS IT STILL DOES TODAY -- THAT THE CANCELLAT OPTION WOULD BE COSTLY AND NON-PRODUCTIVE.I COMMISSIONED THAT REPORT
' AS ONE- 0F MY FIRST ACTIONS AFTER TAKING 0FFICE.
AT THE TIME, HOPE
. CREEK-WAS 40 PERCENT FINISHED: HAD ALREADY COST $1.6 BILLION: HAD
- BEEN SEVERED iFROM ITS N0W DEFUNCT ' TWIN: AND WAS ONE OF THE MOST
- CONTR0VERSIAL' ENERGY ISSUES TO FACE NEW JERSEY IN RECENT MEMORY.
o DESPITE A WIDE ARRAY OF OPPONENTS, THE PLANT HAD RECEIVED THE
'NECESSARY ENVIRONMENTAL APPROVALS FROM THE STATE AND THE SUPPO THE BOARD OF PUBLIC UTILITIES ON THE BASIS OF THE NEED FOR THE PLA
^
GENERATING CAPACITY.
CAUGHT BETWEEN THE JUGGERNAUT OF A
N STATE-APPROVED PLANT WELL ON ITS WAY TOWARD COMPLETION AND THE POSSIBILITY OF-SHARPLY ESCALATING COSTS, WAS THERE A WAY IN WHICH NEW
\\
3
_q.
JERSEY'S ENERGY AND CONSUMER INTERESTS COULD BOTH BE SERVED WITHOUT
. SACRIFICING ONE FOR THE OTHER?
WORKING CLOSELY WITH THE PUBLIC ADVOCATE-AND.PSE&G, THE DEPARTMENT DEVELOPED A PLAN WHICH WOULD ALLOW
~
-CONSTRUCTION ON THE PLANT TO CONTINUE UNDER STRICT COST CONTROLS.
"SUCH A
SOLUTION WOULD SATISFY THOSE WHO SUPPORTED THE PLANT'S COMPLETION, AS WELL AS THOSE WHO OPPOSED IT ON THE BASIS OF RUNAWAY
-COSTS.
A COST CONTAINMENT AGREEMENT, HOWEVER, HAD NEVER BEEN APPLIED
-TO - THEL. CONSTRUCTION 0F A NUCLEAR PLANT, AND DOUBTS WERE RAISED --
PARTICULARLY'WITHIN THE WALL STREET COMMUNITY -- CONCERNING THE IMPACT
. OFJ SUCH AN AGREEMENT ON PSE&G'S FINANCIAL POSITION.
NEVERTHELESS, THE
- COMPLETION- 0F. CONSTRUCTION WITH COST CONTAINMENT APPEARED TO BE OPTION UNDER THE AND PRUDENT MOST-REASONABLE, LOGICAL CIRCUMSTANCES. -WITHOUT. OVER-DRAMATIZING ITS IMPORTANCE, I CAN FIRMLY STATE THAT THE DEVELOPMENT OF THIS COST COMTAINMENT AGREEMENT WIL VIEWED -YEARS FROM NOW BY THE
- ENERGY, FINANCIAL AND GOVERNMENT COMMUNITIES AS A MILESTONE IN REGULATORY HISTORY.
1
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- THROUGH MARCH OF THIS YEAR, CONSTRUCTION COSTS ON THE HOPE CREEK PROJECT TOTALLED APPR0XIMATELY
$2.6 BILLION.
IF THE PROJECT IS ABANDONED AT THAT POINT -- AND CANCELLATION COSTS OF APPR0XIMATELY
~
$420 MILLION ARE ADDED TO THE AMOUNT ALREADY SPENT -- THE TOTAL COST OF THE PROJECT WILL BE APPR0XIMATELY $3 BILLION.
LET ME REPEAT THAT NUMBER:
53 BILL. ION...WITHOUT ONE SINGLE KILOWATT OF ELECTRICITY TO SHOW FOR IT.
ON THE OTHER HAND, THE TOTAL COST OF COMPLETING THE PLANT WILL BE LESS THAN $3.8 BILLION.
COMPARING THESE TWO FIGURES, IT BECOMES APPARENT THAT THE COST OF COMPLLTING THE PLANT -- AND PRODUCING ITS CAPACITY OF 1,067 MEGAWATTS -- IS AT THIS POINT ONLY SLIGHTLY MORE Th5 ABANDONING IT AND PRODUCING ZERO MEGAWATTS.
THE MONETARY COMPARIS0N IS ONLY PART OF THE STORY.
SOME WHO OPPOSE THE COMPLETION OF HOPE CREEK SAY THAT NEW JERSEY CAN REPLA
-THE CAPACITY OF THAT PLANT THROUGH PURCHASED POWER.
AGAIN, IS THIS NOT A SIMPLISTIC ANSWER TO A COMPLEX ISSUE?
IS THERE A GUARANTEE THAT NEW JERSEY WILL BE ABLE TO BUY SUFFICIENT SUPPLIES OF ELECTRICITY OVER l
WHAT WOULD HAVE BEEN THE 30-YEAR LIFE OF THE PLANT?
(
t
' ONE;'WOULD.THINK THAT IF PURCHASING ELECTRICITY WAS SUPERIOR TO
~
GENERATING IT: ONESELF, THE BUYERS IN THIS MARKET WOULD GREATLY OUTNUMBER THE SELLERS.
THE FACT IS THAT PURCHASING ELECTRICITY CAN BE BOTH COSTLY AND RISKY.
'IT IS COSTLY BECAUSE THE PRICE OF PURCHASED LPOWER~ IS ! BASED ON THE MOST EXPENSIVE FORM 0F GENERATION USED BY THE SELLER.
IT IS RISKY BECAUSE UTILITIES AND POWER P0OLS ARE ONLY ABLE TO SELL POWER' WHICH THEIR OWN CUSTOMERS ARE NOT USING.
THE AVAILABI'LITY 0F PURCHASED POWER THEREFORE TENDS TO DRY UP DURING q
H PERIODSLOF HEAVY DEMAND -- THE TIMES WHEN A " CAPTIVE" PURCHASER WOULD LNEED-IT THE MOST.
ANOTHER ARGUMENT-AGAINST BEING A " CAPTIVE" PURCHASER CAN BE MADE
\\
- SPECIFIC TO NEW. JERSEY.
AS YOU KNOW, NEW JERSEY PRODUCES N0 0IL, NO
~
-COAL AND;NO. NATURAL GAS.
THESE FUELS ARE ALL IMPORTED FROM PRODUCING STATES AND' FOREIGN ' COUNTRIES -- A SITUATION WHICH, AS THE ENERGY SHORTAGES OF THE 1970'S CLEARLY DEMONSTRATED, LEAVES NEW JERSEY IN AN I
EXTREMELY ' VULNERABLE SUPPLY POSITION.
ELECTRICITY IS THE ONLY MAJOR
' SOURCE' 0F ENERGY ACTUALLY PRODUCED WITHIN NEW JERSEY AND IS THEREFORE
~ THE 0NLY -ONE OVER WHICH WE HA'IE DIRECf SUPPLY CONTROL.
BY ABANDONING
- : :.r:,.
HOPE LCREEK, WE WILL ' BE TAKING A. GIANT STEP BACKWARD IN THE AREA 0F LENERGYf SELF-SUFFICIENCY AND WILL BE PLACING EVEN GREATER CONTRO
~
LOUR OWN DESTINY lNTO THE' HANDS OF OTHERS.
IN J0RDER -T0' EVALUATE PROPERLY THE NEED FOR HOPE CREEK, IT IS
'IMPORTANT -TO LOOK BOTH AT THE SITUATIONS OF BOTH PSE&G AND THE ASLA WHOLE.-
IN 1983 -- OUR LAST FULL YEAR FOR DATA -- PSE&G PURCHASED FOR THE STATE AS A WHOLE, 37 f 26 PERCENT OF THE ELECTRICITY IT SOLD.
7 PERCENT 0FJ ALL ELECTRICITY SOLD WAS PURCHASED -- A FIGURE INFLA
-THEL FACT THAT = JERSEY CENTRAL POWER & LIGHT COMPANY
' PERCENT' 0F ALL: THE POWER IT SOLD.
THESE PERCENTAGES OF PURCHASED
'f
. POWER ARE. CLEARLY UNACCEPTABLE WHEN ONE REALIZES THAT THE PURCHASES' INCREASED BY 180 PERCENT BETWEEN 1978 AND 1983 WHILE e
I
! ELECTRICITY RATES AS A WHOLE ROSE 75 PERCENT.
7
.IN' ADDITION TO THE POWER IT PURCHASED IN 1983, PSE&G GENERATED I27 PERCENT OF ITS ELECTRICITY WITH OIL OR NATURAL GAS.
IN OTHER WORDS, MORE THAN HALF THE ELECTRICITY WHICH PSE&G SOLD ITS CUSTOMERS LAST YEAR WAS DERIVED FROM SOURCES WHICH ARE UNDESIRABLE ECONOMICS OR -THE TYPE OF FUEL USED.
NEARLY ONE-THIRD OF PSE&G'S
s CURRENT CAPACITY CONSISTS OF " PEAKING" UNITS, WHICH SHOULD IDEALLY BE lilTILIZED LESS THAN. TEN PERCENT OF THE TIME.
EVEN WITH HOPE CREEK IN
~0PERATION BY.1987, PSE&G WILL HAVE TO RELY ON PURCHASED POWER FOR OVER L
=20 ' PERCENT '0F'-lITS ENERGY REQUIREMENTS. WHEN ONE CONSIDERS THAT HOPE
. CREEK l-REPRESENTS PSE&G'S ONLY PLANS FOR MAJOR ADDITIONS TO ITS
- U CAPACITY BETWEEN NOW ' AND THE YEAR 2003, THE PLANT'S IMPORTANCE IN LMEETING THELDEMAND GROWTH THROUGH THE REMAINDER OF THIS CENTURY IS
. GREATLY; MAGNIFIED.
LOOKING AT THE. STATE AS A WHOLE, THE NEED FOR HOPE
..' CREEK'S CAPACITY BECOMES. EVEN MORE CRITICAL WHEN ONE-EXAMINES THE 2
CONSTRUCTION PLANS -OF NEW JERSEY'S TWO OTHER UTILITIES OVER THE NEXT
~
TWENTY. YEARS.
ATLANTIC ELECTRIC IS PLANNING TO ADD ONLY 470 MEGAWATTS l
l0N CAPACITY, WHILE'. JCP&L'.IS PLANNING TO ADD 1,939 MEGAWATTS -- A FIGURE-THAT CAN BE CONSIDERED TENTATIVE AT BEST WHEN ONE LOOKS AT THAT a
UTILITY.'S-l FRAGILE FINANCIAL' CONDITION.
WHILE ALL THESE PLANNED ADDITIONSLWILL.BE CLOSELY: SCRUTINIZED UNDER THE DEPARTMENT OF ENERG "NEEDS': DETERMINATION" AUTHORITY, THE ISSUE OF THE NEED FOR HOPE m
.. CREEK'S CAPACITY 'BY BOTH PSE&G ' AND THE STATE HAS BEEN CAREFULLY
- STUDIED AND CLEARLY ESTABLISHED.
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THIS BRINGS ME BACK TO THE THEME OF MY TESTIMONY:
PRUDENT IDECIS' ION-MAKING.
-THIS COMMITTEE IS HEARING THE COMMISSIONERS OF THREE CABINET-LEVEL AGENCIES TODAY STATE THAT THE COMPLETION OF HOPE CR UNDER THE EXISTING COST CONTAINMENT AGREEMENT IS IN THE BEST IN
.0F NEW JERSEY.
IT IS IMPORTANT TO EMPHASIZE THAT CUR SUPPORT OF HOPE CREEK IS.NOT PART OF ANY BLANKET POLICY ON NUCLEAR PLANT CONS IN' PARTICULAR OR POWER PLANT CONSTRUCTION IN GENERAL.
RATHER, THIS SUPPORT WAS REACHED ON THE INDIVIDUAL MERITS OF THIS SPECIFIC CA
~
ASIDE FROM THE COST AND NEED
- FACTORS, THERE ARE SUBSTANTIAL 1-DIFFERENCES BETWE'EN THE HOPE CREEK PLANT AND OTHER PLANTS COUNTRY - -- SUCH AS SEABROOK, SH0REHAM AND. ZIMMER.
ONE SIGNIFICANT
~
DIFFERENCE IS THAT HOPE CREEK IS BEING CONSTRUCTED BY BECHTEL CORPORATION, WHICH HAS A STRONG RECORD IN NUCLEAR PLANT CONSTRUCTION.
o.
- BECHTEL IS. NOT INVOLVED IN THE ' CONSTRUCTION OF ANY OF THE T PLANTS I JUST MENTIONED.
IN FACT, BECHTEL'S REPUTATION IN THE FIELD 0F NUCLEAR POWER IS DEMONSTRATED BY THE FACT THAT BECHTEL PRIME CONTRACTOR FOR 35 0F THE 82 NUCLEAR PLANTS CURRENTLY IN
-t0-
~
OPERATION IN 'THIS COUNTRY.
IN ALL, BECHTEL IS RESPONSIBLE FOR 25 PERCENT. 0F THE ~148 NUCLEAR POWER PLANTS CURRENTLY IN OPERATION, UNDER
-CONSTRUCTION OR ON' ORDER.-
'ANOTHER :IMPORTANT. CONTRAST IS THAT NONE 0F THE ELECTRIC UTILITIES FINANCING ~ THE CONSTRUCTION 0F THOSE OTHER PLANTS IS OF THE SIZE OR FINANCIAL SOUNDNESS OF'PSE8G.
IN FACT, PSE&G IS ONE OF THE FEW -- IF
.NOT THEL ONLY -- ELECTRIC UTILITY CURRENTLY BUILDING A. NUCLEAR PLANT THAT STILL RECEIVES A "D0UBLE-A" RATING FROM THE WALL STREET B0ND
+
RATING-SERVICES.
. A' UTILITY OF. LESSER FINANCIAL STATURE MAY NOT HAVE
,BEEN A8tESTO WITHSTAND THE-FINANCIAL PRESSURES WHICH A PROJECT SUCH AS
.' HOPE: CREEK CAN IMPOSE, PARTICULARLY ON THE HEELS OF THE-ATLANTIC 1 & 2 I,g iAND HOPELCREEK 2 ABANDONMENTS.
y THE LETTER SENT~ BY CHAIRMEN STOCKMAN AND DALTON ANN 0UNCING THIS T
~
y
' HEARING
. REQUESTED WITNESSES TO ADDRESS
" SAFETY AND MANAGEMENT COMPETENCE ISSUES -WHICH HAVE BEEN RAISED BY THE NUCLEAR REGULATORY COMMISSION CONCERNING PUBLIC SERVICE'S OPERATION OF THE SALEM 1 AND 2 l
PLANTS,- AND THEIR RELEVANCE ~ TO THE OPERATION OF HOPE CREEK."
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-ve-A we-e-yu-w on-
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ON THE ISSUE 0F PLANT SAFETY, THE STATE WILL NOT HESITATE TO TAKE ACTION IN SITUATIONS WHERE REAL PUBLIC SAFETY ISSUES ARE APPARENT.
AN EXAMPLE' 0F -THIS. ACTION WAS A DEMAND BY GOVERN 0R KEAN TO THE N.R.C.
- F0LLOWING AN INCIDENT'AT SALEM LAST YEAR.
THE GOVERN 0R INSISTED THAT
'THE N R C... KEEP SALEM CLOSED UNTIL HE COULD BE COMPLETELY ASSURED OF THE PLANT'S SAFETY.
AS YOU ARE AWARE, THE N.R.C. BEARS THE PRIMARY RESPONSIBILITY FOR THE SAFETY ~ 0F-THIS COUNTRY'S COMMERCIAL NUCLEAR PLANTS.
THE N.R.C.
= H'AS ' THE' PERSONNEL, EXPERTISE AND FINANCI AL RESOURCES TO HANDLE ITS RESPONSIBILITY.
IT WOULD THEREFORE BE INAPPROPRIATE FOR ME TO ATTEMPT T0 USURP. THE N.R.C.'S AUTHORITY IN THE AREA 0F PLANT SAFETY.
LET ME
- RE-EMPHASIZE THAT THE STATE WILL TAKE WHATEVER ACTIONS ARE NECESSARY y
TO PROTECT THE HEALTH AND SAFETY OF ITS RESIDENTS.
THIS DEPARTMENT IS NOTIFIED BY THE N.R.C. OF ANY INCIDENT OR OCCURRENCE AT ANY NUCLEAR PLANT IN NEW JERSEY.
THIS ALLOWS US TO MONITOR THE ACTIONS OF THE STATE'S NUCLEAR PLANTS, AND TO ACT APPROPRIATELY IN EACH INSTANCE.
[
. OUR : SUPPORT OF HOPE CREEK'S COMPLETION IS NOT WITHOUT ITS
-CONDITIONS.
IN THE DEPARTMENT'S 1982 REPORT ON HOPE
- CREEK, THE OPTIONSaTHAT-WERE EXAMINED INCLUDED ONE WHICH WOULD ALLOW COMPLETION
_0F L THE ' PLANT UNDER A COST CONTAINMENT AGREEMENT.
IN OTHEP, WORDS,
.PSERG WOULD BEl REQUIRED TO FINISH THE PLANT WITHIN A SPECIFIED BUDGET
- AND TIME SCHEDULE -- OR FACE FINANCIAL PENALTIES FOR FAILING TO D0 S0.; THE UTILITIES ALS0-STAND TO GAIN FINANCIALLY IF HOPE CREEK CAN BE FINISHED UNDER BUDGET OR AHEAD OF SCHEDULE.
THIS TYPE OF ARRANGEMENT HAD1 NEVER BEEN ATTEMPTED BEFORE. IN THE CONSTRUCTION OF A NUCLEAR PLANT, AND WE FACED ~ DIRE PREDICTIONS FROM WALL STREET ANALYSTS THAT SUCH EA REVOLUTIONARY IDEA WOULD NOT SIT WELL WITH THE CONSERVATIVE
?FINANCIALCOMMUNITY.
TNEVERTHELESS, WE BELIEVED THAT A COST CONTAINMENT AGREEMENT WAS --
.T0 RETURN AGAIN.TO MY THEME -- THE PRUDENT DECISION TO MAKE IN THIS INSTANCE.
OUR PLAN WOULD PERMIT THE COMPLETION OF THE PLANT INY0 IWHICH 0VER $2 BILLION HAD ALREADY BEEN POURED, BUT IN A MANNER THAT
,~
WOULD PROTECT CONSUMERS FROM FURTHER COST OVERRUNS.THE BEST INTEREST 0F-CONSUMERS IS-THEREFORE SERVED BY PROVIDING THEM WITH THE ELECTRICITY THEY.NEED AT THE MOST REASONABLE PRICE.
UNDER THE AGREEMENT, THE BUDGET FOR THE PLANT IS SET AT $3.79 BILLION.
PSE&G, WHICH 0WNS 95 PERCENT OF HOPE CREEK, AND ATLANTIC ELECTRIC, WHICH OWNS THE REMAINING FIVE PERCENT, CAN REC 0VER ONLY A PERCENTAGE. OF ANY COSTS EXCEEDING THE TARGET.
SPECIFICALLY, THE' UTILITIES CAN REC 0VER ONLY 80 PERCENT.OF ANY REASONABLE COSTS U PERCENT OVER THE TARGET FIGURE, AND ONLY 70 PERCENT OF ANY REASONABLE COSTS BEYOND THAT.
THIS ARRANGEMENT PROTECTS CONSUMERS FROM UNREASONABLE RATE INCREASES CAUSED BY COST OVERRUNS AND PROV i
'MUCH GREATER DEGREE. OF MANAGEMENT AND STOCKHOLDER ACCOUNT t
-THE CONSTRUCTION OF THE PLANT.
o THE SIGNING OF A COST-CONTAINMENT AGREEMENT BY PSE&G AN ELECTRIC HAD A "DOMIN0 EFFECT" IN THAT IT MOTIVATED THOSE U IMPOSE SIMILAR RESTRAINTS ON THEIR CONTRACTORS.
BECHTEL SIGNED A NEW
l
-t4-CONTRACT WITH PSE&G.AND ATLANTIC ELECTRIC CONTAINING COST AND SCHEDULE
~~
TARGETS SIMILAR TO -THOSE TO WHICH THE TWO UTILITIES ' ARE B0UND.
THE l
CONTRACT CALLS FOR FINANCIAL PENALTIES AGAINST BECHTEL IF IT, FAILS TO COMPLETE-HOPELCREEK.ON TIME 0R WITHIN BUDGET.
IT REQUIRES BECHTEL TO EXPERIENCE THE--SAME TIME RELATED COST PRESSURES AS THE UTILITIES, AND THUS CARRIES THE IDEA 0F MANAGEMENT ACCOUNTABILITY ONE LOGICAL STEP FURTHER.
~
CONTRARY TO-THE INITIAL OPINIONS OF MANY WALL STREET ANALYSTS, THE
' CONCEPT OF. A COST-CONTAINMENT AGREEMENT HAD AN EXTREMELY POSITIVE
? $FFECT ON THE INVESTMENT COMMUNITY, THE FAVORABLE IMPACT MAY BEST BE
[
D$MONSTRATED.BY THE FOLLOWING QUOTE FROM THE
- REPORT,
" ELECTRIC
--UTILITIES:
PROFITS AMID PROBLEMS" WHICH WAS ISSUED ON APRIL 12, 1984,
,BYjTHEPRESTIGIOUSARGUSRESEARCHCORPORATION:
"(PSE&G) SHARES ARE OUR ONLY ' BUY' RECOMMENDATION FOR A COMPANY'THAT HAS A NUCLEAR UNIT SCHEDULED FOR COMPLETION-BEYOND 1984.
WE BELIEVE THAT A COST-CONTAINMENT PROVISION SHOULD GIVE COMFORT TO THE l
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a-INVESTOR RESP CE TING THE ULTIMATE RATE BASE TREATMENT y
0F THIS PLANT AND THAT IT PROVIDES AN INCENTIVE TO 1 THE COMPANY TO FINISH IT IN A TIMELY MANNER."
.~
^
SALOMON BROTHERS LANOTHER' PROMINENT-WALL STREET FIRM
- HIGHLIGHTED - THE COST CONTAINMENT AGREEMENT IN A
RECENT REPORT cq UP" ENTITLE 6) " NUCLEAR POWER PLANTS UNDER CONSTRUCTION:
QUANTIFYING THE 2%
' RISK".
"THE REPORT STATED, "THE NEWLY-lMPLEMENTED INCENTIVE / PENALTY THE CONSENSUS ON WALL STREET g
1,
E:.$pg;PLANYSHOULD HELP ' HOLD D0WN COSTS."
'* h LAPPEARS.TO-BE THAT AGREEMENTS WHICH SUCCESSFULLY CONTROL T BUILDING ~ NEW POWER -PLANTS WILL HELP UTILITIES GAIN MORE FA
^
DTERMS:0N THE.FINANCINGIGF THOSE PLANTS.
- 1 o
-PRESENTLY, THE CONSTRUCTION ON THE HOPE CREEK PLANT IS PROCEEDING 2[a LON SCHEDULE AND WITHIN BUDGET.
AS OF MARCH 31, 1984, EIGHTY-FIVE y
IN PERCENT OF THE CONSTRUCTION ON THE PROJECT HAS BEEN COMPLETE
'V I
^ TERMS OF EXPENSES l, *THE TWO UTILITIES BUILDING THE PLANT HAVE SPENT b '91
!$2.59 BILLION, OR 68 PERCENT OF THEIR $3.79 BILLION BUDGET.
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- THERE ARE SEVERAL KEY. MILESTONES WHICH MUST BE REACHED ON THE WAY n.
TO..:THEi SUCCESSFUL' OPENING '0F HOPE CREEK.
THE AGREEMENT BETWEEN TBECHTECANDL THE UTILITIES IDENTIFIES 12 SCHEDULED MILESTONES WHICH
~
(REPRESENTJSIGNIFICANTACCOMPLISHMENTS IN THE CONSTRUCTION OF THE PLANT._ ' BECHTEL' SUCCESSFULLY. MET ALL SIX OF THE MILESTONES WHICH HAD
- BEEN, SCHEDULED lTO DATE,. INCLUDING A KEY ONE LAST DECEMBER WHEN IT a
> 1TURNEDsTHE.:-PLANT'S1 CONTROL' ROOM. COMPLEX OVER TO PSE&G, AND APPEARS TO
\\
- BEiCAPABLELOF' MEETING THE REMAINING SIX.
LLET;ME NOW-: TURN. MY ATTENTION TO'AN ISSUE WHICH HAS EV0KED SERIOUS 7
s __
JEXPRESSIONS'0F; CONCERN FROM LEGISLATORS AND CONSUMERS.
THAT ISSUE IS
~
-THE IMPACT-WHICH HOPE; CREEK WILL HAVE ON - PSE&G'S RATES.
THE TERM
" RATE' SHOCK" HAS GAINED POPULARITY RECENTLY' IN DESCRIBING THE EFFECT MONj ELECTRIC RATES OF THE INCLUSION' 0F AN EXPENSIVE NEW PLANT IN A JUTILITY'S / RATE BASE.
'0NCE: AGAIN,
- HOWEVER, PRUDENT DECISION-MAKING A
L COMES -)INTO. ; PLAY AS A 4 MEANS - '0F PREVENTING " RATE SH0CK" FOR PSE&G a
=: CUSTOMERS.
. IN1THIS1 CASE, THEL BOARD OF PUBLIC UTILITIES HAS ALLOWED i.,~.s_e--1-..L._
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_ PART OF HOPE CREEK'S COST PRIOR TO THE ACTUAL
- PSE&G. T0 REC 0VER y
COMPLETION OF THE ' PLANT.
THROUGH VARIOUS RATEMAKING PROCEDURES, 969~
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' INCLUDING A MECHNNISM KNOWN IN REGULATORY PARLANCE AS "AN ALLO p::g y
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yip FOR -C0NSTRUCTION WORK IN PR_0GRESS WITH AN A.F.D.C. 0FFSET", THE BOARD
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- g p$; q ~.IS GRADUALLY PHASING THE VALUE OF HOPE CRE
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THIS GRADUAL APPR0ACH AFFORDS AN EASIER TRANSITION FOR THE
(?l CONSUMER FROM ERE-HOPE CREEK. RATES TO POST-HOPE CREEK RATE ALTHOUGH gp Q:
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JS0ME MAY ARGUVTHAT UTILITIES SHOULD NOT BE ENTITLED TO f
m I
Y INVESTMENTS TV.ATL ARE NOT "USED AND USEFUL IN THE PUBLIC SERVICE",
n yy IN SAYING THIS, BELIEV..E, THE " RATE SH0CK" ALTERNATIVE IS UNACCEPTABLE.
o p
a.d % gN H0 WEVER, -I DO NOT WANT TO IMPLY ANY BLANKET APPROVAL ON MY
- ~,
b THETUSE10F CONSTRUCTION WORK IN PROGRESS AS A MEANS OF S f.
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IpPACT OFg RATE INCREASES CAUSED BY POWER PLANT CONSTRUCTION.
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BELIEVE EACH CASE MUST BE JUDGED ON ITS 0WN MERITS, AND THAT SUCH 4
l REGULATORY MECHANISMS SHOULD BE UTILIZED ONLY IN CASES WH II I
CLEARLY IN THE BEST INTERESTS OF THE UTILITY AND ITS CUSTOMERS y
- ALSO BELIEVE THAT EVERY ALTERNATIVE TO POWER PLANT CONSTRUCTION --
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.INdLUDING ENERGY CONSERVATION, C0 GENERATION, AND RENEWABLE RESOURCES
-- -BE CAREFULLY CONSIDERED BEFORE A FINAL DECISION IS MADE TO BUILD r-LTHE PLANT.
?ACCORDING' TO OUR DEPARTMENT'S ANALYSIS, THE AS-YET-UNREC0VERED PORTION 0F HOPE CREEK'S EXPENSES WILL RESULT IN A RATE INCREASE OF UP 1TO ' 15 ; PERCENT > IN - 1987. D0LLARS.
SUCH AN -INCREASE WOULD RAISE THE 500 L ILOWATTHOUR: PER l MONTH ' BILL 0F THE AVERAGE RESIDENTIAL CUSTOMER FROM K
-554flN11984 :T0:562 IN 1987.
THESE NUMBERS REFLECT THE SUBTRACTION OF
. FUEL-. SAVINGS WHICH PSE&G MUST PASS ALONG T0' ITS CUSTOMERS AS THE LRESULT OF. USING LOWER COST NUCLEAR FUEL, THE IMPACT OF THE INCREASE
-MAY.BE FURTHER MITIGATED BY 0THER FACTORS, SUCH AS THE TIMING 0F THE RATE CASES OR THE NUMBER OF STEPS OVER WHICH THE INCREASE IS IMPLEMENTED.
WITH RESPECT T0 THE ISSUE OF NUCLEAR WASTE, THE ENACTMENT OF THE 2 NUCLEAR WASTE POLICY ACT OF 1983 ESTABLISHES A SYSTEM FOR THE DISPOSAL
'0Ff HIGH-LEVEL WASTES AND ENDS 25 YEARS OF POLITICAL INDECISION ON HOW TO' SOLVE'THE PROBLEM.
THE LEGISLATION REQUIRES THE U.S. DEPARTMENT OF
~
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-- ENERGYT TO RECOMMEND THREE SITES BY JANUARY 1,1985 FOR THE NATION'S
~
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THE PRESIDENT MUST SELECT
[FIRST PERMANENT NUCLEAR WASTE REPOSITORY.
. iONE10F THOSE-THREE.SlTES BY MARCH 31,-1987,. AND THE NUCLEAR REGULATORY 1
-COMMISSION MUST' ISSUE A CONSTRUCTION APPLICATION FOR THE REPOSITO JANUARY, 1989.
UNTIL THIS -REPOSITORY IS ACTUALLY IN OPERATION, THE OWNERS AND OPERATORS OF' CIVILIAN' NUCLEAR PLANTS ARE RESPONSIBLE F LTHE 7 0N-SITE l STORAGE 10F HIGH-LEVEL WASTES.
THIS RESPONSIBILITY DOES
!.N0T POSEJA PROBLEM FOR HOPE CREEK, WHICH HAS ON-SITE FACILITIES (CAPABLE -0F-STORING THE PLANT'S SPENT FUEL THROUGH THE YEAR llNS0FAR AS THE. COST'0F DISP 0' SAL IS CONCERNED, IT SHOULD BE P0INTED OUT
~
~
THAT---PSE&G'S RAT $S ' ALREADY INCLUDE A NUCLEAR WASTE DISPOSAL COS
. APPR0XIMATELY ONE MIL -- OR TENTH OF A CENT -- PER KILOWATTHOUR.
IN ADD'ITION, PSE&G HAS' ALREADY SIGNED AN AGREEMENT WITH THE FEDERAL Lo[.
G0VERNMENT THAT GIVES THE GOVERNMENT OWNERSHIP 0F THE UTILITY'S S FUELL IN'CLOSINGr LET ME SUMMARIZE THE POINTS I HAVE MADE WITH REGAR n-
- 0VR SUPPORT FOR THE COST-CONTAINED CONSTRUCTION OF HOPE CREEK
__. 1)
ABANDONMENT OF THE PLANT AT THIS POINT WILL COST RATEPAYERS NEARLY AS MUCH AS ITS COMPLETION UNDER THE CURRENT BUDGET.
2)
ABANDONMENT OF THE PLANT WILL FORCE NEW JERSEY TO PURCHASE LARGE AMOUNTS OF POWER FROM OUT OF STATE, THEREBY SUBJECTING IT TO THE POLITICAL AND ECONOMIC VAGARIES ASSOCIATED WITH BEING AN ENERGY IMPORTER.
3)
AS A RESULT OF THE COST CONTAINMENT AGREEMENT, THE HOPE CREEK PROJECT IS ON SCHEDULE AND WITHIN BUDGET FOR THE FIRST TIME IN ITS HISTORY.
10 SUBSTANTIAL DIFFERENCES EXIST BETWEEN THE OWNERS AND BUILDERS OF HOPE CREEK AND THE OWNERS AND BUILDERS OF NUCLEAR PLANTS ELSEWHERE IN THE NATION EXPERIENCING FINANCIAL OR SAFETY RELATED PROBLEMS.
5)
THE COST CONTAINMENT AGREEMENT HAS BEEN RECEIVED FAVORABLY BY THE WALL STREET COMMUNITY AS A MECHANISM FOR ACHIEVING MORE FAVORABLE I
FINANCING TERMS THROUGH LOWER CONSTRUCTION COSTS.
THIS WILL TRANSLATE INTO '.0WER RATES FOR CONSUMERS.
- a TESTIMONY OF EDWARD H. HYNES, COMMISSIONER BOARD OF PUBLIC UTILITIES I am pleased to have the opportunity to discuss, on behalf of the g
l Board,' our actions taken with respect to the efficient construction of Hope
+
~ Creek I and its ratemaking treatment. To date, our decisions have been made with the intent of providing the electric consumers of New Jersey w!.th reliable, economic electricity-into the twenty-first century. All analyses to date shows that Public Service will need the additbnal capacity of Hope Creek I to meet
- the needs of its customers. Today, I will summarize several issues:
- 1) Status of Hope Creek construction and Board oversight activities.
f
- 2) The incentive / Penalty Revenue Requirement Agreement
~ 3) " Rate Shock" issues
,. 6 STATUS ^ OF I! OPE CREEK CONSTRUCTION AND BOARD OVERSIGHT
' ACTIVITIES -
- licpe Creek I construction is proceeding satisfactory and is currently on schedule, within budget and within the Penalty / Incentive cost limitations.
.~ All critical path milestones (CPM) are being completed within projected target dates. ' As of March 31, 1984 the Hope Creek project is approximately 85%
complete and $2.154 billion has been expended (less AFDC).
O-Tabulated below are actual versus target-construction goals for
. the llope Creek I project.
t
.2.;.3 Actual Target
% Complete 84.64 84.7 Expenditures
$2.154 Billion
$2.157 Billion fX
The progress of the Hope Creek project is closely monitored through staff's review 'of.the quarterly reports submitted by Public Service, as well as. cngoing' communication between staff and Public Service' management.
, Further, the Board now has a Nuclear Engineer on-board its Staff, with another
.to be added shortly, so that our review is thorough and perceptive.
The information provided in this report gives a clear view of the. status of construction, cost status, procurement calandar, any physical,
- labor or regulatory difficulties that have developed and the intensity of work at the project.
i
- THE INCENTIVE PENALTY REVENUE REQUIREMENT AGREEMLNT The " incentive / Penalty Revenue Requirement. Adjustment Plan" is a joint agreement among the Department of Energy, the Public Advocate, Public Service Electric and Gas Company, and Atlantic City Electric Company.
- The agreement was designed to help :contain the costs of Hope Creek I and to e
- continue to assure the provision of safe, adequate and proper service at reasonable cost to the consumer in the future. This agreement is a reasonable regulatory procedure which. provides an inducement to cost efficiency and timely construction of the Hope Creek project. The terms of the agreement provide that the -target in-service date for Hope Creek I is December,1986, with a
- target cost for commercial operation of $3.8 billion. The heart of the agreement
_ provides for an incentive or penalty if the final cost of the plant does not match the targeted amount.
[-
4
' A penalty will be assess 1d for reasonable costs up to 10% over
- the targeted amount by disallMing 20% of the excess from rate base. In the
- cvent that plant costs are greater than the targeted amount by more than 10%,
. then -30% of reasonable plant costs above 10% will be disallowed from rate base.2 Should the final cost fall between $3.5 billion and $3.8 billion, the actual
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^
prudent cost will be used for determining the revenue requirement. However,
. If the' costs are-less than $3.5 billion, the rate base will be based upon actual cost -plus an additional 20% of the difference between $3.5 billion and actual cost.
T
. This agreement will become effective upon completion of Hope
[ Creek l and shall be implemented when PSE&G seeks rate treatment for this
~
' project. The' Board by adopting this agreement has provided an added incontive for-completion on schedule and at the projected targeted cost. Furthermore,
- this; agreement and the Board's procedures for monitoring the construction costs on 'an ongoing basis should prevent.the problems that are being experienced
~
-in other parts of the country by placing a firm incentive on PSE&G to complete
- the plant efficiently.
" RATE SHOCK" ISSUES -
. Given the large investment by Public Service in Hope Creek, the Board has made known its concern that the impact on rates when this plant goes into service not be such that it negatively impact the economy of our state.
That; is, given that this plant is part of an overall strategy, along with conservation and. cogeneration, to reduce our reliance on imported fuels and
. : stabilize electric rates over the long term, we do not want any short-term costs
- to outweigh these long-term benefits. As such, the Board has directed its staff to ur.dertake a full economic and financial evaluation of the short and long term rate implications of Hope Creek I. I can state that this Board will take whatever steps are necessary to make sure that the rate impact of placing this plant in service will be minimal and will not be disruptive to tne state's growing economy.
t
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We are all aware of the monumental rate shock that could occur
- out on Long Island due to the Shoreham nuclear plant. I can assure you that the increases in the Public Service territory will be nowhere near that magnitude t
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when the Hope Creek plant goer into service. The relative magnitude of rate
' relief necessary to cover the construction costs of each plant can be gauged
- by the ratio-of plant capacity to the total existing capacity for each utility.
The Shoreham plant will comprise 22% of Lilco's capacity, while Hope Creek
'will be ' only 11% of PSE&G's capacity. - This differential is amplified by the
' cost per kilowatt for each plant - $5,100/kw for Shoreham compared to
$3,G00/kw for Hope Creek. These differences in the two plants, and the utilities
' building them,' are the principal reasons why Salomon Brothers recently calculated ithat ithe Gross Rate Impact (which assumes traditional regulatory treatment of: new plant placing the entire cost in rate base without fuel savings when
. operation begins) would be nearly twice as creat for Shoreham than for llope Creek.
There has been a wide range of projections put forth for the actual rate impact of Hope Creek when it comes on line. I refrain from making such a projection myself, because the ultimate impact will depend in large part on policy; decisions the Board must make in the time between now and plant completion.
We must determine how much, if any, additional funds for Construction' Work in Progress in rate base should be granted in any rate cases before 1987. As is our present policy, this determination will be based on our assessment of the financial situation facing the company - how much money it needs to preserve its access to the financial markets, to finish the plant,.
without unduly burdening present consumers. We n'ust also decide what general rate relief for increased costs of providing service, such as labor and materials, will be necessary in the interim. Fuel costs will also be almost certainly adjusted between now and 1987, although to what extent cannot be determined in May of 1984. In short, the rate impact of Hope Creek in 1987 will depend on what rates are in 1986. This simply cannot be projected accurately at this time.
e 8
I 9
Cr
1 VL 1
The' Board's staff is assessing the merits of numerous proposals to mitigate the rate impact of placing a $3.9 billion plant into rates. Essentially,
~ the issue =is f one of changing the schedule by which a utility will recoup its t
investment in plant. Traditional regulation would require higher revenues in
' the initial years,. decreasing thereafter.
The Board can, however, as
((
. circumstances dictate, change this revenue stream so that the initial rate
-increases are not nearly as large and is certainly prepared to do so, if necessary, sin the case of Hope Creek. We have,in fact, taken these steps in a rate decision h
on Atlantic Electric's purchase of power from the Susquehanna Nuclear Station of Pennsylvania Power & Light. We reduced the payment schedule from $18 to $12 million by building a levelized rate structure rather than a traditional
' rate base / rate of return structure. In addition, in our recent decision regarding resource recovery development in the state, we ordered that rates for resource recovery be set in a way which will start with lower rates rather than the 0
traditional higher rates. The same flexibility in ratemaking which will ease the rate impact of. resource recovery can be applied to the Hope Creek plant.
. I would also note that various rate shock solutions have been adopted by Public Utility - Commissions around the nation. The Board's staff is assessing these solutions to determine their effectiveness in protecting the long term interest of consumers.
In closing, it. is important to point out that figures which have l been developed around the nation,.as well as some here in New Jersey, which estimate the. rate impact of nuclear plants in service, all assume that standard rate base / rate of return regulation will be used. That is, the estimates assume j
. that the entire plant cost will be placed in rate base with a full return. This Board is not constrained by this tradition and will use its authority to insure that rate shock does not occur. I would reiterate that the Board of Public
~
Utilities is ready, willing and able to take any ratemaking steps to protect the
. economy of this state when Hope Creek I goes into service. Thank you.
E