ML20245F729

Affidavit.* Discusses Costs Incurred While Plant Inoperable. Allowance for Funds Used During Const,Security,Maint & Operational Costs Considered Proper for Calculating Costs for Delay

ML20245F729
Person / Time
Site:	Limerick
Issue date:	08/08/1989
From:	Robert Williams PECO ENERGY CO., (FORMERLY PHILADELPHIA ELECTRIC
To:
Shared Package
ML20245F692	List: ML20245F687 ML20245F716 ML20245F729 ML20245F751
References
OL-2, NUDOCS 8908150049
Download: ML20245F729 (5)

Text

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4-UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION t

In the Matter of

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Docket No. 50-353-OL-2

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Philadelphia Electric Company

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(severe Accident (Limerick Generating Station,

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Mitigation Design Unit 2)

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Alternatives)

AFFIDAVIT Raymond C. Williant, being first duly sworn, deposes and states that:

1)

He is Vice President - Rates of Philadelphia Electric Company.

He was elected Vice President of Rates in 1986 and in that' position is responsible for all rate filings with the Pennsylvania Public Utility Commission, the Maryland Public Service Commission and the Federal Energy Regulatory i

Commission.

He is also responsible for administration of rate tariffs and fuel adjustment calculations.

He is authorized to make this affidavit; 2)

In the NRC Staff Response to Commission Questions dated August 2, 1989, the Staff states that carrying charges in the form of Allowance for Funds Used During Construction i

(AFUDC) should not be considered a cost of delay.

The NRC Staff also states that these carrying charges on the debt are essentially a fixed cost that will be incurred regardless of whether or not the reactor operates.

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3)

Further, the NRC Staff states that security, maintenance and operational. costs incurred while the plant is not permitted to operate should not be viewed as incremental costs of the assumed delay because comparable costs would be incurred even if the unit were operating.

4)

The Company disagrees with the Staff position that th's AFUDC and security, maintenance and operational costs are not costs of delay.

The Company believes that its calculation of the costs of delay which included these components is proper and correct' and should be accepted by the Commission.

5)

The Staff is erroneous in its contention that an increase'in AFUDC accruals during the IS month period of the assumed delay in commercial operation are fixed costs which should not be considered attributable to the delay.

The accrual of AFUDC continues until the start of commercial operation.

Thus, any delay in attaining commercial operation will cause the level of AFUDC accruals to increase.

Since the level of AFUDC accruals is a componen in the cost of the plant, any increase in the level of AFUDC necessarily increases the total cost of the plant.

Whether this increase is ultimately recovered from customers through rates or from shareholders does not change the fact that the cost of the plant has increased.

Accordingly, the fall $573.6 million of AFUDC claimed by the Company is, in fact, part of the $854.4 million cost of delaying commercial operation.

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6)

Similarly, operational and maintenance an'd security costs incurred prior to-commercia; operation are capitalized.

As capitalized expenditures, these costs are part of the total l-

. cost of the plant.

Thus, to the extent that a delay in commercial _ operation increases the amount of the costs to be

' capitalized, it directly increases total plant costs.

Accordingly, the full $107.3 million increase in operational

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and maintenance and security costs to be capitalized due to the 1

delay is properly considered an increase in the cost of the plant.

7)

The Staff incorrectly asserts that it makes no difference in determining costs of delaying operation of Unit 2 whether AFUDC and other capitalized expenditures are ultimately borne by ratepayers or shareholders.

The denial of a recovery from customers of funds expanded for construction would ultimately increase the Company's coct of capital.

The pennsylvania Public Utility Commission has imposed a cap en the level of Limerick 2 construction costs which it will allow to be recovered in rates.

This cap would definitely be exceeded by the increased AyUDC accruals during the first fuel cycle for Unit 2 (18 months).

Thus, the assumed delay would almost certainly cause shareholders to absorb costs which would not.

otherwise have to be written off by the C0mpany.

The increased risk associated with this absorption of costs would ultimately

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increase the Company's overall cost of capital, adversely l

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y k, a X affect the ability of the Company to realize a return on its operations, pay a fair return to stockholders and attract additional capital on reasonable terms.

8)

Even accepting the Staff's position for the sake of argument,_the Staff's calculations significantly understate the true cost of delay:

a)

Incrammad Financine Costa In order to finance the $547 million of additional

.AFUDC accruals during the assumed 18 months delay in commercial operations, the Company will have to issue new securities at a cost of $26 million during the 18 month period.

This will effectively increase the Company's after tax carrying charges by an additional $52 million per year, beginning with commerial operation and declining over the life of the plant.

b)

Ooeratina and Maintenance Ernenses The Staff incorrectly contends that delay would not increase operational and maintenance expenses because these-expenses would be incurred whether or not the plant is operating.

Approximately 40% of the operational and maintenance expenses relate to activities that would not be continued following cor.imercial operation (e.g. expenses associated with retaining the necessary construction and I

startup personnel at the site).

Accordingly, ar least 40% of the total operational and maintenance, or $43 million will be solely attributable to the assumed delay.

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.g i' Thus, the NRC Staff's calculations of the costs of delay, even accepting their methodology, are understated by approximately $69 million during the 18 month delay period, and the carrying charges on the additional AFUDC of $$2 million per year, an amount which would continue to accrue annually, yet decline over the life of the plant.

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Subscribed and sworn to b

before me this I day of 9M k

, 1989.

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4 No'tary Public

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NCTApti gaAl, MELANit R. CAMPAN!M Neary Am.c l City of Miteceion:a. 8%s covery My Commtesen Exerres Fec.12 *990.*

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