ML19210E330: Difference between revisions
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There was no syst.emat.ie check on the status of the plant. and the line-up of valves when shifts changed. Surveillance procedures were not adequatcly supervised. And there were weaknesses in the program of l quality assurance and contrel. | There was no syst.emat.ie check on the status of the plant. and the line-up of valves when shifts changed. Surveillance procedures were not adequatcly supervised. And there were weaknesses in the program of l quality assurance and contrel. | ||
I We agree that. the utility 1. hat. operates a nuclear power plant must be held Icgally responsible f or the f undamental design and procedures | I We agree that. the utility 1. hat. operates a nuclear power plant must be held Icgally responsible f or the f undamental design and procedures | ||
: t. hat. assure nuclear safety. Ilouever, the analysis, of thin particular accident raises the seriour. quest. inn of whether a | : t. hat. assure nuclear safety. Ilouever, the analysis, of thin particular accident raises the seriour. quest. inn of whether a)) electric ut.ilit.ies automatically have the necessary technical expertise and managerial l | ||
i capabilitien for administering such a dangerous high-t echnology plant . | i capabilitien for administering such a dangerous high-t echnology plant . | ||
! We, t herefore, recommend the develoinnent of higher st andards of | ! We, t herefore, recommend the develoinnent of higher st andards of | ||
Line 989: | Line 989: | ||
or substantially greater than the lifetime capacity factors (through July 1979) of several large nuclear plants owned by other utilitics. | or substantially greater than the lifetime capacity factors (through July 1979) of several large nuclear plants owned by other utilitics. | ||
: 4. In a series of rate cases involving Respond-ents, your Commission recognized that TMI-l had been a part of Respondents' utility plant in service since September 2, 1974 and authorized t. h c collection of r ev en u e s to ncet the capital and operating costs associated wit.h THI-1. | : 4. In a series of rate cases involving Respond-ents, your Commission recognized that TMI-l had been a part of Respondents' utility plant in service since September 2, 1974 and authorized t. h c collection of r ev en u e s to ncet the capital and operating costs associated wit.h THI-1. | ||
: 5. THI-l was shut down for refueling on February 17, 1979 and was ab ou t to resume power .peration when the THI-2 accident occurred on March 28, 1979 TMI-l did not resume power operation following the accident in order that al as111able manpower might be initia | : 5. THI-l was shut down for refueling on February 17, 1979 and was ab ou t to resume power .peration when the THI-2 accident occurred on March 28, 1979 TMI-l did not resume power operation following the accident in order that al as111able manpower might be initia))y d ev o t e d to the TM1 -2 ac c id ent and i t. n aftermath. | ||
.3_ | .3_ | ||
1A72 120 | 1A72 120 | ||
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: 42. Under these circumstances, the e x c lu r. io n from base rates of Respondentn' T!!I- 1 costs would be inconsirtent uith the due prococo provisionc of the Federal and State Co n s; r i - | : 42. Under these circumstances, the e x c lu r. io n from base rates of Respondentn' T!!I- 1 costs would be inconsirtent uith the due prococo provisionc of the Federal and State Co n s; r i - | ||
tutions and the s ub o r din a t e impicuenting pr ovis ions of the Pennsylvania Public Utility Code. | tutions and the s ub o r din a t e impicuenting pr ovis ions of the Pennsylvania Public Utility Code. | ||
WilDRMPORD , Ranpandents renpectfu | WilDRMPORD , Ranpandents renpectfu))y submit th a t TM I--l i s properly clansified an property devoted to service of the pub)ie.to and that it vould be contrary to law and to the public interent remove the costs associated with that unit fro:n the base rates of Responde:S ts . | ||
METROPOr,1Thu CDISON COf1PisNV PCUNSYl,VANIA CLUCTRIC COi1PANY BY. ... . . ../.% - . -- b-- | METROPOr,1Thu CDISON COf1PisNV PCUNSYl,VANIA CLUCTRIC COi1PANY BY. ... . . ../.% - . -- b-- | ||
the coard Chai rn::oi g.f n .- | the coard Chai rn::oi g.f n .- | ||
Line 1,481: | Line 1,481: | ||
General Public Utilities Corporation | General Public Utilities Corporation | ||
' 'P-7 260 Cherry H.Il Road ; T ' | ' 'P-7 260 Cherry H.Il Road ; T ' | ||
Parsippany New Jersey 07054 ' | Parsippany New Jersey 07054 '(( f y [ | ||
201 263 4900 y( g y L d.] | 201 263 4900 y( g y L d.] | ||
Further inforrnation Kenneth C . McKee Forrelease Immediately Date October 30, 1979 WASHINGTON, D.C . , October 30 - "The Kemeny Commission conclusions released today lend support to our belief that the Three Mile Island accident involved the entire industrial, technological and regulatory structure of nuclear power," | Further inforrnation Kenneth C . McKee Forrelease Immediately Date October 30, 1979 WASHINGTON, D.C . , October 30 - "The Kemeny Commission conclusions released today lend support to our belief that the Three Mile Island accident involved the entire industrial, technological and regulatory structure of nuclear power," | ||
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Part of the utilitics' 27-page text explains that at the time of the | Part of the utilitics' 27-page text explains that at the time of the | ||
!! arch 28 accident sustained by its adjoining sister reccior, Unit 1 was not damagcd and had been shut down for routine maintenance. It was not restarted then because that Unit's manpower was needed to assist in coping with the emergency at Unit 2. | !! arch 28 accident sustained by its adjoining sister reccior, Unit 1 was not damagcd and had been shut down for routine maintenance. It was not restarted then because that Unit's manpower was needed to assist in coping with the emergency at Unit 2. | ||
-more-J} ) | -more-J} ))) | ||
Met-Ed News Releas D*" - | Met-Ed News Releas D*" - |
Latest revision as of 18:36, 16 March 2020
ML19210E330 | |
Person / Time | |
---|---|
Site: | Three Mile Island ![]() |
Issue date: | 11/27/1979 |
From: | Hafer F GENERAL PUBLIC UTILITIES CORP. |
To: | Vollmer R NRC - TMI-2 OPERATIONS/SUPPORT TASK FORCE |
References | |
NUDOCS 7912040345 | |
Download: ML19210E330 (200) | |
Text
g g3 . GPU Service Corporation J J GNme 100 lnterp e Parkway Parsippany, New Jersey 07054 201 263-6500 TELEX 136-482 Water's Direct Dial Number-(201) 263-6013 November 27, 1979 Mr. Richard H. Vollmer Director, Three Mile Island-2 Support Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission 7920 Norfolk Avenue Bethesda, Maryland 20014 RE: NRC Docket No. 50-289 -- TMI-l Restart Proceeding
Dear Mr. Vollmer:
In response to the NRC's supplementary requests for financial information telecopied to C. W. Smyth on November 9, 1979, and the NRC's initial requests enclosed with your letter dated September 21, 1979 to R. C. Arnold, enclosed are eight copies of the following:
I 1. Supplementary response to initial Financial Information Request No. 10(a)
(financial statements, reports to stockholders, prospectuses).
- 2. Additional response to Supplementary Financial Request No. 9 (PA PUC's Order requiring Met-Ed to "show cause why its certificate of public convenience should not be revoked").
Please acknowledge receipt of this material by signing, dating and returning the enclosed copy of this letter. A stamped, pre-addressed envelope is enclosed for that purpose.
Very truly yours, f
/
3
. D. Hafer Vice President, Rate Case Management FDH:jb cc: J. C. Petersen - No enclosures; to be distributed by NRC k H. Silvar - No enclosures; to be distributed by NRC 6
1472 046 GPU Servce Corporation is a subsidiary of General Pubic Utilities Corporation f b(l' 345
Person Responsible for Preparation:
F. D. Hafer, Vice President - Rate Case Management, GPU Service Corp.
Telephone : (201) 263-6013 Date: November 27, 1979 GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Company, Pennsylvania Electric Company and Jersey Central Power & Light Company NRC Docket No. 50-289 Three Mile Island Unit No.1 Restart Proceeding Supplementary response to NRC Staff's Supplemental Financial Information Request No. 9, telecopied 11/9/79 (item numbers refer to initial requests dated 9/21/79):
"(10.b and 10.c) Subsequent to our September 21, 1979 request, it was reported (Wall Street Journal, November 2, 1979, p. 12) that the Pennsylvania Public Utility Commission (PPUC) issued a show cause order to Met-Ed regarding the company's ability to provide utility service in Pennsylvania. Provide copics of the PPUC order and copies of Met-Ed's response to the order, when available. Continue to keep the NRC Staff informed of all developments in the show cause proceeding. Provide copies of all subsequent PPUC orders and other directives and Met-Ed responses related to this proceeding."
Response
As a further response to this request, enclosed is a copy of Met-Ed's response to the PA PUC's Order entered 11/1/79 requiring Met-Ed to "show cause why its certificate of public convenience should not be revoked," and copies of Met-Ed's and the PA PUC Trial Staff's memoranda stating the issues to be considered in Docket No. I-79040308, the consolidated proceeding instituted by the PA PUC to consider, among other issues, the continued retention by Met-Ed of its public utility franchise.
Met-Ed's response to the PA PUC's franchise show cause order was filed with the Commission on 11/21/79, and its memorandum on the issues to be considered in Docket No. I-79040308 was filed on 11/23/79.
1.472 047
.v1 emo . . ,
. -:..~.---
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Pennsylvania Public Utility :
Commission et al. :
- Dockei No. I-79040308 vs. :
Metropolitan Edison Company :
and Pennsylvania Electric :
Company, Respondents :
ANSWER AND NEW MATTER OF METROPOLITAN EDISON 00MPANf TO COMMISSION'S ORDER TO SHOW CAUSE WHY ITS CERTIFICATE OF PUBLIC CONVENIENCE SHOULD NOT BE REVOKED Metropolitan Edison Company (" Respondent" or " Met-Ed") hereby responds to the Commission's Order entered on November 1, 1979, directing Met-Ed to show cause why Met-Ed's
" certificate of public convenience"* should not be revoked, as follows:
ANSWER With respect to the matter contained in the numbered paragraphs in the Commission's Order upon which the Order purports to be based, Met-Ed respectfully responds as follows:
- 1. Paragraph 1 is correct in stating that Met-Ed is incurring costs associated with TMI-2 and that the Com-mission's Order, entered June 19, 1979, does not provide for recovery of such costs. Among the costs not so recovered
- For a definition of the term " certificate of public convenience", as used in this pleading, see Appendix A attached hereto.
1472 048
are the capital and operating costs of TMI-2 and the emergency management and recovery costs associated with that unit.
The Commission's denial of recovery of such costs has caused Met-Ed to be cut off from normal access to external capital markets (other than for a limited amount of short-term bank borrowings). Met-Ed believes that the Commission's Order entered June 19, 1979 was incorrect in its holding with respect to TMI-2 costs and that, at a minimum, Met-Ed rates should provide for the current recovery of depreciation, interest on funded debt and dividends on the preferred stock associated with TMI-2, as recommended by former Commissioner Carter in his concurring and dissenting opinion in this proceeding;
- 2. Paragraph 2 is correct in stating that Met-Ed has recently made extensive short-term borrowings pursuant to a Revolving Credit Agreement with several banks- At the date of this Answer such borre..Ings amount to $93,000,000;
$43,700,000 of Met-Ed short-term borrowings were outstanding at the time the June 19, 1979 Order was entered by the Com-mission. Met-Ed is limited (under the present terms of the Revolving Credit Agreement) to a total of $125,000,000 of short-term borrowings. Those borrowings have been made principally for the purpose of financing the payment of portions of the costs of purchasing energy (need d to serve Met-Ed's customers) which Met-Ed has been incurring but which Met-Ed has not yet been allowed by the Commission (in T472 049
3-its Order entered June 19, 1979) to recover currently from the customers who are receiving such energy. That order of the Commission not only limited Met-Ed to the recovery currently of a smaller portion of its present energy costs than was requested by Met-Ed; the portion allowed to be recovered is smaller than the amounts recommended by both the Office of the Consumer Advocate and the Commission Staff.
- 3. Paragraph 3 of the Commission's Order to Show Cause is correct in setting forth that Met-Ed stated in the earlier proceedings in this docket that it would require two to four years for TMI-2 to resume the generation of electricity; based upon the preliminary Bechtel study, and in the absence of extraordinary legal and regulatory problems and delays before the Nuclear Regulatory Commission ("NRC"), Met-Ed is proceeding on the basis of the estimate that generation of electricity by TMI-2 can resume in mid-1983. This date should be considered uncertain until the regulatory and political environment han stabilized and further experience is gained with decontamination.
- 4. Paragraph 4 of the Commission's Order to Show Cause correctly quotes a portion of Finding A.15 of the Report of the President's Coumission on the Accident at Three Mile Island (" President's Commission"). However, the
}k)
-4 -
cont' ext in which this statement is presented contains an implication that this is essentially new information. The further details given in that Finding of the President's Commission make it clear that the independent estimates made by the President's Commission substantially confirm the estimates submitted to your Commission by Met-Ed during the hearings in this proceeding several months ago. The cost of replacement power is the principal item of such cost, which is another way of stating that Met-Ed's customers have a significant economic interest in obtaining generation from TMI-1 at the earliest possible date consistent with safe operations.
- 5. Paragraph 5 of the Commission's Order to Show Cause is denied to the extent that it states that the NRC "has suspended the license to operate" TMI-1. To the contrary, the NRC has directed that TMI-1. " presently in a shut-down condition shall remain shut down until further order of the commission". Met-Ed has previously pointed out to your Commission on October 11, 1979 (in paragraph 7 of its Answer to your Commission's Order to show cause why TMI-l costs should not be removed from Met-Ed's base rates) that the TMI-1 operating license has not been suspended by the NRC.
With respect to the Order to show cause concerning TMI-1, the Answer to such Order (filed by Met-Ed and its sister company, Pennsylvania Electric Company) is incorporated.
herein by reference.
1472 051
- 6. Paragraph 6 is denied. The NRC has not as yet imposed civil penalties against Met-Ed as the licensee for TiiI-2. The NRC has, in effect, issued a show cause order by giving notice of an intent to impose such civil penalties. Met-Ed intends to contest the basis for the civil penalties thus proposed by the NRC notice.
- 7. Paragraph 7 quotes a portion of Finding E. 1 of the Report of the President's Commission. Significantly, however, your Commission's Paragraph 7 quotes all of the subject paragraph except the last sentence in that Finding, which reads as follows:
"A similar problem existed in the NRC."
It is also noteworthy that the first three subparagraphs which are used to illustrate the paragraph which your Commission has partially quoted from the Report of the President's Commission involved information possessed by Babcock 6 Wilcox Company, Inc. ("BSW") (the supplier of the TMI-2 nuclear steam supply system) and the NRC, but which Met-Ed did not possess. Had this information been provided to Met-Ed prior to the occurrence of the March 28, 1979 accident at TMI-2, operator training and procedural changes could have been effected so as to prevent that accident.
- 8. Taragraph 8 correctly quotes a portion cf Finding A 14.of the Report of the President's Commission.
]Q 0
In the light of the problems associated with TMI-2, it is readily apparent that reasonable ratemaking treatment is necessary to me.intain Met-Ed's financial stability and to enable it to maintain and retain the technical staff needed to carry out the recovery work in a safe and e:meditious manner.
- 9. Paragraph 9 correctly quotes a portion of Recommendation B.1 of the Report of the President's Commis-sion. Met-Ed and its affiliates are committed to, and are hard at work on, the full implementation of these and related recommendations, and the hearings on the restart of TMI-l should provide a public forum to demonstrate that many of these recommended changes are in place and others are in progress.
- 10. Paragraph 10 correctly quotes Recommendation B.6 of the President's Commission. In that recommendation, the NRC clearly emphasizes the ratemaking action necaed to provide the financial and technical resources required to implement new safety measures. For their part, Met-Ed and its affiliates have devoted the financial resources required for safety-related items (as then understood) before the TMI-2 accident. Met-Ed has no doub t that, in your Commis-sion's rate-making policies, your Commission would recognize that new safety measures involve costs and would give explicit attention to the safety implications of rate-making when it 1472 053
_ y_
considers costs of " safety-related" changes and certainly this concept should extend to the public health and safety considerations involved in the clean-up of TMI-2.
- 11. Paragraph 11 ccrrectly reflects reports that, as a result of a 2-2 vote, the NRC did not adopt a motion to revoke the license of Met-Ed to operate TMI-2. Since that motion did not pass and, in any event, would have been subject to the 1.<~. ring and adjudicating procedures of the Atomic Energy Act and the Administrative Procedure Act, Met-Ed questions the relevancy or materiality of this vote.
In any event, the NRC vote recognizes the necessity of main-taining at TMI-2 an entity having the capability, financial and technical, to deal with the problems resulting from the accident at that unit.
- 12. Met-Ed does not agree, and expressly denies, that the items listed in paragraphs 1 through 11 of the Com-mission's Order to Show Cause raise serious questions about the continued financial ability of Met-Ed to previde safe, adequate and reasonable electric service at just and reason-able rates. On the contrary, if and so long as the Commission, in timely fashion, (a) permits Met-Ed to charge just and reasonable rates to its customers and (b) does not by its own actions destroy Met-Ed's :redit, Met-Ed will possess the continued financial ability to render safe, adequate and i472 054
reasonable service. There can be Jittle doubt of the Commis-sion's power to see to it that Met-Ed has the financial ability to render safe, adequate and reasonable service.
What is at issue here is not the financial ability of Met-Ed to render such service but, rather, the ability of the Commission and Met-Ed to respond wisely to an event which has demonstrated the need for change in the construction, operation and regulation of nuclear generation. Without the slightest doubt, depriving Met-Ed of the financial ability to render safe, adequate and reasonable electric service will be prejudicial to the long-term interests of Met-Ed's custcmers (including not only the more than 300,000 of its residential customers, but also the commercial and indus-trial customers who utilize more than two-thirds of the service provided by Met-Ed and upon whom the economic well-being and employment of that service area is dependent). It will also be prejudicial to the long-term interests of the customers of all electric utilities in the Commonwealth.
T472 055
_g_
NEW MATTER A. Met-Ed's Response To Lessons Of TMI-2 Accident
- 13. In response to the new and developing criteria emanating from the experience of the accident at TMI-2, Met-Ed and its parent, General Public Utilities Corporation, are committed to taking all steps nec cesary to (a) implement the recommendations of the President's Commission partinent to Met-Ed, in a full and timely manner to further assure the safe and efficient operation of all of its facilities, and (b) take all steps necessary in its organization and manage-ment to further assure the safe and efficient performance of its public utility obligation to supply adequate electrical energy in its service territory at no more than a just and reasonable cost to its customers.
B. The Clean-up Of The Accident At TMI-2
- 14. One of the major challenges facing Met-Ed and its affiliates is the continuation and completion of the clean-up of the consequences of the TMI-2 accident.
Met-Ed and its affiliates are devoting all their available resources to tais effort and to date have spent approximately
$80 million on this effort. Part of these costs are insu ed and Met-Ed and its affiliates are diligently seeking such insucance recoveries. However, the timing of the receipt of such insurance recoveries is not within the control of 1472 056
Met-Ed and its affiliates and the recovery to date has been less than $20 million. Met-Ed and its affiliates have not received any revenues from customers to cover any of these clean-up costs.
- 15. Met-Ed's ability to continue to finance clean-up costs is dependent upon (a) continued acccas to bank credit, (b) timely receipt of adequate revenues to recover currently its other costs, including particularly its purchased power costs, and (c) timely receipt of insurance recoveries. A denial or- delay by the Commission of current recovery of energy costs (which the Commission's June 19, 1979 Order found to be required by law) could jeopardize Met-Ed's ability to continue to finance such clean-up costs and thus would be prejudical to the safety of the area. In the conduct. of this proceeding, it is important that the Commission recognize the immediacy and interrelationship of these issues and the necessity of providing a margin of availability of funds to deal with these matters.
C. Met-Ed's Service and Rates - Past and Prospec_ive
- 16. For more than 57 years, Met-Ed has rendered safe, adequate and reasonable electric service to its customers at rates that were no more than just and reasonable. In many recent years, as an analysis of the Commission's own decisions 1472 057
demonstrates, Met-Ed's rates have been below the just and reasonable level.
- 17. The rates per kilowatt hour currently being charged to Met-Ed's customers are neither the lowest nor the highest in the Commonwealth. Indeed, the rates per kilowatt hour currently being paid by approximately half of the Common-wealth's residents are higher than those being paid by Met-Ed's customers and Met-Ed believes that this will continue to be the case if the Commission acts favorably upon the petition, filed by Met-Ed on November 1, 1979, to increase Met-Ed's energy cost rate.
- 18. The subject Order to show cause appears to proceed from the premise that the Commission can isolate its own ratemaking responsibilities in this matter and will first determine as a factual matter, totally unrelated to the Com-mission's own rate actions, whether Met-Ed has the continued financial ability to provide safe, adequate and reasonable electric service in the future; and that the Commission will then take some manner of action on the basis of that factual determination. If the Commission, on a timely and responsible basis, permits Met-Ed to charge just and reasonable rates to its customers, then Met-Ed will indeed have the continued financial ability to provide sife, adequate and reasonable 1472 058
12 -
service to its customers. Various significant circumstances relating to Met-Ed's financial viability are already known to the Commission:
(a) By their testimony presented during the earlier hearings in these proceedings in May and June of this year, representatives of a syndicate of banks made clear that the banks were prepared to enter into a revolving credit agreement and to make advances thereunder to Met-Ed and its affiliates if, and only if, they concluded on the basis of the action of your Commission and of the New Jersey Board of Public Util-ities that your Commission and the New Jersey Board intended to provide for the financial viability of Met-Ed and its affiliates and their ability to repay such borrowings.
(b) In the context of the hearings and issues presented, the banks concluded that your Commis-sion's Order entered June 19, 1979 in this proceeding was intended to provide for such financial viability, and they executed the Revo)ving Credit Agreement and made loans to Met-Ed.
(c) In the same way, GPU has been extending its credit to Met-Ed, since the borrowings by Met-Ed under the Credit Agreement are guaranteed by GPU and T472 059
have been made necessary by the fact that Met-Ed is not permitted by your Commission to recover currently its cost of purchasing power needed to serve its customers.
D. The Legal Basis For The Order To Show Cause Is Doubtful
- 19. The legal basis for the Order is in doubt for a number of reasons, including:
(a) There is no express provision in the Public Utility Code for the revocation of a utility's certificate of public convenience.
(b) There is case law authority in Pennsylvania for the revocation of a utility's certificate of public convenience because of the past or present inadequate service rendered by that utility or for a utility's past or present violations of a statute, regulation or order. The Order does not specify what conduct, if any, on the part of Met-Ed is alleged to constitute a basis for such action.
(c) One can look in vain for any authority of any kind which would support a Commission order to revoke a certificate of public convenience on the basis of possible future inadequacy of service, especially where it is the ratemaking 1472 060
obligation of the Commission to authorize the revenue necessary to enable the utility to provide adequate service in the future.
E. The Procedural Propriety of the Order To Show Cause
- 20. As mentioned above, it is the Commission rather than Met-Ed which has the ratemaking responsibility to determine whether Met-Ed will have the continued financial ability to provide safe, adequate and reasonable service to its customers.
- 21. Even if the foregoing were not the case and if the Commission had indeed any valid issue to raise about the character of service being rendered by Met-Ed, a simple complaint on the Commission's own motion (under Section 1505 of the Public Utility Code) would have been more than adequate to deal with any such problem.
- 22. Moreover, under the provisions of Section 1505 of the Public Utility Code, if the Commission were to find that the service being rendered by a utility is deficient, the Commission thereupon has a statutory duty to determine and prescribe what kind of service shall thereafter be furnished by such utility.
- 23. A simple complaint and a remedial order, pur-suant to clear statutory authority, are a far cry from the present legally doubtful Order directing that an electric utility serving over 350,000 Pennsylvania customers show cause why its authority to serve such customers should not be revok'ed. j
CONCLUSION The revocation of Met-Ed's certificate of public convenience would be (a) prejudicial to the interests of Met-Ed's customers, (b) without justification in fact, (c) contrary to law, (d) arbitrary and capricious, and (e) confiscatory of the rights and property of the investors who have supplied more than $1 billion of capital to Met-Ed.
WHEREFORE, Respondent respectfully submits that it is not in the public interest to revoke Met-Ed's certificate of public convenience.
METROPOLITAN EDISON COMPANY F. J. SMITH By Senior Vice President COMMONWEALTH OF PENNSYLVANIA)
- SS.
COUNTY OF BERKS )
F. J. Smith, being duly sworn according to law, deposes and says tha t he is a Senior Vice President of Metropolitan Edison Company; that he is authorized to and does make this affidavit for it; that the facts set forth above are true and correct to the best of his knowledge, information and belief.
F. J. SMITH F. J. Smith Sworn to and subscribed before me this 21st day of November, 1979.
RITA M. POWERS (SEAL) 1472 062 Notary Public, Muhlenberg Twp., Berks Co.
My Coinmission Expires September 30, 1982
Appendix A Definition of Term, " Certificate of Public Convenience" The Order to show cause directs Respondent to show cause why its " certificate of public convenience" should not be revoked.
As the Commission undoubtedly is aware, it and its predecessor (the Public Service Commission) have issued hundreds of certificates of public convenience to Respondent and its predecessor constituent companies covering a wide range of subjects and transactions.
Nowhere in said Order does the Commission identify the " certificate of public convenience" to which it makes reference.
Respondent will assume for the purposes of this Answer that the term " certificate of public convenience", as used in the Order, should be taken to mean the aggregate of (a) the rights which were acquired by Respondent's predecessor constituent companies prior to the enactment of the Public Service Company Law in 1913 and (b) the hundred or more certificates of public convenience which authorize Respondent to engage in electric utility operations in the various municipalities in Pennsylvania in which it renders electric service to the public.
1472 063
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Pennsylvania Public Utility :
Commission, et al., :
- Docket No. 1-79040308
- v. :
Metropolitan Edison Company :
and Pennsylvania Electric -
Company, Respondents. :
MEMORANDUM OF METROPOLITAN EDISON COMPANY AND PENNSYLVANIA ELECTRIC COMPANY IN RESPONSE TO PREHEARING ORDER, DATED NOVEMBER 16, 1979 The Prehearing Order, dated November 16, 1979, contains a preliminary statement of the views of the p r e s id ing Commissioners on the issues to be addressed and the evidence to be s ub mi t t e d and directs counsel to s ub mi t memoranda addressing the parties' poaitions with respect to the issues to be addressed, the order in which those issues should be addressed and identifying any special witnesses to be presented. This memorandum is submitted on behalf of Metropolitan Edison Company (" Met-Ed") and Pennsylvania Electric Company ("Penelec") in response to that Order.
I. Overview Met-Ed and Penelec assume that all parties agree -
i.e. that there is no issue - that the important ob j e c tiv e s sought to be achieved include 1472 064
2.
(a) provision for continuation of current service to customers; (b) provision for future service to customers; (c) provision for continuation and comple-tion of the clean-up of the aftermath of the TMI-2 accident; and (d) achieving those r e s ul t s at just and reasonable rates which appropriately recognize and provide for the interests of both consumers and investors as mandated by the United States and Pennsylvania Cons titutions and the Pennsylvania Public Utility Code.
Provision for continuation of current service and for continuation of the clean-up of the aftermath of the TMI-2 accident are directly affected by cash availability.
Met-Ed is fully committed to devote its available resources to those purposes, but the availability to it of cash resources to enable it to meet these objectives is directly affected by your Co nmmi s s ion's actions.
Provision for future service to customers and for the completion of the clean-up of the TMI-2 accid en t is affected both by cash considerations and by earnings considerations. An 1472 Ob5
3.
electric utility cannot meet all its cash requirements from operations and it must be able to issue additional securities from time to time. This requires earnings.
Th e establishment of just and reasonable rates cannot be achieved by mere mechanical formulae. If this could be done so mechanically, there would be no occasion for the establishment of the Co mmi s s io n . What is required is a balancing of the interests of investors and consumers -
both immediate and long-term - and a cognizance of the past, present and future allocation of costs and benefits.
In the light of the foregoing, the next section of this memorandum sets forth our views that the first issues which should be addressed and promptly resolved are those relating to the request of Met-Ed for an increase, e f f e c t iv e January 1, 1980, in its energy cost rate. The subsequent section sets forth our views of the other issues to be addressed.
II. Adjustment of Met-Ed's Energy Cost Rate In its Order, entered June 19, 1979, in this pro-ceeding, the Commission made the following findings (which have not been challenged):
- 1. "*** Met-Ed and Penelec have continued to provide adequate, reliable electric service in spite of the loss of generation at TMI." (at p.8). -
)h
. . 4.
- 2. " Continued service to the customers of Met Ed and Penelec requires large purchases of power". (at p.8).
3 "*** the purchase of energy from inter-connected utilities must be viewed as in the best interests of Respondents' customers when compared to the alternatives of reducing the level of s e rv ic e or utilizing higher cost generation". (at p.8).
- 4. "The purchase of energy is a reasonable and necessary cost of providing service which must be recovered from ratepayers. Service cannot be provided without cost". (at pp. 8-9).
- 5. " Met Ed and Penelee are presently provid-ing reasonable, adequate, reliable electric service. The costs of purchasing power are unquestionably direct, necessary and reasonable costs of providing that utility service" (at p.10).
- 6. "The Commission cannot punish Respond-ents by denying the recovery of these costs; nor can it create a windfall for the ratepayers of service without payment. The Commission is of the opinion that the recovery of these costs is required by law". (at p.10).
1472 Ob7
5.
The energy cost rate pr esc rib ed by that Order for Met-Ed did not provide for full current recovery of Met-Ed's energy costs. Met-Ed and its affiliates a g g r e s s iv ely sought contracts for replacement power at costs below the purchase of interchange from PJM under conventional interchange pricing and were successful in those efforts.
However, sub seq uen t to June 19, 1979, the OPEC nations imposed additxonal price increases on imported oil which more than offset the purchase power savings achieved by Met-Ed and its affiliates. As a consequence, 'fe t-Ed is currently spending approximately $ 5 million more per month on energy costs to meet its customer requirements than it is recovering in its rates. This fact, together with such circumstances as the fact that the Commission's Order of June 19, 1979 made no provision for any part of the s ub s t an t ial additional energy costs experienced by Met Ed during the March 28 - June 30, 1979 period mean that Met-Ed expects that it will have spent by December 31, 1979 approximately $ 72 million more for energy costs than it has recovered from its customers.
Tee Coamission has already determined that recovery by Met-Ed of its energy costs is required by law.
Experience has now demonstrated that the energy cost rate p r e sc r ib ed by the Commission is in its June 19, 1979 Order i472 068
6.
is inadequate to achieve its intended purpose. Further denial of the current recovery of its energy costs would be contrary to the interests of both consumers and investors.
It is particularly important that these be addressed promptly as a first-priority item. As set forth in its petition, dated October 10, 1979, previously filed with the Commission, Met-Ed has been able co achieve significant reductionc in purchased power costs (although such costs have still been at lev els above those provided f or by the Commission's June 19, 1979 Order) by advance or contemporaneous payments to other utilities and it can do so only if it has bank credit available. The level of the increase in the energy cost rate for which Met-Ed has applied is the minimum which, on the basis of reasonable assumecions, will provide a modest margin of safety to enable Met-Ed to remain within its short-term ba.k debt limit during 1980 and both the amount of that increase and the date on which it starts are essential to provide that safety margin. Fo r example, if the starting date of the new energy cast tate is delayed only one month, i.e. until Fe b rua ry 1, 1980, the increase for the period of February through June of 1980 would hav e to be 8.4 mills per kwh (rather than 6.9 mills pe r kwh) to remain within the short-term debt limit. Fo r an illustration as to the effects of delay in the starting date of the new energy cost rate, see Appendix A which is attached hereto.
1472 Ob9
1.
What is happening at the present time is that the banks participating in the revolving credit agreement are paying an appreciable part of the cost of providing energy to Met-Ed's customers on the basis of the clear expression in the Commission's June 10, 1979 Order that recovery of such costs is required by law. A further delay in providing recovery of such costs can only result in j e op a rd iz ing Met-Ed's ability to purchase the energy needed to serve its customers, since f urther bank credit will soon be exhausted.
III. Specific Issues to be Addressed
- 1. The Commission found, on June 19, 1979 that Met-Ed and Penelec had been providing adequate and reliable service since the TMI-2 accident notwithstanding the absence of TMI generation.
A. Has that situation changed?
B. If not, what action should be taken to assure that such service can be continued?
- 2. The Commission found, on June 19, 1979, that Met-Ed and Penelec are entitled as a matter of law to recover their costs of purchased power to provide service to their customers.
1472 070
8.
A. Has that situation changed?
B. If not, what action should be taken to provide for such recovery?
C. How promptly should such recovery be provided?
- 3. Continuation and completion of the clean-up of the aftermath of the TMI-2 accident is essential to the p ub lic health and safety.
A. What action, if any, should be taken in this proceeding to best assure that such clean-up will be accomplished?
B. What are the potential consequen-ces if such action is not taken?
- 4. Met-Ed's potential sources of funds are severely limited and are rapidly being exhausted by the amounts required to be expended by it to finance energy costs for service to its customers and the clean-up of TMI-2. Met-Ed's proposed energy cost rate increase of 6 9 mills per kwh to be effective January 1, 1980 will leave it with only a modest safety margin of potential credit ($15 million) to deal with contingencies over which it has no control; a smaller increase or a later ef f ective date would eliminate that margin.
1472 07i
9.
A. What are the potential consequences of eliminating that safety margin?
B. Is it in the public interest to pr ov id e such margin?
- 5. Even with the increase in the energy cost rate of 6 9 mills per kwh which it has proposed, by Met-Ed, Met-Ed will be providing service to its customers at total charges which are less than those paid by approximately half of the other electric residential customers in the Common-wealth.
A. What factors, if any, would mandate that Met-Ed's customers should receive service at even lower rates?
B. How are such factors balanced against the potential adverse impact on continued and future service to customers and on the ability to continue the clean-up of the TMI-2 accident?
- 6. The Commission, in its June 19, 1979 order, climinated from the rates of Met-Ed and Penelec all capital and operating costs associated with their interests in TMI-2. The Commission's Order to Show Cause, dated September 20, 1979, raises questions as to whether similar treatment should be accorded to the capital and operating costs associated with their interests in TMI-1.
1472 072
10.
A. Are such eliminations legally compelled?
B. If not legally compelled, are such eliminations appropriate?
C. If such eliminations are adopted, what is the impact on (1) the cash required by Met-Ed; and (ii) the availability and cost of capital of Met-Ed and Penelec?
D. If such eliminations are adopted, what rates should be established to provide for the operating expenses and capital costs of Met-Ed and Penelec including a return on investment suffi-cient to ass e confidence in their f'inancial integrity so as to en ab le the maintenance of their credit and their ability to attract capital?
7 In its June 19, 1979 Order, the Commission stated in part:
"Th i s order will not address the issues involving the causes of the incident or whether the d e s ig n or operation of the plant was faulty.
The Commission does not have the p r im a ry responsi-bility to determine those matters and has not d ev elop e I a record adequate to ma ke those determi-nations. Ilo we v e r , the Commission will continue its investigations of the financing, construction and operation of TM1, and will' apprise itself of the findings of the agencies and commissions which are presently investigating the causes of the incident.
Ultimately, the causes and assig nmen ts of fault may impact upon whether Met Ed and Penelec have acted reasonably and prudently as regulated public utilities."
1472 07T
11.
The Report of the President's Commission has been issued. Other inv e s t ig a t ion s are continuing with reports expected at a later date.
A. To what extent, if any, should the Commission now seek to make determinations with respect to such matters?
B. In reaching such determinations, what weight should be given to such factors as the past government encouragement for the development of nuclear power, the role of governmental licensing a c t iv i t ie s , the past and current allocations of the economic benefits of nuclear power, the extent to which prior rate of return allowances have made provision for such risks and thu long-term im p l i c a-tions to customers in terms of costs of capital resulting from alternative determinations.
IV. Special Witnesses to be Presented Met-Ed and Penelec will present a number of witnesses who are employed by them or affiliates. In addition, Met-Ed 1472 07A
. 12.
and Penelec expect to present special witnesses on at least the following subjects:
A. Av ailable sources of funds B. Rate of return C. Appropriate allocation of costs and bene-fits.
They are in the process of interviewing and determin-ing the availability of the p ro p e c t iv e witnesses they expect to present and will furnish their names at the earliest practicable date.
Respectfully submitted SAMUEL B. RUSSELL Samuel B. Russell for Ryan, Russell & McConaghy, Attorneys for Metropolitan Edison Company and Pennsylvania Electric Company Of Counsel James B. Liberman 1472 075
. . Appendix A METROPOLITAN EDISON COMPANY Increase (as a Function of Ef fective Date) In Energy Clause Charge Required to Avoid Short Term Indebtness in Excess of $110 Million 20.0 18.25 *? ,
.41.8 .
U a 8 0 %
d 15.G . S d
80 3 Us a b5- S UEh
-Q 10.? -
Ef9 cmg 10.0- -
24.5 U. 8 gg o Ef m M8 Edd 8.4~ ~
19.1 60 03M uuv s$
n d5 6. 9" 15.7 o o H S c U 5 . 0- -
E E E 2 0
4 0
- ; ; i 0.0 Jan. Feb. Mar. Apr.
Ef f ective Date of Increase - 1980 Note: (1) Based upon Met-Ed's Petition for an increase in the EAC factor - Table 10 (filed Nov. 1, 1979).
- Any such greater level of increase (i.e., in excess of 6.9 mills per kwh) would be required (from the date any suc5 increase went into effect) through June, 1980, after which the required increase should revert to the 6.9 mill level.
BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION Tennsylvania Public Utility :
Commission :
- v. : Docket No.
- I-79040308 Metropolitan Edison Company :
and :
Pennsylvania Electric Company :
d C0KMISSION TRIAL STAFF'S PRE-HEARING MEMORANDUM NOW, this 21st day of November,1979, the Commission Trial f
Staff (Staff) by its counsel presents the following Pre-Hesring Memorandum for the ebove-captioned proceedings:
STATEMENT OF ISSUES During the first phase of the Commission's proceedings into the financial implications of the TMI-2 accident, the legal / economic issues to be resolved did not become clear until almost the very end of that phase. While we believe that our prior experience with this controversy should enable us to predict more accurately what the ultimate issues will be, we recognize that both the parties and the Commission are f
conf ronted with an unpcecedentad controversy. We may need to be as
)L flexible in our proceeding through this phase of the c.tse as we were f
throughout the first phase. At this time, however, the Staff submits the following as the issues and sub-issues that will need to b2 resolved at the conclusion of these proceedings. As directed by the Commission, they are listed in the order in which they should be addressed.
1472 077
I. Whether Met Ed's certificate of public convenience should be revoked?
A. Whether the TMI-2 incident, by itself, is sufficient justification for the revocation of Met Ed's certificate?
B. Whether the substitution of another operating utility or other entity for Met Ed is legally and practically possible in light of:
- 1. any existing limitations on the Ccamission's authority;
- 2. any rights of Met Ed's bondholders and preferred l stockholders and of CPU's common stockholders to control the voluntary disposition of Met Ed's assets; and
- 3. any unwillingness of existing operating companies to assume Met Ed's corporate and public responsibilities.
II. Whether the costs associated with the ownership and operation of TMI-1 should be removed from the calculations of Met Ed's and Penelec's base rates?
A. Whether the unavailability of TMI-l for commercial operation at least until September 1,1980, renders TMI-l not used and useful in the public service?
B. Whether the reasone for the unavailability of TMI-1 for commercial operation at least until September 1,1980 can be identified and, if so, whether they are rclevant to the Commission's resolution of sub-issue"A"?
C. Whether the partial or cc.nplete removal of the costs
[ associated uith TMI-l from Met Ed's base rates will foreclose Met Ed's access to existing lines of credit?
D. Whether Met Ed's and Penelec's base rates should be
' adjusted to include additional revenues from a hypothetical or actual current rate increase if the Commission elects to remove the costs associated with TMI-1 from the Companies' base rates?
III. Whether and to what extent Met Ed's and Penelec's levelized net energy clauses should be increased above existing levels?
\
IDENTIFICATION OF SPECIAL WITNESSES The Staff will call as witnesses only persons who are members of the Staff. Our principle witness will be Robert Packard, Director of the Commission's Bureau of Rates, whose testimony will respond, as accurately as possible, to the Commission's direction to the Staff contained on page 4 of the Commission's "Prehearing Order" of November 16, 1979.
r l
Respectfully submitted, f
Joseph J. Malatesta, Jr.
Deputy Chief Counsel Ltk A hh
- Albert W. Johitson II Assistant Counsel For the Commission Trial Staff Room G-28, North Office Building liarrisburg, PA 17120 (717) 783-3190 or 783-2804
!472 079 Person Responsible for Preparation:
'[ John G. Graham, Treasurer, GPU Service Corp.
Telephone: (201) 263-6130 Date: November 27, 1979 GENERAL PUBLIC UTILITIES CORPORATION Metropolitan Edison Company, Pennsylvania Electric Company and Jersey Central Power & Light Company NRC Docket No. 50-289 Three Mile Island Unit No. 1 Restart Proceeding Supplementary reoponse to NRC Staff's Financial Information Request No. 10(a),
dated 9/21/79:
"For each licensee and for GPU:
(a) Provide copies of:
- 1. the 1977 and 1978 annual reports to Stockholders,
- 2. the most recent interim financial statements,
- 3. the prospectus for the company's most recent security issue,
- 4. the preliminary prospectus for any pending security issue, and
- 5. the 1977 and 1978 SEC Form 10-K and the most recent SEC Fona 10-Q.
Co'itinue to submit copies of the annual report for each year thereafter ar required by 10 CFR 50.71(b) ."
Response
As a further response to this request, enclosed are copies of the following:
- 1. For GPU and subsidiaries, Form 8-K dated 10/10/79 and filed with the SEC on 11/9/79.
- 2. For GPU and subsidiaries, Form 10-Q for the quarter ended 9/30/79, filed with the SEC on 11/14/79.
- 3. Post-Effective Amendment No. 4 to Form U-l filed with the SEC on 11/21/79 covering the proposed issuance by Met-Ed of $12 million of additional first mortgage bonds.
- 4. CPU's Quarterly Report to Stockholders, covering the quarter ended 9/30/79.
1A72 0813
,. e
. , . , GENERAL 71 PUBLIC rF UTIUTIES
@ Interpace Parkway CORPORATION Parsipp- Ty, New Jersey 07054 20126J-6500 TELEX 136-482 Wnter s Direct Dial Number November 9, 1979 Securities and Exchange Commission 500 Morth Capitol Street Washington, D. C. 20549 Re: General Public Utilities Corporation File No.1-3292 Jersey Central Power & Light Company File No.1-3241 Metropolitan Edison Company File No.1-446 Pennsylvania Electric Company File No.1-3522 Gentlemen:
On behalf of the above captioned Companies there are enclosed herewith for filing under the Securitics Exchange Act of 1934, three signed and five conformed copies for each sich Company of a joint current report on Form 8K. Because of the nature of a matter being reported - the accident at Unit No. 2 of the Three Mile Island nuclear generating station and its af termath, it is believed that a joint report on behalf of the GPU System is appropriate under the circumstances.
Kindly acknowledge receipt of this filing on the duplicate copies of this letter and return in the stamped self addressed envelopes enclosed for that purpose.
Very truly yours, General Public Utilities Corporation Jersey Central Power & Light Company Metropolitan Edison Company Pennsylvania Electric Company By:
V. H. Condon, Vice President 8
cc: W . 'a'e eden New York Stock 5xchange (one signed copy)
Philadelphia Stock Exchange (one signed copy)
}{}
Jersey Centra' ocwer & Lignt Corrcani Metroccer Ecison Compan,. Pennsyivania E'ectnc Company
SECURITIES AND EXCllANGE COMMISSION 4
WASilINGmON, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the I Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 10, 1979 GENERAL PUBLIC UTILITIES CORPORATION (Exact name of registrant as specified in charter)
Pennsylvania 1-3292 13-5516989 (State of Incorporation) (Commission File No.) (I.R.S. Employer Identification No.:
100_Interpace Parkway, Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 263-6500
' 260 Cherry Hill Road, Parsippany, New Jersey 07054 (Former name or former accress if changed since last report)
METROPOLITAN EDISON COMPANY (Exact name of registrant as specifice in charter)
Penncylvania 1-446 23-0870160 (State ot Incorporation) (Commission File No. ) (I.R.S. Employer Identification No.
2800 Pottsville Pike, Muhlenberg Twp., Berks County, Pa. 19604 (Address of principal executive ottices) (Zip Code) d Registrant's telephone number, including area code: (215) 929-3601 PENNSYLVANIA ELECTRIC COMPANY (Exact name cf registrant as specified in charter)
Pennsylvania 1-3522 25-0718085 (State of Incorporation) (Commission File No.) (I.R.S. Employer Identification N(
~
d 1001 Broad Street, Johnstown, Pa. 15907 (Address of principal executive otfices) (Zip Code)
Registrant's telephone number, including area code: (814) 536-6611 JERST:Y CUNTRAL POWER f. LIGIIT COMPANY (Exact name of registrant as rpecified in charter)
New Jersey 1-3141 21-0405010
- (State of Incorporation) (Commission File ?!o.) (I.R.S. Employer Identification N Madiscn Avenue at Punch Bowl Rd . , Morri ctown , N.J. 07960 (Aadress of princ1 pal executive otfaces) (Zap code)
Registrant's telephone number, including area code: (201) 455-8200 o**m
- Bv T 1472 082 meM eM 1%Y @LL
Item 5. Other Materially Important Events.
- 1. Three Mile Island Investigations and Inquiries.
On October 30, 1979, the President's Commission on the Accident at Three Mile Island (the "nemeny Commission")
issued a report on its investigation into the March 28, 1979 nuclear accident at Unit No. 2 of the Three Mile Island nuclear generating station ("TMI-2") containing, among other things, its findings with respect to the accident. Based "pon these findings, the Kemeny Commission has made extensive recommendations regarding the future operation and regulation of nuclear power plants. The report, which runs approximately 200 pages with the dissenting views but not including exhibits, contains an overview which summarizec the Kemeny Commission's findings and recommendations, a copy of which overview is annexed hereto as an exhibit. A copy of GPU's press release commenting on the Kemeny Commission report is also annexed hereto as an exhibit.
Other investigations and inquiries into the nature, causes and consequences of the TMI-2 accident commenced by various federal and state bodies are continuing.
GPU is unable to estimate the full scope and nature c these continuing investigations or the potential consequences thereof to the investors in the securities of GPU and its subsidiaries. GPU is also unable to determine the impact, if any, the results of such investigations may have on the proceedings to return TMI-l to service and the efforts to rehabilitate TMI-2.
1472 083
- 2. Rate Proceedings.
By order Ldopted November 1, 1979, the Pennsylvania Public Utility Commission ("PaPUC") directed Metropolitan Edison Company (" Met-Ed") to show cause "why its certificate of public convenience should not be revoked." (The certifi-cate of public convenience is essantially Met-Ed's franchise to render electric service in its service territory.) The PaPUC states in its order, a copy of which is annexed hereto as an exhibit, that as a result, among other things, of the findings of the Kemeny Commission and recent action (discussed below) of the Nuclear Regulatory Commission ("NRC"), " serious questions [have been raised] about the continued ability of Met-Ed to provide safe, adequate and reliable electric service at just and reasonable races." However, the PaPUC expressly points out thet its show cause order should not be viewed "as implying a determination by this Commission of the ability or desirability of Met-Ed continuing to provide' public utility service in Pennsylvania."
GPU and Met-Ed believe that, while the show cause order may provide an opportunity to present to the public a complete review of the problems facing Met-Ed in an integrated manner, the order is unwarranted and any form of revocation of Met-Ed's franchise would be not only without precedent or foundation but also completely contrary to the best interests of Met-Ed's consumers and investors. Met-Ed intends to respond promptly to the show cause order.
On November 1, 1979, Met-Ed filed with the PaPUC a petition to increase charges to customers under its 1472 084 levelized energy adjustment clause by 6.9 mills /kwh for the period January 1 - December 31, 1980. The increase, if granted, would produce additional revenues of approximately
$55 million, including approximately $3 million for increased revenue taxes. Met-Ed has requested this increase to reflect the rise in fuel costs, particularly oil costs, since the last rate order of the PaPUC on June 15, 1979, and the anticipated increase in fuel costs due to the delay in returning Three Mile Island Unit No. 1 ("TMI-1") to service.
As previously reported in the Current Report on Form 8-K for September 1979, by order adopted September 20, 1979, the PaPUC directed Met-Ed and Pennsylvania Electric Company ("Penelec") to show cause why TMI-l should be considered used and useful in the public service and why the costs associated with the unit should not be removed from ,
the base rates of the companies. On October 11, 1979 Met-Ed and Penelee responded to the PaPUC's show cause order.
A copy of that response is annexed hereto as an exhibit.
On October 10, 1979 Met-Ed and Penelec filed with the PaPUC a pricing proposal covering power purchases from other utilities in the Pennsylvania-New Jersey-Maryland
("PJM") power pool to replace generation lost as a result of the TMI-2 accident. Under the proposal, which calls for emergency energy purchases at lower than normal rates, it is estimated that GPU's purchased powtr costs would be reduced by approximately $32 million in 1980. If authorized by the PaPUC, the proposal will be filed with the Federal Energy Regulatory Commission for approval. Filings may also be made with other state utility commissions. A copy of GPU's 3472 0%
press release regarding this filing is annexed hereto as an exhibit.
- 3. NRC Proceedings.
By letter dated October 25, 1979, the NRC advised Met-Ed of its intention to impose against Met-Ed civil penalties totalling $155,000 - the maximum amount permissible under the circumstances - for noncompliance with safety, maintenance procedure and training requirements for TMI-2 preceding, during and immediately following the March 28, 1979 accident. The NRC also states in its letter that depending upon the findings of continuing investigations into the TMI-2 accident, it may take additional enforcement action such as assessing additional civil penalties or ordering the suspension, modification or revocation of Met-Ed's operating license. Met-Ed has not yet formally responded to the NRC's letter. A copy of the NRC's letter is annexed hereto as an exhibit.
- 4. TMI-2 Rehabilitation.
By a memorandum and order dated October 16, 1979, the NRC authorized Met-Ed to proceed C th decontamination of the intermediate level radioactive wastewater contained in tanks in the auxiliary building at TMI-2 with a filtration and ion exchange system known as EPICORE II. (The more highly contaminated water in the main coolant system and containment building is expected to be treated by another system presently in the study and design stage.) Pursuant to the NRC's memorandum and order, Met-Ed has becun the decontamination 1472 086 process of this wastewater with the EPICORE II treatment system.
- 5. S31e of First Mortgage Bonds.
On October 23, 1979, Jersey Central Power &
Light Company (" Jersey Central") sold S47,500,000 principal amount of its first mortgage bonds in a private transaction.
The bonds bear an interest rate of 11-5/8%, mature October 1, 1999 and are subject to mandatory repurchase by Jersey Central in certain circumstances. The indenture under which the Jersey Central bonds were issued contains limitations on the payment of dividends on Jersey Central's common stock.
Of the proceeds of the sale, S25 million was used to pay at maturity a like principal amount of Jersey Central's First Mortgage Bonds, 12-3/8% Series due November 1, 1979 and the balance, S22,500,000 (before expenses of tha sale), was used to repay a like amount of Jersey Central's indebtedness outstanding under the GPU System Revolving Credit Agreement, dated as of June 15, 1979, with a syndicate of commerical banks. A copy of the bond purchase agreement with respect to this transaction is incorporated by reference as an exhibit hereto.
As a result of the uncertainties arising from the TMI-2 accident and the rate actions taken by the rate regulatory agencies, the GPU companies do not know when, and in what amounts, they will be able to issue additional senior securities. The issuanca of such securities may also be limited by an inability to meet interest and preferred stock dividend coverage requirements and, in the case of first mortgage bonds, by a lack of qualified property additions.
} k) Z
- 6. Forked River Station.
As previously reported in the current Report on Form 8-K for July 1979, Jersey Central does not know when it will be able to resume construction (which has been temporarily suspended in view of the TMI-2 accident) of the Forked River nuclear generating station, whether it will be able to finance completion of the station without substantial participation therein by other entities or what additional requirements, if any, will be required upon construction.
One of the unaffiliated utilities with which Jersey Central had been negotiating to sell undivided interests in the Forked River station has recently indicated that it was no longer interested in such participation. Jersey Central does not know whether it will be able to sell undivided interests in the station.
In addition, Jersey Central is unable to estimate what ef fect any delay in, or moratorium on, the issuance by the NRC of construction permits or operating licenses for nuclear generating stations may have on the resumption of construction or the eventual issuance of an operating license for the Forked River station.
At September 30, 1979, Jersey Central had invested approximately S357 million (excluding expenditures for nuclear fuel) in the Forked River generating station.
- 7. Litigation.
As previously reported in the Current Report on Form 8-K dated July 5, 1979, in June 1979 the Susquehanna gg 2 0B8
Valley Alliance and certain members of the Alliance filed an action in the United States District Court for the~ Middle District of Pennsylvania requesting the Court to require the NRC to prepare an environmental impact statement and to enjoin the discharge from TMI-2 of contaminated water into the Susquehanna River and the construction of decontamination equipment. On October 12, 1979, the District Court granted the motion of the GPU companies to dismiss this action.
Plaintiff's have filed an appeal from the District Court's decision with the United States Court of Appeals for the Third Circuit.
Reference is made to the description in the Current Report on Form 8-K, dated July 5, 1979, of the two purported class actions commenced by GPU stockholders pending in the United States District Court for the Eastern District of Pennsylvania (Seidel v. GPU) and in the United States District Court for New Jersey (Gildenblatt v. GPU, et al.) claiming alleged violations of the federal securities laws. The Judicial Panel on Multidistrict Litigation has granted GPU's motion to consolidate these proceedings in the New Jersey District Court.
- 8. Press Releases.
Subsequent to the current Report on Form 8-K for September 1979, GPU has issued additional press releases, as well as a letter to its shareholders, concerning the nuclear accident which occurred at TMI-2 and its aftermath. Copies of these press releases and shareholders letter are annexed as exhibits to this report.
}
Item 7. Exhibits and Financial Statements.
Exhibits:
- 1. Overview from Report of President's Commission on the Accident at Three Mile Island.
- 2. Order to Show Cause, adopted on November 1, 1979, by Pennsylvania Public Utility Com-mission regarding Metropolitan Edison Company's Certificate of Public Convenience.
- 3. Response of Metropolitan Edison Company and Pennsylvania Electric Company to Pennsylvania Euhlic Utility Commission Show Cause Order of September 20, 1979 regarding TMI-1.
- 4. Letter, dated October 25, 1979, from Nuclear Regulatory Commission to Metropolitan Edison Company.
- 5. Jersey Central Power & Light Company Bond Purchase Agreement, dated October 19, 1979.
(Incorporated by reference to Exhibit A-30 to Certificate Pursuant to Rule 24 of Completion of Transactions filed by Jersey Central in SEC File No. 70-6354.)
- 6. GPU news releases and shareholders letter issued from October 10, 1979 through November 11, 1979.
1A72 090 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECU-RITIES EXCHANGE ACT OF 193 4, THE UNDERSIGNED COMPANIES HAVE
] DULY CAUSED THIS STATEMENT TO BE SIGNED ON THEIR BEHALP BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
c GENERAL PUBLIC UTILITIES CORPORATION SETROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY JERSEY CENTRAL POWER & LIGHT. COMPANY By ,w V. H. Condon, Vice President ~
, Date: November 9, 1979 1
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OVERALL CONCLUSION In announcing the formation of the Commission, the President of the j -
United States said that the Commission "will make recommendations to y
3 enable us to prevent any future nuclear accidents." After a 6-month
.< investigation of all factors surrounding the accident and contributing P to it, the Commission has concluded that; b To prevent. nuclear accidents as serious as Three Mile iU Island, fundamental changes will be necessary in the organization, M
procedures, and pract. ices -- and above all -- in the attitudes of
' the Nuclear Regulatory Commission and, to ts.? extent that the p*\
- institutions we investigated are typical, of the nuclear industry.
".:.$ This conclusion speaks of necessary fundamental changes. We do not
.t
- ). claim that our proposed recommendations are sufficient to assure the safet.y of nuclear power.
.if
[1 Given the nature of its Presidential mandate, its time limitations,
.j and t.he complexity of both energy and comparat.ive " risk-assessment" (j issues, this Commission has not undertaken to examine how safe is " safe cnough" or the broader question of nuclear versus other forms of energy.
-} The Commission's findings with respect to the accident. and the
'Q ;
regu);.t. ion of t.hc nuclear industry -- particularly the current and T, potential state of public safety in the presence of nuclear power --
'^-
have, uc believe, implications that bear on the broad quest. ion of energy. But the ult.imate resolut. ion of the question involves the kind f
.r.
of economic, environmental, and foreign policy considerations that. can T
only be evaluated t.hrough the polit.ical process.
1 Our findings do not, standing alone, require the conclusion i. hat
nuclear power is inherent.ly too dangerous to permit it. to continue and
< expand as a form of pcwer generation. Neither do they suggest that the M nation should move forward aggressively t.o develop addit.ional commercial nncicar power. They simply stat.c t. hat. if the country wishen, for larger reasons, to confront the risks that. are inherently associat.ed with
.1 1A72 093 ,
ts
OVERVIEW 3
n nuclear power, fundamental changes are necessary if those risks are to be kept within tolerable limits. 3 t
k We are very much aware that many other investigations into the s accident are under way. There are several investigations by Congress, i e
the NRC self-investigation, and a number of stupics by the industry. O Some will examine individual issues in rauch greater depth than we were able to do. And, no doubt., additional insights will emerge out of these h various investigations. It. is our hope that the results of our efforts g
.nay aid and accelerate the progress of the ongoing investigations, and L' help to bring about the required changes promptly.
[
ATTITUDES AND PRACTICES !
i.
Our investigation started out with an examination of the accident [
at Three Mile Island (TMI). This necessarily led us to look into the ) t role played by the utility and its principal suppliers. With our in-depth investigation of the Nuclear Regulat.ory Commission (NRC), we gained a broader insight into the attitudes and practices that prevail in portions of the industry. However, we did not examine the industry in its totality.
Popular discussions of nuclear power plants tend to concentrate on questions of equipment safety. Equipment can and should be improved to add further safety to nuclear power plants, and some of our recommen-dations deal with this subject. But as the evidence accumulated, it became clear that the fundamental problems are people-related problems and not equipment pr'oblems.
When we say that the basic problems are people-r'e' lated, we do not mean to limit this term to shortcomings of individual human beings -- although those do exist. We mean more generally that our investigation has revealed problems with the " system" that manufactures, operates, and regulates nuclear power plants. There are structural problems in the various organizations, there are deficiencies in various processes, and there is a lack of conununication among key individuals and groups.
- We are convinced that if the only problems were equipment problems, this Presi &ntial Commission would never have been creatad. The j equipment was sufficiently good that, except for human failures, the major accident. at Three Mile Island would have been a minor incident. j But, wherever we looked, we found problems with the human beings who operate the plant, with the management. that runs the key organizat. ion, '
and with the agency t. hat is charged with assuring the safety of nuclear power plants.
In the testimony we received, one word occurred over and over l again. That word is "mindset " At one of our public hearings, Roger Mattson, director of NRC's Division of Systems Safety, used that !'
word five times within a span of 10 minutes. For example: "I t hink
[the] mindset [was} that the operalor was a force for good, t. hat if you discounted him, it was a measure of conservatism." In other words, they 8
1472 094
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. .c . _ __ _
m _ _ . -
,~
. OVERVIEW l
concentrated on equipment, assuming that the presence of operators could I only improve the situat. ion -- they would not be part of the problem.
6
' After many years of operation of nucle.ir power plants, with no I evidence that any member of the general p.:blic has been hurt, the belief j that nuclear power plants are sufficiently safe grew into a conviction.
I One must recogn?.zc this to understand why many key steps that could have i prevented the accident at Three Mile Island were not taken. The
[
Commission is convinced t. hat this attitude must be changed to one that
- says nuclear power is by its very nature potentially dangerous, and, thereforc, one must continually question whether the safeguards already l
- in place are sufficient to prevent major accidents. A comprehensive
! system is required in which equipment and human beings are treated with equal importance.
}
We note a preoccupation with regulation:. It is, of course, the i
responsi' ility of the Nuclear Regulatory Com .ission to issue regulations )
l to assure the safety of nuclear power plants. However, we are convinced that regulations alone cannot assure safety. Indeed, once regulations j
' become as voiuminous and complex as those regulations now in place, they j can serve as a negative factor in nuclear safety. The regulations are so complex that immense efforts are required by the utility, by its suppliers, and by the NRC to assure that regulations are complied with.
The satisfication of regulatory requirements is equated with safety.
This Commission believes that it is an absorbing concern wit.h safety that will bring about. safety -- not just the meeting of narrowly g prescribed and complex regulations.
We find a fundamental fault even with the existing body of regu- .
l
, lations. . While scientists and engineers have worried for decades about
..the safety of nuclear equipment, we find that the approach to nuclear
~ safety had a major flaw. It was natural for the regulators and the t
6 industry to ask: "What is the worst kind of equipment failure th.it can occur?" Some potentially serious scenarios, such as the break of a huge pipe that. carries the water cooling the nuclear reactor, were studied extensively an,d diligently, and were used as a basis for the design of
! plants. A preoccupat. ion developed with such large-break accidents as I did the attitude that if they could be controlled, we need not worry f about. tir analysis of "less important" accidents.
Large-break accidents require extremely fast reaction, which therefore must be autonat.ically performed by 'he equipment. Lesser
- accident s may develop much more slowly and their control may be dependent on the appropriate actions of human beings. This was the
' tragedy of Three fli]c Island, where the equipment. failures in the i accident were significant.ly less dt.. mat.ic t han thane that. had been l
thoroughly analyzed, but where t.he results confused t. hose who managed the accident.. A pot.entially insignificant incident grew into t.he TMI accident, with sescre damage to the reactor. Since such combinations of i minor equipment. f ailurcs are likely to occur much more of t.en t.han the L huge accident s, they deserve extensive and thorough study. In addit. ion.
they require operators and supervisors who have a thorough understauding
- of the functioning of the plant and who can respond to combinations of
! small equipment. failures.
! 1472 095 9
-r h
!' OVERVIEW f
)u The most serious "mindset." in the preoccupation of everyone with I l
- the safety of equipment, resulting in the down playing of the importance I of the human element in nuclear power generation. We are tempted to say [
j i that. while an enormous effort was expended to assure that safety-relat.ed :
equipment functioned as well as possible, and that there was backup i equipment. in depth, what the NRC and the industry have failed to $
recognize sufficiently is that the human beings who manage and operate [
t.he i,lants constitute an important. safety system. ]
CAUSES OF THE ACCIDENT
?
Other investigations have concluded that, while equipment failures j initiated the event, the fundamental cause of the accident was " operator ;
crror." It is pointed out that. if the operators (or t. hose who i i
supervised t. hem) had kept the emergency cooling systems on through the carly stages of the accident, Three Mile Island would have been limited I to a relatively insignificant incident. While we agree that this statement is true, we also feel that it does not speak to the funjamental causes of the accident. J i
7 1 Let us consider some of the factors that significantly contributed I I
to operator confusion.
First of all, it is our conclusion that the training of THI :
operatotsiwas greatly deficient. While t. raining may have been adequate i i
for the operation of a plant under normal circumstances, insufficient attention was paid to possible serious accidents. And the depth of I understanding, even of senior reactor operators, left them unprepared to i deal with something as confusing as the circumstances in which they found themselves.
Second, we found that the specific operating procedures, which were I applicabic to this accident, are at least very confusing and could be read in such a way as to lead the operators to take the incorrect l actions they did. [
l Third, the lessons from previous accidents did not result in new, j elear instructions being passed on to the operators. Both point.s are [
illustrated in the following case history. j A senior engineer of the Babcock & Wilcox Company (suppliers of the I nuclear steam system) noted in an earlier accident, bearing strong similaritier, to the one at Three Mile Island, that operat. ors had '
mist.ahenly turned of f the emergency cooling syst.cm. lie pointed out that we were lucky that the circumstances under which' this error was ,
committ cd did not lead to a serious accident. and warned that under other circumstances (like those that would later exist. at Three Mile Island), a i very serious accident could result. lie urged, in the st.rongest terms, ,
that clear inst. ructions be passed on to the operators. This memorandum was written 13 months before the accident. at. Three Mile Island, but no ;
new inst. ructions resulted from it.. The Commission's invest.igation of this incident, and other similar incident.s within B&W and the NRC, indicates that. the lack of understanding that led the operat. ors to 1472 ()96
5
! OVERVIEW l
j incorrect action existed both wit.hin the Nuclear Regulatory Commission and wit.hin the utilit.y and its suppliers.
g
! We find that there is a lack of " closure" in the system -- that is, l important. safety issues are frequently raised and may be st.udied to some degree of depth, but are not carried through to resolution; and the lessons learned from these studies do not reach those individuals and agencies that. most need to know about them. This was true ir. the B&W incident described above, it was true about various warnings within NRC that inappropriate operator actions could result. in the case of certain l small-break accidents, and it was true in several examples of quest. ions
! raised in connection with licensing procedures t. hat were not follcwed to I their conclusion by the NRC staff.
i There are many other examples mentioned in our report that indicate the lack of attention to the human factor in nuclear safety. We note only one more (a fourth) example. The control room, through which the operation of the TMI-2 plant is carried out, is lacking in many ways.
The control panel is huge, with hundreds of alarms, and there are some key indicators placed in locations where the operators cannot see them.
There is littic evidence of the impact of modern information technology ,3 within the control room. In spite of this, this cont.rol room might be adequate for the normal operation of nuclear power plants.
However, it is seriously deficient under accident conditione.
During the first few minutes of the accident, more than 100 alarms went.
off, and there was no system for suppressing the unimportant signals so that operators could concentrate on the significant alarms. Information was not presented in a clear and sufficient.ly understandable form; for :
example, although the pressure and temperature within the reactor coolant system were shown, there was no direct indication that the combination of pressure and temperat.ure meant that the cooling water was {
turning into steam. Overall, little attention had been paid to the :
interaction between human beings and machines under the rapidly changing '
and confusing circumstances of an accident. Perhaps these design failures were due to a concentration on the large-break accidents --
which do not allow time for significant operator action -- and the design ignored the needs of operat. ors during a slowly developing small-break (THI-typc) accident.. While some of us may favor a complete modernip.ation of control rooms, we are all agreed that a relatively few and not very expensive improvements in the control room could have significantly facilit.ated the management of the accident.
In conclusion, while the major factor that turned this incident i into a serious accident. was inappropriate operator action, many fact. ors contributed to the action of the operators, such as deficiencies in their training, lack of clarity in their operating procedures, failure of organizations to 1 carn the proper Icssons from previous incidents, and deficiencies in the design of the control room. These shortcomings are attributable to the ut.ility, t.o suppliers of equipment , and to the federal commission that regulates nuclear power. Therefore -- whet.her j or not operator error " explains" 1.his particular case -- given all the i above deficiencies, we are convinced that an accident. like Three Mile
- Island was eventually inevitable.
n l 1472 097 a.-.--. __e oear a.e4_
f OVERVIEW ,
l i SEVERITY OF THE ACCIDENT .,
Just. how serious was the accident.? Based on our investigation of the health effects of the accident, we conclude that in spite of serious damage to the plant., most of the radiat. ion was contained and the actual :
release will hcvc a negligible effect. on the physical halth of j individuals. The major health effect of t.he accident was found t- se t mental stress. J The amount of radiation roccived by any one individual outside the ,
plant was very low. llowever, even low levels of radiation may result in -
the lat.er development of cancer, genetic defects, or birth defects among children who are exposed in the womb. Since there is no direct way of ,
measuring the danger of low-level radiation to health, the dec ee of .
danger must be estimated indirectly. Different scientists make
- different assumptions about. how this est.imate should be made and, ;
therefore, estimates vary. Fortunately, in this case the radiation !
doses were so low that we conclude that the overall health effects will j
.be minimal. There will either be no case of cancer or the number of .
l cases will be so small that it will never be possible to detect them. '
The same cuclu.sion applies to the other possible healt.h effects. The reasons for these conclusions are as follows.
An example of a projection derived for the total number of radiation-induced cancers at on; tne population affected by the accident I at TMI was 0.7. This number is an estimate of aa average, such as the one that appears in the statement: "The average American family has 2.3 children."
In the case of TMI, what. it really means is that cach of some 2 million individuals living within 50 miles has a miniscule additional 3 chance of dying of cancer, and when all of these minute probaoilities are added up, they tot.a1 0.7. In such a situation, a mathematical law kn en as a Poisson distribution (named after a famous French mathematician) applies. If the est.imated average is 0.7, then the actual probabilities for cancer deaths due to the accident work out as follows: There is a roughly 50 percent chance that there will be no additional cancer deaths, a 35 percent chance that one individual will die of cancer, a 12 percent chance that two people will die of cancer, and it is practically cert.ain that there will not be as many as five cancer deaths.
Similar probabilities can be calculated for our various estimates.
All'of them have in common the following: It is entirely possib]c that.
not a single extra cancer death will result. And for all our est.imat es, it is pract.ically certain that the additional number of cancer deaths will be less than 10. .
Since a cancer caused by nuclear radiation is no different from any other cancer, additional cancers can only be det.crmined stat.istically.
We know from statistics on cancer deaths that. among 1.hc more than 2 million people living within 50 miles of THI, eventually some 325,000 people will die of cancer, for reasons having not.hing to do with the
'2 i172 0 %
, OVERVIEW i
nuclear power plant. Again, this number is only an estimate, and the actual figure could be as much as 1,000 higher or 1,000 lower.
Therefore, there is no conceivable statistical method by which fewer
' than 10 additional deat.hs would ever be octccted. Therefore, the
, accident. may result in no addit.ional cancar deaths or, if there were
, any, they would be so few that they could not be detected.
i We found that the mental st.rcss to which those living within the I vicinity of Three 11ile Island were subjected was quite severe. There were several fact. ors that. cont.ributed to this stress. Throughout the
' first, week of the accident, there was extensive speculation on just how I serious the accident might t. urn out to be. At various times, senior
, officials of the NRC and the state government were considering the possibility of a major evacuat. ion. There were a number of advisories recommending steps short of a full evacuation. Some significant i fraction of the population in the immediate vicinity voluntarily left
! the region. NRC officials contributed to the raising of anxiet.y in the period from Friday to Sunday (tiarch 30-April 1). On Friday, a mistaken interpretation of the release of a burst of radiation led some NRC
, officials to recommend immediate evacuation. And on Friday Governor 7 Thornburgh advised pregnant women and preschool aged children within 5
- miles of Tt!I to leave the area. On Saturday and Sunday, other NRC officials mistakenly believed that there was an imminent danger of an f explosion of a hydrogen bubble within the reactor vessel, and evacuation was again a major subject of discussion.
We conclude that the most serious health effect of the accident was severe mental stress, which was short-lived. The highest levels of dist.rcss were found among those living within 5 miles of T?II and in families with preschool children.
There was very extensive damage to the plant. While the reactor
'itself has been brought to a " cold shutdown," tliere are vast amounts of radioactive material trapped within the containment and auxiliary buildings. The utility is therefore faced with a massive cleanup i
. process that. carries its own potential dangers to public health. The i engoing cleanup operation at Tt!I demonstrates that the plant. was i inadequately designed to cope with the cleanup of a damaged plant. The ;
direct. financial cost of the accident is enormous. Our best estimate
- put.s i> in a range of $1 to $2 billion, even if Tt!I-2 can be put. back into operat. ion. (The largest port. ion of t.his is for replacement power 3 estimat.cd for the next few years.) And since it. may not be possible t.o put it. back into operation, the cost. could even be much larger.
The accident raised concerns all over the world and led to a i lowering of public confidence in t.he nuc1 car induct.ry and in the NRC.
t
', From the beginning, we felt. it important to determine not only how
' serious the act.ual impact of the accident was on public health, but
.' whether we came close to a cat.astrophic accident in which a large number l of people would have died. Issues that. had to be examined were whether
[ a chemical (hydrogen) or st cam explosion could have ruptured t.hc react or vessel and containment. building, and whether extremely hot molten fuel 1472 099
OVERVIEW
't could have caused severe damage to the containment. The danger was 5*
never -- and could not have been -- that of a nuclear explosion (bomb). s 5
We have made a conscientious effort to get an answer to this V difficult question. Since the accident. was due to a complex combination of minor equipment failures and major inappropriate human actions, we }
have asked the question: "What if one more thing had gone wrong?" .
is We explored each of several different scenarios representing a t a
change in the sequence of events that actually took place. The greatest I concern during the accident. was that significant amounts of radioactive I material (especially radioactive iodine) t. rapped within the plant mig > ' I be released. Therefore, in each case, we asked whether the amount released would have been smaller or greater, and whet.hcr large amor.cs {
e could have been released.
actually Some of these scenarios lead to a more favorable outcome t.han what happened. Several other scenarios lead to increases in the i amount of radioactive iodine released, but still at levels that would not have presented a danger to public health. But we have also explored two or three scenarios whose precise consequences are much more difficult to calculate. They lead to more severe damage to the core, I with additional melting of fuel in the hottest regions. These '
consequences are, surprisingly, independent of the age of the fuel.
Because of the uncertain physical condition of the fuel, cladding, and core, we have explored certain special and severe conditions that would, unequivocally, lead to a fuel-melting accident. In this sequence 1 of events fuel melts, falls to the bottom of the vessel, melts through the steel reactor vessel, and finally, some fuel reaches the floor of the contairunent building below the reactor vessel where there is enough l water to cover the molten fuel and remove some of the decay heat. To contain such an accident, it is necessary to continue removing decay heat for a period of many months.
At t.his stage we approach the limits of our engineering knowledge ,
of the interact. ions of molten fuel, concrete, steel, and water, and even !
t.he best. availabl'c calculations have a degree of uncert ainty associated with them. Our calculations show that. even if a melt.doen occurred, j there is a high probabilit.y that. the cont.ainment building and the hard g rock on which the T111-2 cont.ainment building is built would have been i able to prevent. the escape of a large amount of radioactivity. These 4 results derive from very careful calculations, which hold only insofar ,'
as our assumptions are valid. We cannot be abr.olutely certain of these '
results.
Some of the limits of this investigation were: (1) We have not examined possible consequences of operator error during or after the fuel melting process which might. compromise the effectiveness of containment; (2) We have not examined the vulnerability of the various electrical and plumbing penetrations through the walls or the doorways for people and equipment; (3) The analysis was specific to the Tt!I-2 design and location (for exampb , the bedrock under the plant); (4) We 1472 100 14
. . . _ . . ~ . . _ . _ _ . ~ . . , . , . . _ . _ . _ . . _ . . . . .
. OVERVIEW recognize that we have only explored a limited number of alternatives to
! the question "What if . . .?" and, others may come up with a plausible scenario whose results would have been even more serious.
?
. We strongly urge that research be carried out promptly to identify and analyze the possibic consequences of accidents leaning to severe
~
core damage. Such knowledge is essential for coping with results of future accidents. It may also indicate weaknesses in present designs, l whose correction would be important for the prevention of serious I accidents.
t i These uncertaintics have not prevented us from reaching an over-l whelming consensus on corrective measures. Our reasoning is as.follows:
Whether in this particular case we came close to a catastrophic accident or not, this accident was too serious. Accidents as serious as TMI should not be allowed to occur in the future.
,- The accident got sufficiently out of hand so that those attempting
- to control it were operating somewhat in the dark. While today the (
j causes are well understood, 6 months after the accident it is still
! difficult to know the precise state of the core and what the conditions l are inside the reactor building. Once an accident reaches this stage,
, one that goes beyond well-understood principles, and puts those i
controlling the accident into an experimental mode (this happened during the first day), the uncertainty of whether an accident could result in major releases of radioactivity is too high. Adding to this the i
enormous damage to the plant, the expensive and potent ially dangerous l cleanup process that remains, and the great cost of the accident, we ,
I must conclude that -- whatever worse could have happencJ -- the accident j had already gone too far to make it tolerable. ~
Whilc' throughout this entire document wa emphasize that fundamental changes are necessary to prevent accidents as serious as THI, we must not assume that an accident of this or greater seriousness cannot happen again, even if the changes we recommend are made. Therefore, in addit ion to doing everything to prevent such accidents, we must be fully
- p re, red to minimize the potential impact of such an accident on public l
health and safety, should one occur in the future.
IIANDLI"G OF TllE ENERGEh'CY Another area of our investigation dealt with the questions of
.I whether various agencies made adequat.e preparations for an emergency and I
whether their responses to the emergency were satisfactory. Our finding i is negative on both questiens.
i
- We are disturbed both by the highly uneven quality of emergency plans and by the problems created by multiple jurisdictions in the case of a radiation emergency. Most emergency plans rely on prompt action at the local level to initiate a needed evacuation or to t;ke other protec-i tive action. We found an almost t otal lack of detailed plans in the local communities around Three Mile Island. It is one of the ..any ironics of this event that the most relevant planning by loca.
t 1472 10i
M OVERVIEW ,
a 5
authoritics took place during the accident. In an accident in wnich }
prompt defensive steps are necessary within a matter of hours, g insufficient advance planning could prove extremely dangerous. ;
We favor the centralization of emergency planning and response in a ;
single agency at the federal level with close coordination between it and state and local agencies. Such agencies would need expert input -
from many other organizations, but there should be a single agency that
- has the responsibility both for assuring that adequate planning takes place and for taking charge of the response to the emergency. This will require organizational changes, since the agencies now best organized to deal with cmergencies tend to have most of their experience with such ,
events as floods and storms, rather than with radiologica) events. And, insofar as radiological events require steps that go beyond those in a ,
normal emergency, careful additional planning is needed.
A central concept in the current siting policy of the IIRC is that reactors should be located in a " low population zone" (LPZ), an area
~
around the plant in wuich appropriate protective action could be taken for t.he residents in t.hc event of an accident.. llowever, this concept. is implemented in a strange, unnatural, and round-about manner. To determine the size of the LPZ, the utility calculates the amount of radiation released in a very_ serious hypothetical accident. Using geographical and meteorological data, the utility then calculates that arca within which an individual would receive 25,000 millirems or more to the whole body, during the entire course of the accident. This area is the LPZ. The 25,000-millirem standard is an extremely large dose, many times more serious than that received by any individual during the entire Tl!I accident.
The LPZ approach has serious shortcomings. First, because of the extremely large doce by which its size is determined, the LPZs for many nuclear power plants are relatively small arcas, 2 miles in the case of Tt!I . Second, if an accident as serious as the one used to calculate the LPZ ucre actually to occur, it is evident. t hat many people living outside the LPZ uonld receive smaller, but still massive doses of ra di a t.i on. Third, the Tr!I accident shous t hat the LPZ has little relevance to the protection of 1.hc public -- the NRC it.sclf was considering evacuation dist antes as far as 20 miles. even t. hough t.he accident v., far 1 css serious than t hose post ulat.ed during sit.ing. We have therciore concluded that the entire concept is flawed.
Ue recommend that. the LPZ concept be abandoned in sit.ing and in cmcrgency planning. A variety of possibic accidents should he considered during sit.ing, particularly " smaller" accident.s which have a higher probabilit.y of occurring. For cach such accident, one should calculate probable levels of radiation releases at a variety of distances to decide the kinds of protective action that. are necessary and feasible. Such protect.ive act. ions may range from evacuation of an area near the plant., to the distribution of potassium iodide to protect the thyroid gland from radioact.ive iodine, to a simpic inst.ruction to people severa) milen from the plant to st ay indoors for a specified period of t.ime. Only such an analysis can predict t he true consequences 1472 102 is
' OVERVIEW
, of a radiological incident and determine whether a particular site is suitable f or a nuclear power plant. Similarly, emergency plans should have built into them a variety of responses to a varict.y of possible kinds of accidents. State and local agencies must be prepared with the g t appropriate response once information is available on t.he nature of an g accident and its likely levels of releases. i
. I
, The response to the emergency was dominated by an atmosphere of almost. total confusion. There was lack of communicaticn ac. all levels. (
Hany key recommendations were made by individuals who were not in pos- '.
I session of accurate information, and those who managed the accident were ;
- slow to realize the significance and implicat. ions of the events that had 3
+
taken place. While we have attempted t.o address these shortcomings in j l our recommendations, it is important to reiterate the fundamental ,
philosophy we st.ated above: One must do everything possible to prevent
, accidents of this seriousness, but at the same time assume t. hat such an ,
accident may occur and be prepared for response to the resulting ;
cmergency. The fact that too many individuals and organizations were '
not aware of the dimensions of serious accidents at. nuclear power plants l accounts for a great de.1 of the lack of preparedness and the poor quality of the response.
PUBLIC AND WORKER llEALTH AND SAFETY We have identified a number of inadequacies with respect to pro-I cedures and programs to prevent or minimize hazards to health from
, radiat. ion exposure from the operations of nuclear power plants. In l setting standards for permissible levels of worker exposure to radioactivity, i
in plant siting decisions, and in other areas related to health, the NRC is not required to, and does not regularly seek, advice or review of its healt.h-related guidelines and regulations from other federal agencies i
with radiation-related responsibilitics in the area of health, for
{ exampic the Department of Health, Education, and Welfare (HEW) or the j Environment.al Protection Ag(ncy (EPA). There is inadequate knowledge of
[ the effects of low levels of ionizing radiation, of strategies to mitigate i
, the health hazards of exposure to radiation, and of other areas relating to regulation sett.ing to prot.ect worker and public health. In
! preparation for a possible emergency such as the accident at THI-2, l various iederal agencies (NRC, Department of Encry;y, HEW, and EPA) have i assiped respansibilitier., but planning prior to the accident. was so
, poor t hat ad hoc arrangements among these federal acencies had to be made to involve them and coordinat e t. heir activit.ics.
1
- The Connonwealth of Pennsylvania, it.s Bureau of Radiat. ion i
Protection and Department. of Healt.h -- agencies with renponsibilitics
- for public health -- did not. have adequate resources for dealing uith I radiat ion health programs related to t he operation of THl. The utility l was not. required to, and did not, keep a record on workers of t.hc total
. work-related plus non-work-related (for example, medical or dental) radiat. ion exposure.
We mane recommendat. ions with respect to improving 1.he coordination i and collaborat. ion among federal and . stat.e agencies with radiat. ion-related i
1472 103 n
. - . . . . - , . . . - . . . . . . . . . . . , - , . . . - ....._..- __. ,. _ , _ -_.. ~ -
-..1 . .u . ~.n, _ _ _ . - _ _ _
-n i
3 i
a 6
OVERVIEW ig We believe more emphasis is s i
responsibilitics in the health area. j required on research on the health effects of radiation to provide a sounder basis for guidelines and regulations related to worker and -
public health and safety. We believe that both the state and the utility !
have an opportunity and an obligation to establish more rigorous ;
i programs for informing workers and the public on radiationhealth-r .
of radiation. }'
f RIGHT TO INFORMA7 ION .
The President asked us to investigate whether the public's right to information during the emergency was well served. Our conclusion is llowever, here there were many di f ferent causes, '
again in the negative.and it is both harder to assign proper responsibility and more diffic to come up with appropriate reconpendations. There were serious problems with the sources of information, with how this information was conveyed to the press, and also with the way the press reported what it heard.
We do not find that there was a systematic attempt at a " cover-up" by the sources of information. Some of the official news sources were themselves confused about the facts and there were major disagreements amona officials. On the first day of the accident, there was an attempt
' by the utility to minimize its significance, in NPC Later that week, spitewas of substantial the source of evidence that it was serious.
Due to misinformation, and in one case (the exaggerated stories.
hydrogen hubble) through the commission of scientific errors, official sources would make statements about radiation already released (or about the imminent likelihood of releases of major amounts of radiation) that were not justified by the facts -- at least not if the facts had been correctly understood. And NRC was slow in confirming good news about the On the ot.hcr hand, the estimat.ed extent. of the damage hydrogen bubble.
to the core was not fully revealed to the public.
A second set of problces arose from the manner in uhich the facts Some of those who briefed the press lacked were presented to the press.
t.he technical expett.isc to explain the events and seemed to he cut off When those who did from those who could have provided this expertise.
have the knowledge spoke, t. heir st.atements were of ten couched in
" jargon" that was very difficult for the press to understand.
in order The press to cut down on.the was f urther disturbed by the f ac'. that ,
amount of confunion, a number of potential sources of information were instructed not to give out information. While t.his cut down on the amount of confusion, it flew in the face of the lont; tradition of t.he press of checking facts with multiple sources.
one of the most.
. Many factors contribut cd to making this eventGiven t hese ci rcumstances, t he media heavily covered media events ever.
generally attempted to give a balanced presentation which would There were, however, not a few cont.ribute to an escalation of panic.
not.ab]c examples of irresponsible report.ing and some of the visual images used in the reporting tended to be sensational.
m 1472 104
t OVERVIEW i
Another severe problem was that even personnel representinC the
- major national news media of ten did not have sufficient. scientific and engineering background to understand thoroughly what they heard, and did not have available to them people to explain the information. This I probicr was most serious in the reporting of the various releases of i radiation and the explanat. ion of the severity (or lack of severity) of i these releases. Many of the stories were so garbled as to make them l useless as a source of information.
l l
We therefore conclude that, while the extent. of the coverage was justified, a combinat. ion of confusion and weakness in the sources of
! information and lack of understanding on the part of the media result.ed l in the public being poorly served.
In considering the handling of information during the nuclear I accident, it is vitally important t.o remember the fear uit.h respect to nuclear energy that exists in many human beings. The first. application of nuclear energy was to atomic bombs which destroyed two major Japancsc g
j cities. The fear of radiation has been wit.h us ever since and is made l
worse by the fact that, unlike floods or tornadoes, we can neither hear g l
nor see nor smell radiation. Therefore, utilities engaged in the j operation of nuclear power plants, and news media that may cover a g possible nuclear accident, must make extraordinary preparation for the accurate and sensitive handling of information.
j 7 1
! There is a natural conflict between the public's right to know and the need of disaster manancrs to concentrate on their vital tasks
, without distractions. There is no simple resolution for this conflict. ,
But significant advance preparation can alleviate the problem. It is i our judgment that in t.his case, neither the utility nor the NRC nor the (
media were sufficiently prepared to serve the public well. {
l THE NUCLEAR REGULATORY COMMISSION We had a broad mandate from the President to investigate the [
Huclear Regulatory Commission. When NRC was split off from the old j l
, Atomic Energy Commission, the purpose of the split sas to separate the l I regulators from those who were promoting the peaceful uses of atomic ,
cncrgy. We recot,nize that the NRC has an assignment that would be j l dif fir'.t under any circumstances. But., we have seen evidence that. some ,
of the old promotional philosophy still influences the regulatory i practices of the NRC. While some compromises between the needs of !
safety and the needs of an industry are inevitable, the evidence .
j suggests that the NRC has somet.imes erred on the side of the indust.ry's !
convenience rather than carrying out its primary mission of assuring '
, safety.
t i
l *No of the most important activitics of NRC are its licensing i i function and its inspection and enforcement (I&E) activities. We found I j serious inadequacies in both.
In the licensing process, applications are only required c to analyze l; " single-failure" accidents. They are not required to analyze what i
! 1472 105
OVERVIEW happens when two systems f ail independently of each ot.hcr, such as t.he event that took place at Tril. There is a sharp delineation between thor.c components in systems that are " safety-related" and those that are not.
Litrict reviews and requirements apply to the former; the latter are exempt from most requirements -- even though they can have an effect on the safety of t.hc plant. We feel that. this sharp cither/or definit. ion is inappropriate. Instead, there should be a system of priorities as to how significant. various components and systems are for the overall safety of the plant. There seems to be a persistent assumption that plants cr.n be made sufficiently safe to be
" people proof." Thus, not enough attention is paid t.o the training of operating personnel and operator procedures in the licensing process.
And, finally, plants can receive an operating license with several safety issues still unresolved. This places such a plant into a regulatory " limbo" with jurisdiction divided between t.wo different offices within !!RC. T111-2 was in this status at the t.ime of the accident, 13 months after it. received its operating license.
IRC's primary focus is on licensing and insuf ficient attention An has been paid to the ongoing process of assuring nuclear safety.
import. ant example of this is t he case of " generic problems,"
nuclear that. is, power plants. Once problems that apply to a number of different an issue is labeled " generic," the individual plant being licensed That, in is not responsible for resolvingif the issue prior to licensing.
itself, would be acceptable, t.here were a strict procedure within NRC to assure the timely resolution of generic problems, cit.her by its own However, the research staff, or by the utility and its suppliers.
evidence indicates that labeling of a problem as "gencric" may provide a convenient way of postponing decision on a difficult. question.
The old AEC at titude is also evident in reluct.ance to apply new While we would accept a safety standards t.o previously licent.ed plant s.
need for reasonabic timetables for "backiitting," we did not find evidence that t.hc need for improvement of older plant.s was systematically considered prior t.o Three Mile Ir. land.
The existence of a vast body of regulations by NRC tends to focus industry attention narroely on the meeting of regulat. ions rat.her than on Furt.hermore, the nature of some of the a systemat.i4 regulations, concern for safet.y.in combination with the way rat e bases are est.ablished f ut.ilitics, may in come instances have served as a det.crrent for utilitics or their suppliers to take the initiative in proposing measures for impreved safety.
Previous studies of I&E have crit icized thir, branch severely.
Inspectors frequently fail to make independent. cvaluations or i n spe c t.i on s .
The manual according to which inspectors are supposed t.o operate is so voluminour,that many inspectors do not understand There have been a number of precisely what t he- are supponed to do.
incidents in which insrect ors have had dif ficulty inThe r,ett.ing analysir,theirof' superiors to concent rat e on serious safet y issues.
report ed incident i, by licenneer has tended to concentrate on equipment malfunction, and seriour, operator errors h:.ve not been focused on.
1472 106 20
OVERVIEW Finally, while the statutory authority to impose fines is fairly
', limited, a previous study shows that I&E has made minical use of even this authority.
Since in many cases NRC does not have the first-hand information necessary to enforce its regulations, it must rely heavily on the
! industry's own records for its inspection and enforcement activit.ies.
- NRC accumulates vast amounts of information on the operating experience i' of plants. Ilowever, prior to the accident there was no systematic method of evaluating these experiences, and no systematic attempt to
! look for patterns that could serve as a warning of a basic prob]cm.
i
}
NRC is vulnerable to the charge that. it is heavily equipment-oriented, rather t han people-oriented. Evidence for this exists in the weak and understaf fed branch of NRC that. monitors operator training, in the f act i that inspectors who invert.igate accidenta concentrate on what went wrong -
l wit.h the equipment and not on what opecators may have done incorrectly,
! in the lack of attentior to the quality of procedures provided for operators, and in an almost total lack of attention t.o the interaction between human beings and machines.
In addition to all the other problems with the NRC, we are extremely l critical of the role the organization played in the response to the ,
accident. There was a serious lack of communication among the commissioners, those who were at. tempting to make the decisions abou* the accident in Bethesda, the field offices, and those actually on site.
- i This lack of communication contributed to the confusion of t.he accident..
We are also skeptical whether the collegial mode of the five commis-I sioners makes them a suitable body for the management of an emergency, I and of the agency itself.
! We found serious managerial prob! cms within the organization.
I These problems start at 1.he very top. It is not clear to us what. the
, precise role of the five NHC commissioners is, and we have evidence that they tlu mselves are not clear on what their role should be. The huge
- bureaucracy under t.he commissioners is highly compartmentalized with I insufficient communication among the major offices. We do not see evidence of effective managerial guidance from the top, and we do sec evident ,of some of the old AEC promotional philosophy in key officers below the top. The management problems have been made much harder by adopt. inn of strict ruler, that. prohibit. t he commissioners from talking uith nome of 1. heir key st af f on issues involved in the licensing I
procces; uc believe that these rules have been applied in an unneces-I sarily severe form within this particular agency. The geographic spread, which places top management in Washington and most. of t.hc staf f in Bethesda and Silver Spring, Maryland (and in other parts of the l country), also inhibits the easy exchange of ideas.
i l We therefore conclude that there is no well-thought-out., integrated system for the assurance of nuclear safety within the current NRC.
' We have found evidence of repeat.ed in-depth studies and criticisms both from within t.hc agency and f rom wit hout, but we found very lit.tle s
21 1472 107
. . r OVERVIEW evidence that these studies have result.ed in significant improvement. f This fact. gives us particular concern for t.he future of the present. NRC. j For all these reasons we recommend a total restructuring of the i NRC. We recommend that it be an independent ogenit.y within the executive {
branch, headed by a sing]c administrator, who is in eve ry sense chici :
execut.ive of ficer, to be chosen f rom outside NRC. Thc new administrator ;
must be provided with the freedom to reorganize and to bring new blood -
int.o the re.;t.ructured NRC's sta f f. This new blood could result in the I change of attitudes that is vital for the solation of the problems of i the nuc] car industry.
We have also recommended a number of other organizational and !
procedural changes desit;ned t.o make the new agency t.ruly ef fective in j assuring the safety of nuclear pouer plants. Included in these are an ,
oversight committee to monitor the performance of the restructured NRC }
and mandatory review by HEW of radiat. ion-related healt.h issues. i l
i THE trrI1.1TY [
l, When the decision was made to make nuclear power available for t.he commercial generation of energy, it was placed into .he bank of the .
existing electrie utilit ics. Nuclear power requires management qualificat. ions ,
I and attitudes of a very special character as well as an extensive suppor.
s: atem of scient.ists and engineers. We feel that insufficient attent. ion i was paid to this by the Gene al Public Ut.ilitics Corporat. ion (GPU).
There is a divided system of decision-making within GPU and its !
subsidiaries. While the utility has legal responsibility for a wide range of f undamental decisions, from plant deeign t.o operator training, '
some utilities have to rely heavily on the expertise of their .uppliers and on the Nuclear Regulatory Commission. Onr report contains a number i of examples where this divided responsibility, in the case of THI, may I have Icd to less than opt.imal design and operating practices. For !
cxample, ec hne received contradictory testimony on how the criteria i under which the containment building isolates were selected. Similarly, t.be design of the control room seems t.o have been a compromise among of ,
the utilit.y, its parent company, the archit.cct-engineer, and t.he nut icar -
st eam syst em supplier (uith very little at.tention from the NRC). 1;u t the clea res t example of t he shortcoming of divided responsibility is .
t he area U operat.or t. raining. ,
The legal respont.ihilit.y for training operat ors and supervisors for sa f e operat. ion of nuclea r power pl ant:. rest.s wi t h t.he ut ili t y. However, Met. Ed, the GPU subsidiary which operat es Tril, did not. have suf ficient expert.ise to carry out. this training program without out side help.
They, theref ore, cont.racted with Habcor k & Wilcox, supplier of the nuclear steam system, for various portions of thi: training program.
While B&W has substantial expertise, they had no responsibility for the quality of the t ot al t raining program, only for carrying out. the cont.ract.ed port ion. And coordinat ion between the t raining progra.m. of the two companics was ext.remely loose. For example, t he It&W inst ruct ors were not aware of the precise operating procedures in ef f ect. at the plant.
22 1472 108
'b.
g j
- OVERVIEW 1
' A key tool in the B&W training is a " simulator," which is a mock j control console that can reproduce realist.ically events that. happen =
within a power plant. The simulator differs in certain significant ways from the actual control consolc. Also, the simulator was not. ,
programmed, prior t.o March 28, to reproduce the conditions that.
confronted the operators during the accident.
We found that at both companics, those m ,st knowledgeable about the -
workings of the nuclear power plant have little communication with those responsible for operat.or training, and therefore, the content of the inst.ructional program does not lead to sufficient understanding of reactor systems.
I It is our conclusion that the role that tl e NRC plays in monitoring operator t. raining cout.ribut.cs litt.lc and may actually aggravate the l
problem. NRC has a limited staff for supervising operator licensing, and many of these do not have actual experience in power ple,nts.
Therefore, NRC activities a e limited to the administration of fairly routine licensing examinat. ons and the spotchecking of requalification exams and training programs. In evaluating the training of operators to carry out cmcrgency procedures, NRC failed to recognize basic faults in the procedures in existence at THI. Since the utility has the tendency of equating the passing of an NRC cxamination with the sat.isfactory
- t. raining of operators, NRC may be perpetuat.ing a level of mediocrity.
The way that NRC evaluat.cs the safet.y of proposed plants during the licensing process has a most. unfortunate impact on t.he way operators are l 1.rai ned . Since during the licensing process applicants for licenses concentrate on the consequences of single failurcu, there is no attempt l t
in the training program t.o prepare operators for accidents in which two !
systems fail independently of each other. t There were significant deficiencies in the raanagemen'. of the TMI-2 plant. Shif t. foremen were burdened with paper work not. relevant to supervision and could not. adequately fulfill their supervisory roles.
There was no syst.emat.ie check on the status of the plant. and the line-up of valves when shifts changed. Surveillance procedures were not adequatcly supervised. And there were weaknesses in the program of l quality assurance and contrel.
I We agree that. the utility 1. hat. operates a nuclear power plant must be held Icgally responsible f or the f undamental design and procedures
- t. hat. assure nuclear safety. Ilouever, the analysis, of thin particular accident raises the seriour. quest. inn of whether a)) electric ut.ilit.ies automatically have the necessary technical expertise and managerial l
i capabilitien for administering such a dangerous high-t echnology plant .
! We, t herefore, recommend the develoinnent of higher st andards of
' organization and manancment that a company must meet. bef ore it is granted a license to operate a nuclear power plant..
l I
i i
' 1472'109
- 23
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- w ar.
m
OVERVIEW Ti!E TRANSITION t
We recognize that even with the most cxpeditions process for ,
implementation, recommendat. ions as sweeping as ours will take a .
significant. amount. of time t.o implement . Therefore, the Commission had to face the issue of what. should be done in the interim with plants that .
are current.ly operat.ing and those that are going through the licensing process. i The Commission unanimously voted:
llecause safety measures to af ford better prot.ect. ion ,
i for the affected population can be drawn from the high st.andards for plant safet.y recommet.ded in this report., the NRC or its successor should, en a cast-by-case j basis, before issuing a new construct. ion pe rmit or ,
operating license: (a) assess the need to i.ntroduce '
new safety improvements recommended in t.his report., l and in NRC and industry studies; (b) review, I, considering the recommendations set forth in this l
report, the compcLency of the prospective operating i licensee to manar the plant and the adequccy of it.s I training program for operating personnel; and !
(c) condition licensing upon review and approval of the
- state and local emergency plans. j A WARNING .
1 During the time that our Commission conducted its investigat. ion, a number of other reports appeared wit.h reconenendat. ions for improved safet.y in nuclear power plant.s. While we are generally aware of the nature of t.hese recoinmendations, we have not. at.t.cmpted a systematic analysis of them. Insofar as other agencies may have reached similar conclusions and proposed similar remedies, several groups arriving at the same conclusion should reinforce the ucight of these conclusion::.
Ilut t.'c have an overwhelming concern about some of the reports we have seen so far. While many of the proposed " fixes" seem totally appropri r:t e, t. hey do not. come t o grips with what we consider to be the basic prc".em. We have st.ated that fundamantal changen must. occur in organizat. ions, procedures, and, above all, in the at tJ t.udes of people.
No amount of technical " fixes" will cure this underlyinn problem. There have been many previons recommendat. ions for greater safety for nuclear power plant.s, which have had limi.t.ed impact. What we consider crucial is whet.her t he proposed in provements are carried out by the same organizat. ions (unchanged), wit h t.hc same hinds of practices and the same at.titudes that were prevalent. prior t.o the accident. As long as proposed improvements are carried out in a " business as usual" atmosphere, t.he fundament.al changes necessitated by the accident at Three Mile Island cannot. be realized.
\h72 \\D 24
9 OVERVIEW We believe that we have conr.cientiously carried out the mandate of the Prer.ident of the United States, within our limits as human beings and within the limitations of the t.ime allowed us. We have not found a magic formula that would guarantee that there will be no serious future nuclear accidents. Nor have we come up with a detailed blueprint for nuclear safety. And our recommendations will require great efforts by others to transl. ate them into effective plans.
Nevert.hclass, ue feel that our findings and recommendations are of vit.al importance for the future of nuclear power. We are convinced that, unless portions of the industry and its regulatory agency undergo fundament al changen, they will over time totally destroy public confidence and, benee, they will be responsible for the elimination of-nuclaar power as a viable source of energy.
1472 111 25
.' S f.) U hY I--#
PENNSYLVANIA PUllLIC UTILITY COMMISSION llarrisburg, PA 17120 Public !!ceting held Novarber 1, 1979 Commissioners Present:
W. Wilson Goode, Chairman Michael Johnson Pennsylvania Public Utility Commission Docket No.
- v. I-79040308 Metropolitan Edison Company, Respondent -
ORDER TO S110W CAUSE BY Tile COMMISSION:
The Commission hereby takes official notice of the following matters:
- 1. The costs associated with Three Mile Island, Unit No. 2
("TM1-2") which are being iacurred by Metropolitan Edison Company
(" Met Ed") but which are not recoverable through charges to ratepayers because of the Commission's order adopted June 15, 1979
- 2. The recent, extensive short-term borrowings of Met Ed s
pursuant to a revolving credit agreement with several banks.
- 3. The statement of Met Ed in the proceedings at this docket that it will require two to four years to return TMI-2 to service.
- 4. The finding of the President's Commission on the Accident at Three Mile Island (" President's Commission") that:
"A. ...
- 15. The cost of the accident, including this cleanup and a portion of t.hc waste disposal, will be between $1 billion and $1.86 billion, if the plant can be refurbished. If it cannot be refurbished, the total cont will be significantly higher."
\ .
- 5. The status of Three Mile Island, Unit No. 1 ("THI-1")
in that it is (a) out of service, (b) nubject to orders of the Nuclear Regulatory Commission ("NRC") which have suspended the license to operate the plant and required a hearing process prior to a restart of the plant which will extend well into 1980 or beyond, and (c) subject to the order to show cause of this Commission why the plant should be ,
, considered used and useful in the public service.
- 6. The recent action of the NRC in imposing civil penalties against Met Ed as the licensee 5: TMI-2 for violations of the NRC's regulations in the operation of TMI-2.
- 7. The finding of the President's Ccmmission that:
"E. . ..
- 1. In a number of important cases, General Public Utilities Corporation (," CPU"), Met Ed, and '
B&i' failed to acquire enough information about safety problems, failed to analyze adequately what information they did acquire, or failed to act on that information. Thus, there was a serious Jack of communication abo.it several critical safety matters within and among the companies involved in the building and operation of the TMI-2 plant. .. ."
- 8. The finding of the President's Commission that:
"A. ...
- 14. The process of recovery, cleanup, and waste dispocal [with renpcet to TMI-2] will he lengthy, costly, and presents its own health danc.crs. ...
\472 \\3
=
- 9. The recommendation of the Prenident's Commission that:
"B. .. .
- 1. To the extent that the industrial institutions we have examined are representative of the nucicar industry, the nuclear industry must dramatically change its attitudes toward safety and regulations. The Commission has recommended that the new regulatory agency prescribe strict standards. At the same time, the Commission recognizes that merely meeting the requirements of a govero>ent regulation does not guarantee saf aty. Therefore, the industry mus t also set and police its own standards of excellence to ensure the effective management and safe operation of nuclear power plants."
- 10. The reconsaendation of the President's Commission that:
"B. . . .
- 6. Utility rate-making agencies should recognize that impicmentation of new safety measures can be inhibited by delay or' failure to include the costs of such measures in the utility rate base. The Commission, therefore, recommends that. state rate-making agencies give explicit attention to the safety in.plications of rate-making when they consider costn based on " safety-related" changes."
}k)2 \\4
- 11. The recent 2-2 vote of the NRC on whether to revoke the license of Met Ed to operate TMI-2.
Recognition of the 31sted matters raises serious questions about the continued ability of Met Ed to provide safe, adequate, and reliabic electric service at just and reasonable rates. The Commission therefore finds it in the prblic interest to put at issue in these proceedings the continued viability of Met Ed as a public utility. No one -- cither utility, investor or ratepayer -- should view this action as implying a determination by this Commiasion of the ability or desirability of Met Ed continuing to provide public utility service in Pennsylvania. Rather our action represents a conscious, unflinching ef fort to address the di f ficult issues before this Commission. Protection of the broader interest requires that we candidly address the financial, technical and legal problems now facing Met Ed. TilEREFORE, the Commi.aion hereby orderu Metropolitan Edison Company to show cause why its certificate of public convenience should not be revoked. And TilEREFORE. IT IS FURTHER ORDERED: o
- 1. That Metropolitan Edison Company shall ansa r this order to show cause au provided in 1 Pa. Code 935.37 within twenty (20) days after the date of entry.
- 2. That interested persons may respond to this order to show cause within twenty (20) days after t.he darc of entry.
)472 \\r3,
- 3. That a copy of this order to show cause shall be served on respondent and all parties of record at Docket No. I-79040308.
BY Tile COFDIISSION,
. ; '7) / .ae dfam l - lr-Wil P. Thier,ffiderd.L-.__ . ._
Secret.ary (SEAL) ORDER ADOPTED: Novceb?r 1,1979 ORDER ENTERED: k,' 'If 4 j, hl 1472 116
-5
3 ..
".~
EXHOSIT 3 BEFORE Tile PENNSYLVANIA PUBLIC UTILITY COMMISSION Pennsylvania Public Utility : Commission et al. : vs. : Docket No. I-79040308
~
Metropolitan Ed iso n Company : and Pennsylvania Electric : Company, Respondents : AN SW ER OF METROPOLITAN EDISON COMPANY AND PENNSYLVANIA ELECTRIC COMPANY TO COMMISSION'S ORDER TO SHOU CAUSE Hetropol'itan Edison Company ( "Me t-Ed ") and Penn-sylvania Electric Company ("Penclec"), collec tively "Re spondents ," hereby answer the Commission's order entered September 21, 1979 to show cause why (1) Three Mile Island Unit No. 1 ("THI-1") should be consid er ed used and useful in the pub lic service and (2) all of the costs associated with TMI-l should not be re-moved from Respondents' base rates, as follows: A. The rem oval by the Commission from Respondents' base rates of the Respondents' costs associated with TMI-l vould be contrary to the public interest, including the interents of th e customers se rv ed and to be served by Me t-Ed and Penclec and of the investors who have supplied and arc cxpected to supply the capital to make such se rv ic e pessible; B. Such action by the Comuission would bc in-equi tab] e in the 31ght of such factors as (a) the s ub s t an ti al 1A72 117
benefit (amo un ting , in Respondents' view, to hundreds of millions of dollars) that Respondents' customers have heretofore received as a result of the operation of TMI-1, (b) the fact that, without such action by the Commission, the level of Respondents' charges to customers are not, and will not be, out of line with the charges made by other Pennsylvania electric utilitics to their customers, and (c) the fact that THI-l is not currently producing clectric en er gy is attributabic to discriminatory action by the Federal G o ve r nm en t . C. Such action by the Commission would d e pr iv e Respondents of just and reasonable rates; D. Such action by the Commission vould be con-f isc a to ry and violativ e of the Constitutions of the rederal Government and the Commonwealth and the Pennsylvania Public Utility Code. In support of the foregoing, Respondents aver that: The llintory and Frencnt Status of T!!I-l
- 1. Construction of THI-1 uns initiated in May, 1968.
The Comminsion was repeatedly advined of the fact of suc h con , struction in a variety of forums and 3roceedings (includjng the proceedings in I. D. 138) and, an han been recognized in a num-ber of its orders, the Comminsion actively encouraged the con-struction of this and other generating capacity, following the
/ )472 \\8
Northeast Power Failure of November 9, 1965, the PJM Power Fa il u r e of June 5, 1967, and the rapid growth in electric loads being experienced by Respondents and other members of the Pennsyl-vania-New Jersey-Maryland Interconnection ("PJM") in the 1960's and early 1970's prior to the Arab oil embargo in 1973
- 2. The Commission repeatedly registered Securi-tics Certificates filed by Respondents with the Commission during the period 1968-1974 relating to their issue of bonds, debentures and preferred stock, the proceeds of which were to be utilized to prosecute the construction of TMI-1 or to pay off short-term bank loans utilized for that purpose.
As a result of the sale of such security issues and capital contributions made by Respondents' parent, General Public Utilitics Co rp o r a tio n ("GPU"), the inv e s tm en t of Respondents in THI-1, including investment in nuclear fuel and construction work in progrosc, wh en it was initially placed in c omme r cial service was $216 million in the case of Met-Ed and
$108 million in the cacc of Penclec, and, at September 30, 1979, the depre raced balance of such investment was $208 million in the enac of Het-Ed and $104 million in the case of Penclec.
3 TM1-1 in itial ly commenced the generation of . el ec tr ic power and was synchronized wi th Re spo nd en ts' clectric systems on June 19, 1974 and wa s placed in commercial service on September 2, 1974. During the period from its initial synchroni-zat$on f.o the Re spo nden ts' clectric system on June 19, 1974 1472 119
until March 28, 1979, the date of the TM1-2 accident, the 75% undivided interests in THI-l owned by Respond-dents provided 18.3 million megawatthours of electric energy, or an average of 4.0 million megawatthours per year for the period September 2, 1974 through Deccaber 31, 1978. Such annual av er ag e generation is eq uiv al en t to the average annual r e qu ir eta en t s of approximately 530,000 residen-tial customers served by Re spond en t s . Prior to the TMI-2 accident, the av e r ag e annual capacity factor of THI-l was 78%, which was substantially ab ov e the national average for nuclear generating un it s and for modern base-load coal-fired fencrating un i t s . Even if TMI-l should not resume operation until January 1, 1981, for ex am p l e , its capacity factor for the period September 1974 through 1980 would still be about 56%, or substantially greater than the lifetime capacity factors (through July 1979) of several large nuclear plants owned by other utilitics.
- 4. In a series of rate cases involving Respond-ents, your Commission recognized that TMI-l had been a part of Respondents' utility plant in service since September 2, 1974 and authorized t. h c collection of r ev en u e s to ncet the capital and operating costs associated wit.h THI-1.
- 5. THI-l was shut down for refueling on February 17, 1979 and was ab ou t to resume power .peration when the THI-2 accident occurred on March 28, 1979 TMI-l did not resume power operation following the accident in order that al as111able manpower might be initia))y d ev o t e d to the TM1 -2 ac c id ent and i t. n aftermath.
.3_
1A72 120
- 6. TMI-l (and THI-2) utilize nuclear steam supply systems de sig ned and supplied by Babcock & Wilcox Co.
("D&W"), which has also provided essentially the same other nuclear generating nuclear s t e r.m supply system for seven units. Sh o r tly after the TMI-2 accident the Nuclear Regulatory Commission ("NRC") ordered the shut-down of the B&W nuclear llowev e r , within a brief time units that were then operating. the NRC permitted the B&W units other than the TMI units advised lic t-E d , as operator of THI-1, to r e s um e operation. the NRC that it would no t undertake the restart of TMI-l By a letter, wi tho u t substantial advance notice to the NRC. d a ted June 28, 1979, Met-Ed advised the NRC of the various These actions it proposed to take prior to restart of TMI-1 actions included all those that had been proposed or required in respect of the other B&W units, as well as additional The NRC did not actions that Met-Ed believed appropriate. directly respond to that letter. 7 The av e rm e n t in the Commission's Order to Shou Cause that the NRC at Docket No. 50-289 has suspended the On the contrary, it is license to operate THI-1 is denied. averred that the NRC, insteaG of replying to lie t-Ed ' s afore-said letter, by its order of Ju3y 2, 1979 at Dochet No. 50-289
- direc te d only "that the Unit No. I f acility , presently in a sliutd own enndition, chall remain shut down unt13 further order of the Co min is n io u itself."
- 8. Respondents agreed that it wo uld be desirabic to hav e a hearing pr io r to the restart of TM1-1, but they alno 3472 12i
/ . urged the NRC that the procedures employed by it preceding, during and f o llowin g such hearing should be such as to permit an early restart of TMI-1, as soon as such restart was determined to be consistent with the NRC's safety requirements, in the light of the national interest (in terms of limiting foreign fuel imports and balance of pay-ments outflows) and the economic interects of Respondents' cuntomers in reducing replacement power costs. In that ligh t , Respondents made several submittals to the NRC. Commissioner Richard McGlynn of the New Jersey Board of Public Utilities and the New Jersey Public Advocate also urged the NRC to ad op t procedures permitting an early rectart. The Pennsylvania Consumer Advocate petitioned for leav e to in t e rv en e in the proceedings before the NRC with respect to TM1-1, and stated on August 16, 1979 that the interest of concumers would best be served by the return of TM1-1 to nafe production as soon as po s s ib le .
- 9. Although the legal staff of the NRC advised the NRC that it had discretion to adopt other procedurcs, the NRC clected to adopt the procedures set forth in its Order of August 9, 1979, a copy of which is annexed as Ap-p end ix A. According to the tentative time cchedule set forth in the Order, the hearingn will not begin until February.,
1980 or 3ater, a recommended decision by the Atomic Safety and Licenning Doord will not be rendered until about July 9, 1980, and a final decision by the NRC will come at some later date. Th un , the fact that TM1-3 will not be producing electricity on January 1, 1980 is not because THI-l is not 1472 122
I "useful" for the production of ci ec t r ic ity ; it will be be-cause the NRC Orders of July 2 and August 9, 1979 will not permit TMI-l to operate until the pre-hearing, hearing, post-hearing, decisional, and other procedures specified in the August 9 Order have been completed. 10 Some of the technical modifications directed by the Augunt 9, 1979 NRC Order require clarification, and Respondents are seeking such clarification. Subject to ob t a ining timely clarification, Respondents expect that the technical modifications identified for TMI-l and the retraining of THI-l personnel required by the NRC Order f o r THI-l restart ull3 hav e been completed by March 31, 1980, i.e., pr io r to the scheduled date for the completion of the NRC's hearings.
- 11. Th e Order to Show Ca us e quotes the follow-ing st a t em en t from the Commission's Order in Docket I-79040308 entered June 19, 1979:
" Witness Herman Dicekamp, Pr esid en t of CPU, test if $ cd that resumption of generation at TMI-l could occur as early as August 1979 and certainly no later than January 1, 1980.d Witnenn Dicchamp (uho testified on lin y 2 a n d Ma y 29, 1979, weeks before the NRC Orders of July 2 and August 9, 1979)
- carefully abstained from nuggenting any "certain" deadline by
}kf2 k25
which TM3-1 would resume power operation; he specifically noted that, for purposes of preparing data for submittal at Docket I-79040308, Respondents had made the assumption, for
~
financial planning purposes, that TMI-1 would come back ou 1, 1980 (N. T. 127; 131-2). However, he also line on January pointed out rep ea ted ly (a) that the critical question as to when THI-I could come back on line was n ether or not the NRC d ecid ed to hold public hearings on the resumption of such operation and (b) that Respondents have very limited ability to id entif y the timetable for resumption of THI-1 operation in the presence of an NRC requirement for such public hearings (N. T. 129-135; .1549-1552). Th e Sub stantial Benefits that Respondents' Cu s tom er s Hav e Received as a Result of the Operation of THI-1
- 12. Paragraph 3 of this An sw e r sets fo rth the amount of generation produced to date by TMI-1. Tlil-1 has b een a depend ab le source of large quantities of electric It begon power for more than four and one-half years.
operation shortly after the Arab oil embargo an d constitutes an important resource against threatu of resumption of that cm-bargo as ucll an a unans of reducing im p o r t s of foreign oil by 7 million barrels a year. Similarly , during the coal miners' . strike of 1977/78, it was an almost ir re pl a c e ab le source of
-8_
i472 124
oupply of electric energy and, as soon as it is permitted to resume the generation of electric power, it can again perform that ro)e if there should be another strike or other interruption of coal-fired generation. Thus, in terms of quantity and reliability, TMI-l has been an important so ur c e of s e rv ic e to its customers and will again be such a source when it is permitted to resume operation.
- 13. TMI-l has also been alunificant in holding down the co st of s e rv ic e to Respondents' customers in a highly infla-tionary period. Ov er the 4-1/2 year period since THI-l began generation in mid-1974 through December 31, 1978, the average fuel cost of TMI-l energy vac less than 3 mills pe r KW il , or appr oximately one-fif th that of coal-fired energy and one-fifteenth that of oil-fired energy. If TM1-1 had not been built, the s ub s t i tut e generating capacity would hav e Given the fact that either been coal-fired or oil-fired.
during that same t im e period, the GPU System relied predominant-ly upon coal-fired generation and was experiencing the impact of air qu ali ty requirements to the point that Me t-Ed was
~
seriously contemplating converting its Portland generating station to oil, an oil-fired station provides one reasonabic measure of the benefits made possible by TH1-1 during the (This is reinfo rc ed by period through Decemb er 31, 1978. the fact that, in that same time period, lic t- E d ' s ncinhboring utility, Pennsylvania Power & hight Company, installed the 1472 125
Such benefits aggregated oil-fired Martins' Creek station.) ab ou t $300 to $400 million, when compared to an oil-fired al-ternative. If , on the other hand, the costs of TMI-1 are compared with a coal-fired unit installed during the same period, the benefits are somewhat less, namely about $100 million, but are s till ver y s ub s tan tial .
- 14. Looking to the future, the economic benefits to Re spondents' customers wh en TMI-l is permitted to resume the generation of electric energy should be even more s ub -
stantial. In the care of the oil-fired al t er nativ e , the im-pocition by the OPEC Nations of c uc c c c siv e and sub s t an tial price increases is sharply increasing the fuel cost advantages of a nuclear generating unit. The Level of Respondents' Past, Present and Pronnective Charnes to Customers.
- 15. It has been apparent that some have assumed that Re sp onden t s' total chargcc to their customers have been, or are now, or threaten to be, unduly high and burdensome to their Th is accumption is totally incorrect. Respondents customers.
have developed, and presented at the Commission's Annual Review of theip operations on September 21, 1979, a comparison of their past, prenent and near-term future ch a rg e s to customers compared with those of the other electric utilitics in the Co mmo nw e n i t h,. As therein set forth, Th ese data are set forth in Appendix B. Respondents' total ch a rg e s to customers are not the lovent in In terms the Commonucalth; t h .:y are also not the highest. of numbern of residents of the Commonucalth, the my crity are pa ying; higher costs per k13 0un t.t hour fo r elec t ric nervice than are Renpondents' c u n t.om e r s . 1472 i26
> 16. The material included in Appendix B also examines this subject' from the point of view of the relative share of the average income of Respondents' typical residential customer required for the payment for electric service. As thercin set forth, there has been remarkable stability in the portion of their r es p ec tiv e in c ome s pa id for ele c t r ic servicc by Re s po nd en t s' customers, wh ethe r usensur ed in relation to av e r ag e production workers' wagcc, Federal minimum wages or social s ecu rity benefits. Th is should continue to be true with the .
continued provision in Respondents' base rates for the costs of THI-l and in their energy cost rates for the replacement power costs for TMI-l and TMI-2
- 17. Th e fact of the TMI-2 accident has not relieved Respondents of the on-going costs associated with financing, ownership and operation of TMI-l (or TMI-2). Respondents still have to pay interest and dividends on the securities issued to finance TMI. They still have to pay taxes associated with that investment. They still have to pay inbor and other costs. They still have to recognize and provide f or depr eciation charges.
Given these facts, it appears to be at war with reality - and a clear misapplication of regulatory concepts - to suggest that Respondents' charges to customers should be reduced while Rer.pondents are precluded from operating TMI-l by the orders o,f HRC, but that other utilition that hav e not suffered that misf ortun e may contin ue to charge rates to their customers that are sub ntantially higher than those wh ich Rcupondents will charge if TMT-1 cost s are not removed from Itc spond en t s ' bane In the same way, it in inconsistent with basic concepts 1472 i27 rat.cs. of equitable tr ea tm en t to suggest that Re s po nd en t s ' customers should have roccived the economic benefits of THI-l during the period of its operation but should not pay the costs associated with THI-l when it is being precluded from operntion by virtue of NRC o rd et s.
-Tbc Discriminatory Action by the NRC
- 18. This proceeding does not provide either the forum or the time for Respondents to address, excep. in suumary fannion, the disciminatory action of the NRC, in permitting other B&W nuclear units to operate while cub-Re spond e n ts j e c t in g T111-1 to lengthy procedural delays.
hav e been, and arc, totally unable to understand how the NRC could so disregard the national and pub lic interests inv olv ed in scruitting restart of TM1-1 as early as it can be demonstrated that such restart is consistent with the p ub lic health and cafety. Not only did the NRC f a il to respond to the several communications addressed to it on behalf of the THI-1 owners, at the p ub lic sessions of the NRC there war. not even any discusnion of the costs and bur-dens being imposed by the NRC by choosing a protracted procedu're to consid er the sub j ec t of restart ra ther than an expedited procedure which its legal staff advised was avail-able. Re spo nd en t s belicyc that the record demonstrates that t. hey ucre as vigoroun in attempting to persuade the NRC as van ponnible. Respondents c on si d er ed appealing the NRC'n order to the court.n but concluded that that could only renult in f ur the r delay in achieving the obj ec tiv e of permitting Tif1 - 1 to r e s um e the generat. ion of cicetric Renpondentn int.end to utilize ev e ry means available energ,. 1472 128
- 't o them to ex p ed i t e those proceedings but control of the progress of these proceediunn rents with the NRC.
- 19. Respondents urge that the Commission and the Pennsylvania Consumer Advocate pa r tic ipa te in the NRC proceedings and present to the NRC their views concerning the interests of 1" consumers served by Respondents in expediting the resumption of generation by TMI-1.
The Interests of the cansumers Served by Respondents
- 20. The Commission's Order entered June 19, 1979 recognized that Re spondents hav e continued to meet fully the electric energy requirements of their customers notwithstanding the non-availability to Respondents of generation from TMI-l and TMI-2. Respondents have'bcon able to do so only by purchasing very large amounts of replacement pouer from other members of PJ11 and, when more economic, from other electric utilitics o ut sid e PJM. 11o r eov e r , in order to obtain such replacement power from utilitics outside PJ11 (and in a bilateral transac-tion uit h Pennsylvania Pouer & Linht Company) at costs which
~
are less than those no rm ally applicable under the norual PJI! in t e r ch :;.ng e (with split-savings), Re spond en ts and their affiliate, Jerney Central Power & Light Company (" Jersey Ce n t r a l") , have been required to make paym en ts on a weekly basis (and, f o r ma j,o: purchases outsid e PJM, such payments hav e been required in advance).
- 21. Tiy a separate Petition fo r Declaratory Order, dated October 30, 1979, filed in thJs proceeding, Respondentn have reported to the Comminnion the renults of I. h e i r ex t en n iv e
- 1. h e n eg ot.in t i o ns with the other member. of P J11 in renponse to 1472 129
s, ." d irec tiv es of Clause 7 of the Commission's Order entered June 19, 19 7 9 and hav e requested that the Commission deter-mine that acceptance by Respondents of the proposal of the other PJM Companics for a revised method of pricing of the interchange purchased by Respondents from PJM for r ep l ac em en t of TMI generation will reasona51y comply with those d i r e c tiv e c . Such PJM proposal vill also require weekly payment, on an cetimated basis, for the interchange purchased by Respondents and Jersey Central pursuant to that proposal.
- 22. The Comminsion's Order entered June 19, 1979 found that it wa s in the public interest that Respondents pur-chase energy from other utilitics in order to provide s e rv i c e to Re spo nden t s' cuntomers as opposed to curtailment of the level of s erv ic e that Respondents were providing or to making maximum use of Respondents' remaining power plants some of wh ic h have higher operating costs than the costs of purchased power.
The lev eliz e d energy cost rate charges authorized by the June 19, 1979 Order have not provided for f ull current recovery by Respondents of the cost of such replacement power and Met-Ed and Jersey Central have had to borrow sub stantial amounta under a Revolving Cr edi t Agreement with a group of 43 banks to finance cuch purchason. In order to continue to render such nervice, , Het-Ed and Jersey Central will have to continue to effect substantial borrowings under the Revolving Credit Ag r e em en t , which makes pr ov i nio n for additional borrowings within the limits and sub)$mits therein set forth upon the satisfaction 1472 133
of the conditions therein preucribed, llowev e r , Section 8.06(c) of the Revo3ving Credit Agreement provides that, in the ev en t of ac tions by the Commonwealth of Pennsylvania or the State of New Jersey or any agency thereof which would reduce the revenues and/or cash flow of Respondents and their af filia te the obliga-tions of the banks to make f ur ther advances may be suspended Respon-upon the request of a specified majority of such banks. dents do not know what action the banks participating in the Revolving Cr edit Agrecuent would take if the Commi s si on were to clim in a t e T111 r el a t e d costs from Re sponden ts' base rates. However, if the banks were to suspend further advanccc, the ab ility of Renpondents to continue the rendition of adequate, Indeed, reliable electric service would be adversely affected. even if the banks were to continue advances in the face of the cl imin a tio n of TMI-l related costs f rom Re spond ents' base rates, the ability of Renpondents to finance additional construction to provide adequate, reliable electric service in the future would be significantly impaired. Although Respondents are ac tively neeking long-term financing, their access to the capital markets cannot now be as sur ed . Respondents' charter documents, as well as the provisions of the Revolving Cr ed it Agreement, set an abnolute limit on short-term horrowing. Elimination of THI-1 costs from Respondents' banc rates with a c o r r e s po nd i n g reduction in their current revenues would Icad to additional borrowings under the Revolving Credit Agreement in order to maintain adequate and reliabic service, and would thun hanten the d a y wh e n Re s po nd en t's canh renourcen from that so ur c e would he erbausted.
. u, . )472 \5\
23 Stated in another way, Respondents' ability to continue to render adequate, reliabic service and to eb t a in r e pl a c em en t power from other utilitics is controlled by their access to cash. A group of 43 banks have thus far demonstrated their willingness to provide such cash, but they have made explicit in the Revolving Credit Agreement that they vill wish to review that situation if Respondents' re- nues or cash flow were reduced. (Indeed, the Revolving Credit Ag r eem en t would permit the banks to accelerate, by a specified maj ority vote, all out stand ing loans if such action were to be taken.) Respondents will continue to take all actions available to thcc to continue to render adequate, .reliabic survice to their customers, just as they hav e done in the six and a half months since the T111-2 accident. But Respondents do n o't possess the The action ability to ens ur e that such service will be rendered. taken by your Commission, and the r es po n se of the banks to that action, are major determinants of both the ad equacy and the cost of such se rv ic e . Given the fact that the purchases outside PJfi have resulted in sav ings to customers of Respondents and Jersey Central of approximately $5.5 million per month in July and August and probably in September and that the P JI! proposal will provide further assurance that s av in g s of this magnitud e or more can be nc hiev ed in the future, the interests of Re s p o if-d en t s' customers in terms of both the availability of adequate, reliable service and the ultimate cost of such service will be best served by actions which permit nuch purchases to continue. Removal f rom Responden tn' base raten of the costs associated with TI11-1 wo ul d thun be contrary to such bent interents of ne spond en t s' customers.
- , f, -
1472 132
- 24. There is a tcrdency in some quarters to view Respondents' customars as co'asisting solely or predominantly of residential cvstomers. dut the fact is that less than a third of the total electricity provided by Re spo nd en ts is sold to residential customers. More than two thirds of such se rv ic e is pr ov id ed to industrial and commercial customers.
With r ela tiv cly few cxceptions, the cont of elec tricity is or not a major component of the cost of pr oduc ts manuf ac tur ed service rendered by such industrial and commercial establish-ments. A determination by the Commission which affects adversely the ability of Re spondents to continue to provide adequate, reliable service would hav e far-reaching adverse consequences to employment and the economy of the large areas served by Respondents.
- 25. Respondents' customers have a righ t to expect that Respondents would be alert to technological developments improving the qu al ity o f acrvice, socking to hold down the cost of such service, and avoiding reliance on a singic technology or a single source of basic cncrgy. With their lead crchip role in the development and impicmentation of mine-mouth coal-fired generation, ex t ra-high volt ag e tr an n-mincion, multi-stream coal c3 caning and nuclear generation, Respondents have demonstrated such alertness and their Renpondents' cur;tomers customers have benefit ted therefrom.
can only be injured in the n e ar- te rm and in the long run if the Commission ucre to take action which ignoren the ben 2 fits customers have r ccc iv ed and can expect to r e c eiv e in the future and which requiren that the raten to Respondentn' cuntomers (who i472 133 are already rocciving electric service at a cont per kilowatt-hour that is below that of a majority of the residents of the State) be further reduced as a conncquence of d i sc r im in a-tory action by another g ov er nmen ta l agency. Interent of Investors
- 26. As pointed out in Paragraph 2, the inv e s tm en t of Respondents in TM1-1 wh en it was init ially p] aced in commercial nervice was $216 million in the cane of Me t-Ed and
$108 million in the case of Pencloc. The follouing tahlc sets forth the returns allowed by the Commission and ac tually realized on Respondent's common e qu i t.y capita] since TMI-l was placed in commercial service: % Return on To t a l Av e ra he_ Common Equity 11c t-E d Penelec Alloved Realized A l) w e d Realized Year 13.3 11.4 16 11 5 1974 13.7(July) 11.4 14.8(July) 11.2 1975(1) 13.7 11.3 14.8 11.3 1976 13.7 12.7 14.8 10.4
. 1977
- 13. 6 (!!a y) 12.9 13. 5 (J u ly ) 9.9 1978 1979 (12 montha 12. 9 (J u ly ) 1* 2 . 0 ended 8/31)(2) 12. 8 (J uly) 8.2 (1) restated to reflect rate increases granted in June 1976 re t roactiv e to July 1975 (2) alloucd returns reflect cffect of increaned deferred energy cont am or tiz a ti o n ordered in Docket No. I-79040308.
1472 134
27 There is n'othing in this record to suggest that the Commission was providing in the allowed rate of return some cicment of compensation to provide for the risk that the NRC Indeed, in its Met-Ed rate might delay the restart of TMI-1. order approved March 22, 1979 and entered lia rch 29, 1979 (re-sp ec tiv ely 6 days before and 1 day after the THI-2 accident ) in R.I.D. 626, the Commission allowed a return on common equity f or Me t-Ed that approximated the carnings/ book price ratio of Moody's 24 utilitics for 1977-1978. !?;i a t ha pp en ed in reality was that during this period Respondents carned, and were abic to provide to their investors, sub s t an tially less than Respondents' barebones cost of capital, while Respondents' customers were receiving the benefits (in terms of both reliability and cost) of the electric service which that inv e s tm en t had made pc ssibic. 28 There is a tendency to oversimplify the opera-tion of the capital markets as they relate to elec t r ic utilitics and to characterize the purchasers of cicctric utility common stock as " entrepreneurs", with the connotation that they arc individunis wi th sub stantial wealth who are being provided uith opportunitics t. o r e al ize subs t :ntial profits from successful inv e s tm en t s and who. should bear the Th i s v ie w is contrary to fact; risks of unsuccessful ones. if rate regulation of c1cetric utilitics did proceed on this basin, the cost of capital to cicctric utilitics and, the ref o re, the cost o f serv ic e to their customers would be substantially higher. 1472 135 29 In 1978, GPU undertook a d e ta il ed survey of 1tn stockholderu and presented the results in the booklet which is annexed as ppendix C. As that booklet demon-st ra te s , almont two-thirds of the CPU stockholders are retired or homemakers and another 15% are uithin five years of retirement. Th eir averag e age is 65. A majority have total family incomes of less than $20,000, including 35% with family inc om e s of less than $15,000. There is nothing to
' suggest that their investment was made with the objective of r e al iz ing " en tr epr en eur ial profits", and the record of the last three decades or more demonstrates that they have no t realized such profits. What such st oc kh o 3 d e r s have sought is regular dividends with periodic increasco resulting from reinvestment of a portion of the carnings on the capital they have supplied to Respondents. This is clearly a modest obj e c t iv e . It is also one that is typical of the purchasers of electric utility stocks generally. It in an obj ec tive which has, in the past, s e rv e d electric utility customers well because it has provided the capital required to supply their needs at modest cost. It uould be inconsistent with the ob j e c tiv e of providing customers with ad equa te , reliable acrvice at the lowest reasonable cost if the outcome of these proceedings were to depr iv e Re spono ents' investors of return on the capital which they supplied in order to enabic Respondents to furnish such service, since the long-term consequence will necesnarily be to in c r ea s e the over-all coct of capital to electric utilities in the Commonucalth as invectors come to realize the treatment they must expect.
- 30. Thus, the popular imacc which pic t ur e s electric scryice as heian primarily connumed by re nid en t i al cu.ccomers
-2 -
136 3477
- with severcly limited in c'om e s and the stockholders of electric with reality. As utilitics as wealthy entrepreneurs is at wa r demonstrated above, two-thirds of Respondents' service is used Su ch service is by industrial and commercial e s t ab lishm en t s .
made possible by the capital predominantly provided by retirecs and homemakers, with an average age of 65, and modest family incomes. Th e "p ub lic interest" standard governing the Commis-cion's actions should take cognizance of the interests of both groups. The "Used and Useful" Criterion 31 In this section of this An swe r we are address-ing the first question posed by the Order to Shou Ca u s e , namely,
"(1) why TMI-l should be c o n s id er ed used and us ef ul in the pub l ic service."
In doing so, we wish to note our din og r eem en t with the pos-sible implication of the question as posed that a determin.- tion that TliI-l was not "used and useful in the public service" base races. would properly lead to a reduction of Re s p o n d e n t s' That latter s ub j e c t is discussed in a subsequent section of this An swe r . 32 In its order entered June 19, 1979, the com-mission stated:
"Th e length of time which utility plant may be out of service and not be r em oved from rate banc depends upon the nature of the plant, the degree to which the outage can be expected to occur during n o rria l operation of the plant and the certainty with which renumption of ne rv ic e can be *** Generating plant by its predicted.
nat ur e cannot he operated continuously 1472 137
Outagen of without periodic maintcannce. coveral days to neveral monthn daration, typical wh e t h e r nchedu3ed or forced, are of the normal operation of noch pl a n t ; and the renumption of se rv ic e is r easonab 3 y certain." In addition to these factors, vc suggest that it is also rele-vant for the Commission to take in to account both the prior of the particular plant and history and level of performance the causes which prevent the current operation of the plant. 33 In this context, the Co mra is s io n cited its own
- v. West Penn Pnver Company, decicion of Itay 23, 1978 in PaPUC In that cane, the Commission allowed in rate 25 PUR 4th 492.
base at depreciated original cost the inv e s tm en t of Ucot Penn 3 The Co ramis c i o n in the la t ter's 111tchell Tu rb ogen er a to r No . had previounly (on October 13, 1977) allowed Ucst Penn to discontinue operation of t. hat unit wh ich ex c eed ed the emiscienc The Com-ntandard cet by the Environnental Protection Agency. . mission noted in that regard that, at the time of its decision in May 1970, conversion of the unit to satisfy the E rl. standard.: po s sib le in vas not economical, but a change in this statun was the f utur e. 34 In the Comminnion's decision entered Feb ruary 5, involved the c 3 ., j n e d in-1979 at R.I.D. 373, one of the in c u e r. po r t ion of the clucion in rate banc of bu quesuc Li gh t Co mp a n y 's That unit had opetated Sh i p p i ng p o r t. Nuc1 car Generating faci 1Jty. 4, 1974 From that reliably for a nunber of years until February 1, 1977,.n__ period of over 3 1/2 Y C a,rfs , the date until October 1472 13B
- 2 7~ -
pfant was out of service for substantial rebuilding of the tur-bine (which suffered a serious mechanical f ailure) and for the conversion of the core from a pressurized wa ter non-breeding-core to a pressur ized unter breeding core. The unit did not return to service until 15 months after the test year in ques-tion. The ALJ recommended that the Shippingport unit be ex-
- cluded from rate basc. In responne to the ALJ's r e c om me n d a t i o n , "We disagree. It is clear that the Commission sta ted :
Sh ipping po r t is a reliable base 3 oad unit of the company... In addition to supplying base load el e c t r ic i ty to Duquesnc's customers, Shippingport is a highly imp o r t a n t research facility and should be included in rate base." . 35 These decisions clearly support the continued inclusion of TMI-l in rate base. There can he no reasonable question that, when resumption of operations is permitted, TM1-1 vill be an economical source of power. As pr ev io u sly noted, the record of TM1-3's performance prior to the shut-down for refueling in 1979 uns outstanding. Ev en if it is assumed that T!!I-l vill not be permitted to resume operation until September 1, 1980, the av er ag e annual capacity factor for the ent.iry period since it was placed in commercial service (September 2, 1974) through Au g u s t 31, 1980 would approxi-mate the national average for nuclear units. In that light and taking into account the fact t h a t. the present s h u t.-d o w n is the result of discriminatory governmental action, there is particular justification for the continued inclecion of THI-l related costn in Renpondentn' base rates.
-2 3- !472 139
- 36. The Comminnion has demonstrated in ot.her con-texts that the "used and useful" concept doen no t require that perticular inv e s tm en t e be currently employed in the For exampic, generating r end i tio n of cl ec tr ic service.
station sites for units expected to be placed in service within ten years have been repeatedly allowed as a component construction of rate base. Similarly, non-revenuc-producing work in progress ("CWIP") meeting certain criteria specified This by the Commission have al so been included in rate base. has also been true of spare equipment of various kinds.
- 37. In recent years, the question o f whe the r plant wa s "used and uneful" has most fr equently been addressed in to be the context of CUIP which is ultimately expected revenuc-producing.
The general policy of the Commission has been to exclude such CUIP from rate base and thus not to provide current cash revenues, but this has been in a setting in which the Commission could provide current return on the investment in CWIP in the form of allowance for funds used during construction ("AFUDC") which would be reflected in an (Even in that context, the Co mtai s s i o n's accretion of va.ue.1 d e ci ni o n in the went Peno case cited above suggests that a showing of s ev e r e financial necessity vould warrant inclu-In the current. o f t u a t.io n sion of CWIP in rate base.) relating to TM1-1, the al ternativ e of providing current r e tur n in the form of AFUDC on Lbc invcutment in TMI-l would appent to be foreclosed by the Uniform System of Accounts. 1472 140
~
Junt and Reanonable Raton
- 38. The Order to Show Ca u s e does not direct Respondents (or in t erv eno rs) to address the question as to whether the Re sponden ts base rates would be just and reasonable if TM1-1 costs were clirain a t ed in establishing such rates. Yet this is the basic ratemaking standard established by Sections 1301, 1300 and 1309 of the Public Utility Code. The "juut and reasonable" standard in the Code it identical uith that in the f ederal Na tural Ga s Act that was construed and appli, I by the Court in Federal 320 U.S. 591 Pouer Comminsion v. 1t o p e Natural Gas Co.,
(1944). In 11 o p e , the Co ur t recognized that:
"From the investor or company point of
' view it is important that there be enough revenue not only f or oper ating e v.p e n s e s but also for the capital costs of the business. These include service on the debt and dividends on the stock. *** That return, moreover, should be sufficient , to assure confidence in the financial inte-grity of the enterprise so as to maintain f ee credit and to attract capital." 39 In this case, the determination as to whether TMI-l should be ciascified as "used and useful" doen not answer the question of the lev el of revenues required to ecct the stan-dards o f li o n e . Regard 1cus of such classification, Re s p o nd en t s will still need the revenues to meet their THI-l rcInted costs. They will still have to pay interest on the debt and d iv id end s on the equity capital enployed to finance the conctruction of TM1-3. They vill .still have to pay operating and maintenance expenses associated ufth TMI-1 and to pr ov i d e f o r depreciation
- 3472 141
of the plant i n v e s t m e n t. . They will need the rev enues pro-duced by their present base raten (and more) to meet these requirements.
- 40. It is par ticularly relevant that, in its Order approved March 22, 1979 in Docket No. R.1.D. 626, Mo t-Ed' s last rate case concluded before the TMI-2 accident, the Commission discussed at some length the fact that .the determination of requir ed revenues is independent of the parti-cular rate base employed and that, as specifically discussed there, the r es ul t s should be identical, whether an o r ig in al cost or f air value rate base is employed. In that context, the Commission cuployed a hypothetical situation in which it was*
determined on the basis of a study of comparable carnings on the book value of common equity that $10 million was required fo r carnings on such equity. The Commission then said:
"There arc at least two methods by which a $10 million icvel of earnings for common equity could be achieved. First, d e r iv e the numbers of dollars necessary for interest, preferred stock dividends , and carnings for common equity, the totality of which are carn- $ngn av ail ab ic for return, from which gross revenues may be derived. A rate of return as such need not be deriv ed but may be if desired for some reanon. Second, if a rate of return "on book value is derived, it couJd be deflated by a f ac tor d erived from the execus of a fair value rate base over an original cont rate bacc. But sjuce even an original cont rate h a ,m 'aviates from total capital a more preciso method wouJd be to use a factor derived'from f air val ue ov er the total capital relevant to rate base."
It is also worth noting that in that same Order the Commission expressly pointed out that it wa s ad op t ing the cost of Met-Ed's capital as a surrogate for a fair return. .
- $ se 72 142
- 41. This discuccion in the Co m rai s s i o n' s Order in the
}!ct-Ed case una, of course, directed to the development of the appr opria te differencer. in the rate of return, depending upon whether the ratc banc was exprenned in terms of original cost or fair value. 11u t precincly the came considerations are applicabic to any adjustiaent of rate base. The amounts required for operating costs, $nterest, dividends on preferred stock and entnings on book value of common reock are independent of the particular rate hace celected. Indeed, as the Commission stated in the quoted pansage, "[a] rate of return as such need not be d e r iv ed but may be if desired for sonc r ea so n. "
- 42. Under these circumstances, the e x c lu r. io n from base rates of Respondentn' T!!I- 1 costs would be inconsirtent uith the due prococo provisionc of the Federal and State Co n s; r i -
tutions and the s ub o r din a t e impicuenting pr ovis ions of the Pennsylvania Public Utility Code. WilDRMPORD , Ranpandents renpectfu))y submit th a t TM I--l i s properly clansified an property devoted to service of the pub)ie.to and that it vould be contrary to law and to the public interent remove the costs associated with that unit fro:n the base rates of Responde:S ts . METROPOr,1Thu CDISON COf1PisNV PCUNSYl,VANIA CLUCTRIC COi1PANY BY. ... . . ../.% - . -- b-- the coard Chai rn::oi g.f n .- 1472 143
L
./ \ UfJITED STAT ES EXHIBIT M
- 8Y 3 fi NUCLEAll IlliGULNI Of tY COMMISSION g/
*) ,* \ l, , : k WA*JilNG TOfJ, D. C. 20%5 D l' _ '*' GNvHiON;.f t;N FAL I ; FA-'O +9 . . . . + ,0[ CD*A f 6M CNT, OCT 3.5 i979 OCT3 01S70 Docket Nos. 50-289 and 50-320 ftcute to .sM $.h .
fletropolitan Edison Cc:cpany ~ ATTN: f1r. R. C. Arnold Sr. Vice President 260 Cherry liill Road - Parsippany, New Jersey 07054 - Gentlemen: -
SUBJECT:
INVESTIGAT10ii REPORT NUMBER .50-320/79-10 This refers to the investigation conducted by the Special Investigation Team from the NRC's Office of Inspection and Enforcement of activities authorized by llRC License Number DPR-73 and specifically of your activities preceding, during and immediately following the nuclear accident that occurred at the
%rce iiile Island Nuclear Power Station, Unit Number ', on March 28, 1979.
Because cf the similarity of Units 1 and 2 and common lity of management of the two units, correct.ive actions taken in respr ise to this letter and its enclo:,ures must be equally applicable to Units 1 & 2. Further, the NRC staff will consider the effectiveness of actions taken in response to this corres-pondence in developing its position on readiness for restart before the Atomic Safety and Licensing Board constituted to consider the restart of Unit 1. Copies of this correspondence and your response will be furnished to this Board. Areas examined during this investigation are described in the Office of Inspection and Enforcement Investigation Report Number 50-320/79-10, published also as NUREG-0600. Numerous potential items of noncompliance were identified durin0 the investigation and are described in the report. As a resJlt of additional NRC review and because of mitigating circumstances, not all of the potential items identified in the report were cited in Appendix A. Based on the results of this investigation and additional consideration of the potential items of noncompliance identified in Investigation Report Number 50-320/79-10, it appears that certain of your activities were not conducted in full compliance with f:RC requirements as set forth in the Notice of Violation, enclosed as Appendix A. The nature and number of the significant alleged items of noncompliance found during the investigation demonstrate serious weaknesses in your management controls. We have identified six alleged violations, the most severe of the NRC noncompliance catcDories, fonr of whicli contributed to the severity of the
.CER,Tir!rD f1ML j RLlVRU RfClipT RE_ QUESTED jy .!n.7 7 d f7 g} }44 nr.r :m it.n
, Metropolitan Edison Company accident on March 28, 1979. We believe the course of the accident would have been altered, if not prevented entirely, had compliance with HRC requirements been achieved. These noncompliances demonstrate serious' weaknesses in your ability to maintain an effective health physics program, control maintenance activities, develop and review procedures, adhere to approved procedures and conduct your audit activities. Failure to follow procedural requirements for operation with the electromatic relief valve and safety valve dischar0e line temperature within your procedural requirements had a significant impact on the course of the accident on March 28, 1979. Following this procedure would have resulted in closure of the block valve which would have isolated the relief valve and prevented the accident. Furthermore, this elevated temperature condition-had been in existence for several months and apparently conditioned your operating staff such that the abnormality on March 28 was obscured or rationalized away resulting in delayed closure of the isolation valve until af ter fuel damage had occurred. This failure is considered to be one of the more significant issues. Other exampics of failure to follow procedures, cited in Appendix A, that occurred prior to and during the accident reveal weaknesses in controls which are mandatory for safe nuclear power plant operation. Crucial to nuclear safely is the determination by your review of procedures and approval authority that operations identified in the operating procedutes are in accordance with the facility technical specifications. -Your Plant Operations Review Committee reviewed and your plant manager authorized a surveillance precedure which placed valves in a condition that resulted in emergency feedwater header isolation. Further, on three occasions identified in this investigation, the header was isolated. The training of the operating staff should have made this condition apparent to them. This condition, leading to temporary defeat of emergency feedwater, should have been immediately identified on the first occasion of isolation and a revision of procedures should have been initiated. The plant staff performing this operation should have been imbued with the philosophy of not proceeding with operations that defeat safety systems, but of stopping operations, revising procedures, and proceeding with reviews to properly authorize the correct procedural actions. We also identified inadequacies in your training of personnel who were designated to fill emergency job categories as defined in your Emergency Plan. Further, your retraining program for radiation ;)rotection and chemistry personnel failed to includa the required topics. Training and retraining are essential for the continued proficiency of the staff and nuclear safety. During the course of the accident there was a significant departure from normal health physics procedures and practices. It is recognized that in the interest of overall safety during an accident of this magnitude there may be circumstances justifying departure from stringent health physics practices. Nevertheless, we believe that insuf ficient measures were taken to control health physics actions and decisions during the course of the accident. 1472 145
, 11etropolitan Edison Company Records were missing for maintenance for emergency feedwater isolation valves in January 1979. The control of equipment for purposes of maintenance is essential for continued safe operation of a nuclear power plant. Records showing the status of such equipment are an essential ingredient for safety.
Without this status documentation, the continuity of the work is lost, and more important, the operators and maintenance crew are unable to tell that nuclear safety has been established, the equipment maintenance may be performed, and the equipment has been tested and properly returned to service. These principles of equipment control also apply to surveillance testing. We also found, although the reasons are not fully understood, that the isolation valves in this system were closed at the time of the accident on !! arch 28, 1979. Again, a failure of management control for equipment and surveillance testing is evident. You have committed to a QA/QC inspection program which includes observation of operations and functional testing. Our investigation could find no information to indicate that a QA/QC inspection program ever existed at your facility for the observation of operations and functional. testing. These matters and other noncompliances taken together leave little doubt that your management controls for the operation of the Three flile Island facilities are inadequate. Each of these inadequacies must be resolved. In light of the seriousness of these alleged noncompliances and in view of the significance and nature of our inspection findings, we propose to impose civil penalties. The total civil penalties for all items cited in Attachment A ar.?
$725,000. The Atomic Energy Act limits the total civil penalty within any thirty day period to $25,000. Limiting the penalties for those items cited frou October 1978 until liarch 1979 to $25,000 for each thirty day period, results in subtraction of $570,000. Therefore, a total penalty of $155,000 is proposed. Appendix B of this letter is the Notice of Proposed Imposition of Civil penalties.
In determining the amount of the penalties assigned the staff took into account the severity and duration of the noncompliance, including the relationship of the items of noncompliance to the accident itself and the relationship of the noncompliance to other items of noncompliance. The influence of flRC on your actions ducing the accident and preceding it has also been evaluated by this office both in determining noncompliance and in the penalty assessed. The presidential Commission, the special IIRC investiga-tion and cher investigative bodies are examning further the role of the NRC as well as t% activities of other organizations in connect.ica with the accident at Three Mile Island. The finding and recommendation of there other investiga-tions will be evaluated in determining whether any further action is appropriate. You are required to respond to this letter; in preparing your response you should follow the instructions in Appendices A and B. In addition, your response should address the steps taken to assure that your activities are in compliance with all Commission requirements since the noncompliances described in Appendix A, which are limited to the scope of our investigation, indicate 1472 1 0
e , Metropolitan Edison Company failures of your overall management control. In this regard we cypect that you will conduct a comprehensive audit of all administrative and management controls to establish needed actions to assure full compliance. Your written reply to this letter and flotice of Violation and the findin00 of our continuing inspections of your activities and further consideration of these matters may lead to further enforcement action, such as additional civil penalties or orders to suspend, modify or revoke the license. Among other things, additional enforcement action is under review with regard to the reportability of several items of information following the onset of the accident, including specifically the calculated dose rate of 10-40 R/hr in Goldsboro, the elevated in-core thermo-couple indications and the pressure spike in the containment vessel. Further, we have already suspended the license to operate Unit 2. The public will be informed of any proposal to operate Unit 2, and any proposal to operate Unit 2 would Se subject to a hearing. - In accordance with Section 2.790 of the NRC's " Rules of Practice," Part 2, Title 10, Code of Federal Regulations, a copy of this letter and the enclosures will be placed in the llRC's Public Document Room. Sincerely,
/ .. -
M v 7' Victor Stello, r. Director Office of Inspection and Enforcement
Enclosures:
- 1. Appendix A
- 2. Appendix B 4
TA72 147
.e - =
APPfflDIX A 110 Tift of V10LATI0l1 11ctrepolitan Edison Company Docket flo. 50-320 This refers to the investigation conducted by an Office of Inspection and Enforcement Investigation Team at the Three Mile Island fluclear Generating Station, fliddictown, Pennsylvania, of activities authorized by NRC License 110. DPR-73. During the investigation conducted on liarch 28, 1979 through July 31, 1979 (InvestigationIo. 50-320/79-10), the following apparent items of noncompliance were identified:
- 1. Technical Specification 3/4.7.1, " Turbine Cycle," requires in Section 3.7.1.2, that three independent steam generator emergency feedwater pumps and associated flow paths shall be operable during power operations,
' except: if one emergency feedwater system is inoperable it must be restored to operable status within 72 hours or the plant must be in liot Shutdown within the next 12 hours.
Contrary to the above, for an undetermined period just prior to the reactor trip at approximately 0400 hours on March 28, 1979, the flow paths to both steam generators were made inoperable by feedwater header isolation valve closure. (In addition, on January 3, February 26 and March 26, 1979, the flow paths from all three emergency feedwater pumps were simultaneously made inoperable by feedwater header isolation valve closure during the performance of, and in accordance with, an improper surveillance test procedure.) This violation contributed to an accident. (Civil Penalty $5,000)
- 2. The severity and uniqueness of the accident which occurred at Three Mi h Island resulted in a marked reduction in the normal good health physics practices which are mandated by the NRC Regulations. Under the circum-stances of an accident of this magnitude the NRC recognizes that in the interest of reactor safety a departure from normal health physics practices and standards may sometimes be mandated by the exigencies that exist during such conditions. However, the NRC also believes that the licensee, with the resources available and taking into account the time frame available for conduct of safety-related functions, could have taken additional measures to better control the overall health physics actions and decisions which were made during the course of the accident. The following items of noncompliance exemplify unacceptable degradation froa health physics practices pertaining to control of access to high radiation areas, conduct of radiation surveys, and personnel radiation exposure monitoring.
10 CFR 20.201, " Surveys," requires in Section (b) that each licensee shall make or cause to be made such surveys as may be necessary to comply with the regulations in 10 CFR 20. 1472 148
10 Cf R 20.202, " Personnel !!onitoring," requires that the licensee supply appropriate personnel monitoring equipment and requires its use for each individual who enters a restricted area and is likely to receive a dose in excess of 25 percent of the applicable value specified in 10 CFR 20.101. lechnical Specification 6.12, "High Radiation Area," requires that each area in which the intensity of radiation is greater than 1000 mrem /hr be provided with locked doors to prevent unauthorized entry into the area and that any individual entering the ares be equipped with a continuously indicating dose rate monitoring device. 10 CFR 20.103, " Exposure of individuals to concentrations of radioactive materials in air in restricted areas," requires in Section (a)(3) that the licensee make suitable measurements of the concentrations of radio-active materials in air for detecting and evaluating airborne radioactivity in restricted areas for the purposes of determining compliance with the regulation in 10 CFR 20.303(a)(1). 10 CFR 20.101, "Expnsure of individuals to radiation in restricted areas " requires that no licensee possess, use or transfer licensed material in such a manner as to cause any individual in a restricted area to receive in any period of one calendar quarter a dose in excess of three rem to the whole body, or 18 3/4 rem to the hands and forearms, or 7 1/2 rem to the skin of the whole body. Contrary to the above: A. From 1100 hours on 11 arch 28,1979 until the afternoon of March 30, 1979, the doors to the auxiliary building were not locked and access was not otherwise controlled even though the building was known to be a high radiation area with radiation levels.much greater than 1000 mrem /hr during this period; B. From the evening of March 28, 1979 until the evening of March 29, 1979, at least two entries into the auxiliary building were made by individuals who were not equipped with a radiation monitoring device which continuously indicated the dose rate; C. No measuremonts were made of the concentrations of airborne radioactive materials in the Unit P. auxiliary building for periods during which individuals were er. posed from 1100 hours on 11 arch 28,1979 through midnight March 30, 1979, nor in the Unit ] nuclear sample room and primary cheuistry laboratory f or periods during which individuals were exposed from 0100 hours on March 28 through 0000 hours on March 30, 1979; D. On March 29, 1979, an Auxiliary Operator was permitted to enter areas of the auxiliary building where exposure rates of up to 100 R/hr existed. Radiation survey information and appropriate personnel monitoring were 1472 1 0
, not provided to the operator for this entry. This contributed to the operator receiving a whole body dose of 3.170 rems. When this dose was added to the operator's previous dose for the quarter, the operator's quarterly whole body dose was 3.870 rems as measured by personnel dosimetry devices; E. On March 29, 1979, a Nuclear Engineer entered an area of the auxiliary building where the radiation level was greater than that which could be measured by his portable survey instrument (2R/hr). Failure to perform a survey of the exposure rate in this area contributed to the individual receiving a whole body dose of 3.14 rems for this entry. When this dose was added to the engineer's previous dose for the quarter, the engineer's quarterly whole body dose was 4.175 rems as measured by personnel dosimetry devices; - F. On March 29, 1979, a Chemistry Foreman was permitted to repeatedly enter high iadiation areas and handle samples of highly radioactive reactor coolant. This contributed to the foreman receiving a whole body dose of 4.100 rems. When this dose was added to the Foreman's previous dose for the quarter, the Foreman's quarterly whole body dose was 4.115 rems as measured by personnel dosimetry devices; G. On March 29, 1979, a Che:..istry Foreman and a Radiation Protection Foreman were permitted to handle a highly radioactive reactor coolant sample without adequate personnel monitoring and without first per-forming a survey of hand and forearm exposure rates. Handling of this sample resulted in a calculated dose to the hands and forearms of the Chemistry Foreman of about 147 rems and a calculated dose to the hands and forearms of the Radiation Protection Foreman in the range of 44 to 54 rems; and li. On March 28, 3979 and March 29, 3979, several individuals received skin contamination of the hand and other parts of the body sufficient to cause exposure rates in the range of 20-100 mR/hr when measured with a hand-held survey instrument and no evaluation of the dose to the skin of these individuals was made. Each day constitutes a separate violation, [ March 28 (A, B, C, and it), March "9 (A, B, C, D, E, F, G, and H), and March 30 (A and C)]; a civil penalty of $5,000 is imposed for each. (Cumulative Civil Penalty $15,000)
- 3. Technical Specification 6.5.1, " Plant Operations Review Committee,
requires: in Section 6.5.1.6.a. that the Plant Operations Review Committee (PORC) review all procedures (and changes thereto) requ, red by lechnical Specification 6.8 and any other procedure (or change) determined to affect nuclear safety.
\ q12 \ %
. Contrary to the above, inadequate reviews were performed on both Procedure Change Request tio. 2-78-707, Revision 4 to Surveillance Procedere 2303-M27A/B, and Procedure Change Request fio. 2-78-895, Revision 8 to Surveillance Procedure 2303-M14A/B/C/0/E; both were reviewed and approved by the PORC (flovember 9, 1978 and August 15, 1978 respectively). Each approved change included a valve lineup which resulted in emergency feedwater header isolation, contrary to Technical Specification 3/4.7.1 requirements. Each of these inadequcte reviews constitutes a separate violation which contributed to an accident; a civil penalty of $5,000 is imposed for each. (Cumulative Civil Penalty $10,000)
- 4. Technical Specification 6.8, " Procedures," requires in Section 6.8.'1 that procedures be established, implemented and maintained covering identified activities.
A. Emergency Procedure 2202-1.5, "Pressuri7er System Failure," Revision 3, requires in Section A.2.3.1 that electromatic relief isolation valve RC-R2 he closed if, anang other things, the valve discharge line temperature exceeds the normal 130 F. Contrary to the above, the elect /' omatic relief valve dischar0c line temperature had been in the range of 180 -200 F since October of 1978 and March isolation valve RC-R2 was not closed as of 0400 hours on 28, 1979. Additionally, on March 28, 1979, the discharge line temperature of 283 F was noted at 0521 hours, but the isolation valve RC-R2 was not closed until 0619 hours, allowing a significant loss of RC inventory. Each day the plant operated in noncompliance with this procedure constitutes a separate violation, a civil penalty of $5,000 is imposed for each. (Cumulative Civil Penalty $630,000) B.1 Emergency Procedure 2202-1.3, " Loss of Reactor Coolant / Reactor Coolant System Pressure," Revision 11, requires in Sections B.2.2.3, P.3.6.2 and A.3.2.5: that high pressure injection is initiated on low RCS pressure (1600 psig),and that the operator verify high pressure injection is operating properly as evidenced by flow in all four legs (250 gpm); that flows be maintained at this rate by throttlin0 as RCS pressure drops; and that high pressure injection not be terminated until RCS pressure can be maintained above the reset point (1640 psig) or until low pressure injection flow is established at 3000 gpm. Contrary to the above:
- 1. At about 0405 on March 28, 1979, high pressure injection flow was throttled to minimum conditions even though RCS pressure was less than 1600 psi and falling, and without low pressure injection flow established.
51
- 2. At. various times throughout the day of flarch 28, 1979, the high pressure iajection system was modified such that the required flow rates were not maintained during continuing low pressure conditions within the RCS following the period when the reactor coolant pumps were stopped and the high pressure injection systein was the only mode available for the removal of core decay heat.
D.2 Emer0cncy Procedure 2202-1.3, " Loss of Reactor Coolant / Reactor Coolant System Pressure," Revision 11, requires cert.ain actions to be taken followin0 the automatic initiation of high pressure injection, including in Section B.3.1, that all ESF equipment is verified to be in its ESF position (capable of performing its intended function). Contrary to the above, duritig the period of approximately 0600 hours until 1300 hours on March 28, 1979, during continuing low prc:sure conditions within the RCS, the Core Flood System was removed from its ESF position (rendered inoperable) by closin0 both tank isola-tion valves. [This portion of the ESF was inactivated during a period when reduction of Reactor Coolant System pressure was not the immediate goal. This removed from service this safety feature during a period when it could have been called upon. In the course of the accident while atter.;pting to depressurize to activate the decay heat removal system NRC recognized that it was necessary to isolate the core flood system and encouraged this action. lhis citation does not apply to isolation during this attempt]. This violation contributed to an accident. (Civil Penalty 55,000) C. Operating Procedure 2104-6.2, " Emergency Diesels and Auxiliaries," Revision 9, establishes the procedures for the control of the emergency diesel generators:
- 1. Section 4.10, " Diesel Generator - Automat ic Start tipnn Engineered Safety Features Actuation." tate. in tru rio.ing
, step, 4.10.6, that the unit can he shut dnwn at ter (19-Engineered Safeguards Feature actuation h.r.tu en cleared.
- 2. Sect ion 4.6, " Diesel Generator 3 A(IB) '; hut onwn io : r'orgency Standby," states in the closing step, 4.b.. to Di ar" the diesel generator on standby in actned.mcc wit h ,ci t inn 1.?;
and
- 3. Section 4.2, when completed, establishes condit inn. for automatically starting the diesels upon ai t uat ien or .in Engineered Saf eguards f eature (LSF) inclu 'm 1 s esuie rment ,
1472 152
, t.o place the " Emergency Standby /flaintenance Exercise" switch in the Emergency Standby position and reset.t.ing the fuel racks. Contrary to the above, at about 0430 hours on liarch 28, 1979, both the 1A and IB diesel generator fuel racks were manually tripped, therehy preventing an automatic start of the diesel generatorr. upon ESF actuation and manual start from the control until 0949 hours. This violation had the potential to contribute to an accident. (Civil Penalty 54,000) D. Emergency Procedure 2202-2.2 " Loss of feedwater," Revision 3, requires in Section 2.8.2.d that the operator adjust feed flow to control steam Generator levels at 30 inches. Contrary to the above, from approximately 0532 hours until 0543 hours, the level in A steam generator decreased to 10 inches (the minimum level indication) while the A steam generator levr.! was being controlled manually. This is an infraction. (Civil Penalty $3,000) E. Three liile Island Ituelcar Station Administrative Procedure 1004, "lbree 11ile Island Emergency Plan 1004," Revision 2, dated February 15, 1978:
- 1. Requires in Section 2.1, that the " Station Superintr.ndent/
Senior Unit Superintendent, Unit Supt./ Shift Supersisor/ Unit Supt. - Technical Support in the Control Room will, a ter reviewing the emergency conditions, classify the emergency as one of the following:
"a. Personnel or Local Emergency, "b. Site Emergency, and "c. General Emergency "He will make this classification according to the condition of Table 1 of this Plan, and initiate actions according to the Emergency Plan Implementing Procedures, and according to his own best judgment;" and
- 2. States in Table 1 of Section 2.1 that a Site Emer0ency exists when there is a reactor building high range gamma monitor alert alarm (Condition fio, e).
1472 153
. Contrary to the above:
- 1. Adequate written procedures were not established and implemented in that Section 2.1 of Procedure 3004 for implementing the Emergency Plan lacked sufficient specificity and failed to rr.sult in a Site [mergency being declared at approximately 0130 on March 28, 1979, even though primary system pressure had decreased to the point where safety injection was automatically initiated and a reactor building sump high level alarm existed; and
- 2. A site emergency was not declared at 0G35 hours on March 20, 1979, at which time Condition "e" of Three 11ile Island Emergency Plan 1004 had occurred.
This is an infraction. (Civil Penalty $4,000) F. Three Mile Island Huclear Station llcalth Physics Procedure 1670.9, " Emergency Training and Emergency Drills," Revision 4, dated January 16, 1978:
- 1. Identifies in Section 3.1, the on-site emergency job categaries and requires that training programs.for these categories will be conducted on an anhual (calendar year) basis; and
- 2. Describes in Section 3.1.1 through 3.1.9, the training program for all on-site emer0ency job categories.
Contrary to the above, during calendar year 1978, not all individuals havin0 cmergency responsibilities were trained in that two Emergency Directors, one Accident Assessment individual, eight. Radiological Moni toring Team Members, and 37 Repair Party Team Members had not received the specified training. In addition on March 28, 1979, during an emergency, at least four individuals who were assi0ned as required members of a Radiological 11onitoring Team and seven individuals who were assi 0ned as required members of a Repair Party Team per-formed emergency duties for which they were not. trained. This is an infraction. (Civil Penalty $4,000) G. Station Administrative Procedure 1002, " Rules for the Protection of I'mployees Working on Electrical and Mechanical Apparatus," Revision 14, requires in Section 4.3, 4.4 and 4.5 that on restoration of equipment to service, removed tags will have all required information entered thereon and then be suitably 1472 IM
. stored, and that the shiit. foreman shall approve equipment operation by signing the original t.agging application. Addi-tionally, Station Corrective liaintenance Procedure 1407-1, Revision 0, specifies in Section 5.0, " Job Ticket (Work Request) Finw," t he step-by-st ep process for initiat.ing, processing, obteining approvals and ultimate filing of the " Job Package" which will include, among ODer things, dot.umentation of corrective act. ion taken (resolution description and certi-fication of satisfactory post maint.enance testing) and Station Preventative liaintenance Procedure E-2, "Diclectric Check of Insulation, flotors and Cables," specifies how to make the measurements and contains data sheet.s for recording the values measured. Contrary to the above, when inspected on June 20, 1979, the tagging application could not be found for maintenance per-formed in January,1979, on Emergency Feer.sater isolation valves (EF-V12A, 12B, 32A, 32B, 33A, aN. 338). No suitable documentation to determine whether the maintenance work had been completed, tags recoved, acceptance critoria met, or valves approved for operation could be found. The Tl4I-2 maintenance log lists this wor k request as being in an open status as of June 20, 1979. This is a deficiency. (Civil Penalty $2,000)
- 5. Teconical Specification 6.8, " Procedures," requires in Section 6.8.2 that changes to procedures which implement the Emergency Plan shall be reviewed by the Plant Operations Review Committee and approved by the Unit Superintendent prior to implementation.
Contrary to the above, a change to Station llealth Physics Procedure 1670.7, " Emergency Assembly, Accountability and Evaluation," was made without the required review and approva>. An additional assembly area was designated and the method used to perform accountability was modified by a memorandum dated October 13, 1973, f rom t he Radiation Protection Supervisor to all departments. As a result, on llarch 28, 1979, in response to an emergency, some licensco personnel followed the approved procedure while others followed the guidance in the October 13, 1970 memorandum, creating some confusion and delaying prompt attainment of full accountability. This is an infraction. (Civil Penalty $4,000) ,
- 6. Environmental Technical pecification 5.7 requires that detailed writt.cn procedures for instrument calibration be prepared and followed.
3472}55
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&& & 'f W rSI - 4.h;,9 .~. Three Itile Island fluclear Stat. ion Surveillance Procedure 1302-5.21, Revision 3, dated Dece:r.ber 19, 1974, specifies the ruethod of calibration and requires that it be performed annually.
Contrary to the above, as of !. larch 29, 1979, eight environnental samplers had not been calibrated since 1974. This is an infract. ion. (Civil Penalty $4,000)
- 7. Technical Specification 6.2, " Organization," states in Section 6.2.1 and 6.2.2 that the unit organization and the organi72. tion of the corporate technical support staff shall be as shown on Figure 6.2-1.
Contrary to the above, on liarch 28, 1979, the organization of the unit and corporate technical support staff was different from that specified in Figure 6.2-1 in that: A. A posit. ion titled, " Superintendent of Administration and lechnical Suppurt" was added to the organization on September 18, 1978 and filled on March 1, 1979, such that the " Supervisor, Radiation Protection.and Chemistry," reported to this new position rather than directly to the " Station Superintendent / Senior Unit Superintendent;" and B. There were two " Supervisor of liaintenance" positions, one for each unit, rather than one; and C. A position titled " Superintendent of !!aintenance" had been added such that the "Superviss v. of flaintenance" report. to this new position cather than directly to the
" Station Superintendent (Station llanager)/ Senior Unit Superintendent;" and D. The position of " Chemical Supervisor" had been vaca t .
since the issuance of the Technical Specifications. On March 28, .1979 through 11 arch 30, 1979, the above organizational discrepancies decreased the effecidveness of the licensee's response to the accident. This is an infraction. (Civil Penalty $3,000)
- 8. Technical Specification 6.4 " Training," requires that a retrainin:) and replacement training prograu for the unit staff be maintained that rnoets or exceeds the requirements and recommendations of Section 5.5 of AtlS1 1118.1-1971.
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i 9 'ii 'y 11 K s b 23 Contrary to the above, as of 11 arch 28,1979, a retraining program meeting or exceeding N1SI li18.]-1971 recommendations had not been maintained for members of the radiation protection and chemistry st.aff in that only 2 of the 10 topics recommended were included in the program. This is an infraction. (Civil Penalty $4,000)
- 9. Technical Specification 3/1.4.6, " Reactor Coolant System Leakage," requires in Section 3.4.6.2, that Reactor Coolant System (RCS) leakage be limited to 1 gallon per minute (GPil) of " Unidentified Leakage," and that unless rates above this limit. are reduced to within the limit. within four hours, the plant must be placed in "llot St.andby" in the next six hours and in " Cold Shutdown" in the next t.hirty hours.
Contrary to the above, f rom !! arch 22 until llarch 28, 1979, RCS
" Unidentified I.eakage" remained above 1 gpm, and the plant was not. placed in " Cold Shutdown."
Each day constitutes a separate infraction; a civil penalty of
$3,000 is imposed for each. (Cumulative Civil Penalty $21,000)
- 10. 10 CFR 20.401, " Records of surveys, radiation monitoring, and disposal," requires in Section (a) that each licensee maintain accords showing the radiation exposure for all individuals for whom personnel monitoring is required on a form !!RC-5 or equivalent and in Section (b) requires that each licensee maintain records of the results of surveys required by 30 CfR 20.701(b).
Contrary to the above: A. The re.ults of approximately 500 ground level radiation surveys conducted during March 28-30, 1979 in offsite areas bordering the Three Mile Island site were not documented in a ma'.ner which permitted a precisc evaluat. ion of the type of radiation (Deta/Ganua) whicn existed in the environs. Pertinent information such - as the type of instrumentation used and whether the end window on the probe was open or closed was not recorded. B. The records of the radiation exposure for at. least 5 individuals exposed during the period 14 arch 1 to 31, 1979 had not been recorded or maintained on a form NRC-5 or equivalent as of July 5, 1979. Furthermore, as of July 5, 1979 the assessm nt of their doses had not been completed. 1472 157
This is an infraction. (Civil Penalty $4,000)
- 11. 10 CfR 50, Appendix B. Criterion X, " Inspection," requires that a program for inspection of activities affecting quality shall be established and executed to verify conformance with documented instrections, procedures and drawings for accomplishing the activity.
Three Ilile Island flucicar Station - Unit 2, Final Safety Analysis Report, Chapter 17.2.15, Section X, requires that the inspection program include random observation of operatiors and functional testing by individuals independent of the activity being performed. Procedure GP 4014, "QUA Surveillance Program," Revision 0, requires independent observation of activities affecting quality to verify conformance with established requirements utilizing both inspect. ion and auditing techniques...for compliance with written procedures and the Technical Speci-fications. Contrary to the above, as of 14 arch 28,1979, the normal operations surveillance testing activities had not been made subject to random and/or routine inspections by independent methods. This is an infraction. (Civil Penalty $3,000) This Notice of Violation is sent to !!etropolitan Edison Co.mpany pursuant to the provir. ions of Section 2.20] of the llRC's " Rules of Practice," Part 2, Title 10, Code of Federal Hegulations. 11ctropolitan Edison Company is hereby required to submit to this office within twenty (20) days of the receipt of this flotice, a written statement or explanation in reply, including for cach item of noncompliance: (1) ad.aission or denial of the alleged items of non-compliance; (2) the reasons 1or the items of noncompliance if admitted; m (3) the corrective steps which have been taken and the results achieved; (4) corrective steps which vill be taken to avoid further items of noncom-liance; and, (5) the date when full compliance will he achieved. The total civil penalties for all items cited is $725,000. Ilowever, pursuant to Section 234 of the Atomic Energy Act of 1954, as amended (4? IKC 2282), the total of civil penalties for any thirty day period cannot. exceed 25,000. Consequently 55/0,000 has been subtracted to reduce the total penalties to
$25,000 for each 30 day period result.ing in the total civil penalty herein proposed of $155,000.
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APPfl10lX B 110TICI Of PI:0 POSED 'll!i'0!TITidi Of CIVIL PillALTIF.S liet ropolitan Edison Company Docket No. 50-320 License lio. DPR-73 This office has considered the enforcement options available to the NRC inciuding administrative actions in the form of written Notices of Violation, Civil fionetary Penalties, and Orders pertaining to the modification, suspension or revocation of a license. Based on these considerations we propose to impose civil penalties pursuant to Section 234 of the Atomic Energy Act of 1954, as anended (42 USC 2282), and t.o 10 CFR 2.205 in the cumulative amount of One llundred and Fifty-Five Thousand Dollars ($155,000) for the specific items of noncompliance set forth in Appendix A to the cover letter. In proposing to impose civil penalties pursuant to this section of the Act and in fixing the proposed amount of the penalties, t.he factors identified in the Statements of Consideration published in the federal Register with the rulemaking action which adopted 10 CFR 2.205 (3G FR 16894) August 26, 1971, and the " Criteria for Determining Enforcement Action," which was sent to f(RC liter,ees on December 31, 1974, have been taken into account. 11etropolitan Edison Ccmpany may, within twenty (20) days of receipt of this liotice pay the civil penalties in the cumulative amount or may protest the imposition of the civil penalties in whole or in part by a written answer. Should lietropolitan Edison Company f ail to answer within the time specified, this of fice will issue nn Order imposing the civil penalties in the amount proposed above. Should Metropolitan Edison Company elect to iile an answer protesting the civil penalties, such answer may (a) deny the items of noncom-pliance listed in the flotice of Violation in whole or in part, (b) demonstrate er.tenuating circumstances, (c) show error ir the 110tice of Violation, or (d) show other reasons why the penalties should not be imposed. ln addition to protesting the civil penalties in whole or in part, such answer may request remission or mitigation of the penalties. Any written answer in accordance with 10 CFR 2.205 should be set forth separately from the statement or explnna-tion in reply pursuant to 10 CFR ?.201, but may incorporate by specific refcrence (e.g. , giving page and paragraph n umbers) to avoid repetition. Metropolitan Edison Company's attettion is directed to the other provisions of 10 CFR 2.705 regarding, in particu'ar, failure to answer and ensuing orders; answer, c'nsideration by this of fi :c, and ensuing orders; requests for hearings, hearings and ensuing orders; compromise; and collection. Upon failure to pay any civil penalties due which have been subsequently determined in accordance with the applicable provisions of 10 CFR 2.205, the matter may be referred to the Attorney General, and the penalties, unless compromised, remitted, or mitigated, niay he collected by civil action pursuant to Section 234c of the Atomic Energy Act of 1954, as amended (42 USC 2282). u72 M
man 5~ . l.-.9E [$ QU Mf' "PE 4 GENERAt. =.s 100 Interpace Parkway Parsippany, New Jersey 07054 PUBLIC f [ I J i UTILITIES 201 263-6500 h ai CORPORATION
' November 7,1979
Dear Fellow Stockholder:
A number of things of importance to you, as a stockholder of General Public Utilities, have hap pened within recent days and I would like to bring you up to date on them. The first action concerns the submission on October 30 to President Carter of the report of the Presi-dent's Commission on the Accident at Three Mile Island. A second action concerns an order issued by the Pennsylvania Public Utility Commission on November " that calls upon Metropolitan Edison Company, the CPU subsidiary which is the major owner ar:d the operator of the Three Mile Island Station, to show cause why its operating franchise should not be rescinded. Earlier, in another action, the PUC ordered Met-Ed and Pennsylvania Electric Company to show cause why TMI Unit 1, the undamaged reactor at Three Mile Island, should continue to be considered "used and useful" for rate regulatory purposes. This action was taken in view of the extent of the pro-ceedings established by the Nuclear Regulatory Commission, which, under present scheduling, would delay the Unit's return to service until the Fall of 1980. Let's deal with the PUC orders first, beginning with the one about TMI Unit 1. We believe that Unit 1 clearly deserves to be continued as part of Met-Ed's and Penelec's rate bases in view of its four and a half years of outstanding operation and the reasons for its delayed return to service. Eliminating this investment from the rate base would have a serious impact on common stock earnings and, unless off-setting increases in energy clause levels are approved, would also adversely affect our cash position. In its order dealing with Met-Ed's franchise, the PUC noted that "no one - either utility, investor or rate-payer - should view this action as implying a determination by this Commission of the ability or desirability of Met-Ed's continuing to provide public utility service in Pennsylvania. Rather, our action represents a conscious, unflinching effort to address the difficult issues before this Commission." The Commission's action, as explained in the order, was based mainly on questions raised by the report of the President's Commission. It cited, among other factors, the costs arising out of the acci-dent, the time required to bring TMI-2 back into service, the status of TMI-1, and the ultimate costs to ratepayers of more stringent safety regulations that will undoubtedly be proposed for the operadon of nuclear plants. We feel that, should the proceeding on this order go ahead, CPU management and the PUC will have an opportunity to provide to the public a complete review of the problems facing Met-Ed in an integrated manner, rather than, as has been the case, being required to address varying portions of the matter before a variety of agencies and bodies with differing avenues of interest. We also feel that our reply to this order will enable us to put forward the positive actions taken by the CPU System since the March accident to insure the continuance of safe, reliable electric service to its customers Next, let us discuss CPU's reactions to the report of the President's Commission, which may put the PUC's orders into some perspective for you. With that background, we feel you will be better able to make a judgment on the accident itself, the level of expertise that Met-Ed and the entire CPU System brought to its nuclear operations, and of the progress we are already making in preparing both Three Mile Island units for safe, reliable service. By now you will have seen or read some of the extensive media coverage of the report of the Presi-dent's Commission, chaired by Dr. John G. Kemeny, president of Dartmouth College. The report made, as a major assessment of the TMI accident, the finding that "the accident occurred as a result of a series of human, institutional, and mechanical f ailures." In discussing the "Causes of the Accident," the Commission stated:"In conclusion, while the major factor that turned this incident into a serious accident was inappropriate operator action, many fac-tors contributed to the action of the operators, such as deficiencies in their training, lack of clarity in their operating procedures, failure of organizations to learn the proper lessons from previous in-1472 160
cidents, and deficiencies in the design of the control room. These shortcomings are attributable to the utility, to suppliers of equipment, and to the federal commission that regulates nuclear power. Therefore - whether or not operator error explains this particular case - given all the above defi-ciencies, we are convinced that an accident like Three Mile Island was eventually inevitable." This conclusion of the report, among others, lends support to our belief that the TMI accident in-volved the entire industrial, technological and regulatory structure of nuclear power. In fact, in a re-cent staff memorandum replying to a letter from Congressman Morris Udall, the NRC said:"There are several other investigations yet to be completed, which will examine other possible contributing fac-tors, such as activities of designers, reviewers, builders, vendors, and regulatory agencies. It is most likely that the cause of the accident will be a combination of inadequacies that resulted from all of the foregoing." We are concerned that, in the Commission's attempt to report on an extrernely complicate,1 subject involving an equally complex interrelationship between the utility industry, its suppliers and regulators, the result has been a series of capsulized statements which, of themselves, do not ade-quately reflect numerous underlying factors or their meaning. As an example, the investigation focused sharply on Met-Ed and yet made little attempt to evaluate the Company relative to industry practices. The Kemeny Commission report states:"The TMI training program conformed to the NRC standard for training. Moreover, TMI operator licensee candidates had higher scores than the national average on NRC licensing examinations and operating tests. Nevertheless, the training of the operators preved to be incdequate for responding to the accident." ~ COMPAN / WILL RESPOND TO RECOMMENDATIONS
' The accinnt was a f ailure of the entire nuclear structure. It brought to light a number of deficien-cies that cah for improved requirements and performance by all participants. Many of the Commis-sion's broad conclusions are based on criteria which had not been identified prior to the accident or which are not directly related to the accident. Nevertheless, we are committed to addressing each of the Commission's findings and recommendations.
Among the steps recently undertaken by CPU and Metropolitan Edison Company are improvements or modifications to the station's equipment, training and operating procedures. TMl PERSONNEL A' MONC MOST QUALIFIED Based upon performance in NRC exams from 1975 through 1978, the TMI control room operators ranked ninth in comparison with the other operators in a group from thirty similar facilities: these facts attest to their skills. During that time span,94% of TMI's applicants passed their licensa exams, reflecting a failure rate one-half that of the industry average. It is interesting to note that all four licensed personnel on duty in the Unit 2 Control Roore wher the accident occurred had U. 5. Navy nuclear program experience and each had roughly five years of TMI operating experience. Also, of the ten senior station personnel who arrived on site within three hours of the initiating events on March 28, seven had degrees in engineering or physics, and of those, two had advanced degrees. In fact, of the 42 control room operators, shift supervisors and shif t foremen assigned to TMI,26 have Navy nuclear experience and each has a minimum of three to four years of experience at TMI. Most have more than six years experience at the facility. The only other comparative analysis of reactor operation available to us is contained in the NRC's evaluation of licensees, issued by its Office of Inspection and Enforcement in April 1978 The "re-portable event" frequency data indicates that TMI was average. The subjective judgments of the NRC's inspectors indicated that TMI was above average. Let us reemphasize that the personnel assigned to the station are among the most qualified in the industry. And let us stress, too, that the number of personnel - and the level of operating and maintenance expenditures at CPU's nuclear plants - have been well above the industry average. Specifically, the TMI staff size exceeded that of most similarly designed nuclear stations. A 1978 Edison Electric Institute survey of 27 pressurized water reactor nuclear plants showed that TMI had the second largest identified staff. Further, according to Federal Energy Regulatory Commission reports for 1975 through 1977, TMI 2 1472 161
operating and maintenance expenditures were among the highest for similar plants. All reactor operators will undergo extensive retraining and re-examination with increased emphasis on the basic elements of reactor safety that underlie ;he operating procedures. Additionally, we have requested NRC recertification of our operators. In another action, the NRC on October 26 said it proposes to fine Met-Ed $155,000 for 11 alleged items of non cornpliance with procedures,"four of which," it said," contributed to the severity of the accident." Our response to the allegations will follow a close, internal examination of the record on each item to determine the appsopriate action by the company. TMI CENERATION GROUP STRENGTHENS MANAGEMENT You may recall that in our last quarterly report to stock- holders, we discussed a major move to fur-ther strengthen plant management and technical support at TMI. This past summer, the Company combined technical staffs from Met-Ed and the CPU Service Corporation to form the TMI Ceneration Group. This organization significantly increases the depth of nuclear experience, and more than triples,,from 75 to 250, the number of professionals assigned exclusively to TMI activities. We believe that the size of the CPU System, its resources, number of employees and years of nuclear experience stand in contrast tb the Commission's contention that the Company lacked the knowledge, expertise and personnel to properly operate or maintain TMI. CPU A PlONEER IN NUCLEAR POWER Ours is a utility system comprised of 11,000 employees serving 1.5 million customers. As an early participant in the commercial nuclear power program, and consistent with national policy, we constructed an experimental nuclear reactor in the early 1960's (the Saxton Station), activated the na-tion's first large-scale nuclear plant in 1969 (the Oyster Creek Station), and in 1974 placed the first TM1 unit in commercial operation. With the addition of TMI-2 late last year, the CPU System operated 2,300 megawatts of nuclear, 7,000 megawatts of coal-fired, and only 1,400 megawatts of oil fired capacity. The Oyster Creek and TMI-1 nuclear units have proven to be among the most efficient and produc-tive nuclear facilities,in the nation; combined, these two units had. produced through August of this year over 63 million megawatt hours of electricity. As of February of this year, the CPU Sy' stem ranked fourth among U.S. utilities in total lifetime prc, duction of nuclear generated electricity. As.a result of this nuclear program, CPU saved its customers 5700 million, a figure that has increased rapidly with the continuing escalation of oil prices. But more importantly, our nuclear operations have helped to reduce our dependence on foreign oil. CPU AND INDUSTRY REVIEWING EQUIPMENT, DFor;N AND TRAINING CPU has also cooperated with the electric utility industry's efforts over the past several months to conduct a searching review of equipmmt design, operator training and plant procedures. Efforts began immediately af ter the accident, as individual utilities undertook a thorough audit of their own nuclear plant operations and operator training. This quickly led 'to the formation of a Nuclear Safety Analysis Center (NSAC) to investigate and apply the technical lessons learned at Three Mile Island. In addition, the industry has formed the Institute of Nuclear Power Operations (INPO), a utility-financed organization that will establish benchmarks for excellence in nuclear-power opera-tions, conduct audits to verify that these benchmarks are met, and analyze experience with operating reactors in order to share lessons learned with utilities. < Looking back upon the accident, and with the benefit of that experience, we have identified a number of elements that require strenghthening. As an industry, we concentrated our attention on design features, reliability and operating pro-cedures necessary to maintain the system, at all times, in a safe operating mode. One of the things that will be done with all nuclear plants will be to categorize and identify more clearly those major, significant, telltale indicators that allow the operators to more quickly size up the situation, to evaluate the exact level of potential impact on the local public, and to identify optimum emergency responses. We believe there is a need to improve the mechanism for identifying and evaluating operating ex-periences at all plants, interpreting the experiences in terms of their meaning relative to hardware, procedures and training for safety. We must make sure that all in-service experience is fed back as quickly and as efficiently as possible to the operators of all plants. 1472 162 3
We also hope that potential modifications of the regulatory structure can be accomplished without leading to further chaos in an already troubled national energy program: it is vital to maintain an et-fective source of independent public assurance. COMPANY RECOGNIZES NEED FOR IMPROVED PUBLIC UNDERSTANDING Met-Ed,(along with the NRC), has been criticized - long and hard - for what has been called a
" cover-up" during the first hours and days of the accident. The President's Commission dealt with that:"We do not find that there was a systematic attempt at a ' cover-up' by the sources of informa-tion."
We have learned that,in order for the public to be aHe to live with nuclear power, we must do a better job of increasing their understanding of the facts and terms associated with nuclear technology. The public must be able to sort, evaluate and put into perspective what is being said. SAFETY 15 KEYSTONE FOR NUCLEAR OPTION Despite.the seriousness of the accident, we were pleased to see the Com. mission's conclusion that:
"The radiation doses received by the general population as the result of exposure to the radioactivity released during the accident were so small that there will be no detectable additional cases of cancer, developmental abnormalities or genetic ill-health as a consequence of the accident at TMI."
When we examine all energy sources, whichever way we decide to go has risks. The key is to weigh all factors and put them into the proper perspective. The ultimate reason for nuclear power is not simple economics, it is diversity and domestic supply. But above all, safety must be the keystone to all energy planning and production. The nuclear option should be preserved - not because it is perceived by some in the long run as less expensive but because of the need for diversified, domestic sources of energy. It would be hazardou : for the country if we found ourselves totally dependent on any one supply or energy source. We nee . only look back a few years to the oil embargo and, more recently, to labor interruptions and severe winter weather to see the importance of a diversity of energy sources. We can ill-afford to remain cap-tives of foreign energy supplies, nor can we place all of our hope on our coal reserves, which bear a heavy environmental burden. ' e r NRC HEARING ON TMI-1 OPEN TO PUBI'.C The Nuclear Regulatory Commission will hear comments fr'om the general public at a special, pre-hearing conference on the re-start of Three Mile Island Unit 1 The sessions of the conference that will be open for limited public comment will begin at1:30 P.M. and 7:00 P.M. on November 15 and 9:00 A.M. and 1:00 P.M. on November 16 at: Hershey Little Theater Hershey Community Center Building 14 East Chocolate Avenue Hershey, Pennsylvania Another opportunity for public comments will begin at 9:00 A.M. on November 17 at the Forum in the Education Building, Commonwealth Avenue and Walnut Street, Harrisburg, Pennsylvania. In addition to oral comments, written statements of a reasonable length may be submitted at any session or may be mailed to the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, D.C. 20555, Attention: Docketing and Service Section. Both oral and written . statements will be made a part of the official record of this proceeding. We urge you, as a stockholder, to make known your feeling < concerning the speedy return to ser-vice of Unit 1, an action which has significant importance to you, to your Company, aN to the nation's efforts to cope with its. pressing need for energy. Sincerely yours, [ William C. Kuhns, Chairman and Chief Executive Officer 4 1472 163
Xsus ReBease
~
7e < m ,-- General Public Utilities - ~ Co,po,ation f ' 260 Cherry Hill Road ' Parsopany New Jersey 07054 __s 201 263 4900 ( -
}
Further information: Kenneth C. McKee (201) 263-6500
- November 1, 1979 IMMEDIATELY PARSIPPANY, N.J., November 1 -- General Public Utilities Corporation (GPU) reported that its subsidiary, Metropolitan Edison Company (Met-Ed), today petitioned the Pennsylvania Public Utility Commission for an increase in its levelized energy cost adjustment charge of approximately 6.9 mills per kilowatt-hour.
GPU Chairman William G. Kuhns said the Company's request reflects the rise in fuel costs since the PUC's order of June 15, 1979, especially the incre~ase in the price of oil, in addition to costs related to the anticipated delay in the return of the Company's Three Mile Island Unit I to service. The unit, undacaged in the March 28 accident but out of service since then, will pro.bably not be returned to service until late next year, following
.an extensive series of NRC-sponsored hearings.
The level of increase requested, Kuhns noted, has been held to the minimum necessary, consistent with Met-Ed's ability to finance energy costs being incurred, but not ,immediately
~.
recovered from customers. The request, if granted, would increase Met-Ed's overall charges to Lustomers by 15.7%, or a 12.5% increase to the average residential customer, amounting to about S3.45 per month for a residential customer using 500 kilowatt hours per month. The increase, which is requested to become effective January 1, 1980, would provide the Company with approximately S55 million in addi-tional annual revenues, of which $52 million is for energy costs and $3 million is for additional revenue taxes.
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"In the recent annual review before the Pennsylvania PUC, Met-Ed rates compared favorably with other Pennsylvania utilities.
In rates applicable to the typical residential cust.7mer, as of September 1,1979, our charge for service was third lowest," Mr. Kuhns noted.
"Even with the rate relief requested today, Metropolitan Edison customers' rates will still be below those of a substantial number of other utility customers in the Commonwealth," he con-cluded.
1472 te5
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MewsRe2 ease
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General Public Utilities Corporation
' 'P-7 260 Cherry H.Il Road ; T '
Parsippany New Jersey 07054 '(( f y [ 201 263 4900 y( g y L d.] Further inforrnation Kenneth C . McKee Forrelease Immediately Date October 30, 1979 WASHINGTON, D.C . , October 30 - "The Kemeny Commission conclusions released today lend support to our belief that the Three Mile Island accident involved the entire industrial, technological and regulatory structure of nuclear power," said William G. Kuhns, Chairman of General Public Utilities Corporation. In emphasizing this point he cited the Kemeny Commission's assessment which states that "the accident occurred as a result of a series of human, institutional, and mechanical failures." He also pointed to a recent NRC staff memorandum which said:
"There are several other investigations yet to be completed, which will examine other possible contributing factors, such as activities of designers, reviewers, builders, vendors, and regdlatory agencies. It is most likely that the cause of the accident will be a combination of inadequacies that resulted from all of the foregoing."
Kuhns expressed concern that in the Commission's attempt to report an extremely complicated subject involving an equally complex interrelationship between the utility industry, its suppliers and its regulators, the result has been a series of capsulized statements which, of themselves, do not adequately reflect numerous underlying factors or their meaning. Kuhns observed that the investigation focused sharply on Met-Ed and'made little attempt to evaluate the Company relative to industry practices.
"The accident identified a number of deficiencies that call for improved requirements and performance by all partici-pants. Many of the Commission's broad conclusions are based on criteria which had not been identified prior to the accident or which are not directly related to the accident," he commented.
Nevertheless, Kuhns said the Company is committed to addressing each of the Commission's findings and recommendations. Included among the steps recently undertaken by GPU and Met-Ed, the subsidiary company which operates the Three Mile Island Nuclear Station, are improvements or modifications to the station's equipment, training and operating procedures.
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Kuhns noted that the Kemeny Commission report states:
"The TMI training program conformed to the NRC standard for training. Moreover, TMI operator licensee candidates had higher sores than the national average on NRC licensing examinatirns and operating tests. Nevertheless, the training of the oper-ators proved to be inadequate for responding to the accident." " Based upon performance in NRC exams from 1975 through 1978, the TMI control room operators ranked ninth in a group of thirty similar facilities. These facts attest to their skills,"
Kuhns said. "During that time spa. , 94% of TMI's applicants panned their license exams, reflecting a failure rate one-half that of the industry average."
"It is interesting to note," Kuhns added, "that all four licensed personnel on duty in the Unit 2 Control Room when the accident occJrred had U. S. Navy nuclear program experience ,and each had roughly five years of TMI operating experience.
Also, of the ten senior station personr.el who arrived on site within three hours of the initicting events on March 28, seven had degrees in engineering or physics, and of those, two had advanced degrees."
"In fact," he continued, "of the 4 2 control room operators, shift supervisors and shift foremen assigned to TMI, 26 have Navy nuclear experience and each has a minimum of three to four years of experience at TMI with most having more than six years experience at the facility."
With respect to operator training and support, Kuhns said a graduate engineer vould be on site at Three Mile Island at all times during plant operations to provide assistance and advise shift operating pornonne). He pointed out that this action has already taken place at the Company's Oyster Creek Nuc.lcar Generating Station, operated by its New Jersey subsid-iary, Jersey Central Power & Light Company.
"All reactor operators will undergo extensive retraining and re-examination with ingreased emphasis on the basic element 4 of reactor safety that underlie the operating procedures.
We have t'mo requested unC recertification of our operators,' he added. Kuhns reemphasized that the personnel assigned to the strtion are omong the most qualified in the industry and added that the number of pers.onnel and level of operating and maintenance cxpenditures at GPU's nuclear plants have been well above the industry average. Specifically, the TMI staff exceeded that of most similarly designed nuclear stations. A 1978 Edison Electric Institute survey of 27 pressurized water reactor nuclear plants showed that TMI had the second largest identified staff.
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"According to Federr.1 Onergy Regulatory Commission reports for 1975 through 1977, TMI operating and maintenance expendi-tures were among the highest for similar plants," Kuhns said.
In a major move to further strengthen plant management and technical support, this summer the Company combined technical staf fs f rom Met-Ed and the GPU Service Corporation to form the TMI Generation Group which significantly increased the depth of nuclear experience and more tha- tripled from 75 to 250 the number of processionals assigned exclusively to TMI activities. Kuhns believes that the size of the GPU System, its resources, number of employees and years of nuclear experience stand in contrast to the Commission's contention that the Company lackec the knowledge, expertise and personnel to pror'Ily operate or maintain TMI.
"Ours is a utility system comprised of 11,000 employees serving 1.5 million customers. As an early participant in the commercial nuclear power program, and consistant with national policy, ue constructed an experimcutal nuclear reactor in the early 1960's, activated the nation's first large-scale nuclear plant in 1969, and in 1974 placed the first TMI unit in commercial operation. With the addition of THI-2 late last year, the GPU Sytten operated 2,300 megawatts of nuclear, 7,000 megawatts of coal-fired, ano only 1,400 megawatts of oil-fired capacity. , "The Oyster Creek and TMI-l nuclear units have proven to be among the most efficient and productive nuclear facilities in the nation," he emphasized. " Combined, these two units had produced through August of this year over 63 million megawatt hours of electricity. As of February of this year, the GPU System ranked fourth among U.S. utilities in total lifetime production of nuclear generated electricity." As a result of this nuclear program, GPU saved its customers $700 million.
These savings have increased rapidly with the continuing escalation of oil prices. But more importantly, the need to reduce our dependence on foreign oil is manditory. GPU has also cooperated with the electric utility industry's efforts over the past several montlis to conduct a searching review of equipment design, operator training and plant proce-dures. Efforts began immediately after the accident, as indivi-dual utilities undertook a thorough audit of their own nuclear-plant operations and operator training; then quickly led to the formation of a Nuclear Safety Analysis Center (NSAC), to investigate and apply the technical lessons learned at Three Mile Island. In addition, the industry has formed the Insti-tute of Nuclear Power Operations (INPO), a utility-financed organization that will establish benchmarks for excellence in nuclear-power operations, conduct audits to verify that these benchmarks are met, and analvze experience with operating reactors in order to share 1..isons learned with utilities.
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"Looking back upon the accident, and with the benefit of that experience, we have identified a number of elements that re-quire strengthening. "As an industry, we concentrated our attention on design features, reliability and operating procedures necessary to maintain the system, at all times, in a safe operating node.
One of the things that will be done with all nuclear plants will be to categorize and identify more clearly those major significant tell-tale indicators that allow the operators to more quickly size up the situation, to evaluate the exact level of potential impact on the local public, and to identify optimum emergency responses.
"We have also learned that in order for the public to be able to live with nuclear power, we must do a better job of increasing their understanding of the facts and terns associ-ated with nucicar technology. The public must be able to sort, evaluate and put into perspective what is being said, "Kuhns stated.
Kuhns commented that, desp.i te the seriousness of the accident, he was pleased to see the Commission's conclusion that "The radiation doses received by the general population as the result of exposure to the radioactivity released during the ac-cident were so small that there will be no detectable additiona'l cases of cancer, developmental abnormalities or genetic ill-health as a consequence of the accident at TMI." The utility executive believes that there is a need to improve the mechanism for identifying and evaluating opera-ting experiences at all plants, interpreting the experiences in terms of their meaning relative. to hardware and procedures, and training for safety. Kuhns said, "We must make sure that all in-service experience in fed back as quickly and as efficiently as possible to the operators of all plants." Kuhns expressed hope that potential modifications of the regulatory structote be accomplished without leading to further chaos in an already troubled national energy program.
"It is vital to mitintain an effective source of independent public assurance," he commented.
Kuhns said the nuclear option nhould be preserved - not
?cause it is perceived by some in the long run as less expen-sive but because of the need for diversified, domestic sources of energy. "It would be hazardous for the country if we found our-selves totally dependent on any one supply or energy source.
We need only look bach a few years to the oil embargo and, more recently, to labor interruptions and severe winter weather to see the importance of a diversity of energy sources. We can
- more - \D
4 ill-afford to remain captives of foreign energy supplies, nor can we place all of our hope on our coal reserves which bear a heavy environmental burden. When we examine all energy sources, whichever way we decide to go has risks. The key is to weigh all factors and put them into the proper perspectivo. The ultimate reason for nuclear power is not simple economics, it is diversity and domestic supply," he stated. "But above all, safety must be the keystone to all energy planning and production."
; \h12 \l0
- a
News Re0 ease General Public Utilities [d353-4 #'""'1 1 Corporation ' 260 Cherry Hill Road l hI Parsippany New Jersey 07054 201 263 4900 j [g Y Kenneth C. McKee gjy-Q Further informstron (201) 263- 5235 ' For reicase. IMMEDIATELY Date. October 29, 1979 PARSIPPANY, N.J., October 29 -- General Public Utilities Corporation today announced its financial results for the first nine months of 1979 and for the 12 months ended September 30, 1979. The following tables contain the information: NINE MOHTUS ENDED SEPTEMBER 30 1979 1978 % Change Sales of Electricity (Thousands of MIm) 24,334 23,492 4 Total Revenues (000) $1,104,180 $ 997,344 11 Revenues Other than Those nelated to Energy Costs (000) S 734,950 $ 673,893 9 Not Income (000) S 81,271 S 103,855 (22) Average Commo.1 Shares Outetanding (000) 61,203 60,030 2 Earningc per Average Share $1.33 $1.73 (23) THELVE FIOMTUS ENDEO SEPT :MBEM 30 Sales of E]ectricity (Thoucandc of tiUH) 32,113 30,903 4 Total Revenues (000) S1,433,480 $1,303,854 10 Revenucc Other than Those nelated to Energy Costs (000) S 958,576 S 880,165 9 Net Income (000) S 116,190 S 138,889 (16) Average Common Shares Outstanding (000) 61,096 59,926 2 Earnings per Avorage Share $1.90 $2.32 (18) p Dm r g ' o vy g,
- XX m 1472 171
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- - It senior official -of tictropoittan Edison Ccmpany cc.menting today on alleged violations charged by the hRC in conjunction with the accident at Three liile Island .
ffeclear Station, statcd .while the Ccmpany accepts tharc were deficiencies in the
~ '9
- , . ,implenentation of., required administrative controls, "we don't believe that our reso:trces, technical capabilities, t.anager.cnt competence or dedication o safety
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;. 3 s ,- _-,.. _ , - -Robert C. Arnold, fict-Ed Senior Vice President and head of the -THI Recovery ) Operation,' ' responded 'to the liRC actionidsring a.ipressibriefing conducted thi af terr. con c.t TUI's Observation Center.
The'NRC clieced U itens of non-ccepliance and levied a fine of !155,000 subject to appeal by ilet-Ed. Arnold . Lid that in acceptir.g thet certcia mdicicr:r, in adr, inh.trative controis er.isted,;and . agreeing those t.feficientics m,t be corrected, Met.-Ed's capabilities were
- s... -
generally evahrated as favorch'io before the accident. s "The. tvRC through detailed licensinc and inr.paction of cur activities generally reflected favorably en our capabilitics." he camnted. He.also said '!?t-Ed is dedicned to continuing to approach all lessons learned fro 1 the accident as constructively and opcnly as possible. 9 mm 9 m g -. -
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uctuuer co, 23!9 .: ( 4- ; , "We are confident that as all the issues cre fully aired, the roles of all the ij
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?! :Ccony is evaluated in that setting, that it will be clear that the lessons learned :r ,
I I feca the accident apply generally to the indus.try," cerr.mented Arnold. j;
). Arnold concluded by saying that the Conpany has not cenpleted a thorough revicw )j 2,. i ~ , '-
of :the alleged ittms of non-compliance and anticipates that scme of the ite.ns Day E.} ' :v
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e . October 24, 19,9
~ ? - ."Certainly ve wre disappointed that EPICD?.11 could not ba;;in as schaceled, but. vc have the obligation to the p'M i.c no: caly to get the elesn-up done bu: :o get it done in as safe a way as possible. "When our air bubble problem developed ve. could have etcrted i'PICOR I;. .throuz;h an alternate :::athod, llcwver, w purswd Linc prvble. so that we could '~
keep ottr options open," cc :.r uted Arnold.
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M 9/gr p g g Mews Release Metropolitan Edison Company i ,n ott,. :iw w j i_ F
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ius o..wi ,i rini.ylvanus 10G40 pib upo m.oi m ,a . , , . . , . v, . rurtner information COPetVNICATIO*is SERVICES For release Dato. October 24, 1979 Hews Release #128-79C Metropolitan Edison Comprny and Pennsylvanic Electric Company, operating companies of General Public Uttiitics Corporation, have filed with the Penn ,yl-vania Public Utility Cotr11it.: ion (PUC) a pricirig proposal covering the purchase of power from other utilities in the Pennsylvania-Hew Jersey-Maryland (PJM) power pool. This electricity is used to replace pcuct lost as a result of the Three Mile Island accident. The ihrch 20 tecident resulted in the unavailability of about 1700 megawatts of generating capacity for the GPU System. This power purchase proposal outlines ennrgency energy purchases at a lower cost for GPU cust0mers than would be availcbla urdcr the normal " split sayings" fon::ula used for such power pooling arrangrcnts. The proposal calls for the sale of power at cost plus 10 percent. It is estin:ated that power purch?. sed by GPU under this proposal would lower GPU costs by $3?. niillion in 1980. These savings would be reflected to GPU customers in the threa opersting compr.nies in Pennsylvania and New Jersey under the energy adjustment clauces. Shortly after the TMI accident GPU estimated the cost of replacing the TMI energy at appror.inistely $24 niillion a month. OPEC oil price increases since then have increased that cost by tbout 35 Parcent, or to approximately $32.5 million a month, based on the existing split savings power purchase formula. Under the new proposed forinula, those costs would be reduced to about $30 million a month. The Company stressed that filing: similar to that made before the Pennsylvania PUC would be submitted to other state utility coaaissions who regulate the PJM member ccmpanies. Follo;ing cpproval by these bodies, a filing would then be submitted to the Federal Energy Regulatory ... Comnission for final approval.14 717 2 6
M & S'IS IEG 30 a S e y Metropohtan Ethson Company vu-~ - -- e -- - #- s Pmt Othee box 542 j' 4
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4 Heading Pennsytvano 19G40 E_ l'-- n w3A az:r__ <~ - jEAc"'" b;lj 215 929 3G01 A M phs t a pers, s oli-ci m . w. m ui e . w n. Further intorrrution COMMUNICATIONS SERVICES For release IMMEDIATELY Date October 23, 1979 News Release #127-79C
}
D** 3~ g Jg w o Ju o Ju . d k tftL, Three Mile Island Unit 1 ought to remain in the rate bases of Metropolitan Edison Company (Met-Ed) und Pennsylvania Electric Company (Penelec), according to a statcm:nt filed with the Pennsylvania Public Utility Commission (PUC) October 11. In response to an order to show cause, the statement asserts that the unit has not been taken out of service because it is no longer "useful," but because it has been the object of discriminatory action by the Nuclear Regulatory Coxnission (PRC). The statemer; contends that to take the plant out of the rate base would be "at war with reality," in light of the fact that the companies still need to pay out investment and operating costs of the Unit. It further contends that such an action would be in violation of the Constitutions of the United States and theCommonwealth of l'ennsylvania as well as the Pennsylvania Public Utility Code. Part of the utilitics' 27-page text explains that at the time of the
!! arch 28 accident sustained by its adjoining sister reccior, Unit 1 was not damagcd and had been shut down for routine maintenance. It was not restarted then because that Unit's manpower was needed to assist in coping with the emergency at Unit 2. -more-J} )))
Met-Ed News Releas D*" -
#127-79C Page 2 6" *)D'@'d)"
o Ju ,1 , Three months later, the statement says, Met-Ed advised the NRC of the various actions it proposed to take prior to the re-start of Unit 1. The NRC did not directly respond to that letter. On August 9, however, the NRC adopted a procedure for studying the re-start of Unit 1. The NRC schedule could not be accomplished before July,1980.
"While we are in complete accord that Unit 1 not be started up until we fully assure the NRC of its ability to operate safely, we have urged the NRC to expedite its procedures so this can be accomplished earlier than its present schedule," says lierman Dieckamp, president of General Public Utilities Corp.,
which cuns Met-Ed and Penelec. "He expect to have the technical modifications and necessary training of personnel completed by March,1980." Seven other nuclear power plants using steam supply systems designed and supplied by Babcock & Wilcox Co. (B&W) were ordered shut down following the Unit 2 accident. However, t.ie companies' answer points out, "within a brief time the NRC permitted the IMH tmits other than the TMI unit to restme operation." The :ompanies ati.est to the ability of Unit i to run efficiently and safely, citing its operating r(cord of four and one-half years preceding the accident. The 75 percent interest. o'.med by Met-Ed and Penelec providcd 18.3 million megawatt hours of electric energy in that time period, or e :gh power to proviJe the average annual requiruents of approximately 530,000 residential customers. (Met-Ed has 315,000 residential customers and Penclec has 447,000.) Furthermore, the 78 percent average annual capacity factor of Unit I has consistently been above the national average for nuclear generating units. (Capacity factor refers to the percentage amount of megawatt hours actually generated when compared to the maximum possible full load output.)
-more- }4/2 }78
Met-Ed News Release 4 The reliability of the plant and its production of large quantities of electric power throughout its operating history has been a great benefit to the customers of Met-Ed and Penelec, the companies state. In the face of the Arab oil embargo and later during the 1977-78 coal miner's strike, TMI-l previded an "almost irreplacable supply of electric energy." In terms of cost to its customers, the nuclear unit has been significant in holding down its customers' electric bills. "The average fuel cost of TMI-l energy was less than three-tenths of a cent per kilowatt hour, or approximately one-fifth that of coal-fired energy and one-fifteenth that of oil-fired energy, ' the report states. It indicates that if TMI-l had not been built, the substitute generating capacity would have been from one of the other two r.nurces. From an oil-fired plant, the cost would have been $300 to $400 m' i greater; from coal, the cost would have been about $100 million greater, ti ecport states.
"The economic benefits of Unit 1 hau. impelled dozens of Met-Ed's largest industrial customers to petition the NRC f or an expeditious investigation and prompt re-opening of the plant," Dieckamp [.oints out. "In fact, some of our customers hav; stated they are busing their plans for future expansion in our area upw the future of Unit 1."
The companies' statemant alleges it is " totally incorrect" to assume, as some have done, that Met-Ed's or Penelec s charges to their customers have b6en, are now, or threaten to be, unduly hi Jh. In a series of charts presented with the response, they point out that in terms of the nenber of residents of the Comuonwealth, the majority are paying ' higher costs per kilowatt hour for electric service" than the customers of Met-Ed or Penelec.
-more- \
Met-Ed News Release hjr' #127-79C 260 Page 4 Par: 201 Funt An additional point listed by the company is that of recent precedents in Rx t - In decisions handed down in 1978 and earlier this year, other PUC decisions. the Commission allowed two other Pennsylvania electric utilities to retain in their rate base plants which were out of operation for lengthy periods to makt modifications. RHH Note: For a recorded massage oa this subject, please call (215) 921-2959. D**0 oo e
@'{ JQ' M .SJ..\ L . )472 180 e
5 e
SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934. For Quarter Ended September 30, 1979 Cocmission file number 1-3292 GENERAL PUBLIC UTILITIES CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 13-5516989 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Interpace Parkway Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 263-6500 260 Cherry Hill Road, Parsippany, N.J. Former name, former address and former fiscal year, if changed since 1 cst report. Common shares outstanding as of September 30, 1979 were 61,263,654 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(di of the Securities Exchange Act of 1934 during the preceding 12 uonths (cr far such shortar period that the Registrant was required to file such reports), and (2) has been subject to such filing require-ments for the past 90 days. YES X NO 1472 iBI
Part I - Financial Information Company For Which Report is Filed General Public Utilities Cr rporation Financial Statements The required financial statements appear on the following pages of the Quarterly Financial Statements attached herewith as Exhibit A: page Balance Sheets 3 Statements of Income 4 Statements of Sources of Funds Used for Construction 5 The statements (not examined by independent certified public ac-countants, reflect all adjustments (which consist of only normal recurring accruals - reference is made to Note 9 which discusses accruals recognized with respect to the nuclear accident) which are, in the opinion of the Corporation, necessary for a fair statement of the results for the interim periods, subject to the recoverability of costs deferred and the ultimate resolution of the various matters pertaining to the nuclear accident dis-cussed in Note 9. The September 30, 1979 financial statements do not reflect any provision for any possible loss which might result from the nuclear accident at described in Note 9 to financial statements. Management's Comments on Quarterly Income Statements Attached herewith as Exhibit B 1472 182 O
' Exhibit A Quarterly Financial Statements September 30,1979*
General Public Utilities Corporation 100 Interpace Parkway, Parsippany, N.J. 07054 * (201) 283-6500 Jersey Central Power & Light Company Metropolitan Edison Company Pennsylvania Electric Company These statements are not furnished in connection with any of fering of securities or for the purpose of promoting or influencing the sale or purchase or securities.
- No provision has been maac in these financial statements for any possible loss resulting from the nuc! car accident at Three Mile Island Unit 2, inasmuch as the amount thereof, if any, is not deter-minable at present.
1472 183 6
CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Condensed Consolidated Balance Sheets (in Thousands) September 30, September 3C, 1979 1978 ASSETS: Utility Plant (at orismal cost)(Note 9) in servece, unoer construction and held Ior future use Less. accumulated depreciation (Note l) $4.985.764 54.697.741 945.110 835 027 Net 4.040.654 3.862.714 Nuclear fuel (Note 8) Less, accumulated a mortaa tion (Note 1) 224.319 232.921 43.163 60.214 Net Nuclear f uel 181.1 % 172.707 Net Utility Piant 4.221.810 4.035.421 Eacess of snvestments m subsidiarees ov related net assets . 30.805 30.805 investments . 21.165 21.1 % Corrent Assets: Cash .- Accounts receivable, net . 13.235 20.797 Othe' . 129.595 114.512 234.992 171.256 Totals 377.822 2 %.565 Deferred Debits: Deferred energy costs (Notes 1,7 and 9) 151.968 %.514 Unamortued mene development costs (Note 1) . 7.902 9.0 71 Deferred costs - nuclear accedent (Note 9) 67,775 Other(Note 9) . 123.248 47.290 Totals 350.893 152.875 Total Asseis 55.002.495 $4.4%.822 LIABILITIES AND CAPITAL: Long Term Debt, Capital Stock and Consolidated f urplus: Long Term Debt-Ferst mortgage bonds Debentures . 51.827.177 51,768.156 Other long-term debt . . 233.700 239.600 Unamortued net discount on long term debt . 54.115 60.746 (4.672) (5.81 3) Totals 2.110.320 2 062,689 Non redeemable cumulative preferred stock, includmg premium, net of expense Redeemable cumulative preferred stock, net of expense - 422,868 422,037 Common stock and consohdated surplus (Note 4) 66 %1 93 % 5 Common stock less reacquired common stock Consolidated capetal surplus 153.159 151.127 Less capitalstock expense 772.538 760.2 % Consohdated retamed earnmgs (Note 5) 17.978 17.720 486.376 455.562 Totals 1.394.095 1.349.235 Totals 4 015.844 3.927.526 Current Liabilitees: Securities due withm one year to be ref manced Notes payable to banks (Note 3) 72.158 22.275 Accounts payable 229.700 42.750 Other . 112.209 78.393 113.748 122.055 Totals Deferred Credits and Other Liabilities: 527.815 1$ Deferred mcome tanes(Notes 1 and 6) 180,326 278.212 Unamortued mvesiment credits (Notes 1 and 6) 123 469 99,513 Insurance recoverses nuclear accident (Note 9) 19.900 Other 37.255 23 942 Totals 458 836 303.823 Commitments and Contengencies (Notes 8 and 9) Total Lia bilities and Capital 55.002.495 $4.4%.822 The accompanying notes are an entegral part of the fmancial statements 13)
\412 W
CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of income On Thousands) Three Months None Months Twelve Months Ended Septeerber 30. Ended September 30. Ended September 30, 1979 1978 1979 1978 1979 1978 Operating Revenues
$383.927 5336.278 51.104.180 $997. 344 51 433 480 51.303854 Operating Espenses.
Fuel. 88,163 81.928 260.174 248.670 337,589 311.191 Power purchamed and enterchanged, net 64.449 23.482 176.243 95.194 214,789 133.211 Deterral of energy costs. net (Notes 1 and 7) (6.403) 2.852 (49.030) (8.302) (58,644) Payroll . (4.413) 34.233 32.464 99.572 94.886 131.849 122.638 Other operateon and mamtenance lencludmg payroll) 41.420 42.725 127.474 124.2 % 182.629 160.4 % Depreciatson(Note 1) . 35.141 27.016 105.772 81.319 133.959 Tases, other than income tames . 106.188 35.532 32.553 110.690 98.622 141.930 128 608 Totals . 294.535 243.020 830.895 734.655 1.084,101 957.919 Operatms income before income Tames . 89.392 93.258 273.285 262.689 349.379 345.935 income Tames (Notes 1 and 6) . 16.172 26.619 59.795 73.407 70.741 94.857 Operating ancome 73.22C 66.639 213.490 189.282 278.638 251.078 Other income and Deductions: , Allowance for other funds used durmg construction (Note 2) . 7.019 13.276 19.305 38.311 30.881 31.223 Other income, net . 2.337 628 4.934 2.442 income tames on other income, net (Notes 1 and 6) . 6.174 2.788 (1.4 51) (495) (2.736) (1.760) (3.436) (2.160) 1otal Other laceme and Deductions . 7.905 13.409 21.503 38.993 33.619 51.851 wense Belore interest Charges and Preferred Dividends . 61.125 80.048 234.993 228.275 312.257 3C2.929 Interest Charges and Preferred Dividends: Interest on first mortgage bonds . 37.233 33.193 105.872 97.456 Interest on debentures and other long term debt . 139.877 128.148 5.972 5.891 17.995 17.818 Other interest . 24.036 23.849 7.478 1.830 14.545 4.666 Allowance for borrowed fundi used durmg construction - 14.407 6.043 credit (net of taa)(Note 2) (4.433) (5.916) (12.507) (17.130) (17.632) income tases attributable to the allowance for (22.608) borrowed f unds [ Notes 2 and 6) . (1,615) (3.941) (4,915) (11,358) (8.315) Preferred stock dividends of subsidiarees (15.120) 10.899 10.977 32.732 32.968 43.694 43.728 TotalInterest Charges and Preferred Dividends 55.534 42.034 153 722 124.420 196 067 164.040 Net income
$_25.591 5 38.014 5 81 271 5103 855 5116 190 5138 889 Earnings Per Average 5 hare . -
5 Average number of shares outstanding during each period 5 M3 5 173 5 1 90 5 2 32 g g 61.203 60 030 61 096 __59 926 Cash Dividends Per Share 5 Consolidated Statements of Retained Earnings 25 5J 5 95 5 1.32 Qa0 5 1 76 Balance, begenmg of period. Add. pet encome . 5476.100 5444.020 5463.173 5430.822 5455.562 5421.995 25.591 la 014 81.271 103 855 116190 138 889 Totals 501.691 482.034 544.444 534.677 571.752 560.884 Deduct, dividends on Common 5tock 15.315 26 472 58 068 79115 85.376 Balance.end of period (Note 5). 105.322 5486 37L $455.562 5486.376 5455.562 5486.376 5455.562 The accompanyms notes are an mtegral part of the fmancial statements TA72 M
CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of Sources of Funds Used for Construction (in Thousands) Three Months Nme Months Twelve Months Ended September 30 Ended September 30, inded Septesudser 30 m h 1979 1978 1979 1978 Sources of Funds: Funds generated from operations het income . 5 25.591 5 38.014 5 81.271 5103.855 5116.190 5138.889 Add. stems not recuerms current cash outlay or (receipt). Depreciation (Note 1) ' 35.141 27.015 105.772 81.31 9 133.959 106.188 Arnortizatson ci nuclear f uel(Note 1) 4.256 5.503 17.203 17.565 21.082 24.487 invastment credita, net (Notes 1 and 6) (1.187) 5.904 (3.586) 16,744 21.403 30.932 Deferred income taxes, net (Notes 1 and 6) . 11,514 2.794 54.001 23.716 88.279 29.170 Allowance for other funds used durms construction (Note 2) (7.019) (13.276) (19.305) (38.311) (30.882) (51.223' Totals 68.296 65.954 235.356 204.888 350.031 278.443 Less, cash devidends on common stock 15.315 26 472 58.068 79.115 85.376 105.322 Totals . 52.981 39.482 177.28* 125.773 264.655 173.121 Other sources (uses) Def erred energy costs. net (Notes t and 7) (4.403) 2.852 (49.030) (8.302) (58.644) (4.413) Changes en -cash 5,235 (2.256) 4.745 7.562 3.494 9.178
-temporary cash investments (49.300) 17.001 (98.800) 3.089 4.939 (98.800) -accounts receivable 15.390 (8.325) 21.194 (7.512) (15.082) (13.314) - accounts payable 8.418 (5.673) 17,756 (3.674) 33.815 13.951 - mventories - ma terials. supplies a nd f uel . (5.979) (9.871) (25.887) 14.802 (22.406) 19.134 -interest accrued . 3.066 [514) 1,776 (1.455) 3.362 (90) -tames accrued . (16.674) 11.565 10.474 12.679 (10.051) 16.648 Other. net (29.450) 20.066 (60.302) (7.661) (46.700) (18,173)
Totals . (73.697) 24.845 (178.074) S.460 (206.944) 27.860 Funds from fmancmss - . Sale of long-term debt . 50.000 106.300 154.082 106.300 202.752 Sale of preferred stock . 50.000 Sale of common stoca, net o( expense (Note 4) (47) 5,223 4,777 13.004 14.046 17.998 Bank borrowmss. net 89.650 (22.254) 145.850 (25.275) 195.750 (87.105) Ret,rement or redemption of lonrterm debt and pref erred stock (4.163) (8,048) Totals . (15.904) (25.997) (22.815) 33) 85.440 24.921 241.023 115.R14 293.281 153.448 Totals . 5 64.724 5 89.248 5240.237 5247.047 5350 992 5354 429 Construction tspendisures: Utihty plant . 5 47.648 5 89.878 5198.141 5259.115 5315.839 5359.094 Nuclear fuel 24.095 12 646 61 401 26.243 66.035 46 558 Totals 71.743 102.524 259.542 285.358 381.874 405.652 Allowance ior other f unds used durms con truction(Note 2) (7.019) (13.276) (19.305, (35.311) (30.882) (51.223) Totals 5 89 248 5240 237 5247.047 5354 429 5 64_72_4 5 _350 992 - The accompanymg notes are an integral part of the imancial statements 151 1 A72
JERSEY CENTRAL POWER & LICHT COMPANY Condensed Balance Sheets (in Thousands) ASSETS: september so, scoiember so, Utility Plant (at orismal cost)(Note 9) 1979 1978 in service. under construction and held ior f uture use 12.066.487 51.886.574 Less, accumulated depreciation (Note 1) 357.831 315 410 Nel 1.708 656 1.57116/ Nuclear fuel (Note 8) . 139.571 12c.430 Less, accumulated emrtirateon (Note 1) 32 076 % 09 Net Nuclear Fuel . 107.495 92.339 Net Utility Plant . 1.816.151 1.663.503 Investments 366 454 Current Assets: Cash 7.988 846 Accounts receevable, net . 64.374 48.039 Other. 65.214 44 042 Totals 137.576 92.877 Deferred Debits: Def erred energy costs (Notes 1,7 and 9) 81.146 41.012 Def erred costs- neclear acedent (Note 9) . 16.944 Other(Note 9) . 40.633 21.444 Totals . 138.723 62.456 7otal Asseis 52.092.816 51.819.340 LIABILITIES AND CAPITAL: Long Term Debt, Capital Sicck and Surplus: First mortgage bonds . 5 752.618 5 725.195 Debentures 81.080 83.160 Other long term debt - 10.465 15.746 Unamortised net discount on long term debt (2.429) (3.498) Non redeemable cumula tive pref erred stock, mcludeng premium. net of expense . 161.631 1 61.1 % Redeemable cumulatrve preierred stock, net of expense 43402
, 41 Q65 Totals 1.044.430 1.025.201 Common stock and surplus.
Common stock . 153.713 153.713 Capetalsurplus . 436.989 373.489 Retained ea mings (Note 5) 48110 29 517 Totals 638 812 555 719 Totals 1.683.242 1.580.920 Current Liabilities: Securities due within one year to be refmanced 35.846 16.790 Notes payable to banks (Note 3) . 90.600 12.900 Accounts payable 54.173 34.608 Other . 53.567 56.076 Totals 234.186 120.374 Deler ed Credits and other Liabilities: Def es red income taxes (Notes 1 and 6) 109.721 63.583 Unarwwtired mvestment credits (Notes 1 and 6) 50.076 43.460 Insurence recoveries nuclear accedent(Note 9) 4.975 Other . 10.616 11.003 Totals 175,388 118 046 Commitments and Centingencies (Notes 8 and 9) Total Liabilities and Capital 52 092 816 51.819.340 The accompanying notes are an entegral part of the financial statements. k
l l JERSEY CENTRAL POWER & LIGHT COMPANY Statements of income (in Thousands) Three Months Nine Months twenve Months Ended September 30, Ended September 30 Ended September 30 1979 1978 1979 1978 1979 1978 i Operalong Revenues $185.594 5161.747 5490 548 5451.352 5630 491 5589.582 Operating Espenses. F uel . 31.1 54 27.186 79.070 82.823 94.028 101.477 Power purchased and mterchanged. net. Affileates 20.653 10.018 36.376 16.022 50.7 % 18.287 Others 20.553 18.957 92.909 53.534 127.418 75.388 Deterral of energy costs. net (Notes i and 7) 484 (1.983) (24.741) 7.426 (43.323) 13.142 Payroll 13.723 11.842 39.365 35.801 52.152 46.146 Other operation and mamtenance(eaciudmg payroll) 17.597 17.544 52.560 51.094 79.472 66.622 Depreciation (Note 1) . 14.238 11.546 42.922 34.734 54.081 45.701 Tanes. other than 6n come taxes . 23.992 18 424 69.236 54.803 86.265 71.727 Totals . 142,394 113 534 387.697 336.237 500.919 438 490 Operatma income bet ere income Tames . 43.200 48,213 102.851 115.115 129.572 151.092 income Temes(Notes *! and 6) . 8746 14.264 20 226 29 $87 23116 38 549 Operating income . 34454 33 949 82.625 85 528 106.456 112.543 Other income and Deductions: Allowance f or other f unds used durms construction (Note 2) . 6.326 4.818 16.946 13.806 21.6 58 17.623
' Other encome. net. 94 8 301 958 841 9 31 income taxes on other encome, net (Notes 1 and 6) . (71 8) (7%)
(1 44) (77) (1 91) ]4]) Total O ther income and Deductions - 6.27o 4.749 17.056 14.046 22.061 17.758 lacome Before laterest Charges 40 730 38 698 99 681 99 574 128.437_ 130.301 Interest Charges: Interest on first mortgage bonds . 16.083 14.581 45.327 43.495 59.888 57.061 Interest on debentures and other long term debt 1.750 1.869 5.341 5.71 8 7.197 7.661
- Other mierest 3.375 188 7.227 321 7.810 568 Allowance f or borrowed f unds used durms construction -
credit (ret of tan)(Note 2) (3.701) (2.978) (9.852) (8.601) (12.553) (11.308) income tanes attributable to the allowance for borrowed lunds(Notes 2 and 6) (930) (568) (2.462) (1.567) (3.077) (2.032) i Total enterest Charges . 16.577 13.092 45.581 39.366 59.265 51.950 Net income 24.153 25.606 54.100 60.208 69.272 78.351 Preferred Stock Dividends 4.666 4.708 13.999 14.125 18.693 18.580 tarnings A.ailable for Common Stock 519.487 520.898 540.101 546.083
- 550.579 559.771 Statements of Retained larnings Balance, besmnma of period 528.637 524.633 520.023 520.448 528,517 529.110 Add net mcome . 24.153 25 606 54100 60.208 69 272 78.351 Totals . 52.790 50.239 74.123 80.656 97.789 107.461 Deduct Cash dmdends on common stock 17.000 12.000 38.000 31.000 60.000 Cash devidends on cumulative preierred stock 4 680 4.722 14 013 14.139 18.679 18.944 Totals 4 6AO 21 722 26 013 52.139 49.679 78 944 Balance.end of per od(Note 5) 548110 528 %17 54A110 528 517 548 110 528 517 The accompanying notes are an mtegral part of the fmancial statements I7)
T A72188 !
JERSEY CENTRAL POWER & LIGHT COMPANY Statements of Sources of Funds Used for Construction fin Thousands) Three Months Nine Months Twe6ve Months Ended September 30. Ended September 30. Ended September 30. 1979 1978 1979 1974 1979 1974 Sources of funds: Funds generated from operations het mcome S 24.153 $ 25.606 5 54.100 5 60.208 5 69.272 5 78.351 Add. stems not requirint current cash outlay or (receipt) Depreciation (Note l) 14.238 11.546 42.922 34.734 54.081 45.701 Amortgateon oi nuclear f uel(Note i) 4.255 3.370 12.213 12.550 13.760 17.249 investment credits, net (Notes 1 and 6) (551) 4.690 (1.628) 12.189 4.999 15.740 Def erred mcome tases. net (Notes 1 and 6) 1.792 2.839 21.024 2.737 42.414 2.221 Allowance for other funds used during construction (Note 2) (6.326) (4 818) (16946) (13.806) (21 658) (17.622) Totals . 37.561 43.233 111.685 108.612 162.868 141.640 Less, cash devedends -common stock 17.000 12.000 38.000 31.000 60.000
-preferred stock 4.680 4,722 14 013 14.139 18.679 18 944 Totals . 32.881 21.511 85.672 56.473 113.189 62.69t>
Other sources (uses) Def erred energy costs, net (Notes 1 and 7) 484 (1.983) (24,741) 7.426 (43.323) 13.142 Chanses m -cash 3.089 (301) (5.687) 1.21 9 (7.142) 3.063
-temporary cash mvestments (7.000) 17400 (7.000) 2.989 i7.000) 2.989 -accounts recervable 6.635 (2.230) (4.665) (1.178) (16.335) (1.8 21) -accounts payable (511) ti.%9) 4.116 (2.398) 19.564 11.343 -inventories-materials. suppl.es and f uel ($98) (2.1 66) (9.040) 2.479 (11.555) (778) -mterest accrued . 511 (2.090) 452 (3.163) 2.987 (2.365) -tanes accrued . (20.571) 554 12.169 M 734 (6.799) 17.044 Other. net . (8.941) 1.%5 (18.014) (1.635) (10.000) (5.002)
Totals . (26.902) 8.780 (52 410) 20 473 (79 603) 37.61 5 Funds from imancmss. Sale of long term debt . 56.300 50.382 56.300 50.382 Sale of preferred stock an typ Bank borrowmss. net 30.600 12.900 36.500 12.900 77.700 (22.200) Retirement ce redemption of long term debt and preferred seock (2.022) (1.677) (11,810) (11.710) (18.420) (14.930) Cash contribut.ons f rom General Public Utilit.es Corporation. parent company 10.000 29 500 10 000 63.500 30 000 Totals 28.578 21.223 110.540 61 472 179 040 93.252 Totals . $ 34.557 5 51.514 $143.852 $138 418 5212.666 $193.563
- sammus= uman:ms: m::-a:== mammma Construction Espenditures:
Utility plant S 27.961 5 $1.840 5125.424 5139.275 St %.434 1186.851 Nuclear fuel 12.922 4 492 35.374 17 949 37.890 24.334 Totals . 40.883 56.332 160.798 152.224 234.324 211.185 Allowance for other f unds used durmg ronstsuction (Note 2) (6.326) (5.818) (16 946) (13.806) (21.658) (17.622) Totals . S 34 557 5 51 514 5143.842 $138 418 5212 666 $193.563
===== s- - -
The accompanying notes are an entegral part of the (mancial statements [8] 1472 189
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Condensed Consolidated Balance Sheets (in Thousands) September 30, I tytemaner 30 ASSETS: " '' Uti6 sty Plant (at original costINote 9). In service, under construction and held f or f uture use 51.313.484 51.273.240 Less, accumulated depreciation (Note 1) 234 468 203 892 Net 1 079 016 1.069.348 NuCleer f uel(Note 8) 55.980 69.308 Less, accumulated amortization (Note 1) 7 399 1h G73 Net Nuclear f uel . 48 ~81 53.235 Net L'T*;ty Plant . 1.127.597 1.122.581 investments . 659 665 Current Assets: Cash 1.258 2.583 Accounts receivable, net 43.885 23.449 Other . 40 953 35 285 Totals 86.096 61.317 Deferred Debits: Def erred energy costs (Notes 1. 7 and 9) 56.765 26.710 Def erred costs- nuclear accident (Note 9) 33.887 Other(Note 9) . 49 964 7.4 54 Totals 140 616 34164 Total Assets 51.354.968 51.218.729 LIABILITIES AND CAPITAL: Long Term Debt, Capital Stock and Consolidated Surplus: Forst mortgage bonds , 5455.773 5463.018 Debentures 82.580 84,560 Unamortased net discount on long-term debt . (1.598) (1.649) Nor> redeemable cumulative preferred stock, including premium . 139 874 139.874 Totals 676 629 685.803 Common stock and consolidated surplus-Common stock 66.273 66.273 Consolidated capital surplus 280.524 280,524 Consolidated retained earnings (Note 5) . 31.533 34.782 Totals 37F 330 3M 579 Totals 1.054.959 1.067.382 Current Liabilities: Debt due within one year 7.764 362 Notes payable to banks (Note 3) 88.200 24.150 Accounts payable 32.350 17.107 Other 15*10 24 198 Totals 144.214 66 017 Delerred Credits and Other Liabilities: Deterred oneome tases(Notes 1 and 6) 99.303 59.699 Unamortised envestment credits (Notes 1 and 6) 32.535 21.073 insurance recoveries nuclear accident (Noic 91 9.950 Other 14 007 4.358 Totals 155 795 85.230 Commitments and Contingencies (Note 8 and 9) Total Liabilities and Capital 51.354 r*68 51.218 729 The accompanying notes are an inte ral part of the financial statements 191
)Y
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of income On Thousanda Three Months hane Months Twelve Months Ended September 30 Ended Septembee 30. Ended September 30. 1979 1978 1979 1978 1979 1978 Operating Revenues 585.846 576.237 5250 525 5231.525 5329.580 $303 % Operatsng Espenses: Fuel 15.730 21.109 56.253 64.825 75.302 64.803 Power purchased and mterchanged, net: Affiliates . 21 6 (2.614) (1,013) (4.024) (4.721) (7.547) Others . 31.334 2.956 62.047 20.853 66.421 23.913 Deferralof energy costs. net (Notes t and 7) (12.849) 1,074 (33.544) (13.478) (30.055) (13.045) Payrol! . 8.783 8.553 25.481 25.352 33.899 32.792 Other operation and maintenance (enc!udmg payroll) . 9.734 9.150 31.415 29.479 43.266 38.369 Depreciation (Note 1) . 9.370 6.095 28.263 18.178 35.570 24.014 Tanes. other than mcome tanes 4.484 6.263 16 711 19.278 22.723 25034 Totals . (4802 52.586 185.613 160 463 242.405 208.333 Operateg income before income Taxes . 19.044 23.651 64.912 71.062 87.175 95.233 income Tauts (Notes 1 and 6) 1 087 7.768 10192 22.951 14.703 30 353 Operating income . 17.957 15,883 54.720 48 111 72 472 64 880 Other income and Deductions: Allowance ior other f unds used durms construction (Note 2) 235 5.701 908 16.350 5.440 21.481 Otherincome net. 238 9 673 4 746 (111) Income tanes on other mcome, net (Notes 1 and 6) . (87) (7) (291) (15) (304) 44 Total Other income and Deductions . 386 5.703 1.290 16.339 5.882 21 414 nacome Before Interut Charges 18.343 21.586 56.010 64.450 78.354 86.294 Interest Charges: Interest on forst mortgage bonds . 8.816 7.745 26.447 23.144 35.263 30.699 Interest on debentures 1.655 1.670 4.976 5.068 6 638 6.770 Other interest 2.377 1.481 4.644 3.102 5.361 3.749 Allowance for borrowed funds used durmg construction - credit (net of tan)(Note 2) (456) (1.812) (1.775) (5.195) (3.245) (6.539) Income taxes attributable to the allowance for borrowed lunds (Notes 2 and 6) f189) (2.080) f1.512) (5967) (3.202) (7 602) Totalinterest Charges 12 003 7.004 32.780 20152 40 815 27 077 Net lacome 6.340 14.582 23.230 44.298 37.539 59.217 Preferred Stock Dividends 2.573 2.573 7.717 7.717 10.289 10 289 Earnings Available for Common Stoch . Sg SLon9 Sg 536 581 527 250 54A.928 Consolidated Statements of Retained Larnings Balance, besmnmg of period $27.766 530.773 523.020 $22.701 534.783 523.854 Add. net income 6.340 14.582 23 230 44.298 37.53_9 59.217 Totals 14.106 45.355 46.250 66 999 72.322 83 071 Deduct. Cash dividends on common stock 8.000 7.000 24.500 30.500 38.000 Cash cividends on cumulateve preferred stock 2.573 2 573 7 717 7.717 10.289 10 2p Totals 2.573 10 573 14 717 32.217 40.789 48 289 Balance, end of period (Note 5) Sg Sg2 531 533 S34 782 g 534 782 The accompanying notes are an mtegral part of the (mancial statements. 3472 W
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Sources of Funds Used for Construction (in Thousands) Three Months Nme Months Twelve Months Ended Septemoer 30 Endedyeg tember 30, inded September 30, 1979 1978 1979 1978 1979 1978 Sources of Funds: Funds generated from operations Net encome S 6.340 $14.582 523.230 544.298 537.539 559.217 Add stems not reoumns current cash outlay or (receipt) Depreciatoon(Note 1) 9.370 6.095 28.263 18.178 15.570 24.014 Arnottuation of nuclear fuel (Note 1) 1.422 3.340 3.345 4 897 4.827 investment eredits. net (Notes 1 and 6) (271) 235 (897) 1.306 11.128 3.376 Def erred encome taxes, net (Notes 1 and 6) 11.850 1.398 28.527 13.448 35.546 15.397 Allowance for other funds used dunns constructson (Note 2) . (235) (5.701) (908) (16.350) (5.440) (21.481) Totals 27.054 18.031 81.555 64.225 119.240 85.350 Less. cash devedends-common stock . 8.000 7.000 24.500 30.500 38.000
-preferred stock 2.573 2.573 7 717 7.717 10.289 10.289 Totals 24.481 7.458 66 838 32.008 78.451 37.061 Other sources (uws)
Def erred energy costs. net (Notes 1 and 7) (12.849) 1.074 (33.544) (13.478) (30.055) (13.045) Changes en -cash (225) 754 5.145 2.071 1.325 7.318
- temporary cash envestments (2.100) (4.600) (4.600) -accounts receivable (7.029) (4.700) (8.210) (4.076) (20.437) (2.432) -accounts payable 4.808 (2.790) 14.165 2.818 15.243 3.607 - enventories-materials, suppl es and f uel (4.215) (4.448) (4.630) 1.283 (4.71 4) 6.023 -interest accrued (4.408) (3.309) (4.637) (2.524) (426) 1.231 -tanes accrued (465) 6.374 (2.732) (7.211) (4.088) (1.167)
Other. net . (25 322) 7 864 (35 847) (5.104) (34 991) (6.553) Totals . (51.805) 819 (74 890) (26.221) (82.743) (5 01 A) Funds from imancings Sale of long-term clebt 50.000 58.703 93.700 Bank borrowings. net 42.750 (34.700) 52.700 (7.100) 64.050 (44.650) Retirement or redemption of long term debt (1.520) (5.420) . (1.M1) (3.540) (1.822) (6 000) Totals 41.230 9 880 $1059 46 060 62 22A 43 050 Totals 5 13 906 5181U S 43007 5 51 847 5 $7.936 5 75 093 Construct.on tapenditures: Utility plant S 6.717 5 18.487 5 26.625 5 59.433 S 44.648 5 81.977 Nuclear f uel 7 424 U 71 17.290 8.764 18.728 14 597 Totals 14.141 23.858 43.915 68.197 63.376 96.574 Allowance for other f unds used durms construction (Note 2) (235) (5.701) (908) (16.350) (5 440) (21.481) Totals . 5 13 906 S 18157 5 -43007 5 51.847 5 57.936 5 75.093 mammma en-ar.: - - The accompanying notes are an entegral part of the financial statements [ 11 ) 1472 N
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Condensed Consolidated Balance Sheets (in Thousands) September 30. September 30 1979 1978 i ASSETS: 51,522.404 51.579.264 Utility Plant (at ongmal cost)(Note 9) 350 664 314.152 in service. under construction anci Mid ior f uture use 1.228 600 1.208.252 Less, accumulated depreciateon (Note 1) 35,183 Ne 28.768 3 687 8 050 Nucleariuel 25 081 27.133 Less, accumulated amortization (Note 1) _ 1.253 681 1.235.385 Net Nuclear f uel Net Utility Plant 20.140 20 037 6nvestnients 2.%3 11.6t7 ~ Current Assets 47.117 4a.323 Cash. 129169 41.764 Accounts recervable, net . 97 774 179.249 Other . Totals 14,057 28.792 Delected Debits: 7,902 9.071 Def erred energy Costs (Notes t. 7 and 9) 16.944 Unamortired mme development costs (Note 1) 30 067 14 862 Deterred costs nuclear accident (Note 9) 68 970 52 725 Other(Note 91 51 405 921 Totals 51 522.040 Total Assets LIABILITIES AND CAPITAL: 5618.786 5 579.944 Long Term De% Capital Stock and Consolidated Surples: 70.040 71.880 First mortgage bonds . (644) (666) Debentures 121.363 120.968 Unamortised net discount on long-term debt 47 4 % SO 163 Norvredeemable Cumulative pref erred stock, includmg premium, net of expense 822.289 Redeemable esmulauwe pref erred stock. net of expense 857 041 Totals 105.812 105.812 Common stock and consolidated surplus. 266.530 266.530 Common stock 54 652 33758 Consolidated capital surplus 406.100 Consolidated retamed earnmgs (Note 5) 426.994 1.284.035 1.228.389 Totals Totals 15.648 2.373 Current liabilities: 5.500 Secuntes due within one year to be ref manced 34.339 29.725 Notes payable to banks (Note 3) 61 212 40 025 Accounts payable ?7 623 111.199 Other Totals 68.8 % $6.846 Delerred Credits and C. .
*r Liabilities: 34.980 40.858 Deferred encome tanestN .cs1 and6) 4 975 8 083 Unamortised investment credits (Notes 1 and 61 12 077 Insurance recoveries nuclear accident fNote 9) 126 806 99 909 Other Totals 51.522 040 51.405.921 Commitments and Contmgencies (Notes 6 and 9)
Total Liabilities and Capital The accompanyms notes are an mtegral part of the fmancial statements.
" 1472 193
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of income (in Thousands) Three Months Nme Months Twelve Months Erwied September 30. Ended September 30. Endnt September 30, 1979 1978 1979 1978 1979 1978 Operatang Revenues $113 991 599.928 5367.599 $319 957 5479.3 % S418.102 Operating Espenses: Fuel 41.279 33.633 124.851 101.021 168.259 124.912 Power purchased and enterchanged, net Affelsates . (20.869) (7.404) (35.363) (11.998) (46.075) (10.740) Others 12.562 1.569 21.287 20.807 20.950 33.909 Deferral of energy costs. net (Notes 1 and 7) 7.%1 3.763 9.255 (2.249) 14.734 (4.51 0) Payrcil . 11.726 12.069 34.726 33.733 45.768 43.700 Other operatson and mamtenance(excludmg payroll) . 14.790 16.% 2 45.730 47.192 63.010 60.281 Depreciation (Note 1) . 11.535 9.377 34.587 28.408 44.307 36.474 Tames, other than income taxes . 6.990 7.759 24.518 24 220 32.612 31.376 Totals . 85.974 77.728 259 591 241.134 341.565 315.402 Operating income before lacome Taxes . 28.017 22.200 108.006 78.823 135.831 102.700 income Tames (Notes 1 and 6). . 6.337 4.587 29.376 20 469 32.923 25.956 Operating income . 21 680 17.613 78 632 57.954 102.908 76 744 Other income and Deductions: Allowance f or other f unds used durms construction (Note 2) . 456 2.755 1.450 8.1 54 3.784 12.120 Other encome. net . 2.006 611 3.%1 1.480 4.587 1.971 income tases on other encome, net (Notes 1 and 6) . (1,21 9) (411) (2.253) (1.02') (2.714) (1.4(TI) Total Other income and Deductions 1.245 2 955 3.158 8 607 5.657 12 682 lacome Before laterest Charges . 22.925 20.5a8 81.790 66.561 108.565 89.426 Interest Charges: Interest on ierst mortgage bonds 12.334 10.865 34.098 30.816 44.726 40.387 Interest on debentures 1.285 1.318 3.883 3.978 5.186 5,314 Other interest . 529 350 1.009 1.791 (84) 2.447 Allowance f ar borrowed funds used durmg construction - credit (net of tan)(Note 2) (277) (1.126) (880) (3.333) (1.834) (4.761) Income tanes attributable to the allowance for borrowed lunds(Notes 2 and 6) (2%) (1.292) (941) (3.824) (2.036) (5.486) Total Interest Charges 13575 10.11% 37169 29 428 45.958 17.961 Net income 9.350 10.453 44.621 37.133 62.607 51.525 Preferred Stock Dividends . 3.660 3.6% 11.016 11.126 14.713 14.859 Earnings Available for Common Stock . 5%690 56.757 $33 605 526.00? 547.894 536.666 Consolidated Statements of Retained Earnings Dalance, besmnmg of period 548. % 2 538.001 S37.047 533.751 533,758 537.092 Add. net encome 9 350 10443 44 621 37.133 51 525 J2.607 Tofals 58.117 48.454 81 668 70sA4 %.365 88.617 Dedeset: Cash divulends on common stoc k 11.000 16.000 26.000 27.000 40 000 Cash devedends on cumulative preferred stock luo 36% 11 016 11 126 14.713 14 859 Totals 3 660 14 6 % 27 016 37.126 41.713 54.859 Balance, end of period (Note 5) $ y S 533.758 Sg g The accompanymg notes are an mtegral part of the fmancial statements [13)
. 1472 M
e 1 PENNSYLVANIA ELECTRtc COMPANY AND SUBSIDIARY COMPANIFR l Consolidated Statements of Sources of Funds Used for Construcuon , (in Thousands 1 Three Months Nine Months Twelve Months Ended September 30. Ended September 30. Ended September 30, 1979 1978 4979 1978 1979 1978 Sources of f unds: Funds generated from operations S 9.350 5 10.453 5 44.621 5 37.133 562.607 551.525 NetmCome Add. stems not recuerms current cash outlay or (receipt) Depreciation (Note i) 11.535 9.377 34.587 28.408 44.307 36.474 708 1.649 1.669 2.425 2.411 Amortization of nuclear fuel (Note il (365) 978 (1.061) 3.249 5.277 11.814 investment eredits. net (Notes t and 6) (7.129) (1.444) 4.450 7.5 31 10.319 11.551 Deferred income tanes. net (Notes 1 and 6) Allowance for other funds used durmg construction (456) (2.755) (1.450) (8154) (3 784) (12.120) (Note 2) 17.935 17,317 82.7 % 69.836 1 21.' 51 101.655 Totals . Less, cash devidends- common stock 11.000 16.000- 26.000 27.000 40.000
- preferred stock 3.660 3 696 11.016 11.126 14.713 14 859 14.275 2.621 55.780 32.710 79 43A 46.7 %
1otals . C)ther sources (uses) Deterred energy costs, net (Notes 1 and 7) 7.%1 3.763 9.255 (2.249) 14.734 (4.51 0) 438 1.149 (491) 8.723 71 Changes in -cash. (2.243)
-temporary cash mvestments . (40.200) (87.200) (87.200) -accounts receivable 7.1 64 (1.116) 13.700 2.567 (2.793) (9.979) -accounts payable L244 (1.247) 1.964 (2.039) 4.614 398 -inventories-materials. Supplies and f uel (1.166) (3.257) (12.'17) 11.040 (6.137) 13.889 -enterest accrued 6.109 4.889 5.8. 7 4 498 170 1.305 - taxes accrued 10.033 4.525 19.761 (827) 19,851 562 Other, net 4 416 10.717 (8 553) 1 01 (3.944) (4.857)
Totals 999 16.031 (56.264) 12.600 (51.982) (3.121) Funds from imancmss Sale of longterm debt 50.000 45.000 50.000 61.420 Bank borrowmss. net . % (500) (33.325) (5.500) (23.905) Retirement or redemption of long-term debt and pref erred stock (621) (951) (2.552) (3.147) (2.573) (3.767) Cash contrehution f rom General Public Utihties Corporation, parent cornpany 5.000 Tutats (621) (8%) 46 948 8.528 41 927 38 748 Tulais . 5 14.643 5 17.797 5 46 464 5 53 838 5 60.383 5 82 423
===== - ===m m a-- n-=mm me====
Constructen Eapenditures: Utihty plant 5 11.360 5 17.770 $ 39.177 5 57.462 S 63.750 S 86.916 3.749 2.782 8.7 ' 7 4.5 30 9 417 7.627 Nuclear f vel Totals 15.109 20.552 47.914 61.992 73.167 94.543 Allowanc e f ot other f unds used durmg construction (Note 2) (456) (2.7 %) (1.450) (8.154) (3.784) (12120)
$ 14.653 5 17.797 5 46 464 S 53.838 5 69.383 5 82.423 totals . === _ ===== umm===
The accompanymg notes are an mtegral part of the fmancial statements
'14) 1472 195
Notes to Financial Staternents
- 1. Summary of Significant Accounting Policies:
General: Reference is made to the Notes to Finan.nal Statemena inrJuded m the 1978 Annual Report to Stockholders Operating Revenues: Revenues are generally recorded on the basis of billings rendered. Durmg 1978, the Corporation's Penn-sylvania subsidiass commenced billing their retail customers on a monthly basis rather than on a bi-monthly basis to conform to requirements of the Pennsylvania Pubhc Utilities Commission ("PaPUC")while remaining on a bi-monthly meter reading cycle. Depreciation: The Corporation's subsidiaries provide for depreciation at annual rates determined and revised peradically, on the basis of studies, to be sufficient to amortize the origmal cost of depreciable property over estimated remairs.g service lives, which are generally longer than those employed for tax purposes. The subsidiary companies use depreciation rates which, on an aggregate cornposite basis, resulted in an ap proximate annual rate of 3.07% (Jersey Central Power & Light Company ("JCP&L")-3.40%, Metropolitan Ed%n Company (" Met-Ed")-2.84%, and Pennsylvania Electric Company ("Penelec")-2.89%) for the year 1978. Nuclear Plant Decomn'issioning Costs: in accordance with raten aking determinations (a) JCP&L is charging to expense and crediting to a nord fur ded reserve amounts intended to provide over their service lives for the decommissioning of Oyster Creek and its share of TM1 #1 nuclear unit, and (b) Met Ed and Penelec are charging to expense and pay over to a separate trust amounts intended to provide over their service lives for the decommissioning of their shares of the radioactive components of TMI #1. Such ratemaking orders limit such provisions to amounts based on cost estimates in current dollars without provision for possible future cost escalation. None of the subsidiaries is making any similar provision for decommissioning costs for TMI #2; none of the capital or operating costs of TMI #2 are currently reflected m the rates of the subsidiaries (see Note 9). Amortization of Nuclear Fuel: The amortization of nuclear fuel is provided on a unit of production basis. Rates are determined and periodically revised to amortize the cost over the useful life. Prior to December 1,1976, amortization of nuclear fuel costs included estimated costs of reprocessing such fuel and estimated residual uranium and , plutonium. Cue to the uncertain future of government approvals for reprocessing and plutonium recycli the Corporation's subsidiaries, effective December 1,1976, began using amortization rates for nuclear fuel at the Three Mile Island station which estimate zerc salues for reprocessing costs and for residual credits. Ef-fective September 1,1977 similar treatment was adopted pursuant to authorization by the Board of Public Utihties of the State of New Jersey ("NIBPU") for the Oyster Creek statien nuclear fuel. Also effecteve September 1,1977 JCP&L is providmg for estimated future off site storage costs for the spent Oyster Creek nuclear fuel and similar treatment will be provided for off-site storage costs for the spent Three Mile Islanc station ("TMl") nuclear fuel when requued Previously accumulated estimated residual credits, net of previously accumulated estimated costs of reprocessing f or the Oyster Creek station nuclear fuel are being amortized to fuel expense nn a unit of production basis should reprocessing eventually be undertaken, the Corporation expects that any difference between such c.osts and credits will be recognized prospectively in the rate-making process. I l
\ 412 \ %
Income Taxes: The Corporation and its ubsidiaries file consolidated Federal income tax returns. All participants in a consolidated Federal income tax return are severally liable for the full amount of any tax, including penalties and interest, which may be assessed against the group. The Corporation and its suosidiaries have filed with the Securities and Exchange Commission ("SEC") a proposal to change the meth0J of allocation of Federal income taxes begmmng with the year 1979. The effect of this change will be to allocate the tax reductions attributable to CPU expenses among its subsidiaries in proportion to the dollars of average com-mon stock equity investment of CPU in such subsidiaries durina the year. In addition, each subsidiary will receive in current cash payments the benefit of its own net operating loss carrybacks to the extent that the other subsidiaries can utilize such net operating loss carrybacks to offset the tax liability they would other-wise have on a s?parate return basis (af ter taking into account any investment tax credits they could utilize on a separate return basis). The proposed method of allocation will not allow any subsidiary to pay more . than its separate return liability as if it had always filed separate returns. The revenues of the Corporation's subsidiaries in any period are depender:t to a significant extent upon the costs which are recognized and allowed in that period for rate-making purposes. In accordance therewith, the Corporation's subsidiaries have employed the following policies: Tax Depreciation: The subsidiaries of the Corporation generally utilize liberalized depreciation methods and the shortest depreciation lives permitted by the Internal Revenue Code in computing depreciation deductions and provide for deferred income taxes where permitted in the rate making process. Investment Credits: The 3% investment credits are being amortized over a 10-year period while the 4% and 10% investment credits are being amortized over the estimated service lives of the related facilities. Investment credits applicable to the Tax Reduction Act Employee Stock Ownership Plan ("TRAESOP") are remitted to the Plan Trustee and have no effect on income (see Note 4). Pension Plans: The Corporation's subsidiaries have several pension plans including plans applicable to all employees, the accrued costs of which are being funded The costs of supplemental pension plans applicable only to supervisory employees were not funded prior to 1976. The previously unfunded supplemental pension plan costs are being funded during the five year period beginning January 1,1977. Prior service costs applicable to all plans are being amortized and furided over 25-year periods. Deferre 'vrgy Costs: The subs.Jiaries follow a policy of recognizing energy costs in the period in which the related energy clause revenues are billed. Deferred energy costs at September 30,1979 include (a) amounts accumulated prior to the TMI #2 acci-dent, which are being amortized in accordance with ratemaking orders (see Note 7), and (b) amounts ac-cumulated subsequent to the TMI #2 accident reflecting the operation of levelized energy adjustment clauses placed in effect pursuant to ratemaking orders entered in June 1979 (see Note 9). 1A72 197
Mine Development Costs-These costs are being amortized to income over the estimated life (20 years) of the mines
- 2. Allowance for Funds Used Daring Construction:
The applicable regulatory Uniform System of Accounts provides for allowance for funds used during construction ("AFC") which is defined as includmg the net cost during the period of construction of bor-rowed funds (allowance for borrowed funds used during construction) used for construction purposes and a reasonable rate on other funds (allowance for other funds used during construction) when so used. While AFC results in a current increase in utility plant to be recognized for rate-making purposes and represents, in this f ashion, current compensation for the use of capital devoted to construction, AFC is not an item of cur-rent cash income; instead, AFC is realized in cash af ter the related plant is placed in service by means of the allowance for depreciation charges based on the total cost of the plant, includmg AFC. To the extent permitted in the rate-making proceedings of the subsidiaries, the income tax reductions associated with the interest component of AFC have been allocated to reduce interest charges and, cor-respondingly, have not reduced encome taxes charged to operating expenses. Pursuant to such rate orders, the Pennsylvania subsidiaries employ a net of tax accrual rate for AFC and JCP&L employs a net of tax ac-crual rate for AFC on certain construction projects while using a gross AFC rate on others. The Corporation's subsidiaries have accrued AFC using rates which, on an aggregate composite basis, would have resulted in an annual rate of 8 42% (JCP&L-8.85%, Met Ed-6.38%, and Penelec-7.09%) for the nine months ended September 30,1979.
- 3. Short-Term Borrowing Arrangements:
The Corporation and its subsidiaries have entered into a revolving credit agreement with a group of banks, under which they expect to ultimately have available up to 5412 million of credit at interest rates ranging from 10$% to111% of the prime rate. The agreement provides for a commitment fee of one-half of one percent per annum of each bank's total commitment (whether used or unused). At September 30,1979, the lines of credit under the agreement totaled $289 million, of which $220 million have been utilized for outstanding borrowings. In addition, the Corporation and its subsidiaries have informal imes of credit with various lenders. These arrangements generally provide for the maintenance of compensating balances ranging from a minimum of 10% of the available line of credit to a maximum of 10% of the line plus 10% of the loans outstandma, as determined on a daily average basis. At September 30,1979, the lines of credit available under these ar-rangements totaled approximately $35 milhon (JCP&L $17 million, Met Ed - 52 million and Penelec -516 million).
- 4. Common Stock and Capital Surplus:
Of the 75 million authorized shares of 52.50 par value common stock of the Corporation, 61,264,000 shares were issued and outstandmg at September 30,1979. During the quarter ended March 31,1979, the Corporation sold 293.000 shares of common stock. The par value of such share >(5731,000) wa> credited to common stock and the excess of proceeds over the par value cf such shares (54,188.000) was credited to capital surplus. As a result of the accident at TMI #2, the Corporation suspended both the Dividend Reinvestment Plan and the TRAESOP. Because of such suspensions, no shares of common stock have been sold subsequent to March 31,1979. 1472 M
Under the revolvm; credit agreement. 5300.000,000 of the balance of consohdated retamed earnmgs is restricted as to the payment of cash dividends on common stock Retamed earnmgs of Met Ed and Penelec mclude 53.360,000 and 537.048.000. respectively, which amounts are restricted as to the declaration of cash dividends on common stock in accordance with the most restrictive of the provisions contained m their mortgages, debenture mdentures, charters and the revolvmg credit agreement-in accordance with recently supplemented provisions of its mortgage. JCP&L must limit cash dividends on common stock, to the extent they are not matched by cash capital contributions f rom the Corporation, to an amount not exceedmg 25% of earnings for 1979 and 1980 and 100% of earnmgs thereafter. In the NJ BPU's rate order of June 18,1979, JCP&L was directed not to pay any cash dividends on common steck for the remainder of 1979.
- 6. Income Taxes:
Examination of Federal income tax returns through 1976 has been completed and the years 1977 and 1978 are currently under review. The Corporation and its subsidiaries have provided for any anticipated liabilities that may result from such examination.
- 7. Deferred Energy Costs:
The balance of deferred energy costs at September 30,1979 includes (a) 552 6 million deferred by JCP&L prior to September 1,1977 which is being amortized to income at a rate of 52.3 million per year, before in-come taxes, for accountmg and rate making purposes, and (b) 525.2 milhon (Met Ed $14.4 milhon, and Penelec 510.8 million) deferred by tha Pennsylvania subsidiaries prior to July 1,1978 which is being amor-tized to income at a rate of $11.3 milhon (Met Ed,55.8 million and Penelec,55.5 million) per year, before in-come taxes, for accounting and rate making purposes. Substantially all of the remaining balance of deferred energy costs represents costs experienced since the accident at TMl #2 (see Note 5,.
- 8. Commitments and Contingenices:
Ceneral: The subsidiaries' construction programs, which extend over several years, contemplate expenditures of approximately 5330 million (JCP&L,5205 million; Met-Ed,550 million; and Penelec,570 million) during 1979. In connection with these construction programs the subsidiaries have incurred substantial commitments. The subsidiaries are engaged in negotiations and, in one mstance, titigation with various suppliers. _ relating to the latters' claims for delay or termination charges or increased fees which such suppliers assert result from the subsidiaries
- revisions of their construction plans and schedules and/or from the increased scope of supply. The subsidiaries' managements do not expect at this time that such negotiations and lit;ga-tion will result in any material increase in costs that would not be vahd costs properly recognizable through the rate-making process.
Claims for damages arising out of the operation of the Oyster Creek station have been asserted. JCP&L's management believes that such hability,if any, as it may have for such damages in the pending suits and for all asserted and potential similar claims would not be material. JCP&L was a participant in the A%ntic generating station project. In December 1978, the non-affiliated co-owner and principal sponsor of the station announced the abandonment of the project. At September 30, 1979, JCP&L's investment in the project was 54.2 million JCP&L plans to seek regulatory approval to amor-tize this investment, net of related mcome tax reductions of $14 million, over a period of years for rate-making purposes. The NJDPU has accorded such treatment for similar items in the past. The mrnoratir)n h.y quarantrw! all borrnaior. < ut>t.mdm,; ur der
. . the re.uh mg i r.,hr .igreement t>ee Note 3) In order to secure such guarantee, plus 539 million of the Corporation's term loan and the guarantee by the Corporatic,n of 516.8 melhon of loans to CPU Service Corporation. ("CPUSC"). the Corporation has pledged the common stock of JCP&L. Met Ed. Penelec and CPUSC.
JCP&L and Met-Ed have secured their notes under the revolvmg credit agreement by pledging a security interest in certain nuclear fuel in process of refinement, conversion, enrichment and fabrication. Such nuclear fuel was recorded, on the September 30,1979 balance sheet, at a cost of 516 4 milhon (JCP&L -58.5 million and Met Ed 57.9 million). In addition. Met Ed has pledged 540 milhon of first mortgage bonds as security for its mdebtedness under the revolvmg credit agreement. 1472 199
fuel Adtustment Clauses: In 1974, in the af termath of the= Arab oil embargo and OPEC actions doubling the price of oil and in the presence of the threat of a prolonged coal strike, competition for coal was mtense in some cases, Met Ed and Penelec agreed iri1974 to modification of existmg contracts and'or paid prices m excess of such con-tracts, behevmg that they would not have been able to obtam dehvery of coal trom their contract supphers without takmg such actions and that the other alternatives would have resulted m even higher costs or unrehable service to their customers in 1976, the PaPUC directed that independent studies be made of the f uel procurement pohcies, practices and the procedures e! Pennsylvania electric utilities and their apphca-tion of the fuel adiustment clauses in 1974 and that reports of such studies be filed with the PaPUC. The independent auditors of the Corporation and its subsidiaries made such studies with respect to Met-Ed and Penelec and submitted reports to the PaPUC on March 1,1976. These reports found that in 1974 cer-tam payments to coal supphers were in excess of origmal contract arrangements The Met Ed report states that 52.8 milhon en payments were m excess of base contract prices but in accordance with contract terms for escalation, whereas 55.8 milhon of price increases m excess of base contract prices had inadequate documentation to support such escalation. The report also stated additional quantities of coal (an estimated 70,000 tons) had to be purchased due to receipt of coal that had not met the BTU specifications of the con-tracts. The Penelec report identihes 54.5 milhon of payments in excess or escalated contract prices due to renegotiations of existmg contracts and that certain suppliers did not dehver 400,000 tons required under the contractual arrangements These reports also stated that "[a] part of these additional costs was unavoidable since they were caused by external conditioris beyond the control" of the subsidiaries and "to some degree," because of their coal procurement practices which the report found to be " informal and not well documented". The subsidiaries
- alternatives were limited and they were not in a strong bargaming position to contend with 1974 conditions, the reports stated, but added that, in retrospect, the subsidiaries might have done more to contain fuel costs, despite such conditions and procurement problems. Although the reports said that the subsidiaries' primary commitment is to maintain rehable electric service, it added that the subsidiaries "could have been more responsh e to the developing procurement problems and taken more effective action to cope with them" In March,1976, by complamts filed against several Pennsylvania electric utilities, including Met-Ed and Penelec, the PaPUC ordered an investigation of their charges made and rates received through fuel adjust-ment clauses.
In January and April 1977, the PaPUC issued amended complamts asserting that Met Ed and Penelec made payments in 1974 for coal that were 59.8 million and 54.9 million, respectively, in excess of those re-quired by their contracts, and that such excess payments were without justification and directing Met Ed and Penelec to show cause why they should not be required to refund 59 8 million and 54.9 milhon, respec-tively, to their customers. Met Ed and Penelec believe that the payments which they made were justified and that there is no basis for requiring such refunds and they have so responded to the complamts. Hearings on the complaint against Met Ed were completed m November 1978 and the matter is awaitmg the initial deci-soon by the admmistrative law Judge who heard the evidence. In November and December 1978, the PaPUC issued fufther complaints a3serting that Met Ed and Penelec incurred excess costs of 54.6 milhon and 5 8 milhon, respectively, for coal during 1975 and 1976, and that such excess payments were without justification and directing Met Ed and Penelec to show cause why they should not be required to refund 54 6 million and 5.8 million, respectively, to their customers. Such complaints were based on audit reports prepared by the PaPUC staff. Met Ed and Penelec believe that the payments which they made were justified and that there is no basis for requiring such refunds, and they have so responded to the complaints. In May,1976, the PaPUC required all Pennsylvania electric utilities to file supplements, effective August 1,1976. to their fuel adsustment clauses providmg that the application of such clause shall be sub-ject to contmuous review and audit and that, if it shall be determmed by a f mal order that such clause has been erroneously or improperly utilized, the utshty will rectify such error and apply credits against future fuel cost adjustments. Met Ed and Penelec beheve that the amounts paid by them for fuelin 19741976 were fully justified and that there is no vahd basis for requirmg any ref und of any amounts collected by them under their fuel adjust-ment clauses However, the Corporation is unable at this time to predict the outcome of these matters. 1472 200
Compliance Audits-The staff of the FERC has conducted comphance audits of Met-[di and Penelec's accountmg records covermg the periods endmg December 31,1976 and December 31,1977, respectively The fmdmgs of such audits which. among other things. raised questions concerning the base to which AFC accruals should be ap-phed, were furnished to Met-Ed and Penelec by the FERC m letters dated October 2,1978 and November 17, 1978, respectively. The letters recommended certam adjustments to the books of account. If such recom-mendations were to be sustamed, the resultmg reduction in consolidated earnmgs would approximate 54.5 milhon (Met Ed,52.2 milhon and Penelec 52.3 million) through 1978. Met Ed and Penelec beheve that such recommended adiustments are not justified and they are contesting them. Nuclear fuel Latisation: In 1971, JCP&L entered into a contract for the purchase of three nuclear f uel reloads for the Oyster Creek Station, with an option for five additional annual reloads beginning in 1976. In 1974 the supplier offered an extension of that contract to cover five additional annual reloads beginning m 1981 JCP&L beheves that it ef fectively exercised the option in the initial contract ar,d accepted the otrer to extend the contract to cover the annual reloads through 1985 The supplier disputes this position and, m November 1978, submitted bills for material and services m the aggregate amount of approximately 533 million, covering reloads supplied in 1977 and 1978 and to be supplied in 1979. The supplier has stated that its obiective is to establish revised prices and other terms and conditions rather than to diminish supphes and, without prejudice to its legal position, has released uranium concentrates for enrichment and f abrication for the 1979 annual fuel reload. Of the $33 milhon claimed by the supplier to be due, JCP&L has paid approximately 5 8 million, agreed to pay an additional 53 milhon but has asserted that such amount will not be due until later in 1979 and is of the opinion that the balance of approximately 529 million is not payable by it and has so informed the sup-plier. On January 26,1979, the supplier filed suit against ICP&L the Corporation and CPU Service Corpora-tion. JCP&L has filed a counterclaim for a decla~ratory judgement confirming its view of the contractual status and for damages and has also filed another suit agamst the supplier and Ha parent seeking damages. JCP&L believes that any additional amount that it might be reqdred to pay if the suppher is successful in its suit would be valid costs and should be recognized for rate-making purposes. However, there can be no assurance that this will be the case.
- 9. Nuclear Accident:
On March 28,1979, an accident occurred at Unit No. 2 of the Three Mile Island nuclear generating sta-tion ("TMI 2") resulting m significant damage to TMI-2, and a release of some low level radiation which published reports of governmental agencies indicate did not constitute a significant public health or safety hazard. TMI-2 is jointly owned by the subsidiaries, ICP&L,25%; Met Ed,50%; and Penelec,25%. Total in-vestment by the subsidiaries in TMI-2 is approximately 5750 million, including the unamortized investment of approximately $35 million in the nuclear fuel core. The subsidiaries have engaged a consulting engineerms firm to prepare a cost estimate and schedule for restormg TMI 2 to service. The firm's initial report notes that, while the decontamination of the buildings and removal and disposal of large quantities of radioactive material is a major undertaking, the technoiogy and techniques are well-known and have been previously demonstrated. This initial report emphasizes the inherent uncertainties in cost and schedule estimates until (a) entry into the containment vessel has been gamed and the difficulties of decontamination have been evaluateu,(b) the reactor vessel has been opened and the difficulties of core removal have been evaluated, and (c) the physical integrity of maior. components has been assessed. Subsect to these quahfications, the initial report estimates that decontamination and restoration of TMI-2 to service, exclusive of replacement of the core, will cost approximately $240 milhon and take about four years. The report also recommends that, because of the unknowns and variables, an allowance of 580 million for contingencies be mcluded in the estimate of cost, bringing the total to 5320 million The estimate does not mclude provmon for the replacement or the teattor core (estimated by the subsidiaries to cost 560 million to 585 milhon) nor for the subsidiaries' replacement power, financing and other costs during the period of rehabihtation of TMI 2 The subsidiaries have mereased, by $25 milhon, the engineering fism's estimate of costs to provide for other items possibly omitted from that estimate. The subsidi ries carried the maximum msurance coverage available(5300 million)for damage to the unit and core and for decontamination expenses. The msurance does not cover replacement power costs or return on investment while the unit is nnt providmg electricity for customers, but it otherwise covers most types of costs. It is the subsidiaries
- belief that, if the estimates of the consultmg engmeermg firm are borne out, the recovenes from the insurance companies will approximate the amount of the insurance carried 1472 201
The subsidiaries do not know, the extent. if ans, to which the expenditures for repair and restoration of the umt to service will represent plant improvements or other items that .tre properly capitahzable and recoverable m the future through rates charged to customers by amortization or depreciation charges Moreover, the subsidiaries expect to seek imancial assistance f rom the Federal government and/or the utility industry m areas where the technical mformation should be of wide value and significance. Under these cir-cumstances, the amount of loss, if any, suffered by the Corporation and its subsidiaries resultmg from the TMI accident is not presently determmable and no provision therefore has been made in their accounts. The property damese insurance, and the limit of coverage, is applicable to both TVI-1 and TMI-2. This property ensurance is reduced by claims paid and the insurance carriers have refused to reinstate the original coverage limits at this time Separate property damage insurance for TMi1 of up to $300 milhon was ob-tamed from another carrier which provides such insurance only on a retrospccave premium basis whereby the insureds are subject to annual assessments of up to ld times the annual premium As a result, the subsid-iaries have a contingent liabihty for an aggregate annual assessment of up to 514 milhon Witn regard to property insurance for TMI 2'. 550 million of courage has been obtained for possible damages which might result from a non-nuclear accident durmg the unit's restoration period. The subsidiaries, in responding to the accident at TMI-2. have incurred 574 milhon of costs associated with the clean-up and recovery process, as of September 30.1979. Of this amount 567.8 milhon has been deferred and 56.2 milhon charged to operations. All deferred costs will be charged to operations upon a determination that sucn costs'are not recoverable through insurance proceeds, rates or by fmancial assistance from the Federal government or from other pubhc or private sources and/or utility industry. In its rate order approved June 15.1979 referred to below, the PaPUC recognized that no claim for such cotts had been made in the proceedings in which such order was entered. Nevertheless, the PaPUC stated in that order:
"the Commission is of the view that none of the costs of responding to the incident, including repair, disposal of wastes and decontamination are recoverable from ratepayers."
The subsidiaries, while presently unable to assess the specific damage to the fuel core at TMI-2, are of the opinion that the core is no longer useful in TMI-2 or any other nuclear generating station. At the tirre of the accident at TMI-2, the nuclear fuel core had a remaining unamortized book cost of approxima'.ely 535 million. In lune 1979 this nuclear fuel core was retired and the unamortized cost was transferred to Deferred Debits Other, pending insurance settlement. TMI1 which adjoins TMI-2 was out of service for a scheduled refueling and was not involveo m the acci-dent. By orders dated July 2.1979 and August 9.1979, the Nuclear Regulatory Commission ("NRC") directed that TMI-1 remam in a shut down condition until resumption of operation is authorized by the NRC, after public hearings and the satisfaction of various requirements set forth in such orders. The NRC's time schedule for the completion of the hearings and decision would require at least one year and a longer period could be required. In their rate orders issued in June 1979, the PaPUC and Nj BPU determined that the capital and operatmg costs associated with TMI-1 should continue to be reflected in base rates. However, on September 20.1979, the PaPUC issued an order mstitutmg an mvestigation to determine whether the costs of Met-Id and Penelec associated with TMI-1 should be removed f rom their base rates. The NIBPU may institute a similar investiga-tion. 1472 202
in order to make provisions for the substantial expenditures required for clean up and repair, replace-ment energy and other added costs resulting f rom this accident. the Corporation and its subsidiaries entered mto a revolving credit agreement with a group of banks m June 1979,(see Note 3) in addition, JCP&L and Penelec each issued 550 milhon of first mortgage bonds m June 1979 and ICP&L sold $47.5 milhon of first mortgage bonds m October 1979,525 milhon of which was apphed to the payment of maturing bonds. On October 26, 1979. the NRC proposed a fine of $155.000 agamst Met-Ed for alleged safety, maintenance procedural and traming violations at TMI. The NRC also stated that dependmg upon the fmdings of contmuing mvestigations mto the TMI 2 accident, it may take additional enforcement action such as assessing additional civil penalties or ordering the suspension, modification or revocation of Met Ed's operatmg hcense Met Ed proposes to contest the major elements of the proposed fme but does not know what the outcome of this matter will be. On October 30,1979, the Presidential Commission on the Accident at Three-%Ie Island issued its report. The Commission's Report is lengthy and it was accompanied by a series of Staff Reports comprismg several thousand pages. The Commission's Report states, in part, that its " investigation has revealed problems with the ' system' that manuf actures, operates and regulates nuclear power plants" and the shortcommgs which turned the incident into a serious accident "are attributable to the utihty, to supphers of equipment and to the federal commission that regulates nuclear power." The Corporation does not know what effect, if any, the Report will have upon it and its subsidiaries. Other investigations and inquiries into the nature, causes and consequences of the TMI-2 accident com-menced by various federal and state bodies are continuing CPU is unable to estimate tne full scope and nature of these contmuing investigations or the potential consequences thereof to the investors in the securities of the Corporation and its subsidiaries The Corporation is also unable to determine the impact,if any, the results of such investigations may have on the proceedings to return TMI-1 to service and the efforts to rehabihtate TMI 2. On Nov mber 1,1979, the PaPUC ordered Met-Ed to show cause why its governmental authorization to sell electric power should not be revoked Met Ed intends to respond to the order contendmg that there i> no basis for such revocation. On January 31,1979. JCP&L was granted a $33.8 million rate increase by the NJ BPU, which, among other things, reflected in base rates its investment in TMI-2 and the operating and maintenance costs associated with the unit. On June 18,1979, the NJBPU issued a rate order reducing annual base revenues by 529 milhon which represents JCP&L's capital and operating cost associated with its interest in TMI-2. The order also pro-vided for a reduction in energy revenues of 57.3 million over a prospective eighteen month period as an off-set to revenues attributable to TMI 2, collected during April, May and June 1979. Accordingly, such amount was recorded as a charge to energy costs by JCP&L in June 1979. In addition, the order authorized JCP&L to increase its levelized energy adjustment charges to its customers over the period July 1,1979-December 31, 1980, by an amount which the NIBPU beheved r ould be sufficient to recover the replacement power costs associated with the non-availabihty of TMI smce March 31,1979 (see Notes 1 and 7) On September 5,1979, the Nj BPU authori:ed ICP& L to increase its levelized energy adjustment clause charges to recover incretses in energy costs, not associated with TMI, anticipated for the period September 1,1979 - August 31,1960, such mcrease is expected to provide approximately $70 milhon of revenues durmg that period (see Note 1). Durmg the first quarter of 1979. Met Ed and Penelec were granted retail rate increases by the PaPUC which, among other thmgs, reflected m base rates their mvestment in TMI-2 and the operating and maintenance costs associated with the unit. On April 19,1979 and April 25,1979, the PaPUC, as a result of the accident, established temporary rates for Met Ed and Penelec, respectively, reducing annual base revenues by the operating and capital costs associated with their mterest in TMI 2 These actions effectively revoked the 546 6 milhon increase in rates s: ranted Met Ed on March 22,1979, restorms the rates to levels in effect prior to that rate order. In Penelec's case, the PaPUC prospectively reduced the 556.2 milhon rate m-crease which the company had been bilhng since January 27,1979 by 525.0 milhon 1472 203
On June 15,1979, the PaPUC issued a rate order which directed that Met Ed's and Penelec's temporary rates prescribed by its Apol 19,1979 and April 25,1979 orders be made permanent in addition, the order established levelized energy adi ustment clauses for Met Ed and Penelec for the period July 1,1979 December 31,1980 at a level which the PaPUC beheved would be sufficient to recover the increases in the companies' energy cost s uunng that penod This levehzed energy adjustment clause did not make provision for the mcreased energy costs expenenced by Met Ed and Penelec dunng the March 28-June 30,1979 per od, but the discussion at the public meetmg at which such order was entered indicated that such costs veill ultimately be recoverable The order also made provision for the amortization through base rates by Met Ed of 55 8 milhoo annually of previously deferred energy costs of 514 milhon and by Penelec of 55.5 million an-nually of previously deferred energy costs of 519 4 million. The increases m the subsidianes' levehzed energy adjustment charges granted by the NjBPU and PaPUC m June 1979 assumed that TMI-1 would resume the generation of electricity on January 1,1980 The sub-sidianes expect to seek mcreased energy adiustment charges in the hght of the NRC's action requinng that TMI-1 remain m a shut-down condition unut resumption of operations is authorized by it. On November 1,1979, Met Ed filed with the PaPUC for an increase of approumately 555 million in its levelized energy clause charges. Such request is a result of increased fuel costs since the lune 15,1979 rate order, as well as the continued delay in returning TMI-1 to service. As indicated by the precedmg paragraphs the depreciation and return requirements associated with the 5750 million mvestment m TMI 2 (amountmg to approximately 595 million per year) are not being recovered from customers Such depreciation and return requirements are currently bemg reflected in the fmancial statements in that (a) depreciation charges in respect of the unit are being provided, (b) the interest and preferred stock dividend charges associated with the debt and preferred stock components of that invest-ment are bemg accrued, and (c) the earnings per share of common stock are determined on a ba/s which reflects all outstandmg shares including the shares issued to fmance the common stock component of that investment. Under the Price-Anderson Act there is a hmit of 5560 million on each nuclear generating unit for public liabihty claims that could result from a smgle nuclear incident. The subsidiares have insured for this ex-posure by purchasmg private insurance of $140 million (the maximum amount available at the time of the accident) and the remainder by participating in an arrangement for assessments after an accident agamst owners of nuclear reactors of up to $5 milhon per incident, but not more than 510 million in any calendar year, for each hcensed nuclear reactor and indemnity by the Federal government. Based on the three nuclear reactors and the insurance coverage in effect at the time of the accident, the subsidiaries' maximum potential assessment under this arrangement is 515 milhon per incident. Such pnvate insurance is reduced by claims paid but is subject to reinstatement to origmal coverage limits upon approval by the insurance carners. The subsidianes have applied for such reinstatement but are unable at this time to ascertam whether or when such remstatement will be approved. As a result of the accident, the Corporation, and/or its subsidiaries have been named as defendants in various law suits Among other matters such suits melude (i) class actions and individual suits for personal and property damages directly resultmg from the accident (ii) suits to enjom the decontamination of TMI 2 and (iii) suits for damages on behalf of purchases of CPU Common Stock. The corporation and its sub-sidianes are not able to evaluate the ments of these complamts. The subsidiaries' construction program, which axtends over several years, contemplated expenditures of approximately 5455 milhon dunng 1979 However, due to the accident at TMI-2, m an effort to conserve their cash resources the subsidiaries' have reduced their 1979 construction program expenditures to approx-smatelv $330 milhon ICP&L, in view of the accident, has ternporanly suspended construction on its Forked River nuclear generating station Total costs appbcable to this protect at September 30,1979 were approximately 5357 milhon. Prior to the accident, JCP&L was negotiatmg for the sale of undivided mterests m the station to two unaffikated utihties, one of which has smce mdicated it is no longer interested m such a purchase. JCP&L does not know whether it will be able to sell any undivided mterests m the station.
\h12 W
.....~..u GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES' MANAGEMENT'S COMMENTS ON QUARTERLY INCOME STATEMENTS General Earnings available for common stock for the third quarter 1979 de-clined against those for the third quarter 1978 and earnings available for common stock for the first nine months 1979 declined as against those for the first nine months 1978. The major factor causing such decline in these periods was the ratemaking treatment accorded to the capital and o,< ating and maintenance costs associated with Three Mile Island Unit Fo. 2 ("TMI-2").
Earnings available for common stock for the third quarter 1979 increased against the second quarter 1979 notwithstanding the removal of TMI #2 from rate base. During 1978, allowance for funds used during construction was accrued on the investment in THI-2 until the unit was declared to be in commer-cial service on December 30, 1978, thereby of fsetting the interest charges, preferred stock dividends and common stock earnings requirements. With the declaration of TMI-2 as being in commercial service, such accrual of allowance for funds used during construction and capitalization of operation and maintenance expenses ceased and the accrual of deprecia-tion expenses began. Ef fective about February 1, two of the subsidiaries owning an aggregate 50% of TMI-2 received rate increases covering their capital and opercting and maintenance costs for TMI-2 and some non-TMI-2 costs. However, effective on approximately April 1,1979, and following the TMI-2 accident on March 28, 1979, such rate increases for TMI-2 costs were rescinded and the third subsidiary owning the other 50% interest in
'O>
1477.
TMI-2 was never permitted to place in opr/;ation a rate increase for its TMI-2 related costs. As a result, the subsidiaries had revenues to cover part of the THI-2 fixed charges and operation and maintenance costs for the period Februs ry 1 - March 31,1979, none thereafter, and none for the period December 30, 19'a J.;2ary 31, 1979, but have been bearing such fixed charges and operation and maintenance expenses since December 30, 1978. The cost of fuel and of power purchases and interchanged (net) in-creased significantly as energy was generated from other units and pur-chases were made to replace that which had been provided by TMI-2 and by the adjacent TMI-1 unit which has not operated since the TMI-2 accident. The excess of such cost of fuel and power purchased and interchanged over recoveries in current revenues has been deferred and such costs will be recoverable subsequently. As explained in Note 9, approximately $67.8 million of costs incurred during the March 28 - September 30, 1979, period in containing the THI-2 accident and initiating decontamination and repairs have been deferred. Following is a quarter by quarter description of the variations. 1472 206
Third Quarter 1979 vs. Second Quarter 1979 The principal iactors resulting in a $6 million or 28% increase in the balance available for common stock were as follows: Revenues other than those related to TMI-2 and the cost of energy increased $15 million or 7% because kilowatt-hour sales increased 1% or $4 million and rates, other than those related to TMI #2, increased $11 million. This revenue increase was partially offset by a $5 million or 7% increase in payroll and other operation and maintenance expenses, a $1 million or 2% increase in taxes and a $6 million or 15% increase in interest expense (other than interest relating to the TMI #2 investment) resulting mainly from increased short-term debt outstanding and additional security issuances. Earnings available for common stock also reflected an increase of $2 million or 20% in allowance for other funds used during construction.
\h .
Third Quarter 1979 vs. Third Quarter 1978 The principal factors resulting in a $13 millior. or 33% decrease in the balance available for common stock v;ce as follors: In the third quarter of 1979 operating and investment costs associated with TMI-2, which we were required by the state commissions to remove from rate base, resulted in a $9 million reduction in third quarter earn-ings compared to the third quarter of 1978. In the third quarter of 1978 we were capitalizing allowance for funds used during construction or receiving a return on construction work in progress in rate base which offset the investment costs associated with TMI-2 and resulted in no impact on earnings. In addition, revenues other than those related to THI-2 and the cost of energy increased $6 million or 3% because kilowatt-hour sales increased 1% or $3 million and other revenues (principally rates), other than those related to TMI-2, increased $3 million. Payroll and other operation and maintenance expenses declined $3 million or 4% primaril; from the effects of cost reduction programs. Partially offsetting these increases to income were higher taxes other than income taxes of $1 million or 4% (resulting primarily from higher revenue and property taxes) and fixed costs, other than those relating to the TMI-2 investment, increased $12 million or 20% (depreciation about $2 million from additional plant in-service and interest
$10 million from increased short-term debt outstanding and additional security issuances).
1472 208
Nine Months 1979 vs. Nine Months 1978 The principal f actors resulting in a $23 million or 22% decrease in the balance available for common stock were as follows: TMI-2 was placed in-service at year-end 1978 and two of our three subsidiaries received rates ef fective in February and were further required by their respective commissions to eliminate from rates the operating and investment costs associated with the plant. This resulted in a $23 million decline in earnings for the nine months ended 1979 compared to nine months ended 1978. In the first nine months of 1978 we were capitalizing allowance for funds used during construction or receiving a return on construction wcrk in progress in rate base which offset the investment costs associated witi. TMI-2 and resulted in no impact on earnings. In addition, revenues other than those related to TMI-2 and the cost of energy increased $37 million or 5% because kilowatt-hour sales increased 4% or $22 million and other revenues (principally rates), other than those related to TMI-2, increased $15 million. Reserve capacity charges declined
$5 million or 79% principally as a result of the in-service of TMI-2 at year end 1978 and payroll and other operation and maintenance expenses declined $3 million or 1% mainly from the effects of cost reduction programs.
Partially offsetting these increases to income were increased taxes of $20 million or 12% (about $4 million from increased revenue taxes and the remainder from increased income taxes) and fixed costs, other than those relating to the TMI #2 investment, which increased about $25 million or 12% (depreciation about $7 million from additional plant in-service and interest - $18 million f rom higher short-term debt outstanding and additional security issuances). 1472 209
Part II - Other Information Item 1. Iegal Proceedings. Reference is made to the Current Jeports on Form 8-K for the nonths of August, Septaber and October 1979, joiatly filed by the Cmpany and its subsidiaries, regarding the current status of certain legal proceedings instituted against the Cmpany and its subsidiaries as a result of the March 28, 1979 nuclear acci-dent at Unit No. 2 of the @ree Mile Islaxi nuclear generating station ("'IMI-2") . Copies of these reports are filed herewith as exhibits and incorporated herein by reference. On August 7,1979, an employee of the Cmpany's subsidiary, Pennsylvania Electric Ca pany, filed an age discrimination ccm-plaint with the Erie Human Relations Ca mission. Following a hearing held on August 22, 1979, the Cmmission dismissed the canplaint for lack of probable cause. On August 31, 1979, Jersey Central Power & Light Cm.pany ("JCP&L"), a subsidiary of the Cmpany, was advised by the Equal Enployment Opportunity Cm mission that a JCP&L employee had filed a cmplaint alleging that he had'not been prmoted as a result of racial discrimination. Se cmplaint has been referred to the New Jersey Division of Civil Rights. As previously reported in the Cmpany's Quarterly Report on Form 10-0 for the quarter ended June 30, 1979, a cmplaint had been filed on February 14, 1979 by a prospective employee of JCP&L with the New Jersey Division of Civil Rights alleging unlawful discriminai: ion for failure to meet required physical qualifications. We proposed settlement of this emplaint has now been approved by the New Jersey Division of Civil Rights and the matter has been terminated. Item 8. Other Materially Important Events. Reference is made to the Current Reports on Form 8-K for the months of August, Sephstber and October 1979, jointly filed by the Cmpany and its subsidiaries, for information concerning the 'IMI-2 nuclear accident and its aftermath, including, among other matters, the report of the President's Cmmission on the Accident at tree Mile Island and the status of various proceed-ings pending before the Pennsylvania Public Utility Ca mission (particularly the proceedings to revoke the franchise of the Campany's subsidiary, Metropolitan Edison Cmpany, and to remove the investment in and associated operating costs of tree Mile Island Unit No.1 frcm base rates of the Cmpy's Pennsylvania subsidiaries), and the Nuclear Regulatory Commission. Copies of these reports are filed herewith as exhibits and incorporated herein by reference. 1 A72 2W 11/9/79
Item 9. Exhibits and Reports on Form 8-K. (a) Exhibits: (1) Current Report on Form 8-K, dated September 10, 1979, jointly filed by the Cmpany and its subsidiaries. (h e exhibits to such report are incorporated herein by reference.) (2) Current Report on Form 8-K, dated October 9, 1979, jointly filed try the Cmpany and its subsidiaries. ( 2 e exhibits to such report are incorporated herein by reference.) (3) Current Report on Form 8-K, dated November 9, 1979, jointly filed by the Cmpany and its subsidiaries. (2e exhibits to such report are incorporated herein t,y reference.) (b) Repcets on Form 8-K: (1) For the month of August 1979, dated September 10, 1979 - Item 5. (2) For the nonth of September 1979, dated October 9, 1979 - Item 5. (3) For the month of October 1979, dated November 9, 1979 - Item 5.
)0S SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized.
GENERAL PUBLIC UTILITIES CORPORATION By November 14, 1979 V. H. Condon, Vice President By / November 14, 1979 E. Q,/HoleMbe, ~Comptrolh (Principal Accounting Officer)
) h] l.
.- ? SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCEANGE ACT OF 1934. For Quarter Ended September 30, 1979 Commission file number 1-446 METROPOLITAN EDISON COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 23-0870160 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2800 Pottsville Pike Muhlenberg Township Berks County, Pennsylvania 19605 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 929-3601 N/A Former name, former address and former fiscal year, if changed since last report. Coumon shares outstanding as of September 30, 1979 were 859,500 Indicate by check mask whether the Registranc (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing require-ments for the past 90 days. YES X NO - i472 213
Part I - Financial Information Company For Which Report is Filed Metropolitan Edison Company Financial Statements The required financial statements appear on the following pages of the Quarterly Financial Statements attached herewith as Exhibit A: M Balance Sheets 9 Statements of Income 10 Statements of Sources of Funds Used for Construction 11 The statements (not examined by independent certified public ac-countants) reflect all adjustments (which consist of only normal recurring accruals - reference is made to Note 9 which discusses accruals recognized with respect to the nuclear accident) which are, in the opinion of the Company, necessary for a fair statement of the results for the interim periods, subject to the recoverability of costs deferred and the ultimate reselurion of the various matters pertaining to the nuclear accident dis-cussed in Note 9. The September 30, 1979 financial statements do not reflect any provision for any possible loss which might result from the nuclear accident at described in Note 9 to financial statements. Management's Comments on Quarterly Income Statements Attached herewith as Exhibit B 1A72 214
Exhibit A Quarterly Financial Statements September 30,1979* General .Public Utilities Corporation 100 Interpace Parkway, Parsippany, N.J. 07054 e (201) 263-6500 Jersey Central Power & Light Company Metropolitan Edison Company Pennsylvania Electric Company These statements are not furnished in connection with any offering of securities or for the purpose of promoting or influencing the sale or purchase or securities.
- No provision has been made in these financial statements for any possible loss resulting from the nuclear accident at Threr Mile Island Unit 2, inasmuch as the amount thereof, if any. is not deter-minable at present.
3472 215 e
a . CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Condensed Censolidated Balance Sheets (in Theousands) September 30, September 30, ASSETS: 1999 1kg Utilsey Plant (at or'ainal cost)(Note 9) in service, under construct on and held for iature use . Less, accumulated depreciation (Note 1) 54.985.764 S4.697.741 Net 945.110 835 027 Nuclear ivel(Note 8) 4.040 654 3.862.714 Less. accumulated amortization [ Note i) 224,319 232.921 43 163 60.214 Net Nuclear f uel Net Utility Plant 181 1 % 172.707 4.221.810 4.035.421 Escess of mvestments en subsidiaries over related net assets - lavestaients . 30 805 30.805 Current Assets: 21.165 21.1 % Cash Accounts receivable, net . 13,235 20.797 Other . 129.595 114,512 Totals 214 992 1 21.2 % Defereed Debits: 377.822 2 %.565 Deferred energy costs tNotes 1. 7 and 9) Unamortized mene development costs (Note 11 151.968 %.514 Deterred ccsts nucleat accedent (Note 9) 7,902 9.071 Other(Note 9) 67,775 Tetals 123.248 47.290 Total Aseeis 350.893 _ 152.875
$5,002.495 $4.4%,822 LIABILITIES AND CAPITAL: * -
Long Term Debt, Capital 5toch and Consolidated Serplus: Long Term Debt. brit mortsage bonds Debentures $1,827.177 $1,768.1%
. O:her long term debt . 233.700 239.600 Unamortsted net descount on long-term debt . 54.115 60.746 Totals (4.672) (5.813) 2 110.320 2#e26e9 Non-redeemable cumulative preferred stock. mcludmg premium, net of expense .
Redeemable cumulatsve preferred stock, net of expense 422 422,037 Common stor, and consolidated surplus (Note 4) - 88,Mia%) 93 565 Common stock, less reacquired common stock Consolidated capital surplus . 153.159 151.127 Less. capital stock espense 772,538 760 266 Consolida te ! reta med ea rnings (Note 51 17,978 17,,20 Totals 486 376 455,562 Totals 1.394.095 1.349,235 4 015.844 3.927,526 Careent Liabilitu: Securstses due within one year to be ref manced Notes payable to bank s (Note 3) 72.1 58 22.275 Accounts paysble 229,700 42.750 Other . 112,209 78.393 Totals 113.748 122 055 527 815 265.473 Deferred Ceedits and Other Liabilities: Delerred encome la ses(Notes 1 and 61 Unamortized envestment credits (Notes 1 and 6) 278 212 180.328 Insurance recoveries nuclear accsdent(Note 91 123.469 99,513 Other . 19.900 Totals 37 255 23.942 458.8 % 303.823 Commitments and Contingencies (Notes 8 and 9) Total Liabilsties and Capital _
$5.002 495 $4.4%.822 The accompanymg notes are an mtegral part of the fmancial statemen*r
CENERAL l'UBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of income (in Thousands) Three Months Nine Months Twelve Months Ended September 30. Ended Septernber 30. Ended September 30, 1979 ,1973 1979 1978 1979 1978 Operating Re -nues $383 927 5336.278 51,104,180 5997 344 51 433 480 51303854 Operating Espenses: Fuel. 88.163 81.928 260.174 248.670 337,589 311.191 Power purchased and meerchanged, net 64.449 23.482 176.243 214,789 95.194 133.211 Deferralof energy costs. net (Notes 1 and 7) (4.403) 2.852 (49.030) (8.302) (58.644) (4.413) Payroll . 34.233 32.464 99.572 St.886 131,849 122.638 Other operation and mamtenance(excludma payroll) 41.420 42.725 127.474 124.2 % 182.629 160.4 % Depreciatoon (Note 1) 35.141 27.016 105.772 81.319 133.959 106.188 Tases, other than income taxes . 35.532 32.553 110.690 98.622 141.930 128 608 Totals . 294.535 243.020 830.895 734.655 1.084.101 957.919 Operatmg income before income Tames . 89.392 93.258 273.285 262.689 349.379 345.935 income Taxes (Notes 1 and 6) . 16.172 26.619 59.795 73.407 70.741 94.857 Operaling income 73.220 M.639 213.490 189.282 278.638 251.078 Other income and Deductions: Allowance for other funds used durmg construction (Note 2) . 7.019 13.276 19.305 38.311 30.881 51.223 Other income. net 2.337 628 4.9 34 2.442 3.174 2.788 income ases on other income, net (Notes 1 and 6) . (1.4 51) (495) (2.736) (1.760) (3.436) (2.160) TotalOther laceme and Deductions . 7.905 13.409 21.503 38.993 33.611 51,851 income 8efore anterest Charges and Preferred Dividends . 81.125 80.048 254.993 228.275 312.257 302.929 laterest Charges and Preferred Dividends: Interest on fwst mortgage bonds . 37.233 33.193 105.872 97.456 139.877 128.148 Interest on debentures and other long term debt 5.972 5.891 17,818 17.995 24.0 % 23.849 Other mierest 7,478 1.830 14.545 4.666 14.407 6.043 Allowance for borrowed funds used dureng construction - credit (net of taa)(Note 2) (4.433) (5.916) (12.507) (17.130) (17.632) (22.608) income tanes attributable to the allowance for borrowed funds (Notes 2 and 6). (1.615) (3.941) (4.915) (11.358) (8.315) (15.120) Preferred stock dividends of subsidiaries 10.899 10.977 32.732 32.968 43.694 43.728 Total interest Charses and Preferred Dividends $5.534 42.034 153.722 124.420 196 067 164 040 Net income 5 25.591 5 38.014 Earnings Per Average Share . 5 81.271 Sg5 5116.140 5138.889 5 2 5 3 J3 g 5 1 90 5 2 32 Average number of shares outstanding during each period M g 61.203 60 030 61 096 59 926 Cash Dividends Per Share 5 5J os Q $ 1 40 5 1 76 Consolidated Statements of Retained Earninas llalance, begmnmg of period . 5476.100 5444.020 5463.173 5430.822 5455.562 5421.995 Add. pet income 25 591 38 014 81.271 103 855 116190 138 889 Totals 501.691 482.034 544.444 534.677 571.752 560.884 Deduct dividends on Common Stock 15.315 ,26 472 58.068 79.115 85.376 105.322 Balance, end of period (Note 5) 5 g4 5455.562 Sa86.376 5 34 g M The accompanymg notes are an mtegral s.srt of the fmancial statements. [4)
\412 2\1
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of Sources of Funds Used for Construction (in Thousands) Three Months Nine Months Twelve Months Ended September 10, inded Septembee 30 Inded September 30, 1979 ,,117p_ 19M 1978 1979 1978 Sources of f unds: Funds generated from operations Netmcome S 25.591 5 38.014 5 81.271 5103.855 5116.190 $138.889 Add, stems not requerms i:urrent cash outlay or (receipt). Depreciation (Note 1)
- 35.141 27.015 105.772 81.319 133.959 106.188 Amortization of nuclear fuel (Note 1) 4.256 5.503 17.203 17 %5 21.082 24.487 investment ered#ts. net (Notes t and 6) (1,187) 5.904 (3.586) 16,744 21.403 30.932 Def erred mcome tanes. net (Notes 1 and 6) . 11.514 2.794 54.001 23.716 88.279 29.170 Allowance for other funds used durens construction (Note 2) (7.019) (13.276) (19.305) (38.311) (30.882) (51.223)
Totals . 68.296 65.954 235.3 % 204.888 350.031 278.443 Less, cash devedends on common stock 15.315 26 472 58.068 79.115 85.376 105.322 Totals . 52.981 39.482 177.288 125.773 264.655 173.121 Other sources (uses) Deterred energy costs, net (Notes 1 and 7) (4.403) 2.852 (49.030) (8.302) (58.644) (4.413) Changes m -cash. 5.235 (2.2%) 4.745 3.494 7.562 9.178
-temporary cash mvestmeats (49.300) 17.001 (98.800) 3.089 (98.800) 4.939 -accounts receivable . 15.390 (8.325) 21.194 (7.512) (15.082) 0 3.314) - accounts payable 8.418 (5.673) 17,7 % (3.674) 33.815 13.951 - enventories-materials. supplees and fuel. (5.979) (9.871) (25.887) 14.802 (22.406) 19.134 -mterest accrued . 3.066 ($14) 1.776 (1.455) 3.362 (90) -tanes accrued . (16.674) 11 %5 10.474 12.679 (10.051) 16.648 Other. net (29 450) 20.066 (60.302) (7.M1) (46.700) (18 73)
Totals . (73.697) 24.845 (178.074) S.460 (206.944) 27.860 Funds from fmancmss: - . Sale of long term debt . 50.000 106.300 154.082 106.300 202.752 Sale of preferred stock . 50.000 Sale of corsmon stock, net of empense(Note 4) (47) 5.223 4.777 13.004 14.046 17.998 Dank bonowmas, net 89.650 (22.254) 145.850 (25.275) 195.750 (87.105) Retirement or redemption of long-term d<.st and pref erred stock . (4.163) (8.048) (15.904) (25.997) (22.815) (30.197) Totals . 85.440 24.921 241.023 115.814 293.281 153.448 intals S 64 724 5 89.248 5240.237 5247.047 4350 992 535J 429
- - ==mu=z -
Construction Ispenditures: Utility plant S 47.648 5 89.878 5198.141 $259.115 $315.839 5359.094 Nuclear fuel 24,095 12 646 61 401 26.243 M.035 46 558 Totals 71.743 102.524 259.542 285.358 381.874 405.652 Allowance ior other f unds used durms construction (Note 2) (7.019) (13.276) (19.305) (38.311) (30.882) ($1.223) Totals . S 64 724 5 89 248 5240 237 5247.047 Sg Sg The accompanyms notes are an integral part of the financial statements 151 1 A72 29
JERSEY CENTRAL POWER & LIGHT COMPANY Condensed Balance Sheets (tn Thousands) ASSETS: Seve=be u. sememme n. Utility Plant (at orismal cost)(Note 9) 1979 1978 in service, under construction and held f or f uture use $2.066.487 51.886.574 Less, accumulated deprecia tion (Note 1) 357.831 315 410 Nei 1.708 656 1.5P.164 Nuclear fuel (Note 8) . 139.571 12J.430 Less. accumulated amortiza tion (Note 1) 32.076 % tW1 Net Nuclear Fuel . 107.495 92.339 Net Utility Plant . 1 816151 1 663.503 Investments 366 454 Current Assets: Cash 7,988 846 Accounts recervable, net . 64.374 48,039 Other . 65 214 44 642 Totals 137.576 92.927 Deferred Debits: Def erred energy costs (Notes 1,7 and 9) 81,146 41,012 Def erred costs . nuclear accident (Note 9) . 16.944 Other(Note 9) . 40.633 21.444 Totals 138.723 62.456 Yotal Assets 52,092.816 51.819.340 LIABILITIES AND CAPITAL: Long Teren Debt, Capital Stock and Surplus: Ferst mortsage bonds . 5 752,618 5 725,195 Debentures 81,080 83.160 Other long term debt 10.465 15.746 Unamortised net decount on long term debt (2.429) (3,498) hortredeemable cumulairve pref erred stock, includmg premium, net of expense . 161,631 1 61,1 % Redeemable cumulateve preferred stock. net of expense , 41.065 43 402 Totals 1.044 430 1.025.201 Common stock and surolus. Common stock . 153.713 153.713 Capatalsurplus . 436.989 373.489 Retained eamsngs(Note 5) 48110 _ 28I 517 Totals 638 812 555 719 Totals 1.683.242 1.580.920 Current Liabilities: Securities due with n one year to be refmanced 35.846 16.790 Notes payable to banks (Note 3) . 90.600 12.900 Accounts payable 54.173 34.608 Other . 53.567 56.076 Totals 234.186 120.374 Deferred Credits and Other Liabilities: Deferred income tases(Notes 1 and 6) 109.721 63.583 Unamortized enveste-ent credits (Notes 1 and 6) 50,076 43.460 insurance recoverses = nuclear accident (Note 9) 4.975 Other . 10.616 , 11.003 Totals 175.388 118 046 Commitments and Contingencies (Notes 8 and 9) Total Liabilities and Capital $2.092 816 51.819.340 The accompanying notes are an mtegral part of the f enancial statements. 161 1472 219
JERSEY CENTRAL POWER & LICHT COMPANY Statements of income (in Thousands) Three Months Nme Months Twe6ve Months Ended September 30,' f aded September 30, inded September 30. 1979 1975 1979 1978 1979 1978 Operating Revenues $185 594 $161.747 $490 548 $451.352 $630.491 S589.582 Operatin8 Espenses: Fuel . 31.1 54 27.186 79.070 82.823 94.028 101.477 Power purchased and mterchanged, net. Affilsates . 20.653 10.018 36.376 16.022 50,7 % 18.287 Others 20.553 18.957 92.909 53.534 127.418 75.388 Def erral of ecergy costs, net (Notes 1 and 7) 484 (1,983) (24.741) 7.426 (43.323) 13.142 Payroll 13.723 11.842 39.365 35.801 52.1 52 46.146 Other operateon and mamtenance (excludms payroll) . 17.597 17.544 52.560 51.094 79.472 66.622 Depreciatson [ Note 1) . 14.238 11,546 42.922 34.734 $4.081 45.701 Tames, other than income tases . 23.992 18 424 69.2 % 54 803 86.265 71.727 Totals . 142.394 113.534 387.697 336.237 500.919 438 490 Operatma income before income Tames . 43 40 48.213 102.851 115.115 129.572 151.092 income T ases (Notes 1 and 61. . Operating laceme . 8746 3 23 20 226 29 587 23.116 se549 34 454 13.949 82 625 85 528 106.456 112 543 Ottwe income and Deductions: Allowance for other f unds used durmg constrv-9 eon (Note 2) . 6.326 4,81 8 16.946 13.806 21.658 17.62J
' Otherincome. net 94 8 301 958 841 9 31 lacosne tases on other encome. net (Notell and 6) . (144) (77) (1 91) (713) (418) (796)
Total Other income and Deductions . 6.276 4.749 laceme 8efore Interest Chstges 40.730 38 698 17.0 % 14.046 10]8 17.758 laserest Charges: , 99 681 99,574 11Q 130 301 laterest on Iarst mortgage bonds . 16.083 14.581 45.327 43.495 59.888 57.061 Interest on debentures and other long term debt 1.750 1.869
- 5.341 5.718 7.197 7.661
- Other 6nterest 3.375 188 7.227 321 7.810 %8 Allowance for boriowed funds used during construcleon -
credet(net of tas)(Note 2) (3.701) (2.978) (9.852) (8.601) (12.553) (11.308) income tases attributable to the allowance for borrowed funds (Notes 2 and 6) (930) (568) (2.462) (1.%7) (3.077) (2.032) t Totallnierest Charges 16.577 13.092 45.581 39.366 59.265 51.950 Net income 24.153 25.606 $4.100 60.208 69.272 78.351 Preferred Stock Dividends 4.666 4.708 13.999 14.125 18.693 18.580 Earnings Available for Conr.en Stock 519.487 $20.898 540.101 546.083
- 550.579 559.771 Statements of Retained Ea.nings Salance, beginnma of pereod 528.637 524f13 $20.023 $20.448 528.517 $29.110 Add. net mcome . 25 606
_2423 54.100 60.208 69.272 78.M1 Totals 52.790 50.239 74.123 80.6 % 97.789 107.461 Deduct Ca sh devedends on common stock 17.000 12.000 38.000 31.000 60.000 Cash devedends on cumulative preferred stock 4 680 4 722 14 013 14.139 18 679 18.944 Totals 4 6n0 21122 26 013 52139 49.679 78 944 Salance, end of period (Note 5) $48110 $28 %17 548 110 $28 517 $48,110 $28 517 The accompanymg notes are an eteural part of the fmancial statements m 3p2 220 t t S
IERSEY CENTRAL POWER & LICHT COMPANY Statements of Sources of Funds Used for Construction (in Thousands) Three Months None Months Tweh Months Ended September 30. Ended September 30. Ended September 30. 1979 1978 1979 1978 1979 1978 Sources of funds: funds generated from operations het encome S 24.153 5 25.606 5 54.100 S 60.208 5 69.272 5 78.351 Add, items not requermg current cash outlay or (receipt) Deoreciation tNote t) 14.234 11.546 42.922 34.734 54.081 45.701 Amortuateon of nuclear fuel (Notel) . 4.255 3.370 12.213 12.550 13.760 17.249 investment Credits, net (Notes 1 and 6) (5 51) 4.690 (1.628) 12.189 4.999 15.740 Def erred mcome tanes. net (Notes 1 and 6) . 1.792 2.839 21.024 2.737 42.414 2.221 Allowance for other funds used durans constructson(Note 2) (6.326) (4.818) 06946) O 3.806) (21158) 0 7.622) Totals < 37,561 43.233 111.685 108.612 162.868 141.640 Less. cash dnredends -common stock . 17.000 12.000 38.000 31.000 60.000
-preferred stock . 4.680 4722 14 013 14.139 18.679 18 944 Totals . 32.881 21.511 85.672 %.473 113.189 67.69t>
Other sources (uses)- Def erred energy costs. net (Notes i and 7) . 484 (1,983) [24,741) 7,426 (4),323) 13,142 Changes en -cash. 3.089 (301) (5.687) 1,21 9 (7.142) 3.063
-terworary cash mvestments (7.000) 17,000 (7,000) 2.989 (7.000) 2.989 -accounts recervable 6.635 (2.230) (4.665) (1.178) (16.335) (1.821) -a: counts pay.bie (511) (1.%9) 4.116 19.564 11,343 (2.398) -inventorees-ma terials. supplies and fuel (598) (2.166) (9.040) 2.479 (11.555) (778) -interest accrued . 511 (2.090) 452 0.163) 2.987 (2.365) -tanes accrued . (20.571) 554 12.169 14.734 (6.799) 17.044 Other net (8.941) 1.%5 n4.014) n.635) 0 0.000) (5.002)
Totals . (26.902) 8.780 (52410) 20 473 (79.603) 37.615 Funds from financmss: Sale of long term debt . M.300 50.382 % 300 50.382 Sale of preferred stock . ta.rinn Bank borrowmas, net . 30.600 12.900 36.500 12.900 77.700 (22.200) Retirement or redemption of long term debt and pref erred siock (2.022) (1.677) 01.710) (11.810) (18.420) (14.930) C&sh contributions irom Ceneral Public Utilit.es Corporation, parent company . 10 000 29.500 10 000 f 3.500 30.000 Totals 28.578 21.223 110.590 61 472 179.000 93.252 Totals S 34.557 S $1.514 5143.852 5138.418
--mme S212.666 S193.563 summmme summmma ammm== - ammma-Costruction tapenditures:
Utdity plant S 27.% 1 S $1.840 $125.424 5139.275 S1 % .434 5186.851 Nuclear f uel 12.922 4.492 35.374 12.949 37.890 24.334 Totals . 40.883 %.332 160.798 152.224 234.324 211.185 Allowance f er other f unds used durmg ronstruction (Note 2) (6.325) (4.818) (16.946) (13.806) (21.658) 0 7.622) Totals . Sm-34 -557 5 51.514 $143.852 SS 34 418 $212 666 S193.563
- -s --- - a-mm-m =======
The accompanying notes are an entegral part of the fmancul statements 18) 1A72 22I
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Condensed Consolidated Balance Sheets (in Thousands) Septembee so, September 30 ASSETS: "7'- "'8 Utility Plant (at orismal costXNote 9) in servic e, under construction a nd held f or f uture use 51,313.484 51,273,240 Less, ac cumula ted deprecia tion (Note 1) 234 468 203 892 Nel 1 079016 1 069 348 Nuclear f uel(Nc.te 8) 55.980 69,308 Less, accumulated amortizatson (Note 1) 7.399 1r,073 Net Nuclear Fuel 48 581 53.235 Net Utility Plant . 1.127.597 1 122.583 0 -.. s:s 659 665 Current Assets-Cash , 1,258 2.583 Accounts receivable. net . 43.885 23.449 Other 40 953 35385 Totals 66 096 61.317 Deferred Debits: Def erred enersy costs [ Notes 1. 7 and 9) 56.765 26.710 Deferred costs nuclear accident (Note 9) 33.887 Other(Note 9) . 49 964 .4 54 Totals 140 616 34164 Total Asnets $1.354 968 51.218.729 LIABILITIES AND CAPITAL: Lone. Term Debt. Capital Stock and Consolidaled Serples: First mortgage bonds , 5455.773 5463.018 Debentures . 82,580 84.560 Unamortized net discount on long term debt . (1,598) (1.649) Nor> redeemable cumulative preferred stock lnCluding premium . 139 874 139.874 Totals ,
, '376 629 ,.685 803 Common stor.k and consolidated surplus-Common stock 66.273 e6.273 Consoledated capetal surplus 280.524 280.524 Consol. dated retamed earnmgs(Note 5) . 31.533 34.782 Totals 378 330 3t' .579 7otals 1.054 959 _1.067.382 Current Liabilities:
Debt due within one year 7,764 362 Notes payable to bssk5(Note 3) 88.200 24.150 Accounts payable . 32.350 17.107 Other . 15.900 24.198 Totals 144.214 tub.017 Delerred Credits and Other Liabilities: Def erred mcome lames (Notes 1 and 6) 99.303 59.899 Unamortited mvestment credits (Notes 1 and 6) 32.535 21.073 Insurance recoveries riuclear accident (Note 9) 9.950
- Other 14(n7 4.358 Totals 155 795 85330 Commitments and Contingencies (Note 8 and 9)
Total Liabilities and Capital 51.354 968 51.218.729 The accompanyms notes are an integral part of the imancial statemerts 191 1472 222
METROPOLITAN EDISON COMPANY Ab D SUBSIDIARY COMPANY Consolidated Statements of income fin Thoirs.andi$ Three Months Nine Months Twelve Months Ended September 30, Inded Septembee 30. Ended 4pech 30, 1979 R 19te 1978 1979 197s Operatmg Revenues 585 46 576 237 5250 525 5231 525 5329.580 5303.5 % Cperating Espenses: Fuel 15.730 21.109 56.253 64.825 75.302 84.803 Power purchased and enterchanged, net. Affiliates . 21 6 (2.614) (1.313) (4.024) (4.721) (7.547) Others 31.3 34 2.956 62.047 20.853 66.421 23.913 Def erral of energy costs. net (Notes 1 and 7) (12.849) 1.074 (33.544) (13.478) (30.055) (13.045) Payroll 8.783 8.553 25.481 25.352 33.899 32.792 Other operaLion and mame .n.e(escludes payro!!) 9.734 9.150 31.415 29.479 43.266 38.369 Depre".sa tson (Note 1) . 9.370 6.095 28.263 18.178 35.570 24.014 Tanes. other tha n incore e tazes 4 484 6.263 1e 711 19 278 22.723 25 034 Totals 66 802 52.586 185,613 160 463 2a2 405 208.333 Operatms ir:come betore lacome Tames . 19.044 23.651 64.912 71.062 87.175 95.233 Income Tazes(Notes 1 and 6) 1 087 _10192 22 951 14 703 _7L68 30.353 Operating income . 17,957 15 883 54,720 48 111 72 472 64 480 Other Bacome and Deductions: Allowance for other f unds used during constructson (h ote 2) 235 5.701 908 16.350 5.440 21.481 Other income. net . 238 9 673 4 746 (111) income tases on other encome, net (Notes 1 and 6) (87) (7) (291) (15) (304) 44 Total Other income and Deductions . 386 5.703 1 290 16.399 5.882 21 414 lacome seiere interest Charges - 18.343 21.586 56.010 64 450 78.354 86.294 Interest Charges: Interest on ferst mortgage bonds . 8.816 7.745 26.447 23.144 35.263 30.699 Interest on debentures 1.655 1.670 4.976 5.068 6.638 6.770 Other interest 2.377 1.481 4.644 3.102 5.361 3.749 Allowance for borrowed funds used durms constructon - credit (net of tas)(Note 2) (456) (1,812) (1,775) (5,145) (3,245) (6,539) income tases attributable to the allowance for borrowed lunds(Noter j 6) (189) (2.080) f1.512) (5 967) (3.202) (7 602) Total entere. yes 12 003 7.004 32.780 20152 40 815 27 077 Net income 14.582 13_40 23.230 44.298 37.539 59.217 Preferred Stock Dividenos 2.573 2.573 7.717 7.717 10.289 10.289 tarnings Avallable for Common Stock . Consolidated Statements of Retained tarnings Sg Sg Sg g 527,250 54A.928 Balance, besmnes of period 527.766 530.773 523.020 522.701 534.783 523.854 Add. net encome 6.340 14 582 23.230 44.298 37.539 59.217 Totals 34.106 45.355 46.250 66 999
* ~~
72.122 83.071 Deduct. Cash devw$ ends on common :ioch 8.000 7.000 24.500 30.500 18.000 Cash dividends on cumulative preferred stock 2 573 2 573 7 717 7.717 10.289 10 28e Totals 2 573 to 573 14 717 32.217 40.789 48.289 Balance, end of penod(Note 5) Sgt Sg 531 533 g g 534.782 The accompanyms notes are an integral part of the f mancial statements. [ 10 ] 1472 2D
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Sour:es of Funds Used for Construction (in Thousands) Three Months Nine Months Twelve Montees Ended September 30, inded September 3o, inded Septeenber 30, 1979 197s 1979 1973 1979 1978 Sources of funds-Funds generated from operations-Net mcome S 6.340 514.582 S23.230 544,298 S37.539 559.217 Add, items not requiring current cash outlay or (receipt) Deprecia tson(Note 1) 9.370 6.095 28.263 18.178 35.570 24.014 Amortuation of nuclear fuel (Note 1) 1.422 3.340 3.345 4.897 4.827 investment credits. net (Notes 1 and 6) (2 71) 235 (897) 1.306 11.128 3.376 Deferred mcome tanes. net (Notes 1 and 6) . 11.850 1.398 23.527 13.448 35.546 15.397 Allowance for other funds used durms construction (Note 2) . (235) (5.701) (908) (16.350) (5.440) (21 481) Totals 27.054 18.031 81.555 64.225 119.240 85.350 Less. cash devidends-common stock . 8.000 7.000 24.500 30.500 38.000
-preferred stock 2 573 2.573 7 717 7.717 10289 10.289 Totals 24.481 7,4 58 66.838 32 008 78.451 37.061 Other sources (uses)
Deterred enessy costs. net (Notes t and ?) (12.849) 1.074 (33.544) (13.478) (30.055) (13.045) Changes m -ca:5 (225) 754 5.145 2.0 71 1.325 7.318
-temporary cash investments (2.100) (4.600) (4.600) -accounti receivable (7.029) (4.700) (8.210) (4.076) (20.437) (2.432) -accounts payable 4.808 (2.790) 14.165 2.818 15.243 3.607 -inventories-materials, supplees and fuel (4.215) (4.448) (4.630) 1.283 6.023 (4.714) -enterest accrued . l4.408) (3.309) (4.637) (2.524) 1.231 (426) -tanes accrued . (465) 6.374 (2.732) (7.211) (4.088) (1.167)
Other, net (25 322) 7 864 (35 847) (5104) (34 991) (6.553) Totals (51.805) 819 (74 890) (26.221) (82 743) (5 018) Funds from financmg: Sale of long term debt 50.000 58.700 93.700 tlank borrowings. net 42.750 (34.700) 52.700 (7.100) e4.050 (44.650) Reterement or redemption of long term debt (1.520) (5420) , (1.641) (3.540) (1.822) (6 000) Totals 41.230 Y BAO 51 059 46rmo 62.22a 43 050 Totals 5 13906 S1g Sg Sg Sg Sg Construction tapenditures: Utility plant S 6.717 S 18.487 5 26.625 S 59.433 5 44.648 5 81.977 Nuclear f uel 7.424 4171 17 290 8.74,4 18.728 14 597 Totals 14.141 23.858 43.915 68.197 63.376 96.574 Allowance for other funds used during construction (Note 2) (235) (5.701) (908) (16.350) (5 440) (21.481) Totals . S 13 906 S 18.157 5 a--- 43 007 5 51.847 S 57.936 5 75.093 ammma - ====== sem== The accompanying notes are a i integral part of the financial statements. [ 11 ) 1472 224
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Condensed Consolidated Balance Sheets (in Thousands) September 30. September 30. 1979 1978 i ASSETS: 51.522.404 Utility Plant (at original cost)(Note 9) 51.579.264 350 664 314.152 la service, under construction and held ior future use Less, accumulated depteciation (Note 11 1.228 600 1.208.252 Nel 28.768 35.183 3 687 8050 Nuclear fuel Less, accumulated amortiaation(Note 1) 25 081 27133 Net Nuclear f uel 1.253.681 1.235.385 N et Utility Plant 20.1 40 20.037 inytstments 2 %3 11.6E7 Cmnnt Asaets: de.323 47.117 C6 129.169 41.764
/ ccounts receivable, net -
Other 179.249 97.774 intals 14.057 28.792 Deterred Debits: 9.071 Deterred energy costs (Notes 1.7 and9) . 7.902 Unainortised mme development costs (Noteil 16.944 14 862 Deterred costs nuclear accident (Note 9) M7 52 725 C ther(Note 9) 68 970 Totals 51 522 040 51 405.921 Total Aseets LIABILITIES AND CAPITAL: Lon8 leem Debt. Capital Stocli and Consolidated Surplus: 5618.786 5 579.944 First martgage bonds . 70.040 71.880 (644) (666) Debentures 120.968 Unamortered net dacount on long-term debt 121.363 Nor> redeemable cumulative pref erred stock, including premium, net of expense 47 4 % 50163 Redeemable cumulative pref eired stock, net of expense 857 04 822,289 Totals Common stock and consolidated surplus. 105.812 105.812 266.530 266.530 Common stock 3) 758 Consolidated capital surplus 54 652 426 994 406 100 Consohdated retamed earnmes(Note $) . Totals 1.784 035 1.228.389 Totals 15.648 2.373 Current Liabilities: 5.500 Securities due withm one year to be ref manceo . 34.339 29.725 Notes payable to banks (Note 3) 40 025 Accounts payable 61.212 111.199 77 623 Other Yotals 68.8 % 56.846 Delerred Credits and Other Liabihties: 34.980 40.858 Def erred encome tases(Notes t and 6) 4.975 Unamortiz ed mvestment credits (Notes 1 and 6) 8 083 Insurance recoverees nuc6 ear accident (Note 9) M77 99 909 Other 126 806 Totals Commitments and Contingencies (Notes 6 and 9) 51.522 040 51.405.921 T otal Liabilities and Capital
'inancial statements.
The accompanymg notes are an integral part of te t121 1472 225
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of !ncome (in Thousands) Three Months None Months Twelve Months Ended September 30. Ended September 30. Endsd September 30, 1979 1978 1979 1978 19M 1978 Operating Revenues 5113.991 599.928 $367.590 5319 957 5479.3 % 5418.102 Ope-ating tapenses: Fuel 41.279 33.633 124.851 101.021 168.259 124.912 Power purchased and interchanged, net Affshates (20.869) (7.404) (35.363) (11.998) (46.075) 0 0.740) Others . 12.562 1.569 21.287 20.407 20.950 33.909 Deferral of energy costs, net (Notes 1 and 7) 7 %1 3.763 9.255 (2.249) 14.734 (4.510) Payroll . 11,726 12.069 34.726 33.733 45.768 43.700 Other operation and maintenance (excluding payroll) . 14.790 16.% 2 45.730 47.192 63.010 60.281 Depreciation (Note l) . 11.535 9.377 34.587 28.408 44.307 36.474 Tames, other than income taxes . 6.990 7.759 24.518 24.220 32.612 31.376 Totals . 85.974 77.728 259.591 241.134 34 1. % 5 315.402 Operating income betore income Taxes . 28.017 22.200 108.008 78.823 135.831 102.700 income Tames (Notes i and 6): . 6.337 4,587 29.376 20 869 32.923 25.956 Operating encome . 21 580 17.613 78.632 57.954 102 908 76.744 Other income and Deductions: Allowance for other funds used during construction (Note 2) . 456 2.755 1.450 8.1 54 3.784 17.120 Other 6ncome. net . 2.008 611 3.961 1.480 4.587 1.971 income tames on other income, net (Notes 1 and 6) . (1,21 9) (411) (2.2$3) (1.027) (2.714) (1,409) Total Other lacome and Deductions 1245 2 955 3158 8 607 5.657 12.682 lacome 8eforeinterest Charges . 22.925 20.568 81.790 66.561 108.565 89.426 Interest Charges: Interest on f erst mortsage bonds 12.334 10.865 34.098 30.816 44.726 40.387 Interest on debentures 1.285 1.31 8 3.883 3.978 5.186 5.314 Other interest 529 350 1.009 1.791 (84) 2.447 Allowance for borrowed f unds used dur6ng construction - credit (net of tan)(Note 2) (27}. (1.126) (880) (3.333) (1.834) (4.761) income tames attributable to the allowance for borrowed f unds (Notes 2 and 6) . [296) (1.292) (941) (3.824) [2.036) (5.486) Totallaterest Charges 13 575 10.115 37169 29 428 45.958 37.901 Net income . 9.350 10.453 44.621 37.133 62.607 51.525 Preferred Stock Di.idends . 3.660 3.6% 11.016 11.126 14.713 14.859 tarnings Available for Common Stock . 5% 690 56.757 533.605 526.007 547.894 536 666
~ ~ ~ ~ ~
Consolidated Staternents of Retained tarnings Dalanct, beginning of period 548. % 2 538.001 537.047 533,751 533,758 537.092 Add. net encome 9 350 10.443 _44 621 37.131 51.525 J2.607 Totals 58.112 48.454 81.668 70eA4 %.365 88.617 Deduct: Cash divwiends on common stoch 11.000 16.000 26.000 27.000 40.000 Cash devidends on cumulative preferred stock 3 tao 36% 11 016 11.126 14.713 14 859 Totals 3 660 14.696 27 016 37.126 41 713 54 859 Balance, end of period (Note 5) 5%4 652 533.758 554 652 533 758 Sg2 g The accompanying notes are an integral part of the financial statements im 1472 226
l
.l PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Sources of Funds Used for Construction 8
(in Thousands) Three Months Nane Months Twelve Months Ended September 30 Ended September 30. Ended Septeseber 30, 1979 1978 1979 1978 1979 1978 Sources of Funds: Funds generated from operations-Net enCome $ 9.350 $ 10.453 5 44.621 5 37.133 562.607 551.525 Add. stems not reouiring current cash outlay or (receipt). Depreciation (Note l) 11.535 9.377 34.5M 28.408 44.307 36.474 Amortaaten of nuclear f uel(Note il 708 1.649 1.669 2.425 2.411 investment credits. net (Notes 1 and 6) (365) 978 (1.061) 3.249 5.277 11.814 Deferred encome taxes. net (Notes 1 and 6) (2,129) 0.444) 4.450 7.531 10.319 11.551 Allowance for other funds used during construction (Note 2) . (456) (2.755) (1 450) (8154) (3 78a) 0 2.120) Totals . 17.935 17.317 82.7 % 69.836 121.151 101.655 Less, cash dividends- common stock 11.000 16.000- 26.000 27.000 40.000
- preferred stock . 3.660 3.6% 11,016 11.126 14 713 14859 Totals 14.275 2.6 21 55.780 ,32.710 _79 43A 46.7 %
Other sources (uses). Def erred energy costs, net (Notes 1 a nd 7) . 7.%1 3.763 9.255 (2.249) 14.734 (4.510) Changes in -cash 438 (2.243) 1.149 (491) 8.723 71
-temporary cash investments. (40.2001 (87.200) (87.2001 -accounts recervable 7.1 64 (1.116) 13.700 2.567 (2.793) (9 979) -accounts payable 6.244 (1.247) 1.964 (2.039) 4.614 398 -enventories-mats.ials, supplies and f uel . (1.166) (3.257) 0 2.217) 11.040 (6.137) 17.889 -enterest accruer, 6.109 4 889 5.877 4.498 170 1.305 - ta mes aurwee' 10.033 4.525 19.761 (827) 19.851 562 Other. net 4.416 10.717 (8.553) 101 (3.944) (4.857)
Totals 999 16.031 (56.264) 12.600 (51.982) (3.121) Funds from financings. Sale of long term debt 50.000 45.000 50.000 61.420 Bank borrowings. net . % (500) (33.325) [5.500) (23.905) Retirement or redemption of long-term debt and preferred stock (621) (9 51) fl.552) (3.147) (2.573) (3.767) Cash contribution f rom General Public Utahties Corporation. parent company 5 000 Totals (621) (85%) 46 948 8.528 41 927 38 748 Totals $ 14.653 5 17.797 5 46.464 5 53 838 5 68.483 5 82 423 a--m- - mu-mens ex mmes a- m-mmm-Construction ispeeditures: Utility plant 5 11.360 S 17.770 S 39.177 5 57.462 S 63.750 S 86.916 Nuclear f uel 3.749 2.782 8.717 4.530 9.417 7.627 Totals 15.109 20.552 47.914 61.992 73.167 94.543 Allowant e ior other f unds used during construction (Note 2) (4 56) (2.755) (1.4501 (8.154) (3.784) 02120) Totals 5 14.653 $ 17.797 5 46.464 5 53 838 5 69.383 5 82.423
- umum===
n==ner amm=i= _ mem=== The accompanymt notes are an integral part of the financial statements Ital 1472 227
Notes to Financial Staternents
- 1. Summary of Significant Accounting Policies:
General: Reference is made to the Notes to Financial Statements included in the 1978 Annual Report to Stockholders Operatmg Revenues: Revenues are generally recorded on the basis of billings rendered. Dunng 1978. the Corporation's Penn-sylvania subsidiaries commenced bilhng their retail customers on a monthly basis rather than on a bi-monthly basis to conform to requirements of the Pennsylvania Public Utilities Commission ("PaPUC")while remaining on a bi-monthly meter reading cycle. Depreciation: The Corporation's subsidiaries provide for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to amortize the origmal cost of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. The subsidiary companies use depreciation rates which, on an aggregate composite basis, resulted in an ap-proximate annual rate of 3.07% (Jersey Central Power & Light Company ("lCP&L")-3.40% Metropolitan Edison Company (" Met-Ed")-2.84%, and Pennsylvania Electric Company ("Penelec")-2.89%) for the year 1978. Nuclear Plant Decommissioning Costs: In accordance with ratemaking determinations (a)ICP&L is charging to expense and crediting to a non-funded reserve amounts intended to provide over their service lives for the decommissioning of Oyster Creek and its share of TMI #1 nuclear unit, and (b) Met-Ed and Penelec are charging to expense and paying over to a separate trust amounts intended to provide over their service lives for the decommissioning of their shares of the radioactive components of TMI #1. Such ratemaking orders limit such provisions to amounts based on cost estimates in current dollars without provision for possible future cost escalation. None of the subsidiaries is making any similar provision for decommissioning costs for TMI #2; none of the capital or operating costs of TMI #2 are currently reflected in the rates of the subsidiarios (see Note 9). Amortization of Nuclear Fuel: The amortization of nuclear fuel is provided on a unit of production basis. Rates are determined and periodically revised to amortize the cost over the useful life. Prior to December 1,1976, amortization of nuclear fuel costs included estimated costs of reprocessing such fuel and estimated residual uranium and plutonium. Dse to the uncertain future of government approvals for reprocessing and plutonium recyclir'g, the Corporation's subsidiaries, effective December 1,1976, began using amortization rates for nuclear fuel at the Three Mile Island station which estimate zero values for reprocessing costs and for residual credits. Ef-fective September 1,1977 similar treatment was adopted pursuant to authorization by the Board of Public Utilities of the State of New Jersey ("NjBPU") for the Oyster Creek station nuclear fuel. Also effective September 1,1977 JCP&L is providing for estimated future off site storage costs for the spent Oyster Creek nuclear fuel and similar treatment will be provided for off-site storage costs for the spent Three Mile Island aation ("TMl") nuclear fuel when required. Previously accumulated estimated residual credits, net of previously accumulated estimated costs of reprocessing for the Oyster Creek station nuclear fuel are being amnrtized to fuel expense on a unit of production basit Should reprocessing eventually be undertaken, the Corporation expects that any dif ference between such costs and credits will be recognized prospectively in the rate-making process. I M72 228
Income Taxes: The Corporation and its ubsidiaries file consolidated Federal income tax returns. All participants m a consolidated Federal income tax return are severally liable for the full amount of any tax, includmg penalties and interest, which may be assessed against the group. The Corporation and its subsidiaries have filed with the Securities and Exchange Commission ("SEC") a proposal to change the method of allocation of Federal income taxes beginning with the year 1979. The effect of this change will be to allocate the tax reductions attributable to CPU expenses among its subsidiaries in proportion to the dollars of average com-mon stock equity investment of CPU in such subsidiaries during the year. In addition, each subsidiary will receive in current cash payments the benefit of its own net operating loss carrybacks to the extent that the other subsidiaries can utilize such net operating loss carrybacks to offset the tax liability they would other-wise have on a separate return basis (after taking into account any investment tax credits they could utilize on a separate return basis). The proposed method of allocation will not allow any subsidiary to pay more than its separate return liability as if it had always filed separate returns. The revenues of the Corporation's subsidiaries in any period are dependent to a significant extent upon the costs which are recognized and allowed 6 that period for rate-making purposes. In accordance therewith, the Corporation's subsidiaries have employco tne following policies: Tax Depreciation: The subsidiaries of the Corporation generally utilize liberalized depreciation - methods and the shortest depreciation lives permitted by the Internal Revenue Code in computing depreciation deductions and provide for deferred income taxes where permitted in the rate-making procen. Investment Credits: The 3% investment credits are being amortized over a 10-year period while the 4% and 10% investment credits are being amortized over the estimated service lives of the related facilities. Investment credits applicable to the Tax Reduction Act Employee Stock Ownership Plan ("TRAESOP") are remitted to the Plan Trustee and have no effect on income (see Note 4). Pension Plans: The Corporation's subsidiaries have several pension plans including plans applicable to all employees, the accrued costs of which are being funded. The costs of supplemental pension plans applicable only to supervisory employees were not funded prior to 1976. The previously unfunded supplemental pension plan costs are being funded during the five year period beginning January 1.1977. Prior service costs applicable to all plans are being amortized and funded over 25-year periods. Deferred Energy Costs: The subsidiaries follow a policy of recognizing energy costs in the period in which the related energy clause revenues are billed. Deferred energy costs at September 30,1979 include (a) amounts accumulated prior to the TMI #2 acci-dent, which are being amortized m accordance with ratemaking orders (see Note 7), and (b) amounts ac-cumulated subsequent to the TMI #2 accident reflecting the operation of levelized energy adjustment clauses placed in effect pursuant to ratemaking orders entered in June 1979 (see Note 9). g72 229
Mine Development Costs: These costs are being amortizec to income over the estimated life (20 years) of the mines.
- 2. Allowance for Funds Used During Construction:
The applicable regulatory Uniform System of Accounts provides for allowance for funds used during construction ("AFC") which is defined as including the net cost during the period of construction of bor-rowed funds (allowance for borrowed funds used during construction) used for construction purposes and a reasonable rate on other funds (allowance for other funds used during construction) when so und. While AFC results in a current increase in utility plant to be recognized for rate-making purposes and represents, in this fashion, current compensation for the use of capital devoted to construction, AFC is not an item of cur-rent cash income; instead, AFC is realized in cash after the related plant is placed in service by means of the allowance for depreciation charges based on the total cost of the plant, including AFC. To the extent permitted in the rate-making proceedings of the subsidiaries, the income tax reductions associated with the interest component of AFC have been allocated to reduce interest charges and, cor-respondingly, have not reduced income taxes charged to operating expenses. Pursuant to such rate orders, the Pennsylvania subsidiaries employ a net of tax accrual rate for AFC and JCP&L employs a net of tax ac-crual rate for AFC on certain construction projects while using a gross AFC rate on others. The Corporation's subsidiaries have accrued AFC using rates which, on an aggregate composite basis, would have resulted in an annual rate of 8.42% (JCP&L-8.85%, Met-Ed-6.38%, and Penelec-7.09%) for the nine months ended September 30,1979.
- 3. Short-Term Borrowing Arrangements:
The Corporation and its subsidiaries have entered into a revolving credit agreement with a group of banks, under which they expect to ultimately have available up to 5412 million of credit at interest rates ranging from 105% to111% of the prime rate. The agreement provides for a commitment fee of one-half of one percent per annum of each bank's total commitment (whether used or unused). At September 30,1979, the lines of :redit under the agreement totaled 5289 milliors, of which 5220 million have been utilized for outstanding borrowings. In addition. the Corporation and its subsidiaries have informal lines of credit with various lenders. These arrangements generally provide for the maintenance of compensating oalances ranging from a minimum of 10% of the available line of credit to a maximum of 10% of the line plus 10% of the loans outstanding, as determined on a daily average bases. At September 30,1979, the lines of credit available under these ar-rangements totaled approximately $35 million (JCP&L - $17 million. Met-Ed - 52 milhon and Penelec -516 million).
- 4. Common Stock and Capita! Surplus:
Of the 75 million authorized shares of $2.50 par value common stock of the Corporation. 61,264 000 shares were issued and outstanding at September 30,1979. During the quarter ended March 31,1979, the Corporation sold 293,000 shares of common stoct. The par value or such share > (5731,000) was credited to common stock and the excess of proceeds over the par value of such shares (54,188.000) was credited to capital surplus. As a result of the accident at TMI #2, the Corporation suspended both the Dividend Reinvestment Plan and the TRAESOP. Because of such suspensions, no shares of common stock have been sold subsequent to March 31,1979. 1472 2 %
- 3. L.onsohdatec Metamen tarnings:
Under the revolvm; credit agreement. 5300.000.000 of the balance of consolidated retamed earnmgs is restricted as to the payment of cash dividends on common stock. Retamed earnmgs of Met-Ed and Penelec mclude 53,360.000 and 537.048.000, respectively, which amounts are restocted as to the declaration of cash dividends on common stock in accordance with the most restrictive of the provisions contained in their mortgages, debenture mdentures, charters and the revolvmg credit agreement. In accordance with recently supplemented provisions of its mortgage. JCP&L must hmit cash dividends on common stock, to the extent they are not matched by cash capital contributions from the Corporation, to an amount not exceeding 25% of earnings for 1979 and 1980 and 100% of earr,ings thereafter. In the NJ BPU's rate order of June 18,1979, JCP&L was directed not to pay any cash dividends on common stock for the remainder of 1979.
- 6. Income Taxes:
Examination of Federal income tax returns through 1976 has been completed and the years 1977 and 1978 are currently under review. The Corporation and its subsidiaries have provided for any anticipated liabilities that may result from such examination.
- 7. Deferred Energy Costs:
The balance of deferred energy costs at September 30,1979 includes (a)552.6 millien deferred by JCP&L prior to September 1,1977 which is being amortized to income at a rate of 52.3 million per year, before in-come taxes, for accounting and rate-making purposes, and, (b) 525.2 million (Met-Ed $14.4 million, and Penelec 510.8 million) deferred by the Pennsylvania subsidiaries prior to July 1,1978 which is being amor-tized to income at a rate of $11.3 million (Met Ed 55.8 million and Penelec,55.5 million) per year, before in-come taxes, for accounting and rate making purposes. Substantially all of the remaining balance of deferred energy costs represents costs expenenced since the accident at TMI #2 (see Note 9).
- 8. Commitments and Contingenices:
Ceneral: The subsidiaries' construction programs, which extend over several years, contemplate expenditures of approximately 5330 million ()CP&L,5205 million; Met-Ed, $50 million; and Penelec. 570 million) during 1979, in connection with these construction programs the subsidiaries have incurred substantial commitments. The subsidiaries are engaged in negotiations and, in one mstance, utigation with various suppliers relating to the latters' claims for delay or termination charges or increased fees which such suppliers as result from the subsidiaries
- revisions of their construction plans and schedules and/or from the increased scope of supply. The subsidiaries' managements do not expect at this time that such negotiations and litig tionrate-making the will resultprocess.
in any material increase in costs that would not be valid costs properly recognizable thro Claims for damages arising out of the operation of the Oyster Creek station have been asserted. JCP&L's management believes that such liability, if any, as it may have for such damages in the pending suits and for all asserted and potential similar claims would not be material. JCP&L was a participant in the Atlantic generating station project. In December 1978, the non-affiliated co owner rnd principal sponsor of the station announced the abandonment of the project. At September 30, 1979, JCP&L's investment in the project was 54.2 million. JCP&L plans to seek regulatory approval to amor-tize this investment, net of related mcome tax reductions of $14 million, over a period of years for rate-making purposes. The Nj0PU has accorded such treatment for similar items in the past. The mrnoration has ;narantr -f a!! horrowing. ..ut>t.mding under the res olvmg ..rnhr .igreement bee Note 3) In order to secure such guarantee, plus $39 million of the Corporation's term loan and the guarantee by the Corporation of 516 8 million of loans to CPU Service Corporation ("CPUSC"), the Corporation has pledged the common stock of JCP&L Met Ed. Penclec and CPUSC. JCP&L and Met Ed have secured their notes under the revolvmg credit agreement by pledging a security interest in certain nuclear fuel in process of refmement, conversion, enrichment and fabrication. Such nuclear fuel was recorded on the September 30,1979 balance sheet at a cost of 516.4 milhon (JCP&L-58.5 million and Met-Ed 57.9 million). In addition, Met-Ed has pledged $40 milhon of first mortgage bonds as security for its indebtedness under the revolvmg credit agreement. 1472 231
Fuel Adjustment Clauses: In 1974, in the af termath of the Arab oil embargo and OPEC actions doubimg the price of oil and m the presence of the threat of a prolonged coal strike, competition for coal was intense. In some cases, Met-Ed and Penelec agreed in 1974 to modification of existing contracts and/or paid pnces in excess of such con-tracts, beheving that they would not have been able to ootain dehvery of coal f rom their contract suppliers without taking such actions and that the other alternatives would have resulted in even higher costs or , unreliable service to their customers. In 1976, the PaPUC directed that independent studies be made of the fuel procurement policies, practices and the procedures of Pennsylvania electric utilities and their applica-tion of the fuel adsustment clauses m 1974 and that reports of such studies be filed with the PaPUC. The independent auditors of the Cr ation and its subsidianes made such studies with respect to Met-Ed and Penelec and submitted reports cr ne PaPUC on March 1,1976. These reports found that in 1974 cer- , tam payments to coal supphers were in excess of original contract arrangements. The Met-Ed report states that $2.8 million m payments were in excess of base contract prices but in accordance with contract terms for escalation; whereas 55.8 million of price increases in excess of base contract prices had inadequate - documentation to support such escalation. The report also stated additional quantities of coal (an estimated 70,000 tons) had to be purchased due to receipt of coal that had not met the BTU specifications of the con-tracts. The Penelec report identifies $4.5 million of payments in excess of escalated contract prices due to renegotiations of existing contracts and that certain suppliers did not deliver 400,000 tons required under the contractual arrangements. These reports also stated that "[a] part of these additional costs was unavoidable ' since they were caused by external conditions beyond the control" of the subsidiaries a'nd "to some degree," because of their coal procurement practices which the report found to be " informal and not well documented". The subsidiaries' alternatives were limited and they were not in a strong bargaining position i to contend with 1974 conditions, the reports stated, but added that, in retrospect, the subsidiaries might have done mee to contain fuel costs, despite such conditions and procurement problems. Although the i reports said tho; the subsidiaries' primary commitment is to maintain reliable electric service, it added that l the subsidiaries "could have been more responsive to the developing procurement problems and taken more effective action to cope with them" in March,1976, by complaints filed against several Pennsylvania electric utilities, including Met-Ed and Penelec, the PaPUC ordered an investigation of their charges made and rates received through fuel adjust- 4 ment clauses. i In January and April 1977, the PaPUC issued amended complaints asserting that Met-Ed and Penelec made payments in 1974 for coal that were 59.8 million and 54.9 million, respectively, in excess of those re-quired by their contracts, and that such excess payments were without justification and directing Met-Ed ! and Penelec to show cause why they should not be required to refund 59.8 million and 54.9 million, respec-tively, to their customers. Met E d and Penelec believe that the payments which they made were justified and , that there is no basis for requiring such refunds and they have so responded to the complaints. Hearings on - the complaint against Met-Ed were completed in November 1978 and the matter is awaiting the initial deci- l sion by the administrative law judge who heard the evidence. { in November and December 1978, the PaPUC issued fu?ther complaints asserting that Met Ed and Penelec incurred excess costs of 54.6 milhon and 5.8 million, respectively, for coal during 1975 and 1976, and :* that such excess payments were without justification and directing Met Ed and Penelec to show cause why they should not be required to refund 54.6 million and 5.8 million, respectively, to their customers. Such , complaints were based on audit reports prepared by the PaPUC staff. Met-Ed and Penelec believe that the ; payments which they made were justified and that there is no basis for requiring such refunds, and they have j so responded to the complaints. 1 in May,1976, the PaPUC required all Pennsylvania electric utilities to file supplements, effective August 1,1976, to their fuel adjustment clauses providmg that the apolication of such clause shall be sub-ject to continuous review and audit and that, if it shall be determined by a final order that such clause has ; been erroneously or improperly utilized, the utility will rectify such error and apply credits against future i fuel cost adjustments. 5 Met Ed and Penelec beheve that the amounts paid by them for fuelin 1974-1976 were fully justified and that there is no valid basis for requirmg any refund of any amounts collected by them under their fuel adjust- , ment clauses. However, the Corporation is unable at this time to predict 1 the outcome of : th
Compliance Audsts-The staff of the FERC has conducted compliance audits of Met Ed's and Penelec's accounting records cove..:ng the periods ending December 31,1976 and December 31,1977, respectively. The findings of such audits which, among other things. raised questions concerning the base to which AFC accruals should be ap-plied, were furmshed to Met-Ed and Penelec by the FERC in letters dated October 2,1978 and November 17, 1978, respectively. The letters recommended certam adjustments to the books of account. If such recom-mendations were to be sustained, the resulting reduction in consolidated earnings would approximate 54.5 million (Met-Ed 52.2 milhon and Penelec 52.3 million) through 1978. Met-Ed and Penelec believe that such recommended adjustments are not justified and they are contesting them. Nuclear Fuel Litigation: In 1971, JCP&L entered into a contract for the purchase of three nuclear fuel reloads f or the Oyster Creek Station, with an option for five additional annual reloads beginning in 1976. In 1974 the supplier offered an extension of that contract to cover five additional annual reloads beginning in 1981. JCP&L believes that it effectively exercised the option in the initial contract and accepted the offer to extend the contract to cover the annual reloads through 1985. The supplier disputes this position and,in November 1978, submitted bills for material and services in the aggregate amount of approximately 533 million, covering reloads supplied in 1977 and 1978 and to be supplied in 1979. The supplier has stated that its objective is to establish revised prices and other terms and conditions rather than to diminish supplies and, without prejudice to its legal position, has released uranium concentrates for enrichment and fabrication for the 1979 annual fuel reload. Of the 533 million claimed by the supplier to be due, ICP&L has paid approximately 5.8 million, agreed to pay an additional 53 million but has asserted that such amount will not be due until later in 1979 and is of the opinion that the balance of approximately 529 million is not payable by it and has so informed the sup-plier. On January 26,1979, the supplier filed suit against JCP&L, the Corporation and CPU Service Corpora-tion. JCP&L has filed a counterclaim for a declaratory judgement confirming its view of the contractual status and for damages and has also filed another suit against the supplier and its parent seeking damages. JCP&L believes that any additional amount that it might be required to pay if the supplier is successful in its suit would be valid costs and should be recognized for rate-making purposes. However, there can be no assurance that this will be the case.
- 9. Nuclear Accident:
On March 28,1979, an accident occurred at Unit No. 2 of the Three Mile Island nuclear generatir.g sta-tion ("TMI 2") resulting in significant damage to TMI-2, and a release of some low level radiatina which published reports of governmental agencies indicate did not constitute a significant public health or safety hazard. TMI-2 is lointly vuned by the subsidiaries, JCP&L,25%; Met-Ed. 50%; and Penelec. 25%. Total in-vestment by the subsidiaries in TMI-2 is approximately 5750 million, including the unamortized investment of approximately 535 million in the nuclear fuel core. The subsidiaries have engaged a consulting engineering firm to prepare a cost estimate and schedule for restoring TMI 2 to service. The firm's initial report notes that, while the decontamination of the buildings and removal and disposal of large quantities of radioactive material is a major undertaking, the technoiogy and techniques are well-knowr, and have been previously demonstrated. This initial report emphasizes the inherent uncertainties in cost and schedule estimates until(a) entry into the containment vessel has been gained and the dif ficulties of decontamination have been evaluated. (b) the reactor vessel has been opened and the difficulties of core removal have been evaluated, and(c) the physical integrity of majos.corrponents has been assessed. Subject to these qualifications, the initial report estimates that decontamination and restoration of TMI 2 to service, exclusive of replacement of the core, will cost approximately 5240 million and take about four years. The report also recommends that, because of the unknowns and variables, an allowance of 580 million for contingencies be included in the estimate of cost, bringing the total to 5320 million. The estimate does not include provision for the replacement or the reactor core (estimated by the subsidiaries to cost $60 million to 585 million) nor for the subsidiaries' replacement power, fmancing and other costs during the period of rehabilitation of TMI 2 The subsidiaries have increased, by 525 milhon, the engineering firm's estimate of costs to provide in other items possibly omitted from that estimate. The subsidiaries carriec' .ne maximum insurance coverage available ($300 million) for damage to the unit and core and for decontamination expenses. The insurance does not cover replacement power costs or return on investment while the umt is not providing electricity for customers, but it otherwise covers most types of costs. It is the subsidiaries' belief that, if the estimates of the consulting engineering firm are borne out, the recoveries from the insurance companies will approximate the amount of the insurance carried. 1472 233
The subsidiaries do not know the extent, if any, to which the expenditures for repair and restoration of the unit to service will represent piant img rovements or other items that are properly capitalizable and recoverable in the future through rates charged to customers by amortization or depreciation charges Moreover, the subsidiaries expect to seek financial assistance from the Federal government and/or the utility industry in areas where the technical information thould be of wide value and significance. Under these cir-cumstances, the amount of loss, if any, suffered by the Corporation and its subsidiaries resulting from the TMI accident is not presently determinable and no provision therefore has been made in their accounts. The prcperty damage insurance, and the limit of coverage, is applicable to both TMI-1 and TMI-2. This property insurance is se'iuced by claims paid and the insurance corrss have refused to reinstate the origmal coverage limits at this time. Separate property damage insurance for TMi-1 of up to 5300 million was ob-tained from another carr er which provides such insurance only on a retrospective premium basis whereby the insureds are subien to annual assessments of up told times the annual premium. As a result, the subsid-iaries have a contingent liability for an aggregate annual assessment of up to $14 million. With regard to property insurance for TMI-2,550 million of coverage has been obtained for possible damages which might result from a non-nuclear accident during the unit's restoration period. The subsidiaries, in responding to the accident at TMI-2, have incurred 574 million of costs associated with the clean-up and recovery process, as of September 30,1979. Of this amount 567.8 million hss been deferred and 56.2 million charged to operations. All deferred costs will be charged to operations upon a determination that such costs are not recoverable through insurance proceeds, rates or by fmancial assistance from the Federal government or from other public or private sources and/or utility industry. In its rate order approved June 15,1979 referred to below, the PaPUC recognized that no claim for such costs had been made in the proceedings in which such order was entered. Nevertheless, the PaPUC stated in that order:
the Commission is of the view that none of the costs of responding to the incident, including repair, disposal of wastes and decontamination are recoverable from ratepayers."
The subsidiaries, while presently unable to assess the specific damage to the fuel core at TMI-2, are of the opinion that the core is no longer useful in TMI-2 or any other nuclear generating station. At the tirr.e of the accident at TMI-2, the nuclear fuel core had a remaining unamortized book cost of approximately 535 million. In June 1979 this nuclear fuel core was retired and the unamortized cost was transferred to Deferred Debits - Other, pending insurance settlement. TMI-1 which adjoins TMI-2 was out of service for a scheduled refueling and was not involved in the acci-dent. By orders dated July 2,1979 and August 9,1973. the Nuclear Regulatory Commiss'on ("NRC") directed that TMI-1 remain in a shut down conditior. until resumption of operation is authorized by the NRC, after public hearings and the satisfaction of various requirements set forth in such orders. The NRC's time schedule for the completion of the hearings and decision would require at least one year and a longer period could be required. In their rate orders issued in June 1979, the PaPUC and NJ BPU determined that the capital and operating costs associated with TMI 1 should continue to be reflected in base rates. However, on September 20,1979, the PaPUC issued an order instituting an investigation to determine whether the costs of Met-Id and Penelec associated with TMI-1 should be removed f rom their base rates. The NJBPU may institute a similar investiga-tion.
\A77 $ -
In order to make provisions for the substantial expenditures required for clean up and repair, replace-ment energy and other added costs resulting f rom this accident. the Corporation and its subsiciaries entered into a revolving credit agreement with a group of banks m June 1979,(see Note 3) In addition. JCP&L and Penelec each issued $50 million of first mortgage bonds m June 1979 and JCP&L sold 547.5 milhon of first mortgage bonds in October 1979,$25 million of which was apphed to the payment of maturmg bc. ads. On October 26, 1979, the NRC proposed a fine of $155,000 against Met-Ed for alleged safety, maintenance procedural and traming violations at TM). The NRC also stated that depending upon the fmdings of contmuing investigations into the TMI-2 accident, it may take additional enforcement action such as assessmg additional civil penalties or ordering the suspension, modification or revocation of Met Ed's operatmg license. Met-Ed proposes to contest the major elements of the pronosed fine but does not know what the outcome of this matter will be. On October 30,1979, the Presidential Commission on the Accident at Three Mile Island issued its report The Commission's Report is lengthy and it was accompanied by a series of Staff Reports comprising several thousand pages. The Commission's Report states, in part, that its " investigation has revealed problems with the ' system' that manufactures, operates and regulates nuclear power plants" and the shortcomings which turned the incident into a serious accident "are attributable to the utility, to suppliers of equipment and to the federal commission that regulates nuclear power." The Corporation does not know what effect, if any, the Report will have upon it and its subsidiaries. Other investigations and inquiries into the nature, causes and consequences of the TMI-2 accident com-menccd by various federal and state bodies are continuing CPU is unable to estimate the full scope and nature of these continuing investigations or the potential consequences thereof to the investors in the securities of the Corporation and its subsidiaries. The Corporation is also unable to determme the impact,if any, the results of such investigations may have on the proceedings to return TMI-1 tr service and the efforts to rehabilitate TMI-2. On November 1,1979, the PaPUC ordered Met-Ed to show cause why its governmental authorization to sell electric power should not be revoked. Met Ed intends to respond to the order contending that there is no basis for such revocation. , On January 31,1979. JCP&L was granted a 533.8 million rate increase by the NJ BPU, which, among other things, reflected in base rates its investment in TMI-2 and the operating and maintenance costs associated with the unit. On June 18,1979, the NJ BPU issued a rate order reducing annual base revenues by $29 million which represents JCP&L's capital and operating cost associated with its interest in TMI-2. The order also pro-vided for a reduction in energy revenues of $7.3 million over a prospective eighteen month peri'>d as an off-set to revenues attributable to TMI-2, collected during April, May and June 1979. Accordingly, such amount was recorded as a charge to energy costs by JCP&L in June 1979. In addition, the order authorized JCP&L to increase its levelized energy adjustment charges to its customers over the period July 1,1979-December 31, 1980, by an amount which the NJBPU believed would be sufficient to recover the replacement power costs associated with the non-availabihty of TMI since March 31,1979 (see Notes 1 and 7). On September 5,1979, the NJBPU authorized JCP&L to increase its levelized energy adjustment clause charges to recover increases in energy costs, not associated with TMI, anticipated for the period September 1,1979 - August 31,1980; such increase is expected to provide approximately 570 milhon of revenues durmg that period (see Note 1). During the first quarter of 1979, Met Ed and Penelec were granted retail rate increases by the PaPUC which, among other things, reflected m base rates their mvestment in TMI 2 and the operating and maintenance costs associated with the unit. On April 19,1979 and April 25,1979, the PaPUC, as a result of the accident, established temporary rates for Met-Ed and Penelec, respectively, reducing annual base revenues by the operating and capital costs associated with their interest in TMI 2. These actions effectively revoked the 546.6 milhon increase in rates granted Met-Ed on March 22,1979, restorma the rates to levels in effect prior to that rate order. In Penelec's case, the PaPUC prospectively reduced the 556.2 million rate in-crease which the company had been billing since lanuary 27,1979 by 525.0 million. 1472 235
On June 15,1979, the PaPUC issued a rate order which directed that Met-Ed's and Penelec's temporary rates prescribed by its April 19,1979 and April 25,1979 orders be made permanent. In addition, the order estabbshed levelized energy adjustment clauses for Met-Ed and Penelec for the period July 1,1979
-December 31,1980 at a level which the PaPUC beheved would be sufficient to recover the increases in the companies' energy costs during that penod. This levelized energy adjustment clause did not make provision for the increased energy costs experienced by Met-Ed and Penelec durmg the March 28-lune 30,1979 penod, but the discussion at the public meeting at which such order was entered indicated that such costs will ultimately be recoverable. The order also made provision for the amortization through base rates by Met-Ed of 55.8 million annually of previously deferred energy costs of 514 million and by Penelec of 55.5 million an-nually of previously deferred energy costs of $19.4 million.
The increases in the subsidiaries' levelized energy adjustment charges granted by the NjBPU and PaPUC in June 1979 assumed that TMI-1 would resume the generation of electricity on January 1,1980. The sub-sidianes expect to seek increased energy adjustment charges in the light of the NRC's action requiring that TMi-1 remain in a shut-down condition until resumption of operations is authorized by it. On November 1,1979, Met-Ed filed with the PaPUC for an increase of approximately 555 million in its levelized energy clause charges. Such request is a result of increased fuel costs since the June 15,1979 rate order, as well as the continued delay in returning TMI-1 to service. As indicated by the preceding paragraphs the depreciation and return requirements associated with the 5750 million investment in TMI 2 (amounting to approximately 595 mi!! ion per year) are not being recovered from customers. Such depreciation and return requirements are currently being reflected in the financial statements in that (a) depreciation charges in respect of the unit are being provided (b) the interest and preferred stock dividend charges associated with the debt and preferred stock components of that invest-ment are being accrued, and (c) the earnings per share of common stock are determined on a basis which reflects all outs'tanding shares including the shares issued to finance the common stock component of that investment. Under the Price-Anderson Act there is a limit of $560 million on each nuclear generating unit for public liability claims that could result from a single nuclear incident. The subsidiares have insured for this ex-posure by purchasing private insurance of 5140 million (the maximum amount available at the time of the accident) and the remainder by participating in an arrangement for assessments after an accident against owners of nuclear reac: ors of up to 55 million per incident, but not more than $10 million in any calendar year, for each licensed auclear reactor and indemnity by the Federal government. Based on the three nuclear reactors and the insurance coverage in effect at tim time of the accident, the subsidiaries' maximum potential assessment under this arrangement is 515 million per incident. Such private insurance is reduced by claims paid but is subject to reinstatement to original coverage limits upon approval by the insurance carriers. The subsidiaries have applied for such reinstatement but are unable at this time to ascertain whether or when such reinstatement will be approved. As a result of the accident, the Corporation, and/or its subsidiaries have been named as defendants in various law suits Among other matters such suits include (i) class actions and individual suits for personal and property damages directly resulting from the accident. (ii) suits to enjoin the decontamiriation of TMI-2 and (iii) suits for damages on behalf of purchases of CPU Common Stock. The corporation and its sub-sidiaries are not able to evaluate the merits of these complaints. The subsidianes' construction program, which extends over several years, contemplated expenditures of approximately 5455 million durmg 1979 However, due to the accident at TMI 2 in an effort to conserve their cash resources the subsidianes' have reduced their 1979 construction program expenditures to approx-imately 5330 million. JCP&L, in view of the accident, has temporanly suspended construction on its Forked River nuclear generating station Total costs applicable to this project at September 30,1979 were approximately 5357 milhon Prior to the accident, JCP&L was negotiatmg for the sale of undivided interests m the station to two unaffil.ated utihties, one of which has smce mdicated it is no longer interested in such a purchase. JCP&L does not know whether it will be able to sell any undivided mterests m the station. 1472 8
Exhibit B METROPOLITAN EDlSON COMPANY AND SUBSIDIARY COMPANY MANAGEMENT'S COMMENTS ON QUARTERLY INCOME STATEMENTS Third Quarter 1979 vs. Second Quarter 1979 The principal factors resulting in a $1 million or 13% decrease in balance available for common stock were as follows: Revenues other than those related to the cost of energy, declined $2 million, or 3%. This was a result of lower surcharge revenues caused by a reduction in the surcharge rate, effective July 1,1979, to account for the public utility realty tax refund received from the Commonwealth of Pennsylvania in May and June 1979. Payroll and other operation and maintenance expenses increased $1 million, or 4%. 1472 237
Third Quarter 1979 vs. Third Quarter 1978 The principal factors resulting in a $8 million or 69% decrease in the balance available for common stock were as follows: In the third quarter of 1979 the operating and investment costs associated with TMI-2 for which no revenues have been received resulted in a $5 million reduction in the third quarter earnings compared to the third quarter of 1978. In the third quarter of 1978 we were capitalizing allowance for funds used during construction which offset the investment costs associated with TMI-2 and resulted in no impact on earnings. In addition, revenues, other than those related to the cost of energy, ds:---med $3 million, or 5%, primarily as the result of a reduction in surcharge revenues. This reduction was attributable to the decrease in the surcharge rate, effective July 1,1979, to account for the public utility realty tax refund received from the Commonwealth of Pennsylvania in May and June, 1979. Payroll and other operation and maintenance expenses declined $1 million or 8%, primarily from the effects of cost reduction programs and the diversion of employees from their regularly assigned work to clean-up at TMI, which costs were deferred. Taxes other than income decreased $2 million, or 28%, as a result of a correspond-ing credit for public utility realty tax refund. Interest costs other than those related to TMI-2, increased about $2 million, or 18% ($1 million due to sale of bonds in September, 1978 and $1 million due to a higher level of short-term debt outstanding). 1472 2 9
_3_ Nine Months 1979 vs. Nine Months 1978 The principal factors resulting in a $21 million or 58% decrease in the balance available for common stock were as follows: TMI-2 was placed in-service at year-end 1978 without a corresponding increase in revenues. This resulted in a $13 million decline in earnings for the nine months ended 1979 compared to nine months ended 1978. During the first nine months of 1978 we were capitalizing allowance for funds used during con-struction which offset the investment costs associated with TMI-2 and resulted in no impact on earnings. In addition, revenues other than those related to the cost of energy, increased $2 million or 11 (kilowatt-hour sales increased 4% or $5 million and rates, other than those related to TMI-2, increased $1 million, these increases were partially offset by a $4 million reduction primarily in surcharge revenues). Fixed costs, other than those related to TMI-2, increased about $7 million, or 15% (depreciation about $2 million and interest $5 million). Depreciation increased due to additional depreciable plant and interest as a result of the sale of bonds in September 1978 and a higher level of short-term debt outstanding. 1472 239
Part II - Other Information Item 1. Legal Proceedings. Reference is made to the Current Reports on Form 8-K for the nonths of August, Septaber and October 1979, jointly filed by the Cmpany and its affiliates, regarding the current status of certain legal proceedings instituted against the Cmpany and its affiliates as a result of the March 28, 1979 nuclear accident at Unit No. 2 of the Three Mile Island nuclear generating station ("TMI-2"). Copies of these reports are filed herewith as exhibits and incorporated herein by reference. Item 8. Other Materially Important Events. Reference is made to the Current Reports on Form 8-K for the months of August, September and October 1979, jointly filed by the Cmpany and its affiliates, for information concerning the TMI-2 nuclear accident and its aftermath, including, among other matters, the report of the President's Cmmission on the Acci-dent at Three Mile Island and the status of various proceedings pending before the Pennsylvania Public Utility Cm mission (par-ticularly the proceedings to revoke the Cmpany's franchise and to remove the investment in and associated operating costs of Three Mile Island Unit No.1 from the Cmpany's base rates) and the Nuclear Regulatory Ca nission. Copies of these reports are filed herewith as exhibits and incorporated herein by reference. Iten 9. Exhibits and Reports on Form 8-K. (a) Exhibits: (1) C,sent Report on Form 8-K, dated September 10, 1979, jointly filed by the Cmpany and its affiliates. (The exhibits to such report are incorporated herein by reference.) (2) Current Report on Form 8-K, dated Octob r 9,1979, jointly filed by the Cmpany and its affiliates. (The exhibits to such report are incorporated herein by reference.) (3) Current Report on Form 8-K, dated November 9, 1979, jointly filed by the Cmpany and its affiliates. (The exhibits to such report are incorporated herein by reference.) (b) Reports on Form 8-K: (1) For the nonth of August 1979, dated September 10, 1979 - Item 5. (2) For the month of September 1979, dated October 9, 1979 - Item 5. (3) For the month of October 1979, dated November 9, 1979 - Item 5. 11/9/79 1472 240
SIGNATURE Purs tant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized. METROPOLITAN EDISON COMPANY By F/ J. Smith, Senior Vice President By R. E. Werts, Comptroller (Principal Accounting Officer) Novem% r 14, 1979 1472 24I
- 7 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934.
For Quarter Ended September 30, 1979 Commission file number 1-3522 PENNSYLVANIA ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 25-0718085 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1001 Broad Street Johnstown, Pennsylvania 15907 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (814) 536-6611 N/A Former name, former address and former fiscal year, if changed since last report. Common shares outstanding as of September 30, 1979 were 5,290,596 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing require-ments for the past 90 days. YES X NO
\h -
O Part I - Financial Information Company For Which Report is Filed Pennsylvania Electric Company Financial Statements The required financial statements appear on the following pages of the Quarterly Financial Statements attached herewith as Exhibit A: Page Balance Sheets 12 Statements of Income 13 Statements of Sources of Funds Used for Construction 14 The statements (not examined by independent certified public ac-countants) reflect all adjustments (which consist of only normal recurring accruals - reference is made to Note 9 which discusses accruals recognized with respect to the nuclear accident) which are, in the opinion of the Company, necessary for a fair statement of the results for the interim periods, subject to the recoverability of costs deferred and the ultimate resolution of the various matters pertainiag to the ,. clear accident dis-cussed in Note 9. The September 30, 1979 financial statements do not reflect eay provision for any possible loss which might result from the nuclear se:ident at described in Note 9 to financial statements. Management's Comments on Quarterly Income Statements Attached herewith as Exhibit B 7 ck
\ 4 1 il
Exhibit A Quarterly Financial Statements September 30,1979* 9 General .Public Utilities Corporation 100 Interpace Parkway, Parsippany, N.J. 07054 e (201) 263-6500 Jersey Central Power & Light Company Metropolitan Edison Company Pennsylvania Electric Company These statements are not furnished in connection with any effering of securities or for the purpose of promoting or influencing the sale or purchase or securities.
- No provision has been made in these financial statements for any possible loss resulting from the nuclear accident at Three Mile Island Unit 2, inasmuch as the amount thereof, if any,is not deter-minable at present.
1A72 244 G
CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Condensed Consolidated Balance Sheets (in Thousands) Septesuber 30, September 30, 1979 1978 ASSETS: Utility Plant (at original cost)(Note 91 in service, under construction and held for future use . 54.985.764 $4.697.741 Less, accumula ted depreciation (Note 1) 945.110 835.027 Net 4.040.654 3.862.714 Nuclearfuel(Note 8) . 224.319 232.921 Less, accumulated amortazation(Note 1) 43.163 60.214 Net Nuclear fuel 181 156 172.707 Net Utility Plant 4.221.810 4.035.421 Escess of investments .n subsidiarees over related net assets . 30.805 30.805 lavestments . 21.165 21.1 % Current Assetc Cash .-. Accounts receivable, net . 13.235 20.797 129.595 114.512 Other . 234.992 121,256 Totals 377.822 2%.%5 Deferred Debits: Def erred energy costs (Notes 1,7 and 9) 96,514 1$1.968 Unamortiaed mene developer ent costs (Note 1) . 7.902 9.071 Deterred costs - nuclea r accac ent [ Note 9) . 67.775 Other(Note 9) . 123.248 47.290 Totals 350.893 152.875 7oIal Aseeis S5.002.495 $4.496.822 LIABILITIES AND CAPITAL:
- Long Teni Debt, Capital Stod and Consolidated surplus:
Long Term Debt. First rnortgage bonds . $1,827.177 51,768.156 Debentures - 233,700 239.600
. Other long term debt .
54.115 60.746 Unamortsaed net discount on long term debt . (4.672) (5.813) Totals 2.110.320 2 062 689 Nordredeernable cumulative pref erred stock, mcluding premtum, net of expense . 422,868 422,037 Redeemable cumulative preferred stock, net of empense 86 % 1 93 % 5 Common stock and consolidated surplus (Note 4) Common stock, less reacquired common stock Consolidated capitai surplus . 153.159 151.127 Less. capital stock expense 772.538 760.266 Consolidated retamed ea mings (Note 51 17.978 17.720 486.376 455.562 Totals 1.394.095 1.349.235 Totals 4.015.844 3.927.526 Current Liabilities Securatees due within one year to L efinanced Notes payable to banks (Note 3) . 72.158 22.275 Accounts payable 229.700 42.750 Other . 112.209 78.393 113.748 122.055 Totals 527.815 265.473 Deferred Credits and Other Liabilities: Deferred encome taues(Notes 1 and 6) 278.212 180.328 Unamortised investment credets(Notes 1 and 6) 123.469 99,513 Insurance recoverees . nuclear accedent (Note 9) 19.900 Other 37.255 23.982 Totals 458.836 303.823 Commitments and Contingencies (Notes 8 and 9) Total Liabilities and Capital $5.002.495 54.496 822
- s-The accompanymg notes are an entegral part of the financial statements y
1472 2D
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of income (in Thousands) Three Months Nine Months Twelve Months Ended September 30. Ended September 30 Ended September 30, 1979 1978 1979 1978 1979 21 Operating Revenues $383 927 5336.278 51.104.180 5997 344 51 433 480 $1.303 854 Operating Espenses: Fuel. 88.163 81.928 260.174 248.670 337.589 311.191 Power purchased and enterchanged, net 64.449 23.482 176,243 95.194 214.789 133.211 Deferral of energy costs, net (Notes i and 7) . (4.403) 2.852 (49.030) (8.72) (58.644) (4.413) Payroll . 34.233 32.464 99.572 94.886 131.849 122.638 Other opt .ation and mamienance (exclud.ng payroll) 41.420 42.725 127.474 124.266 182.629 160.4 % Deprecmson(Note 1) . 35.141 27.016 105.772 81.319 133.959 106.188 Taxes, other than income taxes . 35.532 32.553 110.690 98.622 141.930 128.608 Totals . , 294.535 243.020 830.895 734.655 1.084.101 957.919 Operatmg income before income Tames . 89.392 93.258 273.285 262.689 349.379 345.935 income Tames (Notes 1 and 6) . 16.172 26.619 59.795 73.407 70.741 94.857 Operating income 73.220 66.639 213.490 189.282 278.638 251.078 Other Income and Deductions: Allowance f or other funds used durmg construction (Note 2) . 7.019 13.276 19.305 38.311 30.881 51.223 Other income, net 2.337 628 4.934 2.442 6.174 2.788 income taxes on other incorne, net (Notes 1 and 6) . (1.4 51) (495) (2.736) (1.760) (3.436) (2.160) Total Other income and Deductions . 7.905 13.409 21.503 38.993 33.619 51.851 Income Before interest Charges and Preferred Dividends 81.125 80.048 234.993 228.275 312,257 302.929 Interest Charges and Preferred Dividends: Interest on ferst mortgage bonds . 37.233 33.193 105.872 97.456 139.877 128,148 Interest on debentures and other long-term debt . 5,972 5.891 17.995 17.818 24.036 23.849 Other mierest . 7.478 1.830 14.545 4.666 14.407 6.043 Allowance for borrowed fund 5 used during constructeon - credit (net of taa)(Note 2) (4.433) (5.916) (12.507) (17.130) (17.632) (22.608) income taxes attributable to the allowance for borrowed funds (Notes 2 and 6). (1.615) (3.941) (4.915) (11.358) (8.315) (15.120) Preferred stock dividends of subsidsanes . 10.899 10.977 32.732 32.968 43.694 43.728 Total Interest Charges and Preferred Div'dends 55.534 42.034 153.722 124.420 196 067 164.040 Net income Sg 5 38.014 5 81.271 Sg 5116.140 5138 889 Earnmes Per Average Share .
$J 5 3 M3 g3 5 1 90 5 2 32 Average number of shares outstanding during each period . g g 61.203 60 030 61 006 59.926 Cash Dividends Per Share 5 25 5 44 5 95 5 1 32 5 1 40 5 1 76 Consohdated Statements of Retained Earnings tlalance, beginnmg of period . 5476.100 5444.02') 5463.173 5430.822 5455.562 5421.995 Add. net encome . 25 591 38,014 81.271 103 855 116190 138 889 76tal: 501.691 482.034 544.444 534.677 571.752 560.884 Deduct. dividw,, on Common 5tock 15.315 26 472 58.068 79.115 85.376 105.322 Balance.end of penod(Note 51 Sg 5455.562 5486.376 5 g4 5486 376 5455.562 The accompanyms notes are an integral part of the imancial statements 3472 2 %
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Staternents of Sources of Funds Used for Construction (in Thousands) Three Months Nane Months Twelve Moeiths Ended September 30 Ended September 30 Inded September 30, 1979 R 1979 1978 1979 1978 Sources of Funds: Funds generated from operateons: Net income 5 25.591 5 38.014 5 81.271 $103.855 $116.190 5138.889 Add, items not regumng current cash outlay or(receipt). Deprecsation(Note 1) . 35.141 27.015 105.772 81.319 133.959 106.188 Arnortuation oi nuclear fuel (Note 1) 4.2% 5.503 17.203 17.565 21.082 24.487 investment credits, net (Notes 1 and 6) (1.187) 5.904 (3.586) 16,744 21.403 30.932 Deferred encome taxes. net (Notes 1 and 6) . 11.514 2,794 54.001 23.716 88.279 29.170 Allowance for other funds used dunng construction (Note 2) (7.019) (13.276) (19.305) (38.311) (30.882) (51.223) Totals . 68.296 65.954 235.3 % 204.888 350.031 278.443 Less. cash dividends on common stock ~ 5.315 26 472 58.068 79.115 85.376 itS3.322 Totals 57.981 39.482 177.288 125.773 264.655 173.121 Other sources (uses) Def erred energy costs. net (Notes i and 7) (4.403) 2.852 (8,302) (49.030) (58.644) (4.413) Changes m -cash. 5.235 (2.256) 4.745 3.494 7.562 9.178
-temporary cash mvestments (49.300) 17.001 (98.800) 3.089 (98.800) 4.939 -accounts receivable 15.390 (8.325) 21.194 (7.512) (15.082) (13.314) - accounts payable 8.418 (5.673) 17.7 % (3.674) 33.815 13.951 -anventories-materials. suppl es and fuel . (5.979) (9.871) (25.887) 14.802 (22.406) 19.134 -interest accrued . 3.066 (514) 1.776 (1.455) 3.362 (90) -tanes accrued . (16.674) 11.%5 10.474 12.679 (10.051) 16.648 Other. net (29.450) 20.066 (60.302) (7.o61) (46.700) (18.173)
Totals . (73.697) 24.645 (178.074) 5.460 (206.944) 27.860 Funds from financmss: - Sale of long-term debt . 50.000 106.300 154.082 106.300 202.752 Sale of preterred stock - 50.000 Saleof common:tock, net of expense (Note 4) (47) 5.223 4.777 13.004 14.046 17.998 Bank borrowmss net 89.650 (22.254) 145.850 (25.275) 195.750 (87.105) Retirement or redemption of long-term debt and preferred stock (4.163) (8,048) (15.904) (25.997) (22.815) (30.197) Totals . 85.440 24.921 241.023 115.814 293.281 153.448 intals
$g Sg $g 5247.047 5350 992 5354 429 Construction Espenditures:
Utihty plant . $ 47.648 5 89.878 $198.141 $259.115 5315.839 5359.09a Nuclear fuel 24 095 12 646 61.401 26 243 66.035 a6.558 Totals 71.743 102.524 259.542 285.358 381.874 405.6%2 Allowance for other f unds used during corntruction (Note 2) (7.019) (13.276) (19.305) (38.311) (30.882) (51.223) Totals 5 64 724 $ 89 248 5240.237 5247.047 $350 992 5354 429 The accompanymg notes are an meegral part of the imancial statements 15] 1472 247
JERSEY CENTRAL POWER & LICHT COMPANY Condensed Balance Sheeta (in Thousands) ASSETS: September 30 Seeiember 30 Utilaty Plant (at original cost)(Note 9) 1979 1978 in service, under construction and held for iuture use $2.066.487 51.886.574 Less. accumulated deorecia tion (Note 1) 357.831 J53 Nel 1.708 656 1.5M 16a Nuclear fuel (Note 8) . 139.571 12c.430 Less. accumulated amortizatson (Note 1) 32.076 34(41 Net Nuclear Fuel . 107.495 92.339 Net Utility Plant . 1.816 151 1 663.503 investments 366 4 54 Current Assets: Cash 7,988 646 Accounts receivable. net - 64.374 48.039 Other. 65.214 44.042 Totals 137.576 92.927 Deferred Debits: Def erred energy costs (Notes 1,7 and 9) 81.146 41.012 Def erred costs . nuclear accident (Note 9) . 16.944 Other(Note 9) . 10.633 21.444 Totals 138.723 62.4 % letal Assets 52.092.816 51.819.340 LIABILillES AND CAPITAL: Long Term Debt, Capital Stock and Surplus. First mortgage bonds . 5 752.618 5 725.195 Debentures 81.000 83.160 Other long term debt 10.465 15.746 Unamortized net discount on long term debt (2.429) (3.498) Non-redeemable cumula arve pref erred stock. including premium, net of expense . 161,631 1 61,1 % Redeemable cumulateve preierred stock, net of expense 41.065 43 402 Totals ,1.044.430 1.025.201 Common stock and surplus. Common stock 153.713 153.713 Capital surplus . 436.989 373.489 Retained eammgs(Note 5). 48110 _ 29 %17 Totals 638 812 555.719 Totals 1.683.242 1.580.920 Current Liabilities: Securities due within one year to be refinanced . 35.846 16.790 Notes payable to banks (Note 3) . . 90.600 12.900 Accounts payable 54.173 34.608 Other . 53.567 56.076 Totals 234.186 120.374 Delerred Credits and Other Liabilities: Deferred 6s. Pa lanes (Notes) and 6) 109.721 63.583 Unamortized mvestment credits (Notes 1 and 6) 50.076 43.460 insurance recoveries nuclear accdent (Note 9) 4.97$ Other . ' 0.616 11.003 Totals 175.388 118 046 Commitments and Contingencies (Notes 8 and 9) Total Liabilities and Capital 52.092.816 $1.819.340 The accompanying notes are an integral part of the f enancial statements. I61 1 A72 248
I JERSEY CENTRAL POWER & LIGHT COMPANY Statements of income (in Thousands) Three Months Nsne Months Twelve Months Ended September 30, Ended September 30. Ended September 30. 1979 1978 1979 1978 1979 1978 Operating Reverwes $185.594 5161.747 $490.548 $451.352 5630 491 5589.582 Operating Espenses. Fuel . 31.1 54 27.186 79.070 82.823 94.028 101.477 Power purchased and interchanged, net-Affelaates 20.653 10.018 36.376 16.J22 50.7 % 18.287 Others 20.553 18.957 92.909 53.534 127.418 75.388 Deferral of energy costs. net (Notell and 7) 184 (1,983) (24,741) 7,426 (4),323) 13,142 Payroll . 13.723 1i.842 39.365 35.801 52.152 46.146 Other operateon and mamtenance (excludmg payrolf) . 17.597 17.544 52.560 51.094 79.472 66.622 Depreciation (Note 1) . 14.238 11.546 42.922 34.734 54.081 45.701 Tames, other than income taxes . 23.992 18.424 69.236 54.803 86.265 71.727 Totals . 142.394 113.534 387.697 336.237 500.919 438 490 Operatmg incon r before income Taxes - 43.200 48.213 102.851 115.115 129.572 151.092 income Tases(Notes 1 and 6) . 8 746 14.264 20 226 29 587 23.116 38 549 Operating income . 34 454 33 949 82,625 85.528 106.456 112.543 Other income and Deductions: Allowance f or other funds used durmg constructson (Note 2) . 6.326 4.81 8 16.946 13.806 21.658 17.623
' Otherincome. net 94 8 301 958 841 931 income tases on other encome, net (Notes 1 and 6) . (144) (77) (1 91) (718) ]4}) (7%)
Total Other income and Deductions . 6.276 4.749 17.056 14.046 22.081 17.758 income Before Interest Charges . 40 730 38.698 99 681 99.574 128.4 5 130.301 Interest Charges: Interest on f orst mortgage bonds . 16.083 14.581 45.327 43.495 59.888 57.061 Interest on debentures and other long-term debt 1.750 1.869 5.341 7.661 5.71 8 7.197 - Otherinterest . 3.375 188 7.227 321 7.810 568 Allowance for borrowed funds used during construction. credit (net of tan)(Note 2) (3.701) (2.978) (9.852) (8.601) (12.553) (11.308) income tames attributable to the allowance for borrowed f unds(Notes 2 and 6) . (930) (568) [2.462) (1.567) (3.077) (2.032) i Totallaterest charges . 16.577 13.092 45.581 39.366 59.265 51.950 Net income 24.153 25.606 54.100 60.208 69,272 78.351 Preferred Stock Dividends 4.666 4.708 13.999 14.125 18A93 18.580 Earnings Available for Common Stock . $19.487 520.898 540.101 546.083
- 550.!?9 559.771 Statements of Retained Earnings Balance,begenmgof period. 528.637 524.633 520.023 520.448 528,517 529.110 Add. net mcome . 24.153 25.606 $4.100 60.208 69.272 78.351 Totals . 52.790 50.239 74.123 80.656 97.789 107.461 Deduct Cash devdends on common stock 17.000 12.000 38.000 31.000 60.000 Cash dividends on cumula tive pref erred stock 4 680 4 722 14 013 14.139 to 679 18 944 Totals 4 6A0 21.722 26 013 52139 49.679 78 944 Balance, end of period (Note 5) 548 110 528 417 548 110 528 517 548 110 528 517 The accompanyms notes are an mtegral part of the fmancial statements
[7] I i 1472 249
JERSEY CENTRAL POWER & UCHT COMPANY Statements of Sources of Funds Used for Construction (in Thousands) Three Months Nine Months Twelve Months Ended September 30. Ended September 30. Ended Seoiember 30. Jg, 1978 1979 1978 1979 1978 Sourees of Funds: Funds generated from operations Net mcome 5 24.153 $ 25.606 5 54.100 5 60.208 5 69.272 5 78.351 Add. seems not reoverms current cash outlay or (receipt) Depreciation (Note 1) 14.238 11.546 42.922 34.734 54.081 45.701 Amortization oi nuclear f uel(Note l) 4,255 3.370 12.213 12.550 13.760 17.249 investment eredits. net (Notes 1 and 6) (551) 4.690 (1.628) 12.189 4.999 15.740 Def erred mcome tanes. net (Notes 1 and 6) . 1.792 2.839 21.024 2.737 42.414 2.2 21 Allowance for other funds used during constructson(Note 2) . (6.326) (4.81 8) (16 946) (13.806) (21.658) J,1X2) Totals . 37.561 43.233 111,685 108.612 162.868 141.640 Less, cash dividends -common stock . 17.000 12.000 38.000 31.000 60.000
-pref erred ssaa . 4.680 4.722 14 013 43 18.679 18.944 Totals . 32.881 21.511 85.672 56.473 113.189 62.69e Other sources (uses)
Def erred energy costs, net (Notes 1 a nd 7) , 484 (1.983) (24,741) 7.426 (43.323) 13.142 Chanses m -cash. 3.089 (301) (5.687) 1.21 9 (7.142) 3.063
-temporary cash mvestments (7,000) 17.000 (7.000) 2.989 '7.000) 2.989 -accounts recervable 6.635 (2.230) (4.665) (1,178) 0 6.335) (1.821) -accounts payable (511) 0 %9) 4.116 (2.398) 19.% 4 11.343 -inventories-matenais. supplies and f uel (598) (2.166) (9.040) 2.479 (11.555) (778) -interest accrued . 511 (2.090) 452 (3.163) 2.987 (2.365) -tanes accrued . (20.571) 554 12.169 14.734 (6.799) 17.044 Other. net (8.941) 1.%5 (18.014) (1.635) (10.000) (5.002)
Totals . (26.902) 8.780 $43) 20 473 (79.603) 37.61 5 Funds from imancings-Sale of lorig term debt . 56.300 50.382 56.300 50.382 Sale of preferred stock . ca.rmn Bank borrowmss. net . 30.600 12.900 36.500 12.900 77.700 (22.200) Retirement or redemption of long term debt and pref erred stock (2.022) (1.677) (11.710) (11.810) (18.420) (14.930) Cash contributions irom Cencral Publ.c Utelities Corporation. parent company . 10.000 29 500 10.000 ,Q5_00 30 000 Totals 2lt 578 21.223 110.590 61.472 179 rMO 93.252 Totals S 34.957 5 51.514 5143.852 5138.418 $212.666 5193.563 m-uma musas mummen mamma - mummma Construction ispenditures: Utility plant - S 27. % 1 5 51.840 5125.424 5139.275 51 % .434 1186.851 Nuclear fuel 12.922 4.492 35.374 12 949 37.890 24.334 Totals 40.883 56.332 160.798 152.224 234.324 211.185 Allowance ior other f unds used dunng f onstruction (Note 2) (ti.326) (4.818) (16.946) (13.806) '21.658) (17.622) Totals 5 34 557 5 51.514 5143.852 5138 418 5212.666 $193.563
==== - ---m e-mus The accompanyms notes are an entegral part of the imancial statements
[8] 1472 250
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Condensed Consolidated Balance Sheets (in Thour, ands) September 30, September 30, ASSETS: 1979 1978 Utility Plant (at origmal ct INote 9): In service. under construct.s i and held f or iuture use S1,313.484 $1,273.240 Less, ac cumula ted evprecia tion (Note l) 23aa68 203.892 Net 1 079 016 1.069.348 Nuclear luel(Note 8) 55.980 69.308 Less, accumulated a'nortization (Note 1) 7 399 it,073 Net Nuclear Fuel 48.581 $3.235 Net Utility Plant 1.127.597 1.122.583 lavestments 659 665 Current A* 4ts: Cash 1,258 2.583 Accounts recervable, net . 43,885 23.449 Other 40 953 35 285 Totals 86.096 61.317 Delerred Debits: Def erred energy costs (Notes 1,7 and 9) 56.765 26.710 Deterred costs nuclear accident (Note 9) 33,887 Other(Note 9) . 49.964 '.4 14 Totals 140 616 34164 Total Aseeis 51.354.968 51.218.729 LIABILITIES AND CAPITAL: Long Term Debt, Capitt, Stock and Consoisdated Surplus: First mortgage bonds . 5455,773 5463.018 Debentures 82.580 84.560 Unamortised net descount on long-term debt . (1,598) (1.649) Non redeemable Cumulative pref erred stock, includmg premium . 119.874 139.874 Totals 676 629 685 803 Common stock and consohdated surplus: Cornmon stock 66.273 66.273 Consoledated capital surplus 280,524 280.524 Consohdated retamed earnmss (Note 5) . 31,533 34f52 Totals 378 330 3t' .579 Totals 1.054.959 1.067.382 Current Liabilities: Debt due withm one year 7,764 362 Notes payable to banks (Note 3) 88.200 24.150 Accounts payable 32,350 17.107 Other 15 9no 24.198 Totals 66.017 _144.214 Deferred Credits and Other Liabilities: Def erred mcome tazes(Notes 1 and 6) . 99.303 59.899 Udamortised mvestment crede(Notes 1 ard 61 32.535 21,073 Insurance recoverees nuclear accedent (Note 9) 9.950 Other 4 358 14P. -)7 Totals 155 795 85330 Corstrnents and Contingencies (Note 8 and 9) Total Liabilities and Capital $1.354 968 $1.218.729 The accompanying notes are an entegral part of the fmancial statements 7 T All ' \
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of income fin Thousands) Three Months Nine Months Twelve Months Ended September 30, inded September 30 Ended Septembee 30. 1979 197 L 1979 1978 1979 1978 Operating Revenues $85 846 576.237 5250.525 5231.525 5329.580 $303.566 Operating Espenses: Fuel. 15.730 21.109 $6.253 64.825 75.302 84,803 Power purchased and enterchanged, net: Affiliates . 21 6 (2,61J) (1.013) (4.024) (4.721) (7.547) Others . 31.334 2.956 62.047 20.853 66.421 23.913 Def errat of energy costs. net (Notes i end 7) (12.849) 1.074 (33.544) (13.478) (30.055) (13.045) Payroll . 8.783 8.553 25.481 25.352 33.899 32.792 Other operatm and mamtenance (escludmg payroll) . 9.734 9.150 31.415 29.479 43.266 38.369 Depreciation (Note 1) . 9.370 6.095 28.263 18.178 35.570 24.014 Tames. other than mcome taxes 4 484 6.263 16.711 ?9.278 22.723 25 034 Totals . 66.802 52.586 185.613 160 463 2a2.405 208.333 Operatms income before income Tames . 19.044 23.651 64.912 71.062 87.175 95.233 income Tanes(Notesi and 6) . 1.087 7.768 10192 22.951 1a ?T 30.353 Operatin81acome . 17.957 15.883 54.720 46.111 72 472 64 880 Other Income and Deductions: Allowance for other funds used during construction (Note 2) . 235 5.701 908 16.350 5.440 21.481 Otherincome, ne . 238 9 673 4 746 (111) Income tases on other mcome. net (Notes 1 and 6) . (87) (7) (291) (15) (304) 44 7otal Other incosne and Deductions . 386 5.703 1.290 1 6.3.19 5.882 21 414 income tefore interest Charges . 18.343 21.586 56.010 64.450 78.354 86.294 laterest Charges: Interest on f orst mortgage bonds . 8.816 7.745 26.447 23.144 35.263 30.699 Interest on debentuees . 1.655 1.67C 4.976 5.068 6.638 6.770 Other interest 2.377 1.481 4.644 3.102 5.361 3.749 Allowance for borrowed funds used durms construction. credst(net of tan)(Note 2) (456) (1,812) (1.775) (5.195) (3.245) (6.539) Income tanes attributable to the allowance for borrowed iunds(Notes 2 and 6) (189) (2.080) (1.512) (5.%7) (3 202) (7 602) Total laterest Charges . 12003 7.004 32.780 20152 40 815 27 077 Net income 6.340 14.582 23.230 44.298 37.539 59.217 Preferred Stock Dividends 2.573 2.573 7.717 7.717 10.289 10.289 Earnings Available for Comavsn Stock . Sg $12.009 g S g 527.250 548.928 Consolidated Slatements nf Retained Earnings Balance. besmn.ng of period 527.766 530.773 523.020 522.701 534.783 523.854 Add net acome . 6.340 14.582 23.230 44.298 37.539 59.217 Totals 34.106 45.355 46.250 66.999 72.322 83.071 Deduct. Cash dividends on common stock 8.000 7.000 24.500 30.500 38.000 Cash divedends on cumulative preferred stock 2.573 2 573 7.717 , 7.717 10.289 10 2ee Totals 2.573 10 573 14 717 32.217 40.789 48.289 Balance. end of pe mod (Note 5) Sg $g 531 533 534 782 g3 534.782 The accompanyms notes are an integral part of the financial statements. ( 10 ) 1472 8 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Sources of Funds Used for Construction (in Thousands) Three Months Nine Months Twe6ve Months Ended September 30, inded September 30 Ended September 30, 1979 197a 1979 197s 1979 1978 Sources of funds: , Funds generated from operations Net encome S 6.340 $14.582 523.230 544.298 S37.539 559.217 Add. stems not reeverms current cash outlay or (receipt). Depreciation (Note 1) 9,370 6.095 28.263 18.178 35.570 24.014 Amortsaatton of nuclear fuel (Note 1) 1.422 3.340 3.345 4.897 4.827 investment credits, net (Notes 1 and 6) (2 71) 235 (897) 1.306 11.128 3.376 Deferred inccme taxes, net (Notes 1 and 6) . 11.850 1.398 28.527 13.448 35.546 15,397 Allowance for other funds used durms construction (Note 2) . (235) ($ 701) 1908) (16.350) (5.440) (21 481) Totals 27.054 18.031 81.555 64.225 119,240 85.350 Less. cash dividends-common stock . 8.000 7.000 24.500 30.500 38.000
-preferred stock 2 573 2.573 7 717 7 717 10.289 10.289 Totals 24.481 7.458 66.838 32.008 78.451 37.061 Other sources (uses)
Deterred energy costs. net (Notes t and 7) (12.849) 1.074 (33.544) (13.478) (30.055) (13.045) Changes en -cash (225) 754 5.145 2.071 1.325 7.318
-temporary cash investments (2.100) (4.600) (4.600) -accounts recervable 7.029) (4.700) (8.210) (4.076) (20.437) (2.432) -accounts payable 4.808 (2.790) 14.165 2.818 15.243 3.607 - enventories-matersah. supplees and ivel (4.215) (4.448) (4.630) 1.283 (4.71 4) 6.023 -interest accrued . (4.408) (3.309) (4.637) (2.524) (426) 1.2 31 -tanes accrued . (465) 6.374 3.732) (7.211) [4.088) (1.167)
Other. net (25 322) 7 864 (L 147) (5.104) (34.991) f6.553) Totals . ($1.805) 819 (3 0) (26.221) (82.743) (5 018) Funds from imancmg: Sale of long term riebt 50.000 58.70) 93.700 Bank borrowmss. net 42.750 (34.700) 52.700 (7.100) 64.050 (44.650) Re'erement or redemption of long term debt (1.520) (5.420) , (1.641) (3.540) (1.822) (6 000) Totals 41,230 v euio 51.059 46 060 62.22A 43 050 Totals S 13906 S 18147 $ 43 007 5 51 847 5 $7.936 5 75 093 Construction ispenditures: Utility plant S 6.717 S 18.487 1 26.625 5 59.433 5 44.648 5 81.977 touclear f uel 7.424 9.371 17 290 8.764 18 728 14 597 Totals 14.141 23.858 43.915 68,197 63.376 96.574 Allowance 1or other fonds used durmg construction (Note 2) (235) (5.701) (908) (16.390) (5 440) (21.481) Totals . $ 13 906 S 18.157 5 43007 S 51 847 5 57.936 S 75.093 am-m s-as ====== --- muuss:: The accompanyms notes are an integral part of tne (mancsal statements. 3472 2 9
S PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMP Condensed Consolidated Balance Sheets (in Thousands) _ september so, septemeier 30. 1979 _ _ 1978 _
$1,522.404 $1.579.264 ASSETS: 314.152 350 664 Utility Plant (at ongmal cost)(Note 9) in service, under construction and held ior f uture use 1.228 600 g 35.183 Lest, accumulated deprecialion(Note 1) 28.768 8 050 Het 3 687 Nuclear fuel y y) 28 tron (Note 1) 1,253.681 1.235.375 Less. accumulated amort 20.037 Net Nuclear Fuel 20.140 Nel Utility Plant 11.687 2.%3 investments 47,117 44.323 Current Assetc 61764 129 M Cash .
Accounts reCervable, riet . 179,249 g Other . Totals 28.792 14.057 9.071 7.902 Delected Debits: 16.944 Def erred energy costs (Notes 1,7 and 9) Unarnortsted mme development costs (Note 1) y y Deferred costs nuclear accedent(Note 9) . 68 970 E S1522 Wg . $1405 921 Other(Note 9) Totals 7olal Assets 5618.786 5 579.944 LIABILITIES AND CAPITAL: 70.040 71.800 Long Term Debt. Capital Stock and Consolidated Surplus: (t 66) (644) First mortgage bonds . 120.968 121.M3 Debentures tof expense 474 % y Unamortized net descount on long-term debtNor> redeemable cumulative _M preerred 822,289 stock Redeemable cumulateve pref erred stock. net of expense Totals 105.812 105.812 266.530 266.530 Common stock and consohdated surplus. 33758 54.652 Common stock 406.100 Consohdated capital surplus 426.994 1.228.389 Consolidated retamed earness(Note 5) . 1 _.284.035 Totals Totals 15.648 2.373 5.500 Current Liabil. lies: 29.725 Secunties due wethm one year to be ret manced 34.339 l Notes payable to banks (Neste 3) 61 212 E5 Accounts payable _1 99 E Other Tr eals 56.846 68.8 % 34.980 40.858
' Deleered Ceedits and Other Liabilities: 4,975 Def erred mcome tanes(Notes 1 and 6) 8 083 12 077 Unamortszed mvestment credets(Notes 1 and 6) 176 806 99 909 insurance recoverees. nuclear accedent (No? 9)
Other Totals 51.522.040 51.405.921. Commitments and Contingencies (Notes 8 and 9) Total Liabilities and Capital The accompanying notes are an integral part of the imancal statements. 1121
. 1472 254
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of income fin Thousands) Three Months Nme Months Twelve Months Ended September 30. Ended September 30. Endn8 September 30 1979 1978 1979 1978 1974 1976 Operalens Revenues $113 991 599 928 5367.599 5319 957 $479 3% S418.102 Operaieng Espenses: Fuel 41.279 33.633 124.851 101.021 168.259 124.912 Power purchased and interchanged, net. Affshates (20.869) (7.404) (35.363) (11.998) (46.075) (10.740) Others 12.562 1.569 21.287 20.807 20.950 33.909 Deferral of energy costs, net (Notes 1 and 7) 7,961 3,763 9,255 (2.249) 14,734 (4.51 0) Payroll . 11.726 12.069 34.726 33.733 45.768 43.700 Other operation and maintenance (excluding payroll) . 14.790 16.962 45.730 47.192 63.010 60.281 Depreciatson(Note 1) . 11.535 9.377 34.587 28.408 44.307 36.474 Tases. other than income taxes . 6 990 7.759 24 518 24 220 32.612 31.376 Totals . 85.974 77.728 259 591 241.134 344.565 315.402 Operatmg income before lacome Tames . 28.017 22.200 108.006 78.823 135.831 102.700 income Tames (Notes t and 6) . . 6.337 4.587 29.376 20 869 32.923 25.956 Operating income . 21 680 17 613 78 632 57.954 102 908 76.744 Other income and Deductions: Allowance f or other funds used dunns construction (Note 2) . 456 2,755 1.450 8.1 54 3.784 12.120 Other 6ncome. net . 2.008 611 3.%1 1.480 4.587 1.971 income tanes on other income, net (Notes 1 and 6) . (1.219) (411) (2.253) (1.027) (2.71 4) (1.409) Total O ther income and Deductions . 1.245 2 955 3.1 58 8 607 5 657 12 682 income Before interest Charges . 22.925 20 568 81.790 %.561 108.565 89.426 lateresl Charges: Interest on first mortgage bonds 12.334 10.865 34.098 30.816 44.726 40.387 Interest on debentures 1.285 1.318 3.883 3.978 5.18L 5.314 Other interest 529 350 1.009 1.791 (84) 2.447 Alic*ance for borrowed funds used durms construction - credit (net of tan)(Note 2) (277) (1,126) (880) (3.333) (1,834) (4.761) Income tames attributable to the allowance for borrowed f unds(Notes 2 and 6) . (296) (1.292) (941) (3.824) (2.0 36) (5.486) Total lnterest Charges 13 575 10115 37169 29 428 45 958 17.901 Net income 9.350 10.453 44.621 37.133 62.607 51.525 Preferred Stock Dividends . 3.660 3.6% 11.016 11.126 14.713 14 859 tarnings Available for Common Stuch . 55690 56 757 533 605 52ti.007 547.894 536 666 Consolidated Statements of Retained tarnings Balance, beginning of period $48.%2 538.001 S37.047 S33.751 533.758 S37.092 Add, net income 9.350 10 443 dat>21 37.133 51 525 J2 607 Totals 58.112 48 454 81. % 8 70 884 R 365 88 617 Deduct: Cait divwiends on common siock 11.000 16.000 2ti.000 27.000 40.000 Caen dividends on cumulative preferred stud 3 f.ho 36% 11 016 11.126 14.713 14 859 Totals 3.660 14 6 % 27 01(> 37.126 41.713 54 859 Balance, end of period (Note 5) M Sg g S 533.758 Sg2 533 758 The accompanying notes are an integral part of the f mancial statements [13) H722%-
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Stalements of Sources of Funds Used for Construction fin Thousands) Three Months Nine Months Twelve Months Ended September 30. Inded September 30. ~tavled September 30, 1979 1978 1979 1978 1979 1978 Sources of Funds: Funds generated f rom operations S 9.350 S 10.453 5 44.621 $ 37.133 $62.607 551.525 Net mcome Add. stems not recustmg current cash outlay or(receipt) Depreciation (Note 1) 11.535 9.377 34.587 28.408 44.307 M.474 708 1.649 1.669 2.425 2.411 Amortuation of nuclear fuel (Note l) (365) 978 (1.061) 3.249 5.277 11.814 investment eredits. net (Notes 1 and 6) Deterred income tases, net (Notes 1 and 6) (2,129) (1,444) 4.4 50 7.531 1ti319 11.551 Allowance for other funds used durms construction (4%) (2.755) (1 450) (8154) (3 784) (12.120) (Note 2) 17.935 17.317 82.7 % 69.836 121.151 101.655 Totals Less, cash devidends- common stock 11.000 16.000 26.000 27.000 40.000
- preferred stock 3 660 3.6% 11.016 11.126 14.713 14 859 14.275 2.621 55.780 32.710 79 43A 46.7 %
1otals . Other sources (uses) Def erred energy cosu. net (Notes 1 and 7) . 7 %1 3,763 9.255 (2.249) 14.734 (4.51 0) 438 (2.243) 1.149 (491) 8.723 71 Chanses rn -cash
-temporary cash investments . (40.2001 (87.200) (87.200) -accounts receivable 7.1 64 (1li'.6) 13.700 2.%7 (2.193) (9.979) -accounts payable 6.244 (1.247) 1.964 (2.039) 4.61 4 398 -enventories-materials. Suppl es and iuel (1.166) (3.257) (12.217) 11.040 (6.137) 13.889 -snierest accrued 6.109 4.889 5.877 4.498 170 1.305 - taxes accrued 10.033 4.525 19.761 (827) 19.851 562 4 416 10.717 is 553) 101 (3.944) (4 857)
Other. net Totals 999 16.031 (% 264) 12.600 (51.982) (3.121) Funds from financmas 5 ale of long term debt 50.000 45.000 50.000 61.420 Bank borrowings. net % (500) (33.325) (5.500) (23.905) Retirement or redempteon of long-term debt and pre (cered stock f621) (951) (2.552) (3.147) (2.573) (3.767) Cash conirebution Irom General Public Utilstees Corporation. parent company 5 000 1621) (855) 46 948 8.528 41 927 38 748 Totals 5 14.653 5 17.797 5 .- 46.464 5 53.838 5 60.383 5 82 423 Totals m:=mrum ammmmme - ----- ammma Construct >nn Ispendetures: Utility plant 5 11.360 S 17.770 S 39.177 5 57.462 S 63.750 $ 86.916 8.737 94*.7 7.627 Nuclear f uel 3.749 2.782 3530 15.109 20.552 47.914 61.992 73.167 94.543 Totals Allowance for other funds used durmg constructson(Note 2) (4$6) (2.755) (1.450) (8154) (3.784) (12120) 5 -14.653 $ 17,797 5 46.464 5 53.838 5 69.383 $ 82.423 Totals . =m=== ==== ammann imm=== The accompanymg notes are an integral part of the financial statements 1141
\4,12 ? b6
Notes to Financial Statements 1, Summary of Significant Accounting Policies: General: Reference is made to the Notes to Financial Statements included in the 1978 Annual Report to Stockholders Operating Revenues: Revenues are generally recorded on the basis of billmgs rendereo. During 1978, the Corporation's Penn-sylvania subsidiaries commenced billing their retail customers on a monthly basis rather than on a bi-monthly basis to conform to requirements of the Pennsylvania Public Utilities Commission ("PaPUC")while remaining on a bi-monthly meter reading cycle. Depreciation: The Corporation's subsidiaries provide for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to amortize the original cost of depreciable property over estimated remaming service lives, which are generally longer than those employed for tax purposes. The subsidiary companies use depreciation rates which, on an aggregate composite basis, resulted in an ap-proximate annual rate of 3.07% (Jersey Central Power & Light Company ("JCP&L")-3.40%, Metropolitan Edison Company (" Met-Ed")-2.84%, and Pennsylvania Electric Company ("Penelec")-2.89%) for the year 1978. Nuclear Plant Decommissioning Costs: In accordance with ratemaking determinations (a) JCP&L is charging to expense and crediting to a non-funded reserve amounts intended to provide over their service lives for the decommissioning of Oyster Creek and its share of TMI #1 nuclear unit, and(b) Met Ed and Penelec are charging to expense and paying over to a separate trust amounts intended to provide over their service lives for the decommissioning of their shares of the radioactive components of TMI #1. Such ratemaking orders limit such provisions to amounts based on cost estirnates in current dollars without provision for possible future cost escalation. None of the subsidiaries is making any simila provision for decommissioning costs for TMI #2; none of the capital or operating costs of TMI #2 are currently reflected in the rates of the subsidiaries (see Note 9). Amortizption of Nuclear Fuel: The amortization of nuclear fuel is provided on a unit of production basis. Rates are determined and periodically revised to amortize the cost over the useful life. Prior to December 1,1976, amortization of nuclear fuel costs included estimated costs of reprocessing such fuel and estimated residual uranium and plutonium. Due to the uncertain future of government approvals for reprocessing and plutonium recyclir g the Corporation's rubsidiaries, effective December 1,1976, began using amortization rates for nuclear fuel at the Three Mile Island station which estimate zero values for reprocessing costs and for residual credits. Ef-fective September 1,1977 simila: treatment was adopted pursuant to authorization by the Board of Public Utilities of the State of New Jersey ("NIBPU") for the Oyster Creek station nuclear fuel. Also effective September 1,1977 ICP&L is providing for estimated future off-site storage costs for the spent Oyster Creek nuclear fuel and similar treatment will be provided for off-site storage costs for the spent Three Mile Island station ("TMl") nuclear fuel when required. Previously accumulated estimated residual credits, net of previously accumulated estimated costs of reprocessing for the Oyster Creek station nuclear fuel are being amortized to fuel expense on a unit of produr tion basis. Should reprocessing esentually be undertaken, the Corporation expects that any difference between such costs and credits will be recognized prospectively in the rate-making process.
\
Income Taxes: The Corporation and its subsidiaries file consolidated Federal income tax returns. All participants m a consohdated Federal income tax return are severally liable for the full amount of any tax, including penalties and interest, which may be assessed against the group. T he Corporation and its subsidiaries have filed with the f acurities and Exchange Commission ("SEC") a proposal to change the method of allocation o8 Federal income taxes begmnini. with the year 1979. The effect of this change will be to allocate the tax reductior's attributable to CP!J expenses among its subsidianes in proportion to the dollars of average com-mon stock equity investment of CPU in such subsidiaries during the year. In addition, each subsidiary will receive in current cash payments the benefit of its own net operating loss carrybacks to the extent that the other subsidiaries can utilize such net operating loss carrybacks to offset the tax liability they would other-wise have on s separate return basis (af ter taking into account any investment tax credits they could utilize on a separate return basis). The proposed method of allocation will not allow any subsidiary to pay morr than its separate return liabihty as if it had always filed separate returns. The revenues of the Corporation's subsidiaries in any period are dependent to a significant extent upon the costs which are recognized and allowed in that period for rate-making purposes. In accordance therewith, the Corporation's subsidiaries have employed the following policies: Tax Depreciation: The subsidiaries of the Corporation generally utilize liberalized depreciation - methods and the shortest depreciation lives permitted by the internal Revenue Code in computing depreciation deductions and provide for deferred income taxes where permitted in the rate-making process. Investment Credits: The 3% investment credits are being amortized over a 10-year period while the 4% and 10% investment credits are being amortized over the estimated service lives of the related facilities. Ir. vestment credits applicable to the Tax Reduction Act Employee Stock Ownership Plan ("TRAESOP") are remitted to the Plan Trustee and have no effect on income (see Note 4). Pension Plans: The Corporation's subsidiaries have several pension plans including plans applicable to all employees, the accrued costs of which are bemg funded. The costs of supplemental pension plans applicable only to supervisory employees were not funded prior to 1976. The previously unfunded supplemental pension pian costs are being funded during the five year period beginning January 1,1977. Prior service costs applicable to all plans are being amortized and funded over 25-year periods. Deterred Energy Costs: The subsidianes follow a policy of recognizing energy costs in the period in which the related energy clause revenues are billed. Deferred energy costs at September 30.1979 include (a) amounts accumulated pnor to the TMI #2 acci-dent, which are being amortized in accordance with ratemaking orders (see Note 7), and (b) amounts ac-cumulated subsequent to the TMI #2 accident reflecting the operation of levehzed energy adjustment clauses placed in effect pursuant to ratemaking orders entered in June 1979 (see Note 9). T A72 M
Mine Development Costs These costs are being amortized to mcome over the estimated life (20 years) of the mines
- 2. Allowance for Funds Used During Construction:
The applicable regulatory Uniform System of Accounts provides for allowance for funds used during construction ("AFC") which is def med as including the net cost during the period of construction of bor-rowed funds (allowance for borrowed funds used during construction) used for construction purposes and a reasonable rate on other funds (allowance for other funds used during construction) when so used. While AFC results in a current increase in utility plant to be recognized for rate making purposes and represents, in this fashion, current compensation for the use of capital devoted to construction, AFC is not an item of cur-rent cash income; instead, AFC is realized in cash after the related plant is placed in service by means of the allowance for depreciation charges based on the total cost of the plant, includmg AFC. To the extent permitted in the rate-making proceedings of the subsidiaries, the income tax reductions associated with the interest component of AFC have been allocated to reduce interest charges and, cor-respondingly, have not reduced income taxes charged to operating expenses. Pursuant to such rate crders, the Pennsylvania subsidiaries employ a net of tax accrual rate for AFC and JCP&L employs a net of tax ac-crual rate for AFC on certain construction projects while using a gross AFC rate on others. The Corporation's subsidiaries have accrued AFC using rates which, on an aggregate composite basis, would have resulted in an annual rate of 8.42% (JCP&L-8.85%, Met Ed-6.38%, end Penelec-7.09%) for the nine months ended September 30,1979.
- 3. Short Term Sorrowing Arrangements:
The Corporation and its subsidiaries have entered into a revolving credit agreement with a group of banks, under which they expect to ultimately have available up to 5412 million of credit at interest rates ranging from 105% to111% of the prime rate. The agreement provides for a commitment fee of one half of one percent per annum of each bank's total commitment (whether used or unused). At September 30,1979, the lines of credit under the agreement totaled $289 million, of which 5220 million have been utilized for outstanding borrowings. In addition, the Corporation and its subsidiaries have informal lines of credit with various lenders. These arrangements generally provide for the maintenance of compensating balances ranging from a minimum of 10% of the available line of credit to a maximum of 10% of the line plus 10% of the loans outstanding, as determined on a daily average basis. At September 30,1979, the imes of credit available unde these ar-rangements totaled approximately 535 million (JCP&L - 517 milhon, Met-Ed - $2 million and Penelec -516 million).
- 4. Common Stock and Capital Surplus:
Of the 75 million authorized shares of $2.50 par value common stock of the Corporation, 61,264,000 shares were issued and outstanding at September 30,1979. During the quarter ended March 31,1979, the Corporation sold 293,000 shares of common stock. The par salue ut such share >(5731,000)was credited to common stock and the excess of proceeds over the par value of such shares ($4,188.000) was credited to capital surplus. As a result of the accident at TMI #2, the Corporation suspended both the Dividend Reinvestment Plan and the TRAESOP. Because of such suspensions, no shares of common stock have been sold subsequent to March 31,1979 TA72 29
- om o 9 'Q' ).
- 3. L.onsolidatea neiainect tarnings:
[oa o ;3 Under the revolving credit agreement. 5300.000.000 of the balance of consolidated retamed earnings is restricted as to the payment of cash dividends on common stock Retamed earnings of Met-[d and Penelec melude 53,360.000 and 537.048.000. respectively. whicn amounts are restricted as to the declaration of cash dividends on common stock in accordance with the most restrictive of the provisions contained m their mortgages, debenture mdentures, charters and the revolvmg credit agreement in accordance with recently supplemented provisions of its mortgage. JCP&L must hmit cash divideads on common stock, to the extent they are not matched by cash capital contributions f rom the Corporation. to an amount not exceedmg 25% of earnings for 1979 and 1980 and 100% of earnings thereafter. In the NJ BPU's rate order of June 18.1979. JCP&L was directed not to pay any cash dividends on common stock for the remainder of 1979.
- 6. Income Taxes:
Examination of Federal income tax returns through 1976 has been completed and the years 1977 and 1978 are currently under review. The Corporation and its subsidiaries have provided for any anticipated liabihties that may result from such examination.
- 7. Deferred Energy Costs:
The balance of deferred energy costs at September 30,1979 includes (a)552.6 million deferred by JCP&L prior to September 1,1977 which is being amortized to income at a rate of 52.3 million per year, before in-come taxes, for accountmg rnd rate-making purposes, and, (b) 525.2 million (Met Ed 514.4 million, and Penelec 510.8 million) deferred by the Pennsylvania subsidiaries prior to July 1,1978 which is being imor-tized to mcome at a rate of $11.3 million (Met Ed. 55.8 million and Penelec,55.5 million) per year, before in-come taxes, for accounting and rate making purposes. Substantially eli of the remaining balance of deferred energy costs represents costs experienced since the accident at TMI #2 (see Note 9).
- 8. Commitments and Contingenices:
Ceneral: The subsidiaries' construction programs, which extend over several years contemplate expenditures of approximately 5330 million (JCP&L,5205 million; Met-Ed,550 million; and Penelec,570 million) during 1979. In connection with these construction programs the subsidiaries have incurred substantial commitments. The subsidiaries are engaged in negotiations and, in one instance, litigation with various suppliers. . relating to the latters' claims for delay or termination charges or increased fees which such suppliers assert result from the subsidiaries
- revisions of their construction plans and schedules and/or from the increased scope of supply. The subsidiaries' managements do not expect at this time that such negotiations and litiga-tion will result in any material increase in costs that would not be valid costs properly recognizable through the rate making process.
Claims for damages arising out of the operation of the Oyster Creek station have been asserted. ICP&L's management believes that such hability, if any, as it may have for such damages in the pending suits and for all asserted and potential similar claims would not be material. JCP&L was a participant in the Atlantic generating station project. In December 1978, the non-affiliated co-owner and principal sponsor of the station announced the abandonment of the project. At September 30, 1979. ICP&L's investment in the project was 54.2 million ICP&L plans to seek regulatory appreval to amor-tize t' .
. investment. net of related income tax reductions of 514 million. over a period of years for rate-making purposes The NIBPU has accorded such treatment for similar items in the past.
The mrnoration bat quarantr'ad all horrowine. vutstandmg under the rewivmg .rnbr .igreement uee Note 3) in order to secure such guarantee plus $39 million of the Corporation's term loan and the guarantee by the Corporation of $16 8 milhon of loans to CPU Service Corporation. ("CPUSC"), the Corporation has pledged the common stock of JCP&L. Met Ed. Penclec and CPUSC. ICP&L and Met Ed have secured their notes under the revolvmg credit agreement by pledging a security interest in certam nuclear fuel in process of refmement, conversion. enrichment and fabrication. Such nuclear fuel was recorded, on the September 30.1979 balance sheet, at a cost of 516 4 million (JCP&L -58.5 million and Met Ed - 57.9 million). In addition. Met-Ed has pledged 540 million of first mortgage bonds as security for its mdebtedness under the revolvmg credit agreement. 1472 260
* 'T D** {f ww a , . .:
Fuel Adjustment Clauses: In 1974, in the af termath of the Arab oil embargo and OPEC actions doubling the price of oil and in the presence of the threat of a prolonged coal strike, competition for coal was intense in some cases Met Ed and Penelec agreed m 1974 to modiiscation of existing contracts and/or paid pnces in excess of such con-tracts, beheving that they would not have been able to obtam dehvery of coal f rom their contract suppliers withou1 takmg such actions and that the other alternatives would have resulted m even higher costs or unreliable service to their customers in 1976, the PaPUC directed that mdependent studies be made of the fuel procurement pohcies, practices and the procedures of Pennsylvania electric utihties and their apphea-tion of the fuel adjustment clauses m 1974 and that reports of such studies be filed with the PaPUC. The ndependent auditors of the Corporation and its subsidiar es made such studies with respect to Met-Ed and Penelec and submitted reports to the PaPUC on March 1,1976. These reports found that m 1974 cer-tain payments to coal supphers were in excess of original contract arrangements The Met Ed report states that $2.8 milhon m payments were m excess of base contract prices but in accordance with contract terms for escalation, whereas 55 8 milhon of price increases in excess of base contract pnces had inadequate documentation to support such escalation. The report also stated additional quantities of coal (an estimated 70,000 tons) had to be purchased due to receipt of coal that had not met the BTU specifications of the con-tracts. The Penelec report identifies 54.5 million of payments in excess of escalated contract prices due to renegotiations of existmg contracts and a ' certain suppliers did not dehver 400,000 tons required under the contractual arrangements. These reports also stated that "[a] part of these additional costs was unavoidable since they were caused by external conditions beyond the control" of the subsidiaries and "to some degree / because of their coal procurement practices which the report found to be "informa: and not well documented". The subsidiaries' alternatives were limited and they were no; in a strong bargaining position to contend with 1974 conditions, the reports stated, but added that, in re:rospect, the subsidiaries might have done more to contain fuel costs, despite such conditions and procurement problems. Although the reports said that the subsidiaries' primary commitment is to maintain reliable electric service, it added that the subsidiaries "could have been more responsive to the developing procurement problems and taken more effective action to cope with them" In March,1976, by complaints filed against several Pennsylvania electric utilities, including Met-Ed and Penelec, the PaPUC ordered an investigation of their charges made and rates received through fuel adjust-ment clauses. L in January and April 1977, the PaPUC issued amended complaints asserting that Met Ed and Penelec made payments in 1974 for coal that were 59.8 million and 54.9 million, respectively, in excess of those re-quired by their contracts, and that such excess paymer:ts were without justification and directing Met-Ed and Penelec to show cause why they thould not be required to refund 59.8 milhon and 54.9 million, respec-tively, to their customers Met Ed and Penelec believe that the payments which they made were justified and that there is no basis for requiring such refunds and they have so responded to the complaints. Hearings on the complaint agamst Met-Ed were completed in November 1978 and the matter is awaitmg the initial deci-soon by the admimstrative law judge who heard the evidence. In November and December 1978, the PaPUC issted fu?ther complaints asserting that Met Ed and Penelec incurred excess costs of 54.6 milhon and 5 8 mihion, respectively, for coal during 1975 and 1976, and that such excess payments were without justification and directing Met Ed and Penelec to show cause why they should not be required to refund 54.6 million and 5.8 million, respectively, to their customers. Such complaints were based on audit reports prepared by the PaPUC staff. Met Ed and Penelec believe that the paym rts which they made were justified and that there is no basis for requiring such refunds, and they have so responded to the complaints. In May,1976, the PaPUC required all Pennsylvania electric utihties to file supplements, effective
/.ugust 1,1976. to their fuel adiustment clauses providing that the application of such clause shall be sub-ject to contmuous review and audit and that, if it shall be determined by a fmal order that such clause has been erroneously or improperly utilized, the utihty will rectify such error and apply credits against future fuel cost adjustments.
Met Ed and Penelec beheve that the amounts paid by them for fuelin 1974-1976 were fully justified and that there is no vahd basis for requmng any refund of any amounts collected by them under their fuel adjust-ment clauses. However, the Corporation is unable at this time to predict the outcome of these matters. 1472 2M
Compliance Audots-The staff of the FERC has conducted comphance audits of Met Ed's and Penelec's accountmg records coverms the periods endmg December 31,1976 and December 31,1977, respectively The fmdmgs of such audits which, among other th ngs. raised questions concernmg the base to which AFC accruals should be ap-plied, were furnished to Met-Ed and Penelec by the FERC m letters dated October 2,1978 and November 17, 1978, respectively. The letters recommended certain adjustments to the books of account.. lf such recom-mendations were to be sustained. the resulting reduction in consohdated earnings would approximate 54.5 milhon (Met Ed. 52.2 mdhon and Penelec $2.3 million) through 1978. Met Ed and Penelec beheve that such recommended adjustments are not justified and they are contesting them. Nuclear fuel Latigatron: In 1971, ;CP& L entered into a contract for the purchase of three nuclear f uel reloads f or the Oyster Creek Station, with an option for five additional annual reloads begmnmg in 1976. In 1974 the suppher offered an extension of that contract to cover five additional annual reloads beginnmg m 1981. JCP&L beheves that at effectively exercised the option m the initial contract and accepted the offer to extend the contract to cover the annual reloads through 1985 The suppher chsputes this posit 6a and,in November 1978, submitted bills for material and services m the aggregate amount of approximately 533 milhon, covering reloads supplied in 1977 and 1978 and to be sophed in 1979. The supplier has stated that its objective is to estabbsh revised prices and other terms and conditions rather than to diminish supplies and, without prejudice to its legal position, has released uranium concentrates for enrichment and f abrication for the 1979 annual fuel reload. Of the 533 milhon claimed by the suppher to be due, JCP&L has paid approx.,nately 5 8 million, agreed to pay an additional 53 milhon but has asserted that such amount will not be due until later in 1979 and is of the opinion that the balance of approximately 529 million is not payable by it and has so informed the sup-plier. On January 26,1979, the suppher filed suit against JCP&L, the Corporation and CPU Service Corpora-tion. JCP&L has filed a counterclaim for a declaratory judgement confirming its view of the contractual status and for damages and has also filed another suit against the supplier and its parent seeking damages. JCP&L believes that any additional amount that it might be required to pa; if the suppher is successful in its suit would be valid costs and should be recognized for rate-making purposes. However, there can be no assurance that this v/ill be the case.
- 9. Nuclear Accident:
On March 28,1979, an accident occurred at Unit No. 2 of the Three Mile island nuclear generating sta-tion ("TMI-2") resulting in significant damage to TMI-2, and a release of some low level radiation which published reports of governmental agencies indicate did not constitute a significant public health or safety hazard. TMI-2 is jointly owned by the subsidiaries, JCP&L,25%; Met-Ed,50%; and Penelec,25%, Total in-vestment by the subsidiaries in TMI-2 is approximately 5750 million, includmg the unamortized investment of approximately 535 milhon m the nuclear fuel core. The subsidiaries have engaged a consulting engineermg firm to prepare a cost estimate and schedule fer restoring TMI-2 to service The firm's initial report notes that, while the decentamination of the buildings and removal and disposal of large quantities of radioactive materialis a major undertakmg, the technoiogy and techniques are well-known and have been previously demonstrated. This initial report emphasizes the inherent uncertamties in cost and schedule estimates until(a) entry into the contamment vessel has been gained and the difficulties of decontamination have been evaluated,(b) the reactor vessel has been opened and the difficulties of core removal have been evaluated, and (c) the physical integrity of major. components has been assessed. Subject to these qualifications, the initial report estimates that decontammation and restoration of TMI-2 to service, exclusive of replacement of the core, will cost approximately 5240 milhon and take about four years. The report also recommends that, because of the unknowns and vanables, an allowance of 580 million for contmgencies be mcluded m the estimate of cost, bringing the total to $320 mdlion The estimate does not molude provision for the replacement or the reactur core (estimated by the subsidiaries to cost 560 million to 585 milhon) nor for the subsidiaries' replacement power, fmancing and other costs during the period of rehabihtation of TMI 2. The subsidianes have increased, by $25 milhon, the engineermg fum's estimate of costs to provide for other items possibly omitted from that estimate. The subsidiaries carried the maximum msurance coverage avaitable (5300 milhon) for damage to the urut and core and for decontamination expenses. The msurance does not cover replacement power costs or return on investment while the unit is not providmg electocity for customers, but it otherwise covers most types of costs it is the subsidianes' belief that,if the estimates of the consultmg engineerms firm are borne out, the ecovenes free, the msurance companies will approximate the amount of the insurance carried 147'? 2 9
The subsidiaries do not know the extent, if any, to which the expenditures for repair and restoration of the unit to service will represent plant improvements or other items that are properly capitalizable and recoverable in the future through rates charged to customers by amortization or depreciation charges Moreover, the subsidianes expect to seek financial assistance f rom the Federal government and/or the utility industry in areas where the technical information should be of wide value and significance. Under these cir-cumstances, the amount of loss, if any, suffered by the Corporation and its subsidianes resulting from the TMI accident is not presently determinable and no provision therefore has been made in their accounts.
~
The proper y damage insurance, and the limit of coverage, is applicable to both TMI-1 and TMI-2. This property insurance is reduced by claims paid and the insurance carriers have refused to reinstate the onginal coverage limits at this time aeparate property damage insurance for TMI-1 of up to 5300 million was ob-tained from another carrier which provides such insurance only on a retrospective premium basis whereby the insureds are subject to annual assessments of up tol4 times the annual premium. As a result, the subsid-iaries have a contingent liability for an aggregate annual assessment of up to 514 million With regard to property insurance for TMI-2,550 million of coverage has been obtained for possible damages which might result from a non-nuclear accident during the unit's restoration period. The subsidianes, in responding to the accident at TM1-2, have incurred 574 million of costs associated with the clean-up and recovery process, as of September 30,1979. Of this amount 567.8 million has been deferred and $6.2 million charged to operations. All deferred costs v.ill be charged to operations upon a determination that such costs are not recoverable through insurance proceeds, rates or by financial assistance from the Federal government or from other public or private sources and/or utility industry. In its rate order approved June 15,1979 referred to below, the PaPUC recognized that no claim f or such costs had been made in the proceedings in which such order was entered Nevertheless, the PaPUC stated in that order: "the Commission is of the view that noi.e of the costs of responding to the incident, including repair, disposal of wastes and decontamination are recoverable from ratepayers." The subsidiaries, while presently unable to assess the specific damage to the fuel core at TMI-2, are of the opinion that the core is no longer useful in TMI-2 or any other nuclear generating station. At the tirre of the accident at TMI-2, the nuclear fuel core had a remaining unamortized book cost of approxima'.ely 535 million. In June 1979 this nuclear fuel core was retired and the unamortized cost was transferred to Deferred Debits - Other, pending insurance settlement. TMI-1 which adjoins TMI 2 was out of service for a scheduled refueling and was not involved in the acci-dent. By orders dated July 2,1979 and August 9,1979, the Nuclear Regulatory Commission ("NRC") di:ected that TMI-1 remain in a shut down condition until resumption of operation is authorized by the NRC, after public hearings and the satisfaction of various requirements set forth in such orders. The NRC's time schedule for the completion of the heanngs and decision would require at least one year and a longer period could be required. In their rate orders issued in June 1979, the PaPUC and NJBPU determin 4 that the capital and operating costs associated with TMI 1 should continue to be reflected in base rates. However, on September 20,1979, the PaPUC issued an order instituting an investigation to determine whether the costs of Met-Id and Penelec associated with TMI-1 should be temoved f rom their base rates. The NIBPU may institute a similar investiga-tion. 1472 263
in order to make provisions for the substantial expenditures required for clean up and repair, replace-ment energy and other added costs resulting f rom this accident. the Corporation and its subsiJiaries entered mto a revolvmg credit agreement with a group of banks m June 1979. (see Note 3) In addition. JCP&L and Penelec each issued 550 million of first mortgage bonds m June 1979 and ICP&L sold 547.5 million of first mortgagt bonds in October 1979.525 million of which was applied to the payment of maturing bonds. On October 26, 1979, the NRC proposed a fine of 5155.000 against Met Ed for alleged safety. mamtenance procedural and tramms violations at TMI. The NRC also stated that dependmg upon the imdmgs of contmuing mve:tigations into the TMid accident, it may take additional enforcement action such as assessing additional civil penalties or orderms the suspension, modification or revocation of Met Ed's operatmg license Met-Ed proposes to conte:t the major elements of the proposed fme but does not know what the outcome of this matter will be. On October 30.1979, the Presidential Ccmmission on the Accident at Three-Mile island issued its report The Commission's Report is lengthy and it was accompanied by a series of Staff Reports comprismg several thousand pages. The Commission's Report states. in part that its "mvestigation has revealed problems with the ' system' that manuf actures operates and regulates nuclear power plants" and the shortcomings which turned the incident into a serious accident "are attributable to the utility, to suppliers of equipment and to the federal commission that regulates nuclear power." The Corporation does not know what effect. if any, the Report will have upon it and its subsidiaries. Other investigations and inquiries into the nature, causes and consequences of the TMI-2 accident com-menced by various federal and state bodies are continuing. CPU is unable to estimate the full scope and nature of these contmuing investigations or the potential consequences thereof to the investors in the securities of the Corporation and its subsidiaries. The Corporation is also unable to determine the impact, if any, the results of such ir vestigations may have on the proceedings to return TMI-1 to service and the efforts to rehabilitate TMI-2. On November 1,1979, the PaPUC ordered Met-Ed to show cause why its governmental authorization to sell electric power should not be revoked. Met-Ed intends to respond to the order contending that there is no basis for such revctation. On January 31.1979. JCP&L was granted a 533.8 million rate increase by the NjBPU, which, among other d.;r.gs. reflected in base rates its investment in TMI-2 and the operating and maintenance costs associated with the enit. On June 18.1979, the NJ BPU issued a rate order reducing annual base revenues by 529 million which represents JCP&L's capital and operating cost associated with its interest in TMI-2. The order also pro-vided for a reduction in energy revenues of $7.3 million over a prospective e: Ween month period as an off-set to revenues attributable to TMI-2. collected during April. May and June 1979. Accordingly, such amount was recorded as a charge to energy costs by JCP&L in June 1979. In addition, the order authorized JCP&L to increase its levelized energy i"fiustment charges to its customers over the period July 1,1979-December 31, 1980, by an amount which the NJBPU beheved would be sufficient to recover the replacement power costs associated with the non-availabihty of TMI since March 31,1979 (see Notes 1 and 7). On September 5.1979, the NjBPU authorized JCP&L to merease its levelized energy adjustment clause charges to recover incretses in energy costs, not associated with TMt. anticipated for the period September 1.1979 - Aug t 31,1960 such mcrease is expected to provide approximately 570 milhon of revenues durmg that period (,ee Note 1). Durmg the first quarter of 1979. Met Ed and Penelec were granted retail rate increases by the PaPUC which, among other thmgs, reflected in base rates their mvestment in TMI 2 and the operatmg and maintenance costs associated with the unit. On April 19.1979 and April 25,1979 the PaPUC. as a result of the accident, established temporary rates for Met Ed and Penelec. respectively, reducing annual base revenues by the operating and capital costs associated with their interest in TMI-2 These actions ef fectively revoked the 546.6 million increase in rates granted Met-Ed on March 22.1979. restorms the rates to levels in effect prior to that rate order. In Penelec's case, the PaPUC prospectively reduced the 556.2 million rate in-crease which the company had been billing since January 27.1979 by 525.0 m!Ilion. 1472 2b4
On June 15,1979, the PaPL' issued a rate order which directed that Met Ed's and Penelec's temporary rates prescribed by its April 19,1979 and April 25,1979 orders be made permanent in addition, the order estabhshed levehzed energy adjustment clauses for Met Ed and Penei2c for the period July 1,1979 December 31,1980 at a level which the PaPUC beheved would be sufficient to recover the increases in the companies' energy costs dunng that penod This levelized energy adjustment clause did not rv ake provision for the mcreased energy costs experienced by Met Ed and Penelec dunng the March 28-June 30,1979 penod, but the discussion at the pubhc meetmg at which such order was entered indicated that such costs veill ultimately be recoverable The order also made provision for the amortization through base rates by Met-Ed of 55.8 milhon annually of previously deferred energy costs of $14 milhon and by Penelec of 55.5 million an-nually of previously deferred energy costs of 519.4 million. The increases in the subsidianes' levelized energy adjustment cha ses granted by the NjBPU and PaPUC in June 1979 assumed that TMI-1 would resume the generation of electricity on January 1,1980. The sub-sidianes expect to seek increased energy adjustment charges in the hght of the NRC's action requinns that TMi-1 remam m a shut-down condition until resumption of operations is authorized by it. On November 1,1979, Met-Ed filed with the PaPUC for an increase of approximately 555 million in its levehzed energy clause charges. Such request is a result of increased fuel costs since the June 15,1979 rate order, as well as the continued deiay in returning TMI1 to service. As indicated by the precedmg paragraphs the depreciation and return requirements associated with the
$750 million investment in TMI 2 (amounting to approximately 595 million per year) are not being recovered from customers. Such depreciation and return requirements are currently being reflected in the financial statements in that (a) depreciation charges in respect of the unit are being provided. (b) the interest and preferred stock dividend charges associated with the debt and preferred stock components of that invest-ment are being accrued, and (c) the earnings per share of common stock are determined on a basis which reflects all outstandmg shares including the shares issued to finance the common stock component of that mvestment.
Under the Price-Anderson Act there is a limit of 5560 million on each nuclear generating unit for public liability claims that could result from a single nuclear incident. The subsidiares have insured for this ex-posure by purchasing private insurance of 5140 million (the maximum amount available at the time of the accident) and the remainder by participating in an arrangement for assessments after an accident agamst owners of nuclear reactors of up to 55 million per incident, bui not more than 510 million in any calendar year, for each bcensed nuclear reactor and indemnity by the Federal government. Based on the three nuclear reartors and the insurance coverage in effect at the time of the accident, the subsidiaries' maximum potential assessment under this arrangement is $15 million per incident. Such pnvate insurance is reduced by claims paid but is subject to reinstatement to original coverage limits upon approval by the insurance carriers. The subsidiaries have applied for such reinstatement but are unable at this time to ascertam whether or when such reinstatement will be approved. As a result of the accident, the Corporation, and/or its subsidia:ies have been named as defendards in various law suits Among other matters such suits include (i) class actions and individual suits for personal and property damages directly resultmg from the accident. (ii) suits to enjoin the decontamination of TMI 2 and (iii) suits for damages on behalf of purchases of CPU Common Stock. The corporation and it. sub-sidiaries are not able to evaluate the ments of these complaints. The subsidiaries' construction program, which extends over several years, contemplated expenditures of approximately 5455 million during 1979 However, due to the accident at TMI-2, m an effort to conserve their cash resources the subsidianes' have reduced their 1979 construction program expenditures to approx-imately 5330 milhon. JCP&L , view of the accident, has temporarily suspended construction on its Forked River nuclear generating station Total costs apphcable to this project at September 30,1979 were approximately 5357 milhon Prior to the accident, JCP&L was negotiatmg for the sale of undivided mterests in the station to two unaffihated utihties, one of which has smce indicated it is no longer interested m such a purchase. !CP&L does not know whether it will be able to sell any undivided mterests m the station.
)f
Exhibit B PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S CCMMENTS ON QUARTERLY INCOME STATEMENTS Third Quarter 1979 vs. Second Quarter 1979 The principal factors resulting in a $7.5 million or 57% decrease in balance available for common stock were as follows: Revenues other than those related to TMI-2 and the cost of energy declined
$7.6 million or 10% (kilowatt-hour sales declined 8% or $4.7 million and rate increase revenues, other than those associated with TMI-2, were down $2.9 million of which $1.8 million represents a provision to refund wholesale rate ir.nrease revenues collected since December, 1978). Payroll and other operation 62d maintenance expenses increased $1.5 million or 6% and interest charges increased $1.5 million or 12% primarily due to the issuance of 11 3/4% Series First Mortgage Bonds in June,1979. Partially offsetting these decreases to income was a decrease in taxes of $1.9 million or 11% primarily resulting from decreased income subject to taxes, an increase of $1.0 million in other income primarily resulting from .reased temporary investments and a decrease of $1.3 million in reserve capacity.
1472 266
Third Quarter 1979 vs. Third Quarter 1978 The principal factors resulting in a $1.1 million or 16% decrease in the balance available for common stock were as follows: In the third quarter of 1979 operating and investment costs associated with TMI-2, which we were required by the PaPUC to remcve from rate base, resulted in a $2.0 million reduction in third quarter earnings and consequently resulted in a $2.0 mililon decline in earnings compared to eb- third quarter of 1978. In the third quarter of 1978 we were capitalizing allowance for funds used during construction which offset the investment costs associated with THI-2 and resulted in no impact on earnings. In addition, revenues other than those related to TMI-2 and the cost of energy increased $2.8 million or 4% (rates, other than those related to THI-2, increased $3.8 million which was partially offset by a decrease of $1.0 million in sales revenues). Payroll and other operation and maintenance expenses declined $3.7 million or 13% primarily resulting from the effects of cost reduction programs and other income increased $1.4 million due to increased dividend and interest income. Offsetting these increases to income were higher taxes of $4.2 million or 37% primarily resulting from increased income subject to taxes, increased depreciation of $0.6 million due to a higher depreciable base and increased rates, increased interest expense of $1.6 million due primarily to the issuance of 113/4% Series First Mortgage Bonds in June 1979 and decreased AFUDC, o*.aer than that related to TMI-2, of $0.7 million due to a reduced construction program. 1472 267
Nine Months 1979 vs. Nine Months 1978 The principal factors resulting in a $7.6 million or 29% increase in the balance available for common stock were as follows: TMI-2 was placed in service at year-end 1978 and the Company received rates effective in February and was further required by the Pennsylvania Public Utility Coraission to eliminate from those rates the operating and investment costs associated with the plant. This resulted in a $2.0 million decline in earnings for the nine months ended 1979 and consequently resulted in a $2.0 million decline in earnings compared to nine months ended 1978. In the nine months of !978 we were capitalizing allowance for funds used during construction which offset the investment costs associated with TMI-2 and resulted in no impact on earnings. In addition, revenues other than those related to TMI-2 and the cost of energy increased $21.9 million or 10% (kilowatt-hour sales increased 4% or $3.3 million and rates, other than those related to TMI-2, increased $18.6 million). Payroll and other operation and maintenance expenses decreased $3.8 million or 5% primarily resulting from the effects of cost reduction programs and other income increased $2.5 million due to increased dividend and interest income. These increases to income were partially offset by increased taxes of $13.1 million or 31% primarily resulting from increased income subject to taxes, increased depreciation of $1.7 million or 6% due to a higher depreciable base and increased rates, increased interest expense of $2.4 million or 7% primarily due to the issuance of 113/4% Series First Mortgage Bonds in June,1979 and 91/2% Series First Mortgage Bonds in June 1978 and decreased AFUDC, other than that related to THI-2, of $2.0 million due to' a reduced construction program. 1472 268
Part II - Other Information Item 1. Imgal Proceedings. Reference is made to the Current Reports on Form 8-K for the months of August, September ard October 1979, jointly filed by the Cmpany and its affiliates, regarding the current status of certain legal proceedings instituted against the Cmpany and its affiliates as a result of the March 28, 1979 nuclear accident at Unit No. 2 of the tree Mile Island nuclear generating station ( "'IMI-2" ) . Copies of these reports are filed herewith as exhibits and incorporated herein by reference. On August 7,1979, an employee of the Cmpany filed an age dis-crimination emplaint with the Erie Human Relations Cmmission. Ebliowing a hearirry held on August 22, 1979, the Cmmission dis-missed the complaint for lack of probable cause. Item 8. Other Materiaily Importr.nt Events. Reference is made to the Currrant Reports on Fom 8-K for the montns of August, September sad October 1979, jointly filed by the Ccupany and its affiliates, for information concerning the
'IMI-2 nuclear accident and its aftermath, including, amorg cther matters, the report of the President's Cmmission on the Acci-dent at t ree Mile Island, and the status of various proceedings pending befere the Pennsylvania Public Utility Cmmission (par-ticularly the proceedings to revoke the franchise of the Capany's affiliate, Metropolitan Edison Cmpany and to remove the invest-ment in a:d associated operating costs of 2ree Mile Islard Unit No.1 frm the Cmpany's base rates) and the Nuclear Regulatory Cm mission. Copies of these reports are filed herewith as exhibits and incorporated herein by reference.
Item 9. Exhir.tts and % ports on Form 8-K. (a) Exhibits: (1) Current Reptit on Form 8-K, dated September 10, 1979, jointly filed by the Cmpany and its affiliates. (he exhibits to such report are incorporated herein by reference.) (2) Current Report on Form 8-K, dated October 9, 1979, jointly filed by the Cm pany and its affiliates. (2e exhibits to such report are incorporated herein by reference.) (3) Current Report on Form 8-K, dated November 9, 1979, jointly filed by the Cmpany and its affiliates. (2 e exhibits to such report are incorporated G 2 2D9 herein by reference.) 11/9/?9
Item 9. Exhibits and Reports on Form 8-K. (b) Reports on Form 8-K: (1) For the month of August 1979, dated September 10, 1979 - Its 5. (2) For the month of September 1979, dated October 9, 1979 - Its 5. (3) For the month of October 1979, dated November 9, 1979 - Item 5. F 1472 270 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized. PENNSYLVANIA ELECTRIC COMPANY
'M ,
November 14, 1979 By 'emy-f, /
/2. Simmons Secretary and Treasurer November 14, 1979 By: N m .
F. A. Donofrio) Comptroller (Principal Acebunting Officer) 1472 271
% 4 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTEALY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934. For Quarter Ended September 30, 1979 Commission file number 1-3141 JERSEY CENTRAL POWER & LIGHT COMPANY (Exact name of registrant as specified in its charter) New Jersey 21-0485010 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Madison Avenue at Punch Bowl Road Morristown, New Jersey 07960 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 455-8200 N/A Former name, former address and former fiscal year, if changed since last report. Common shares outstanding as of September 30, 1979 were 15,371,270 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing require-ments for the past 90 days. YES X NO 1472 272
Part I - Financic. Information Company For Which_ Report is Filed Jersey Central Power & Light Company Financial Statements The required financial statements appear on the following pages of the Quarterly Financial Statements attached herewith as Exhibit A: P, age _ Balance Sheets 6 Statements of Income 7 . Statements of Sources of Funds Used for Construction 8 The statements (not examined by independent certified public ac-countants) reflect all adjustments (which consist of only normal recurring accruals - reference is made to Note 9 which discusses accruals recognized with respect to the nuclear accident) which are, in the opinion of the Company, necessary for a fair statement of the results for the interim periods, subject to the recoverability of costs deferred and the ultimate resolution of the various matters pertaining to the nuclear accident dis-cussed in Note 9. The September 30, 1979 financial statements do not reflect any provision for any possible loss which might result from the nuclear accident at described in Note 9 to financial statements. Management's Comments on Quarterly Income Statements Attached herewith as Exhibit B 1472 273
ExhiMt A Quarterly Financial Statements September 30,1979* e General .Public Utilities Corporation 100 Interpace Parkway, Parsippany, N.J. 07054 o (201) 263-6500 Jersey Central Power & Light Company Metropolitan Edison Company Pennsylvania Electric Company These statements are not furnished in connection with any offering of securities or for the purpose of promoting or influencing the sale or purchase or securities.
- No provision has been made in these financial statements for any possible loss resulting from the nuclear accident at Three Mile Island Unit 2. inasmuch as the amount thereof. if any. is not deter-minable at present.
1472 274 e
CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDI ARY COMPANIES Condensed Consolidated Balance Sheets (in Thousands) September 30, Septeenber 30, 1979 1978 ASSET 5: Utilety Plant (at orismal cost)(Note 9) in service, under construction and held for future use . 54,985.764 54.697.741 Less, accumulated depreciation (Note 1) . 945.110 835.027 Net 4.040.654 3.862.714 Nuclear f vel (Note 8) 224.319 232.921 Less, accumula ted a mortiza tion (Note 1) . 43.163 60.214 Net Nuclear Fuel 14:156 172.707 Net Utility Plant 4.221.810 4.035.421 Escess of mvestments en subsidearees over related net assets . 30.805 30.805 lavestments . 21.165 21.1 56 Corrent Assets: Cash .... 13.235 20,797 Accounts reCervable net . 129.595 114.512 Other 234.992 121,256 Totals 377.822 256 565 Deferred Debits: Def erred energy costs (Notes 1. 7 a nd 9) 151,968 Unamortaaed mena development costs (Note 1) %.514 7,902 9.0 71 Deterred costs nuclear accident (Note 9) 67,775 Other(Note 9) . 123.248 47.290 Totals 350.e93 152.875 Total Aseeis 55.002.495 54.496.822 LIABILITIES AND CAPITAL:
- Long Term Debt, Capital Stock and Consolidated surplus:
Long Term Debt. Ferst mortsage bonds 51,827,177 51,768.156 Debentures 233.700
* . Other long term debt - 239.600 54.115 60.746 Unamortszed net discount on long term Jebt .
(4.672) (5.813) Tofals 2 110.320 2,062 6a9 Non redeemable cumulateve preferred stock, mcluding premeum. net of expense . 422 422 037 Redeemable cumulative preferred stock, net of expense 88,868
.561 93 565 Common stock and consolidated surplus (Note 4)
Common stock, less reacquired common stock 153.159 151.127 Consol.d4ted capital surplus . 772,538 760,266 Less. capatal stock expense 17,978 Consolidated reta med ea rnengs (Note 5) 17.720 486.376 455.562 Totals 1.394.095 1.349.235 Tofals 4 015.844 3.927.526 Current Liabilities: Securities due wnhin one year to be refinanced 72.158 22.275 Notes payable to bank 5(Note 3) . 229,700 Accounts payable 42.750 112,209 78,393 Other . 113.748 122 0$5 Totals 527.815 265.473 Deferred Credits and Other Liabilities: Def erred encome tases (Notes 1 and 61 278.212 180.328 Unamortiaed investment creJits (Notes 1 and b) 123.469 99.513 Insurance recoverees - nuclear accedent (Note 9) 19.900 Other 37.255 23.982 Totals 458.836 303.823 Commitments and Contingencies (twotes 8 and 9) Total Liabilities and Capital 55.002.495 44.4 % .822 The accompanyms notes are an enregral part of the f arancial statements 13] 1472 N
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of income (in Thousands 1 Three Months Nine Months Twelve MotAhs Ended September 30 Ended September 30. Ended September 30, 1979 1978 1979 1978 1979 1978 Operatmg Revenues $383 927 53 %.278 $1.104.180 $997.344 $1433 480 51.303 85a Operatmg Espenses: F uel . 88.163 81.928 260.174 248.670 337.589 311.191 Power purchased and mterchanged. net 64.449 23.482 176,243 95,194 214.789 133.211 Def erral of energy costs. net (Notes i and 7) . (4.403) 2.852 (49.030) (8.302) (58.644) (4.413) Payroll 34.233 32.464 99.572 94.886 131.849 122.638 Other operation and maintenance (excludma payroll) 41.420 42.725 127.474 'l24.266 182.629 160.4 % Depreciation (Note l) 35.141 27,016 105.772 81.319 132.959 106.188 Tames, other than income tases . 35.532 32.553 110 690 98 622 141.930 128 608 Totals . 294.535 243.020 830.895 734.655 1.084.101 957.919 Operating income betore income Tames . 89.392 93.258 273.285 262.689 349.379 345.935 income Tases(Notes 1 and 6) 16.172 26.619 Operating income J9195 73.407 70.741 94.857 73.220 66.639 213.490 189.282 278.638 _251.078 Other income and Deductions: Allowance for other funds used durms construction (Note 2) . 7.01 9 13.276 19.305 38.311 30.881 51.223 Other income, net 2.337 628 4.934 2.442 6.174 2.788 income tanes on other mcome. net (Notes t and 6) . (1.4 51) (495) (2.736) (1.760) (3.436) [2.160) Total o ther laceme and Deductions . 7.t05 13.409 21.503 38.993 33.619 51.851 Income Before laterest Charges and Preferred Dividends . 81.125 80.048 254.993 228.275 312.257 302.929 laterest Charges and Preferred Dividends: Interest on forst mortgage bonds . 37.233 33.193 105.872 97.4 % 139.877 128.148 Interest on debentures and other long term debt 5.972 5,891 17.995 17.818 24.0 % 23.849 Other mierest 7.478 1.830 14.545 4.666 6.043 14.407 Allowance for borrowed funds used dunng construction - credit tnet of taa)(Note 2) (4,433) (5.916) (12.507) (17.130) (17.632) (22.608) income tases attributable to the allowance for borrowed f unds (Notes 2 and 6) . (1.615) (3.941) i4.915) (11.358) (8.315) (15.120) Preferred stock devidends of subsidiaries 10.899 10.977 32.732 32.968 43.694 43.728 Total interest Charges and Preferred Dividends 55.534 42.034 153 722 124 420 196 067 1 64.040 Nellacome 5 25.591 Sg S 81 271 Sg 5116140 $138 889 tarnings Per Average Share 5 2 5 3 M3 $ 173 5 1 90 5 2 32 Average number of shares outstanding during each period g g 61.203 60 030 61 096 59.926 Cash Dividends Per Share Consolidated Statements of Retained Earnings 5 5 W Q 40 5 1 76 llalance, beginnmg of period . 5476.100 S444,020 5463.173 5430.822 5455.562 5421.995 Add. net encome . 25 591 38 014 81 271 103 855 116 190 138 889 Totals 501.691 482.034 544.444 534.677 571.752 %0.884 Deduct. dividends on Common Stock 15.315 26 472 58.068 79115 85.376 105.322 Balance. end of period (Note 5) . $486 376 5455.562 5486 376 5455.562 5486.376 5455. % 2 The accompanymg notes are an mtegral part of the fmancial statements [4)
}h
CENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES Consolidated Statements of Sources of Funds Used for Construction (in Thousands) Three Months None Months Twelve Months Ended September 30 Ended September 30 Inded Seoseenber 30. m R 1979 1978 1979 R 5eurces of f unds: Funds generated from operations. Net ecome 5 25.591 5 38.014 5 81.271 5103.855 5116.190 5138.889 Add. stems not reoveres current cash outlay or (receipt). Depreciation (Note 1) ' 35.141 27,015 105.772 81,319 133.959 106.188 Amortaateon of nuclear fuel (Note 1) . 4.256 5.503 17,203 17,%5 21,082 24.487 investment credits, net (Notes 1 aQ 6) (1,187) 5.904 (3.586) 16.744 21,403 30.932 Def erred mcome taxes, net (Notes 1 and 6) . 11.514 2,794 54.001 23,716 88.279 29.170 Allowance for other funds used durms construction (Note 2) (7.019) (13.276) (19.305) (38.311) (30.882) (51.223) Totals 68.296 65.954 235,356 204.888 350.031 278.443 Less, cash devidends on common stock 15.315 26 472 58.068 79.115 85.376 105.322 Totals . 52.981 39.462 177.288 125.773 264.655 173.121 Other sources (uses) Deterred energy cos t, net (Notes 1 and 7) (4.403) 2.852 (8,302) (49.030) (58.644) (4,41 3) Changes m -cash. 5.235 (2.256) 4.745 3,494 7,562 9.178
-temporary cash mvestments . (49.300) 17,001 (98.800) 3.089 (98.800) 4.939 -account, receivable . 15.390 (8.325) 21.194 (7.512) (15.082) (13.314) -accoures payable 8.418 (5.673) 17.756 (3.674) 33.815 13,951 - mver.ories-materials. supplies and fuel (5.979) (9,8'1) (25.887) 14.802 (22,406) 19.134 -enterest accrued . 3.066 (514) 1,776 (1,455) 3.362 (90) -tanes accrued . (16.674) 11,565 10.474 12,679 16.648 (10.051)
Other, net (29 450) 20.066 (60.302) (7.u1) (46.700) (18.173) Totals . (73.697) 24.845 (178.074) .L.460 (206.944) 27.860 Funds f rom f anancmss. ' Sale of lon8. term debt . 50.000 106.300 154.082 106,300 202.752 Sale of preferred stock . 50.000 5 ale of common stock. net ol eapense(Note 4) (47) 5.223 13,004 4.777 14.046 17.998 Dank borrowmss. net 89.650 (22.254) 145.850 (25,275) 195.750 (87.105) Retirement or redemption of long-term debt and pref erred stock (4.163) (8.048) (15.904) (25.997) (22.815) (30.197) Totals . 85.440 24.921 241.023 115.814 293.2f( 153 448 Totals . 5g 5g Sg 5 Sg Sg Construction Espenditures: Utility plant . 5 47.648 5 89.878 5198.141 5259.115 5315.839 5359.094 Nuclear fuel 24 095 12 646 6140f 26 243 M.015 46 558 Tatals . 71.743 102.524 259.542 285.358 381.374 405.652 Allowance ior other f unds used durmg constructeon (Note 2) (7.019) (11276) (19.305) (38.311) (30A82) (51.223) Totals 5 64 724 5 89 248 5240.237 5247.047 5350 992 5354 429
- :x=ma m=memma --
The accompanyeng notes are an entegral part of the imancial statements 151 1472 N
lERSEY CENTRAL POWER & LICHT COMPANY Condensed Balance Sheets ne shou.and ) ASSETS: Sep**' 30, w emba30 Ut;.ity Plant (at original cost) { Note 9) 1979 1978 in sero ce. under construction and held ior iusure use $2.066.487 $1.886.574 Less, a. cumulated depreciation (Note 1) 357.831 315 410 Nel 1.708 656 1 57*.164 Nuclear fuel (Note 8) . 139.571 12c.430 Less. accumulated amortiza tion { Note l) 32 076 M M1 Nel Nuclear f uel . 107.495 92.339 Net Utility Plant . 1.816.151 1 663 503 investments 366 454 Cearrent Assets: Cash . 7.988 846 Accounts receivable, net . 64.374 48,039 Other . 65.214 44.042 Totals 137.576 92.927 Deferred Debits: Deterred energy costs (Notes 1. 7 and 9) 81.146 41.012 Def erred costs . nuclear accident (Note 9) . 16.944 Other(Note 9) . 40.633 21.444 Totals 138.723 62.456 Total Assets $2.092.816 $1.819.340 LIABILITI[$ AND CAPITAL: Long Term Debt. Capital Stoch and surplus: First mortsage be,nds . 5 752.618 5 725.195 Debentures 81.080 83.160 Other long term debt 10.465 15.746 Unamortized net discount on long term debt (2.429) (3.498) Nor> redeemable cumulatrve pref erred stock, mcludeng premium, net of expense . 161.631 1 61.1 % Redeeneble cumula teve neferred stock, net of expense . 41.065 E Totals 1.044.430 1.025.201 Common .tock and surplus. Common stock . 153.713 M3.713 Capetalsurplus . 436.989 373.489 R etamed eammgs(Note 5) 48110 _ 29 %17 Totals 638 812 555 719 Totals 1.683.242 1.580.920 Current Liabilities: Securit.es due within one year to be ref manced 35.846 16,790 Notes payable to banks (Note 3) . 90.600 12.500 Accounts payable 54.173 34.608 Other $3.567 56.076 Totals 234.186 120.374 Deletred Credits and other Liabilities: Def erred mcome lanes (Notes 1 and 6) 109.721 63.583 Unamortised mvestment credets(Notes 1 and 6) 50.076 43.460 insurance recoveries. nuclear accident (Note 9) 4.975 Other . 10.616 11.003 Totals 175.388 118 046 Commitments and Contingencies (Notes 6 and 9) Total Liabilities and Capital 52 092.816 51_.819 - T,. . om r,ym, r,_ .re an mee ral .it o, t,. ,ma_I statements. (6)
\A7? 2M -
'f .
I e I JERSEY CENTRAL POWER & LIGHT COMPANY I t Statements of income ' (in Thousands) , Three Months hane Months Twelve Months , inded September 30, inded September 30. Ended September 30, 1979 1978 1979 1978 1979 1978 . Operating Revenues . 5185 594 5161.747 5490 548 5451.352 5630 491 5589.582 Operating Espenses. { Tuel. 31.1 54 27.186 79.070 82.823 94.028 101.477
- Power purchased and interchanged. net.
3 Affelsates 20.653 10.018 36.376 16.022 50.7 % 18.287 , Others 20.553 18.957 92.909 53.534 127.418 75.388 Deferral of energy costs, net (Notes 1 and 7) 484 (1,983) (24,741) 7,426 (43.323) 13.142 Payroll 13.723 11.842 39.365 35.801 52.1 52 46.146 Other operation and maintenance (escluding payroll) . 17.597 ' 17.544 52.560 51.094 79.472 66.622 Deprecia tion (Note 1) . 14,238 11,546 42.922 34.734 54.081 45.701 Tanes, other than income tases . 23.992 18 424 69.236 54.803 86.265 71.727 Totals . 142.394 113 534 387.697 336.237 500.919 438 490 Operating income befor " come Tames - 43.200 48.213 102.851 115.115 129.572 151.092 Income Tames (Notes 1 and 6). . 8 746 14 264 20 226 29 587 '3116 38.549 Operating ancome. 34 454 33 949 82 625 85528 106 456 112.543
- Other income .and Dedvetions:
- Allowance for other f unds used dunns construction (Note 2) . 6.326 4.818 16,946 13.806 21.658 17.623
' Other income, net . 94 8 301 958 841 9 31 income tanes on other mcome, net (Notes 1 and 6) . (1 44) (77) '
(1 91) (71 8) (41 8) (7%) Total Other income and Deductions . 6.276 4.749 17.056 14.046 ' income 8elore interest Charges 1081 17.758 40 730 38 698 99 681 99.574 128. A37 1 30.301 ; laterest Charges:
- Interest on ierit mortaage bonds . 16.083 14.581 45.327 43.495 59.888 57.061 Interest on debentures and r, 4r long-term debt 1.750 1.869 * !
5.341 5.718 7.197 7.661
- t Other interest 3.375 188 7.227 321 7.810 568 Allowance for borrowed funds used dunns construction
- credst(net of tan)(Note 2) (3.701) (2.978)
{ (9.852) (8.601) (12.553) (11.308) income tases attnbutable to the allowarge for borrowed lunds(Notes 2 and 6) (930) (568) (2.462) ,1g) ( (3.077) (2.032) I. Totallaterest Charges . 16.577 13.092 45.581 39.366 59.265 51.950 Net Income . 24,153 25.605 60,208 54.100 69.272 78.351 Preferred Stock Dividends 4.666 4.708 13.999 14.125 18/193 18.580 Earnings Available for Common Stock 519.487
- 520.898 540.101 546.003 550.579 559.771 .
Statements of Retained Earnings
- Balance, beamnens of period 528.637 524.633 528,517 520.023 520.448 529.110 Add. net encome . 24 153 25.606 54 100 60.208 69.272 78.351 Totals 52.790 50.239 74.123 80.656 97.789 107.461 -
Deduct ' Cash devidends on common stoch 17.000 12.000 38.000 31.0(x) 60.000 Ca
- devidends on cumulateve pref erred stock 4680 4 722 14 013 14 139 18.679 18 944 Totals 4 6A0 21 722 26 013 52139 49 679 78 944 Balance, end of penod(: Joie 5) 548 110 52s 517 54a 11n 52s 517 548 110 528 517 l The accompanying notes are an integral part of the financial statements 17)
I. t, . 1A72 279 1 i
JERSEY CENTRAL POWER & LIGHT COMPANY Statements of Sources of Funds Used for Construction (in Thousands) Three Months None Months twelve Months Inded Seolember 30. Inded Seotember 30. Ended September 30. 1979 1978 1979 1978 1979 1913 Sources of f unds: Funds generated from operations Net encome $ 24.153 $ 25.606 $ 54.100 $ 60.208 5 69.272 S 78.351 Add. stems not reovering current cash outlay or (receipt) Deoteciation tNote i) 14.238 11.546 42.922 34.734 54.081 45.701 Amort:34teon of nuclear fuel (Note 1) 4.255 3.370 12.213 12.550 13.760 17.249 investment credits net (Notes 1 and 6) (551) 4.690 (1.628) 12.189 4.999 15.740 Deterred income tames. net (Notes t and 6) . 1.792 2.8 *9 21.024 2.737 42.414 2.2 21 Allowance for other funds used durens construction (Note 2) (6.326) (4 818) (16 946) (13.806) (21 658) (17 622) Totals . 37.561 43.233 111.685 108.612 162.868 141.640 Less. cash dividends -common stock 17,000 12.000 38,000 31.000 60.000
-preferred stock . 4 680 4 722 14 013 14.139 18 679 14 944 Totals . 32.881 21.511 85.672 56 473 113.189 62.690 Other sources (uses)
Def erred energy cotts. net (Notes 1 and 7) . 484 (1,983) (24.741) 7,426 (43.323) 13.142 Changes in -cash. 3.089 (301) (5.687) 1.21 9 U.142) 3.063
-temporary cash mvestments P.000) 17.000 (7,000) 2.989 U.000) 2.989 -aceounts receivable 6.635 (2.230) (4.665) (1,178) (16.335) (1.821) -accounts payable (511) (1 %9) 4.116 (2.398) 19.%4 11.343 -inventories-ma terials. supplies and f uel (598) (2.166) (9.040) 2.479 (11.555) (778) -enterest accrued - $11 (2.090) 452 (3.163) 2.987 (2.365) -sanes accrued . (20.571) 554 12.169 14.734 (6.799) 17.044 Other. net (4.941) 1.%$ (18.014) (1.635) (10.000) (5.002)
Totals . (26.902) 8.780 (52 410) 1473 (79 603) 37 615 Funds from financings-Sale of long-term debt - %.300 50.382 % 300 50.382 Sale of preferred itock . en.rm Bank borrowmss. net . 30.6 0 12.900 36.500 12 900 77.700 (22.200) Retirement ce redemption of long term debt and preferred stock (2.022) (1.677) (11.710) (11.810) (18.420) (14.930) Cash Contributions f rom Ceneral Public Utilities Corporat.on, parent company . 10000 29.500 10 000 ,f,3.500 30 000 Totals 28.578 21.223 110 590 61 472 179rMO 93.252 Totals . S 34.557 5 51.514 $143.852 5138 418 5212.666 $193.%3
====== mmunas ammma- amm=ms ammmm== mummma Consieuction Impenditures:
Utility plant S 27 %1 5 51.840 5125.424 5139.275 $196.434 5186.851 Nuclear fuel 12.922 4.492 35.374 12 949 37.890 24.334 Totals . 40.883 % 332 160.798 152.224 214.324 211.185 Allowance for other iunds used sturing constructeon (Note 2) 16.326) (4 818) (16.946) (13.806) (21.658) (17.622) Totals 5 14 557 5 51.514 $143.852 5138 418 $212.666 $193.563 The accompanvens notes are an elegral part of the fenancial statements 18] 1472 280
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Condensed Consolidated Balance Sheets On Thousands) September 30, e 'eptember 30, ASSETS: "" " 78 Utilsty Plant (at original costXNote 9) in service. under construction and held f or f uturc use 51.313.484 51.273.240 Less accumulated depreciatoon(Note 1) 234 468 203 892 Nel 1 079 016 1.069.348 Nuclear fuel (Note 8) 55.980 69.308 Less accumulated amortuation(Note 1) 7,399 it, G7) Net Nuclear Fuel 48.581 $3.235 Net Utility Plant . 1.127.597 1.122.583 lavestments . 659 665 Current Assets:
',a :h . 1.258 2.583 Accounts racervable, net 43.885 23.449 Other 40 953 35.285 Totals 86 096 61.317 Deferred Debits:
Def erred energy costs (Notes 1. 7 and 9) 56.765 26.710 Deferred costs ruclear accedent(Note 9) 33.887 Other(Note 9) . 49 964 '.4 54 Totals 140 616 34.164 Total Aseets 51.354 968 51.218.729 LIABILITIES AND CAPITAL: LoseTeim Debt, Capital Stock and Consolidated Surrius: Fr st mortsage bonds - 5455.773 5463.018 Debentures 82.580 84 560 lJramortued net decourit on long-term debt - (1.598) (1.649) Nor* redeemable cumulatsve preferred stock. including premsum . 139.R74 139.874 Totals 676 629 685 803 Common stock and consolidated surplus-Common stod 66.273 66.273 Consol dated capetal surplus 280.524 280.524 Consolidated retained earmngs(Note 5) 31.533 34.782 Totals 378 130 3e U 79 Totals 1.054.959 1.067.382 Current Liabilities: Debt due within one year 7.764 362 Notes payable to banks (Note 3) 68.200 24.150 Accounts payable 32.350 17.107 O*her .
- 5 9no 24.198 Totals 144 214 66.017 Delerred Credits and Other Liabilities:
Deterred mcome tames (Notes 1 and 6) 99.303 59.899 Unamortia ed envestment credits (Notes 1 and 6) 32.535 21.073 Insurance recoverses nuclear Accident (Note 9) 9.950 Other 14.007 4.358 Totals 155 795 85.330 Commitments and Contingencies (Note 8 and 9) Total Liabilities and Capital 51.354 '65 51.218 729 The accompanying; notes are an integral part of the financial statements. 19) TA72 2Bi
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY i Consolidated Statements of income (in Thousands 1 Three Months Nine Months Twelve Months Inded Sepeeinber 30, inded September 30 Inded Septemisee 30, 1978 1979 1978 1979 1978 1979 585 846 576.237 5250.525 5231 525 5329 580 5301566 Operating Revenues Operating Expenses 15.730 21.109 56.253 64.825 75.302 84.803 Fuel Power purchased and enterchanged, net. 21 6 (2,614) (1,013) (4.024) (4.721) (7.547) Affihates . 31.334 2.956 62.047 20.853 66.421 23.913 Others (12.849) 1.074 (33.544) (13.478) (30.055) (13.045) Def erral of energy costs. net (Notes 1 and 7) 8.783 8.553 25.481 25.352 33.899 32.792 Payroll 9.734 9.150 31.415 29.479 43.2 % 38.369 Other operation and mamtenance(excluding payroT, - 9,370 28.263 18.178 35.570 24,014 Deprecietson(Note 1) . 6.095 4.484 6.263 16.711 19.278 22.723 25 034 Tanes. other than incorne tanes 66.802 52.586 185.613 160.463 242.405 208.333 Totals . 19.044 23.651 64.912 71.062 87.175 95.233 Operating income before income Taxes . 1 087 7.768 10192 22.951 14.703 30.353 income Tanes(Notes 1 and 6) 15883 54.720 48 111 72,472 64 880 Operating lacome 17.957 Other income and Deductions: 235 5.701 908 16.350 5.440 21.481 Allowance f or other f unds used during construction (Note 2) 238 9 673 4 746 (111) Other income, net . (291) (15) (304) 44 income taxes on other encome, net (Notes 1 and 6) (87) (7) 386 5.703 1,290 16.339 5.882 21 414 Total Other income and Deductions . 1 8.343 21.586 %.010 64.450 78.354 %.294 lacome Before Interest Charges . laterest Charges: Interest on (erst mortgage bonds . 8.816 7.745 26.447 23.144 35.263 30.699 1.655 1.670 4.976 5.068 6.638 6.770 interest on debentures 2.377 1.481 4.644 3.102 5.361 3.749 Other interest Allowance for borrowed funds used durms Construction * (456) (1.812) (1.775) (5.195) (3.245) (6.539) credit (net of tan)(Note 2) income taxes attributable to the allowance for 089) (2.080) (1.51 2) ($ 967) (3.202) (7 602) bortowed iunds(Notes 2 and 6) 12.003 7.004 32.780 20152 40? t 5 27.077 TotalInterest Charges 6.340 14.582 23.230 44.298 37.539 59.217 Net income 2573 2.573 7.717 7.717 10.289 10.289 Preferred Stock Dividends Earnings Awailable for Common Stoch . sg 512.009 Sg3 536 581 g 548.928 Consolidated Statements of Retained tarnings 530.773 523.020 522.701 534.783 523.854 Balance. beginnene' period 527.766 14.582 23.230 44.298 37.530 59.217 Add net encome 6.340 45.355 a6.250 66.999 72.122 83.071 Totals 34.106 Deduct. 8.000 7.000 24.500 30.500 34.000 Cash dividends on common stock 10 2e# 2 573 7 717 7.717 10.289 Cash dividends on cumulative preferred stock 2.573 10573 14 71? 32.217 40.789 48.289 Totals 2.573 Balance,end of period (Note 5) Sgt 5g 531 533 534 782 g 534.782 The accompanying notes are an integral part of the financial statements. [10) \
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Sources of Funds Used for Construction (in Thousands) Three Months None Months Twelve Months Ended September 30, Ended September 30 Ended Seotember 30 1979 1978_ 1979 , 1978 1979 1975 Sources of funds: Funds generated from operations-Net mcome S 6.340 514.582 523.230 $44.298 537.539 559.217 Add. items not requirms current cash outlay or (recerpt): Dcreciatson(Notel) 9.370 6.095 28.263 18.178 35.570 24.014 Amortsationof nuclearfuel(Note 1) . 1.422 3.340 3.345 4.897 4.827 investment credits, net (Notes 1 and 6) (271) 235 (897) 1.306 11.128 3.376 Def erred mcome tames. net (Notes 1 ar.d 6) . 11.850 1.398 28.527 13.448 35.546 15.397 Allowance for other funds used durms construction (Note 2) (235) (5.701) f908) (16.350) (5.440) (21.481) Totals 27.054 18.031 81.555 64.225 119,240 85.350 Less. cash devidends-common stock . 8.000 7.000 24.500 30.500 38.000
-pref erred stock 2.573 2.573 7.71 7 7.71 7 10.289 10.289 Totals 24.481 7.458 66.838 32.006 78.451 37.061 Other sources (usest Deterred energy conts, net (Notes 1 and 7) (12.849) 1.074 (33.544) (13.478) (30.055) (13.045)
Chanses m -cash (225) 754 5.145 2.071 1.325 7.318
-temporary cash envestments (2.100) (4.600) (4.600) -accounts recervable (7.029) (4.700) (8.21 0) (4.076) (20.437) (2.432) -accc:mu payable 4.808 (2,790) 14.165 2.818 15.243 3.607 - mventories- materials. supplees and f uel . (4.215) (4,448) (4.630) 1.283 (4.714) 6.023 -interest accrued . (4.408) (3.309) (4.637) (2.524) (426) 1.2 31 -tases accrued (465) 6.374 (7,211)
(2.732) (4.088) (1.167) Other net (25 322) 7,864 (35 847) (5.1 04) (34.991) (6.553) Totals . (51.805) 819 (74 890) (26.221) (82.743) (5.018) Funds from Imancmas. Sale of k,ng-term debt . 50.000 58.703 93.700 Bank borrowmgs. net 42.750 (34.700) 52.700 (7.100) 64.050 144.6501 Retirement or redemption of long term debt (1.520) (5.420) . (1.641) (5.540) (1.822) (6.000) Totals 41.230 9,BA0 $1.059 46 060 62,228 43 050 Totals 5 13906 S 18157 5 43007 5 51 847 5 57.936 $g Construction Espendituret: Utilsey plant S 6.717 5 18.487 $ 26.625 5 59.433 S 44.648 5 81.977 Nuclear f uel ? 424 5.371 17.290 8.764 18.728 14.597 Totals 14.141 23.858 43.915 68.197 63.376 96.574 Allowarne f or other funds used during construction (Note 2) (235) (5.701) (908) (16.350) (5 440) (21.481) Totals . 5 13.906 mem-m S 18.157 m-ur.: 5 ====== 43 007 5 51.847 5 57.936 5 75.093
===== mumm =s The accompanyms notes are an integral part of the financial statements.
3472 2B3
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Condensed Consolidated Balance Sheets (in Thousands) September 30, September 30. 1979 1978 ASSETS: 51,57?.264 51,522.404 Utilsey Plant (at orismal cost)(Note 9) 314.152 350 664 la service uwNr construction and held for f uture use 1.206.252 tess, at , ' seated depreciation (Note 1)
- 1 228 600 Nel 28,768 35.183 3687 8050 Nuclear f uel 27.133 Less, accumulated amortisation (Note 1) 25.061 Nel Nuclear Fuel 1.253 481 1.235.345 Net titility Plant 20.140 20.037 investments 11.6t7 2.963 Current Assets: 47,117 44.323 Cash . 129.169 41.764 Accounts recervable, net . '79.249 97 774 Other .
Totals 14.057 28.792 Deterred Del itt: 7,902 9.071 Delerred enee sy costs (Notes 1,7 and 9) 16,944 Unamortised mme deveicament costs (Note 1) 30 067 14 % 2 Def erred costs - nuclea r accident (Note 9) . $2725 68 970 Other(Note 9) Totals 51 522 040 $1405 921 Total Assets s LIABILITIES AND CAPITAL: 5 579.944 Long Term Debt, Capital Stoch and Consolidated Surplus: 5618.786 70.040 71.880 First mortgage bonds . (666) 1644) Debentures 121.363 120.968 Unamortired net discount on long term debt 50163 Nor> redeemable cumulatn'? preierred slock,includmg premium, net of expense . 47 4 % Redeemable cumulative pra ' erred stock, net of expense 857 041 822.289 Totais 105.812 105.812 Common stock and consolidated surplus. 266.530 266.530 Common stock 54 652 33758 Consolidated capital surotus 426.994 406 100 Consohdated retamed earnmes (Note 51 Totals 1.228.339 US4035 Totals 5.648 2.373 Current Liabilities: 5,500 Securities due mthm one year to be reimanced . 29,725 34.339 Notes payable to bank s thote 3) 40 025 61 212 Accounts payable 77 623 111.199 Other __ Totals 56.84t, 68.8 % Delerred Credits and Other Liabilities: 40.858 34.980 Def erred mcome tanes(Notes t and 6) 4.975 Unamortized mvestment credits (Notes t and 6) 12077 8 08_) trnurance recoveries nuclear accident (Note 9) 126 806 99 909 Other Totals 51.522.040 51.405.921 Commitments and Contmgencies (Notes 8 and 9l T otal Liabilities and Capital The accompanyms notes are an integral part of the imancial statements. o> > 1472 284
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of income inn Thousande Three Months None Months Twelve Months Ended September 30. Ended September 30. Endal September 30. 1979 1978 1979 1978 1979 1978 Operatens Revenues $113.991 $99.928 5367.599 5319 957 5479.3 % 5418.102 Operating Espenses: hyl 41.279 33.633 124.851 101.021 168.259 124.912 Power purchased and enterchanged, net. Affshates . (20.869) (7.404) (35.363) (11.998) (46.075) (10.740) Otners 12.562 1.569 21.287 20.807 20.950 33.909 Deferral of energw costs. net (Notes 1 and 7) 7.%1 3.763 9.255 (2.249) 14.734 (4.51GJ Payroll . 11.726 12.069 34.726 33.733 45.768 43.700 Other operation and masntenance(excludmg payroll) . 14.790 16.962 45.730 47.192 63.010 60.281 Depreciation (Note 1) . 11.535 9.377 ?4.587 28.408 44.307 36.474 7 anes. other than mcome taxes . 6 990 7.759 24.518 24.220 32.612 31.376 Totals . 85.974 77.728 259.591 241.134 341. % 5 315.402 Operatmg ancome before income Tames . 28.017 22.200 108.006 78.823 135.831 102.700 income Tates(Notes 1 and 6;: 6.337 4 587 29.376 20 869 32.923 25.956 Operating lacome . 21 680 17.613 78.632 57954 102 908 76.744 Other income and Deductions: Allowanc e f or other (unds used durms construction (Note 2) . 456 2.755 1.450 8.1 54 3.784 12.120 Other income. net . 2.008 611 3.%1 1.480 4.587 1.971 income tases on other income, net (Notes 1 and 6) . (1.21 9) (411) (2.253) (1.027) (2.714) (1.409) Total Other Income and Deductions 1.245 2.955 3.1 M 8 607 5.657 12,682 income Before interest Charges 22.925 20.568 81.790 66.561 108.565 89.426 Interest Charges: Interest on f orst mortsase bonds 12.334 10.865 34.098 30.816 44.726 40.387 Interest on debentures 1.285 1.318 3.883 3.978 5.186 5.314 Other interest 529 350 1.009 1.791 (84) 2.447 Allowance for borrowed funds used durms construction - credit (net of tan)(Note 2) (277) (1.126) (880) (3.333) (1.834) (4.761) income tames attributable to the allowance for borrowed f unds(Notes 2 and 6) . (296) (1.292) (941) (3.824) (2.036) (5.486) Total Interest Charges 13575 10.115 37.169 29 428 45.958 37.9n1 Net Income 9.350 10.453 44.621 37.133 62.607 51.525 Preferred Stock Dividends . 3.660 3.6% 11.016 11.126 14.713 14.859 Earnings Available for Common Stoch . 5%.690 56.757 533.605 526.007 547 894 536.666 Consolidated Statements of Retained Earnings ~ ~ Dalance, begenmg of period 548. % 2 538.001 537.047 533.751 533.758 537.092 Add netincome 9 350 10 453 44 621 37133 62to7 S1 525 Totals 58.112 48.454 81.668 70 8A4 56.365 88.617 Deduct: Cash dividends on common stock 11.000 16.000 26.000 27.000 40.000 Cash dividends on cumula tive preferred stock 394 36% 11 016 11 126 14713 14 859 Totals 3 660 14 696 27.016 37.126 41.713 54 859 Balance, end of period (Note 5] 5 533758 5 2 5 The accompanymg notes are an mtegral part of the imancial statements I131 1 A72 20
I t i l PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES ; Consolidated S(atements of Sources of Funds Used for Construction , (in Thousands) Three Months Nine Months Twelve Months Ended September 30. Ended September 30. Ended September 30, 1979 1978 1979 1978 1979 1978 Sources of funds: Funds generated from operations 551.525 5 44.621 5 37.133 562.607 Net mcome 5 9.350 $ 10.453 Add. stems not requirmg current cash outlay or (receipt). 34.587 28.408 44.307 M.474 Depreciation [Notei) 11.535 9.377 708 1.649 1.669 2.425 2.411 Amortiration of nuclear f uel(Note i) 11.814 (365) 978 (1.061) 3.249 5.277 Investment credits, net (Notesi and 6) (2,129) 4.4 50 7.5 31 10.319 11.551 Deferred mcome tases, net (Notes 1 and 6) (1.444) Allowance f or other funds used durms construction (Note 2) . (456) (2.755) (1 450) (8154) O 784) E D) 82.7% 69.836 121.151 101.655 Totals . 17.935 17.317 16.000- 26.000 27.000 40.000 Less cash drvidends- common stock 11.000 3.696 11.016 11.126 14.713 14 859
- pref erred stock 3 660 55.780 32.710 79.438 46.7 %
Totals . 14.275 2.6M Other sources (uses). (4.51 0) 3.763 9.255 (2.249) 14.734 Def erred energy costs, net (Notes 1 and 7) - 7.961 (491) 8.723 71 438 (2.243) 1.149 Chanses in -cash (87,200)
-temporary cash investments . (40.200) (87.200)
(1,116) 13.700 2.567 (2.793) (9.979)
-accounts receivable 7.1 64 (1,247) 1.964 (2.039) 4.61 4 398 -accounts payable 6.244 (3,257) (12.217) 11.040 (6.137) 13.889 -inventones-materials, supplies and f vel . (1.166) 4.889 5.877 4.498 170 1.305 -interest accrued 6.109 19.761 (827) 19,851 562 - tases accrued 10.033 4.525 4 416 10.717 (8.553) 101 (3.944) (4.857)
Ott9 . net 999 16.031 (56.264) 12.600 (51.982) (3.121) Totals Funds f rom imancmas 61.420 50.000 45.000 50.000 Salc of lonrterm debt (5.500) (23.905) 6ank bortoweng3. net . % (500) (33.325) Retirement or redemption of longterm debt and (2.552) (3.147) (2.573) (3.767) preferred stock f621) (9 51) Cash contribution f rom General Public Utilities Corporation. 5.000 parent company . (855) 46 948 8.528 41 927 38748 Totals (621) 5 46 464 5 53 838 $ 68.383 5 82 423 Tutals 5 -14 653 $ 17.797 sammme - =m--- num - a-m-es Constructenn E spenditures: S 11,360 5 17,770 5 39.177 5 57.462 5 63.750 S 86.916 Utsiety plant 7.627 3.749 2.782 8.737 4.530 9.417 Nudear f uel 47.914 61.992 73.167 94.543 Totals 15.1(N 20.552 (456) (2.755) (1.4 50) (8.154) (3.784) (12120) Allowant e Ior other f unds used durmg construction (Note 2) 5 17,797 5 46.464 5 53.838 5 69.383 5 82.423 Totals . 5 -14.653 - =====
- === - -
The accompanymt notes are an integral part of the fmancial statements (14] 1472 286
Notes to Financial Statements
- 1. Summary of Significar1 Accounting Policies:
General: Reference is made ta the Notes to F.aancial Statements included in the 1978 Annual Report to Stockholders Operating Revenues Revenues are ge.>erally recorded on the basis of billings rendered. Dunng 1978, the Corporation's Penn-sylvania subsidianes commenced billing their retail customers on a monthly basis rather than on a bi-monthly basis to conform to requirements of the Pennsylvania Public Utilities Commission ("PaPUC")while remainmg on a bi-monthly meter readmg cycle. Ospreciation: The Corporation's subsidiaries provide for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to amortize the original cost of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. The subsidiary compames use depreciation rates which, on an aggregate composite basis, resulted in an ap-proximate annual rate of 3.07% (Jersey Central Power & Light Company ("lCP&L")-3.40%, Metropolitan Edison Company (" Met-Ed")-2.84%, and Pennsylvania Electric Company ("Penelec")-2.89%) for the year 1978. Nuclear Plant Decommissioning Costs: In accordance with ratemaking determinations (a) JCP&L is charging to expense snd crediting to a non-funded reserve amounts interried to provide over their service lives for the decorn.nissioning of Oyster Creek and its share of TMI #1 nuclear unit, and (b) Met-Ed and Penelee are charging to expense and paying over to a separate trust amounts intended to provide over their service lives for the decommissioning of their shares of the radioactive components of TMI #1. Such ratemaking orders limit such provisions to amounts based on cost estimates in current dollars without provision for possible future cost escalation. None of the subsidiaries is making any similar provision for decommissioning costs for TMI #2; none of the capital or operating costs of TMs #2 are currently reflected in the rates of the subsidiaries (see Note 9). Amortization of Nuclear fuel: The amortization of nuclear fuel is provided on a unit of production basis. Rates are determined and periodically revised to amortize the cc'st over the useful life. Prior to December 1,1976, amortization of nuclear fuel costs included estimated costs of reprocessing such fuel and estimated residual uranium and plutonium. Due to the uncertain future of government approvals for reprocessing and plutonium recyclir g, the Corporation's subsidiaries, effective December 1,1976, began using amortization rates for nuclear fuel at t.ee Three Mile Island station which estimate zero values for reprocessing costs and for residual credits. Lf-fective SepterGer 1,1977 similar treatment was adopted pursuant to authorization by the Board of Public Utilities of the State of New Jersey ("NjBPU") for the Oyster Creek station nuclear fuel. Also effective September 1,1977 JCP&L is providing for estimated future off-site storage costs for the spent Oyster Creek nuclear fuel and similar treatment will be provided for of f site storage costs for the spent Three Mile Island station ("TMl") nuclear fuel when required. Previously accumulated estimated residual credits, net of previously accumulated estimated costs of reprocessing for the Oyster Creek station nuclear fuel are being amortized to fual expense on a unit of production basis. Should reprocessing eventually be undertaken, the Corporation expects that any difference between such costs and credits will be recognized prospectively in the rate-making process. u72 M7
Income Taxes: The Corporation and its ;ubsidiaries file consolidated Federal income tax returns. All participants an a consolidated Federal income tax return are severally liable for the full amount of any tax, including penalties and interest, which may be assessed against the group. The Corporation and its subsidiaries have filed with the Securities and Exchange Commission ("SEC) a proposal to change the method of allocation of Federal income taxes beginning with the year 1979. The effect of this change will be to allocate the tax reductions attributable to CPU expenses among its subsidiaries in proportion to the dollars of average com-mon stock equity investment of CPU in such subsidiaries during the year. In addition, each subsidiary will receive in current cash payments the benefit of its own net operating loss carrybacks to the extent that the other subsidiaries can utilize such net operating loss carrybacks to offset the tax liability they would other-wise have on a separate return basis (af ter taking into account any investment tax credits they could utilize on a separate return basis). The proposed method of allocation will not allow any subsidiary to pay more than its separate return liability as of it had always filed se' arate returns. The revenues of the Corporation's subsidiaries in any period are dependent to a significant extent upon the costs which are recognized and allowed in that period for rate-making purposes. In accordance therewith, the Corporation's subsidiaries have employed the following policies: Tax Depreciation: The subsidiaries of the Corporation generally utilize liberalized depreciation - methods and the shortest depreciation lives permitted by the Internal Revenue Code in computing depreciation deductions and provide for deferred income taxes where permitted in the rate-making p ocess. Investment Credits: The 3% investment credits are being amortized over a 10-year period while the 4% and 10% investment credits are being amortized over the estimated service lives of the related facilities. Investment credits applicable to the Tax Reduction Act Employee Stock Ownership Plan (TRAESOP") are remitted to the Plan Trustee and have no effect on income (see Note 4). Pension Plans: The Corporation's subsidiaries have several pension plans including plans applicable to all employees, the accrued costs of which are being funded. The costs of supplemental pension plans applicable only to supervisory employees were not funded prior to 1976. The previously unfunded supplemental pension plan costs are b 2ing funded during the five year period beginning January 1,1977. Prior service costs applicable to all plans are being amortized and funded over 25-year periods. Deterred Energy Costs: The subsidiaries follow a policy of recoa,nizing energy costs in the period in which the related energy clause revenues are billed. Deferred energy costs at September 30,1979 include (a) amounts accumulated pnor to the TMI #2 acci-dent, which are being amortized in accordance with ratemaking orders (see Note 7), and (b) amounts ac-cumulated subsequent to the TMI #2 accident reflecting the operat:on of levelized energy adjustment clauses placed in effect pursuant to ratemaking orders entered in June 1979 (see Note 9). TA72 288
Mine Development Costs: These costs are being amortized to income over the estimated life (20 years) of the mines
- 2. Allowance for Funds Used During Construction:
The aoplicable regulatory Uniform System of Accounts provides for allowance for funds used during construcHun ("AFC") which is defined as including the net cost during the period of construction of bor-rowed funds (allowance for borrowed funds used during construction) used for construction purposes and a reasonable rate on other funds (allowance for other funds used during construction) when so used. While AFC results in a current increase in utility plant to be recognized for rate-making purposes and represents, in this f ashion, current compensation for the use of capital devoted to construction, AFC is not an item of cur-rent cash income; instead, AFC is realized in cash after the related plant is placed in service by means of the allowance for depreciation charges based on the total cost of the plant, including AFC. To the extent permitted in the rate-making proceedings of the subsidiaries, the income tax reductions associated with the interest component of AFC have been allocated to reduce interest charges and, cor-respondingly, have not reduced income taxes charged to operating expenses. Pursuant to such rate orders, une Pennsylvania subsidiaries employ a net of tax accrual rate for AFC and JCP&L employs a net of tax ac-c.ual rate for AFC on certain construction projects while using a gross AFC~ rate on others. The Corporation's subsidiaries have accrued AFC using rates which, on an aggregate composite basis, would have resulted in an annual rate of 8.42% (JCP&L-8.85%, Met Ed-6.38%, and Penelec-7.09%) for the nine months ended September 30,1979.
- 3. Short-Term Borrowing Arrangements:
The Corporation and its subsidiaries have entered into a revolving credit agreement with a group of banks, under which they expect to ultimately have available up to 5412 million of credit at interest rates ranging from 105% to 111% of the prime rate. The agreement provides for a commitment fee of one-half of one percent per annum of each bank's total commitruent (whether used or unused). At September 30,1979, the lines of credit under the agreement totaled 5289 million, of which 5220 million have been utilized for outstanding borrowings. In addition, the Corporation and its subsidiaries have informal lines of credit with various lenders. These arrangements generally provide for the maintenance of compensating balances ranging from a minimum of 10% of the available line of credit to a marimum of 10% of the line plus 10% of the loans outstanding, as determined on a daily average basis. At September 30,1979, the lines of credit available under these ar-rangements totaled approximately 535 million (JCP&L - $17. million Met-Ed - 52 million and Penelec 516 million).
- 4. Common Stock and Capital Surplus:
Of the 75 million authorized shares of 52.50 par value common stock of the Corporation, 61,264,000 shares were issued and outstanding at September 30,1979. During the quarter ended March 31,1979, the Corporation sold 293.000 shares of common stock. The par value or such share > (5731,000) wa> credited to common stock and the excess of proceeds over the par value of such shares (54,188.000) was credited to capital surplus. As a result of the accident at TMl #2. the Corporation suspended both the Dividend Remvestment Plan and the TRAESOP. Because of such suspensions, no shares of common stock have been sold subsequent to March 31,1979. 1472 #
3, t.onsolidatea Metamen tarnmgs: Under the revolving credit agreement. 5300.000,000 of the balance of consolidated retamed earnmgs is restricted as to the payment of cash dividends on common stock Retamed earmngs of Met Ed and Penelec mclude 53.360.000 and 537.048.000 respectively which amounts are restocted as to the declaration of cash dividends on common stock m accordance with the most restrictive of the provisions contamed in their mortgages, debenture mdentures, charters and the revolvmg credit agreement. In accordance with recently supplemented provisions of its mortgage. JCP&L must hmit cash dividends on common stock, to the extent they are not matched by cash capital contributions f rom the Corporation, to an amount not exceedmg 25% of earnings for 1979 and 1980 and 100% of earnings thereafter. In the NJ BPU's rate order of June 18.1979, JCP&L was directed not to pay any cash dividends on common stock for the remainder of 1979.
- 6. Income Taxes:
Examination of Federal income tax returns through 1976 has been completed and the years 1977 and 1978 are currently under review. The Corporation and its subsidiaries have provided for any anticipated liabilities that may result from such examination.
- 7. Deferred Energy Costs:
The balance of deferred energy costs at September 30,1979 includes (a) 552.6 million deferred by JCP&L prior to September 1,1977 which is being amortized to income at a rate of $2.3 million per year, before in-come caxes, for accounting and rate-making purposes, and, (b) 525.2 million (Met-Ed 514.4 million, and Penelec $10.8 milln,r) deferred by the Pennsylvania subsidiaries prior to July 1,1978 which is being amor-tized to income at a rats of 511.3 million (Met Ed. 55.8 million and Penelec,55.5 million) per year, before ird come taxes, for accounting ind rate-making purposes. Substantially all of the remaining balance of deferred energy costs represents costs etperienced since the accident et TMI #2 (see Note 9). ,
- 8. Commitments and Contingenices:
Ceneral: The subsidiaries' construction programs, which extend over several years, c.,ntemplate expenditures of approximately 5330 million (JCP&L,5205 million; Met-Ed,550 million; and Penelec,570 million) during 1979. In connection with these construction programs the subsidiaries have incurred substantial commitments. The subsidiaries are engaged in negotiations and, in one mstance, sitigation with various suppliers. . _ relating to the latters' claims for delay or termination charges or increased fees which such suppliers assert result from the subsidiaries
- revisions of their construction plans and schedules and/or from the increased scope of supply. The subsidiaries
- managements do not expect at this time that such negotiations and litiga-tion will result in any material increase in costs that would not be valid costs properly recognizable through the rate-making process.
Claims for damages arising out of the operation of the Oyster Creek station have been asserted. JCP&L's management believes that such liability, if any, as it may have for such damages in the pending suits and for all asserted and potential similar claims would not be material. ICP&L was a participant in the Atlantic generating station project. In December 1978, the nordaffiliated co-owner and principal sponsor of the station announced the abandonment of the project. At September 30 1979, JCP3sL's mvestment in the project v as 54 2 million ICP&L plans to seek regulatory approval to amor-tize this investment, net of related mcome tax reductions of 514 million, over a period of years for rate-making purposes. The NIBPU has accorded such treatment for similar items in the past. The mrnoratir)n hat gnarantrH all borrnwing. ..ut>tanding under the rewh mg i.rnbr .igreement pee Note 3) In order to secure such guarantee. plus $39 million of the Corporation's term loan and the guarantee by the Corporation of 516 8 milhon of loans to CPU Service Corporation,("CPUSC"), the Corporation has pledged the common stock of ICP&L, Met Ed, Peneler and CPUSC. JCP&L and Met Ed have secured their notes under the revolvmg credit agreement by pledging a security interest in certain nuclear fuel in process of refmement, conversion, enrichment and fabrication. Such naclear fuel was recorded. on the September 30,1979 balance sheet, at a cost of 516.4 milhon (JCP&L -58.5 million and Met Ed 57.9 million) In addition Met Ed has pledged 540 milhon of first mortgage bonds as security for its indebtedness under the revolvmg credit agreement. 1472 2 %
Fuel Adjustment Clauses: In 1974, in the af termath of the Arab oil embargo and OPEC actions doubbng the price of oil and m the presence of the threat of a prolonged coal strike, competition for coal was intense in some cases. Met-Ed and Penelet agreed m 1974 to modshcation of existing contracts and/or paid prices m excess of such con-tracts, believing that they would not have been able to obtain delivery of coal from their contract suppliers without takmg such actions and that the other alternatives would have resulted m even higher costs or unreliabie service to their customers in 1976. the PaPUC directed that mdependent studies be made of the fuel procurement policies, practices and the procedures of Pennsylvania electric utilities and their applica-tion of the fuel adiuement clauses in 1974 and that reports of such studies be filed with the PaPUC The mdependent auditors of the Corporation and its subsidiarses made such studies with respect to Met-Ed and Penelec and submitted reports to the PaPUC on March 1,1976 These reports found that m 1974 cer-tam payments to coal suppliers were in excess of original contract arrangements The Met-Ed report states that 52.8 million in payments were m excess of base contra t prices but in accordance with contract terms for escalation, whereas 55.8 milhon of price increases in excess of base contract prices had inadequate documentation to support such escalation. The report also stated additional quantities of coal (an estimated 70,000 tons) had to be purchased due to receipt of coal that had not met the BTU specifications of the con-tracts. The Penelec report identifies 54.5 million of payments in excess of escalated contract prices due to renegotiations of existing contracts and that certain suppliers did not deliver 400,000 tons required under the contractual arrangements. These reports also stated that "[a] part of these additional costs was unavoidable since they were caused by external conditions beyond the control" of the subsidiaries and "to some degree," because of their coal procurement practices which the report found to be "mformal and not well documented". The subsidiaries' alternatives were limited and they were not in a strong bargaining position to contend with 1974 conditions, the reports stated, but added that, in retrospect, the subsidiaries might ' have done more to contain fuel costs, despite such conditions and procurement problems. Although the reports said that the subsidiaries' primary commitment is to maintain reliable electric service. it added that the subsidiaries "could have been more responsive to the developing procurement problems and taken more effective action to cope with them" In March,1976, by complaints filed against several Pennsylvania electric utilities, including Met Ed and Penelec, the PaPUC ordered an investigation of their charges made and rates received through fuel adjust-ment clauses. u
'- ji. ~.ty and April 1977, the PaPUC issued amended complamts assertmg that Met-Ed and Penelec made payments in 1974 for coal that were 59.8 million and 54.9 million, respectively, in excess of those re-quired by their contracts, and that such excess payments were without justification and directing Met-Ed and Penelec to show cause why they should not be required to refund 59.8 million and 54.9 million, respec-tively, to their customers. Met Ed and Penelec believe that the payments which they made were justified and that there is no basis for requiring such refunds and they have so responded to the complaints. Hearings on the complaint against Met Ed were completed in November 1978 and the matter is awaiting the initial deci-ston by the administrative law judge who heard the evidence.
In November and December 1978, the PaPUC issued fufther complaints asserting that Met Ed and Penelec incurred excess costs of 54.6 million and 5.8 million, rt spectively, for coal during 1975 and 1976, and that such excess payments were without justification and directing Met Ed and Penelee to show cause why they should not be required to refund 54.6 million and 5.8 million, respectively. to their customers. Such complaints were based on audit reports prepared oy the PaPUC staff. Met Ed and Penelec believe that the payments which they made were justified and that there is no basis for requiring such refunds, and they have so responded to the complaints. In May,1976, the PaPUC required all Pennsylvania electric utilities to file supplements, effective August 1,1976, to their fuel adjustment clauses provedmg that the application of such clause shall be sub-ject to contmuous review and audit and that, if it shall be determmed by a final order that such clause has been erroneously or improperly util?ed, the utility will rectify such error and apply credits against future fuel cost adjustments. Met Ed and Penelec believe tha' che amounts paid by them for fuelin 19741976 were fully justified and that there is no valid basis for ruiring any refund of any amounts collected by them under their fuel adjust-ment clauses. However, the Corporation is unable at this time to nredict the outcome of these matters. 14/2 291
Comphance Audsts-The staff of the FERC has conducted comphance audits of Met Ed's and Penelec's accounting records covering the periods ending December 31,1976 and December 31,1977, respectively. The findings of such audits which, among other things, raised questions concerning the base to which AFC accruals should be ap-plied, were furnished to Met-Ed and Penelec by the FERC in letters dated October 2,1978 and November 17, 1978, respectively. The letters recommended certam adjustments to the books of account. If such recom-mendations were to be sustained, the resulting reduction in consolidated earnings would approximate 54.5 milhon (Met-Ed,52.2 million and Penelec 52.3 million) through 1978. Met-Ed and Penelec believe that such recommended adjustments are not justified and they are contesting them. Nuclear fuel Litigation: In 1971, JCP&L entered into a contract for the purchase of three nuclear fuel reloads for the Oyster Creek Station, with an option for five additional annual reloads beginning in 1976. In 1974 the suppher offered an extension of that contract to cover five additional annual reloacs beginning in 1981. ICP&L believes that it effectively exercised the option in the initial contract and accepted the offer to extend the contract to cover the annual reloads through 1985. The supplier disputes this position and, in November 1978, submitted bills for material and services in the aggregate amount of approximately 533 million, covering reloads supplied in 1977 and 1978 and to be supplied in 1979. The supplier has stated that its objective is to establish revised prices and other terms and conditions rather than to diminish supplies and, without prejudice to its legal position, has released uranium concentrates for enrichment and faorication for the 1979 an-al fuel reload. Of the 533 million claimed by the supplier to be due, JCP&L has paid approximately 5.8 m a m, agreed to pay an additional 53 million but has asserted that such amount will not be due until later in 1979 and is of the opinion that the balance of approximately $29 million is not payable by it and has so informed the sup-plier. On January 26,1979, the supplier filed suit against JCP&L, the Corporation and CPU Service Corpora-tion. JCP&L has filed a counterclaim for a declaratory judgement confirming its view of the contractual status and for damages and has also filed another suit against the supplier and its parent seeking damages. JCP&L believes that any additional amount that it might be required to pay if the supplier is successful in its suit would be valid costs and should be recognized for rate-making purposes. However, there can be no assurance that this will be the case.
- 9. Nuclear Accident:
On March 28,1979, an accident occurred at Unit No. 2 of the Three Mile island nuclear generating sta-tion ("TMI-2") resulting in significant damage to TMI-2, and a release of some low level radiation which published reports of governmental agencies indicate did not constitute a significant public health or safety hazard. TMI-2 is jointly owned by the subsidiaries, JCP&L,25%; Met-Ed 50%; and Penelec. 25%, Total in-vestment by the subsidiaries in TMI 2 is approximately $750 million, including the unamortized investment of aporoximately 535 million in the nuclear fuel core. T ie subsidiaries have engaged a consulting engineering firm to prepare a cost estimate and schedule for restonng TMI-2 to service. The firm's initial report notes that, while the decontamination of the buildings and removal and disposal of large quantities of radioactive material is a major undertaking, the technoiogy and techniques are well-known and have been previously demonstrated. This initial report emphasizes the inherent uncertainties in cost and schedule estimates until(a) entry into the co,tainment vessel has been gained and the difficulties of decontamination have been evaluated. (b) the reactor vessel has been opened and the difficulties of core removal have been evaluated, and(c) the physical integrity of major. components has been assessed. Subject to these qualifications, the initial report estimates that decontamination and restoration of TMI-2 to service, exclusive of replacement of the core, will cost approximately 5240 milhon and take about four years. The report also recommends that, because of the unknowns and variables, an allowance of 580 million for contingencies be included in the estimate of cost, bringing the total to 5320 million. The estimate does not include provision for the replacement or the reactor core (estimated by the subsidiaries to co>t $60 million to 585 million) nor for the subsidiaries' replacement power, financing and other costs during the period of rehabilitation of TMI 2 The subsidianes have increased, by 525 million, the engineering firm's estimate of costs to provide for other items possibly omitted from that estimate. The subsidiaries carried the maximum insurance coverage available (5300 million) for damage to the unit and core and for decontamination expenses. "lhe insurance does not cover replacement power costs or return on investment v.hile the unit is not providing electricity for customers, but it otherwise covers most types of costs. It is the subsidianes' belief that,if the estimates of the consulting engineenng firm are borne out, the reco eries from the insurance companies will approximate the amount of the insurance carried. 1472 292
The subsidiaries do not know the extent, if ans, to which the expenditures for repair and restoration c' the unit to service 9ill represent plant improvements or other items that are properly capitalizable and recoverable in the future through rates charged to customers by amortization or depreciation charges Moreover, the subsidiaries expect to seek fina- ial assistance f rom the Federal government and/or the utility industry in areas where the technical information should be of wide value and significance. Under these cir-cumstances, the amount of loss, si any, suffered by the Corporation and its subsidianes resulting from the TMI accident is not presently determinable and no prc.ision therefore has been made in their accounts.
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The proper y damage insurance, and the limit of covarage, is applicable to both TMI-1 and TMI-2. This property insurance is reduced by claims paid and the insurance carriers have refused to reinstate the original coverage limits at this time. Separate property damage insurance for TMI-1 of up to $300 million was ob-tained from another carrier which provides such insurance only on a retrospective premium basis whereby the insureds are subject to annual assessments of up to14 times the annual premium As a result, the subsid-ianes have a contingent liability for an aggregate annual assessment of up to 514 million. With regard to property insurance for TMI-2,550 million of coverag2 has been obtained for possible damages which might result from a non-nuclear accident during tb unit's restoration period. The subsidianes, in responding to the accioent at TMI-2, have incurred 574 million >f costs associated with the cle , .p and recovery process, as of September 30,1979. Of this amount 567.8 million has been deferred and 56.2 million charged to operations. All deferred co.ts mil be charged to operations upon a determination that such costs are not recoverable through insurance proceeds, rates or by financial assistance from the Federal government or from other public or private sources and/or utility industry. In its rate order approved June 15,1979 referred to below, the PaPUC recognized that no claim for such costs had been made in the proceedings in which such orJer was en% red. Nevertheless, the PaPUC stated in that order: "the Commission a of the view that none of the costs of responding to the incident, including repair, disposal of wastes and decontamination are recoverable from ratepayers." The subsidiaries, while presently unable to assess the specific damage to the fuel core at TMl-2, are of the opinion that the core is no longer useful in TMI-2 or any other nuclear generating station. At the tirre of the accident at TMI-2, the nuclear fuel core had a remaining unamortized book cost of approxima'.ely 535 million. In June 1979 this nuclear fuel core was retired and the unamortized cos was transferred to Deferred Debits - Other, pending insurance settlement. TMI 1 which adjoins TMI-2 was out of service for a scheduled refueling and was not involved in the acci-dent. By orders dated July 2,1979 and August 9,1979, the Nuclear Regulatory Commission ("NRC") directed that TML1 remain in a shut down condition until resumption of operation is authorized by the NRC, after public hearings and the satisfaction of various requirements set forth in such orders. The NRC's time schedule for the completion of the hearings and decision would require at least one year and a longer period could be required. In their rate orders issued in June 1979, the PaPUC and NJ BPU determined that the capital and operating costs associated with TMI-1 should continue to be reflected in base rates. However, on September 20,1979, the PaPUC issued an order instituting an investigation to determine whether the costs of Met-Id and Penelec associated with TMI-1 should be removed from their base rates. The Nj BPU may institute a similar investiga-tion. 1472 293
In order to ma; e provisions for the substantial expenditures required for clean up and repair, replace-ment energy and other added costs resulting f rom this accident, the Corporation and its subsidiaries entered mto a revolving credit agreement with a group of banks m June 1979,(see Note 3) In addition, JCP&L and Penelec each issued 550 milhon of first mortgage bonds in June 1979 and JCP&L sold 547,5 million of first mortgage bonds in October 1979,525 million of which was applied to the payment of maturing bonds. On October 26, 1979, the NRC proposed a fme of $155,000 agamst Met-Ed for alleged safety, maintenance procedural and traming violations at TMI. The NRC also stated that depending upon the findings of contmuing mvestigations mto the TMI-2 accident, it may take additional enforcement action such as assessing additional civil penalties or ordering the suspension, modification or revocation of Met-Ed's operating license Met-Ed proposes to contest the major elements of the proposed fine but does not know what the outcome cf this matter will be. On October 30,1979, the Presidential Commission on the Accident at Three-Mile island issued its report. The Commission's Report is lengthy and it was accompanied by a series of Staff Reports comprising several thousand pages. TI,e Commission's Report states, in part, that its " investigation has revealed problems with the ' system' that manuf actures, operates and regulates nuclear power plants" and the shortcomings which turned the incident into a serious accident "are attributable to the utility, to suppliers of equipment and to the federal commission that regulates nuclear power." The Corporation does not know what effect, if any, the Report will have upon it and its subsidiaries. Other investigations and inquiries into the nature, causes and consecuences of the TMI-2 accident com-menced by various federal and state bodies are contmuing. GPU is unable to estimate the full seape and nature of these continuing investigations or the potential consequences thereof to the investe rs in the securities of the Corporation nd its subsidiaries. The Corporation is also unable to determine the .mpact,if any, the results of such investigations may have on the proceedings to return TMI-1 to service and de efforts to rehabilitate TMi-2. On November 1,1979, the PaPUC ordered Met-Ed to show cause why its governmental authorization to sell electric power should not be revoked. Met-Ed intends to respond to the order contending that there is no basis for such revocation. On i..,sary 31,1979 JCP&L was granted a 533.8 million rate increase by the NjBPU, which, among other things, reflected in base rates its investment in TMI 2 and the operating and maintenance costs associated with the unit. On June 18,1979, the NJ BPU issued a rate order reducing annual base revenues by 529 million which represents JCP&L's capital and operating cost associated with its interest in TMI-2. The order also pro-vided for a reduction in energy revenues of $7.3 million over a prospective eighteen month period as an off-set to revenues attributable to TMI-2 collected during April, May and June 1979. Accordingly, such amount was recorded as a charge to energy costs by ICP&l. in June 1979. In addition, the order authorized JCP&L to increase its levelized energy adjustment charges to its customers over the period July 1,1979-December 31, 1980, by an amount which the NJBPU beheved would be sufficient to recover the replacement power costs associated with the non-availability of TMI since March 31,1979 (ne Notes 1 and 7) On September 5,1979, the NIBPU authorized JCP&L to mcrease its levelized energy adjustment clause charges to recover increases in energy costs, not associated with TMl, anticipated for the period September 1,1979 - August 31,1980, such increase is expected to provide approximately $70 milhon of revenues during that period (see Note 1). Durmg the first quarter of 1979 Met-Ed and Penelec were granted retail rate increases by the PaPUC which, among other things, reflected m base rates their mvestment in TMI 2 and the operating and maintenance costs associated with the unit. On April 19,1979 and April 25,1979, the PaPUC, as a result of the accident, established temporary rates for Met-Ed and Penelec, respectively, reducing annual base revenues by the operating and capital costs associated with their interest in TMI-2. These actions effectively revoked the 546 6 million increase m rates granted Met-Ed on March 22,1979, restorms the rates to levels in effect prior to that rate order in Penelec's case. *,he PaPUC prospectively reduced the $56.2 million rate in-crease which the company had been bilhng since January 27,1979 by $25.0 milhon. TA72 d 4
On June 15,1979, the PaPUC issued a rate order which directed that Met Ed's and Penelec's temporary rates prescribed by its April 19,1979 and April 25,1979 orders be made permanent in addition, the order established levehzed energy adiustment clauses for Met-Ed and Penelec for the period July 1,1979
-December 31,1980 at a level which the PaPUC beheved would be sufficient to recover the increases in the corrpanies' energy costs during that period. This levelized energy adjustment ci ise did not make provision for the mcreased energy costs experienced by Met-Ed and Penelec durmg the M. ch 28-June 30,1979 period, but the discussion at the pubhc meeting at which such order was entered indicated that such costs veill uitimately be recoverable The order also made provision for the amortization through base rates by Met-Ed of 55.8 milhon annually of previously deferred energy costs of 514 niillion and by Penelec of 55.5 million an-nually of previously deferred energy costs of 519.4 million.
The increases in the subsidiaries' levehzed energy adjustment charges granted by the NIBPU and PaPUC in June 1979 assumed that TMI-1 would resume the generation of electricity on January 1,1980. The sub-sidiaries expect to seek mcreased energy adjustment charges in the light of the NRC's action requiring that TMl-1 remain in a shut-down condition until resumption of operations is authorized by it. On November 1,1979 Met-Ed filed with the PaPUC for an increase of approximately 555 million in its levelized energy clause charges. Such request is a result of increased fuel costs since the June 15,1979 rate order, as well as the continued delay in returning TMI-1 to service. As indicated by the prececmg paragraphs the depreciation and return requirements associated with the 3750 million investment in TMI-2 (amounting to approximately 595 million per year) are not being recovered from customers. Such depreciation and return requirements are currently being reflected in the financial statements in that (a) depreciation charges in respect of the unit are being provided, (b) the interest and preferred stock dividend charges associated with the debt and preferred stock components of that invest-ment are being accrued, and (c) the earnings per sFare of common stock are determined on a basis which reflects all outstandmg shares including the shaies issued to finance the common stock component of that investment. Under the Price Anderson Act there is a limit of $560 million on each nuclear generating unit for public liability claims that could result from a smgle nuclear incident. The subsidiares have insured for this ex-posure by purchasing private insurance of 5140 million (the maximum & mount available at the time of the accident) and the remainder by participating in an arrangement for assessments after an accident agamst owners of nuclear reactors of up to 55 million per incident, but not more than $10 million in any calendar year, for each !icensed nuclear reactor and indemnity by the Federal government. Based on the three nuclear reactors and the insurance coverage in effect at the time of the accident, the subsidiaries' maximum potential assessment under this arrangement is $15. illion per incident. Such pnvate insurance is reduced by claims paid but is subject to reinstatement to original coverage limits upon approval by the insurance carriers. The subsidiaries have applied for such reinstatement but are unable at this time to ascerta n whether or when such reinstatement will be approved. As a result of the accident, the Corporation, and/or its subsidiaries have been named as defendants in various law suits Among other matters such suits include (i) class actions and individual suits for personal and property damages directly resultmg from the accident,(ii) suits to enjoin the decontamination of TMI-2 and (iii) suits for damages on behalf of purchases of CPU Common Stock. The corporation and its sub-sidiaries are not able to evaluate the merits of these complaints. The subsidiaries const action program, which extends over several years, contemplated expenditures of approximately 5455 milhon during 1979. However, due to the accident at TMI 2, m an effort to conserve their cash resources the subsidiaries
- have reduced their 1979 construction program expenditures to approx-imately $330 milhon JCP&L, in view of the accident, has temporanly suspended construction on its Forked River nuclear generatmg station Total costs apphcable to this project at September 30,1979 were approximately 5357 milhon Prior to the accident, ICP&L was negotiatmg for the sale of undivided interests m the station to two unaffihated utihties, one of which has since mdicated it is no longer interested in such a purchase. JCP&L does not know whether it will be able to sell any undivided interests m the station.
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Exhibit E Page 1 JERSEY CENTRAL POWER 6 LIGHT COMPAhT MANAGEMENT'S COMMENTS ON QUARTERLY INCOME STATEMENTS Third Quarter 1979 vs. Second Quarter 1979 Earnings available for common stock increased $15 million in the third quarter as compared to the second quarter 1979. The principal factors resulting in this increase were as follows: Revenues not related to TMI-2 or energy costs rose $25 million or 27% (kilowatt hour sales increased 10% or $10 million while $15 million resulted from higher rates). Demand related energy charges rose $2 million or 156% due to higher purchases of power. Payroll and operation and maintenance expenses increased $3 million or 9%. Taxes increased $6 million or 22% which resulted from higher income taxes due to increased taxable income. Interest costs rose
$2 million or 15% due to an increased level of Icag-term and short term Jebt issued by the Company ($50 million of bonds were sold in June).
e
Page 2 Third Quarter 1979 vs. Third Quarter 1978 Earnings available for common stock decreased $1 million or 7% in the third quarter 1979 as compared with the third quarter 1978. The principal factors resulting in this decrease were as follows: The elimination from base rates in 1979 of all investment and third quarter operating costs associated with TMI-2 resulted in almost a $4 million decrease in earnings available for comon stock in the third quarter 1979 as compared with the third quarter 1978. During the third quarter 1978, the Company was capite!izing the allowance for funds used during construction for TMI-2 or receiving a return through rates on a portion of its investment attributed to the plant which was under construction, these income items offset the carrying charges and investment costs associated with TMI-2. Revenues not related to TMI-2 or energy costs rose $6 million or 6% mainly as a result of higher rates. Payroll, other operation and maintenance costs and depreciation increased an aggregate of $2 million. Interest charges increased $3 million or 18% due to a higher level of long and short term debt outstanding during the third quarter 1979. Earnings available for common stock also reflected an increase of $2 million or 33% in the allowance for the equity portion of funds used during construction due to increased investment in con-struction. 1472 20
Page 3 First Nine Months 1979 vs. First Nine Months 1978 The principal factors resulting in a $6 million or 13% decline in earnings available for common stock were as follows: In December 1978, TMI-2 was placed in service but rates to cover the Company's investment in the plant were not granted until February 1. During June the 14ew Jersey Commission ordered the refund of revenues collected during the second quarter attributable to TMI-2 and removed TMI-2 from base rates. During 1978, the Company was capitalizing the allowance of funds used during construction or received a ret an on construction work in progress included in rate base which of fset the investment costs associated with TMI-2 and had no incremental effect on earnings available for common stock. The costs incurred during the nine months of 1979, for which no rate benefit was received, de-creased earnings available for common stock by $9 million. Revenues collected not relating to TMI-2 or energy costs rose $12 million or 4% reflecting a 3% increase in sales which contributed $10 million and higher rates which added almost $2 million. Ope ation and maintenance expense increased $2 million or 3% while depreciation rose $4 million or 11% due to increased depreciable plant and higher depreciation rates. Taxes rose $4 million or 4% which reflects an $8 million or 14% increase in revenue taxes (mainly property taxes) and a $4 million decrease in income taxes. Earnings available for common stock reflects a $2 million increase in the common equity funds component used for construction due to increased investment in construction. 1 A72 2%
Part II - Other Information Item 1. Legal Proceedings. Reference is made to the Current Reports on Form 8-K for the months of August, Septa ber and October 1979, jointly filed by the Cmpany and its affiliates, regarding the current status of certain legal proceedings instituted against the Cm:pany and its affiliates as a result of the March 28, 1979 nuclear accident at Unit No. 2 of the Three Mile Island nuclear generating station ( "'IMI-2" ) . Copies of these reports are filed herewith as exhibits and incorporated herein by reference. On August 31, 1979, the Cmpany was advised by the Equal Employ-ment Opportunity Cmmission that a Cmpany employee had filed a cmplaint alleging that he had not been prmoted as a result of racial discrimination. Se emplaint has been referred to the New Jersey Division of Civil Rights. As previously reported in the Cmpany's Quarterly Report on Form 10-0 for the quarter ended June 30, 1979, a cmplaint had been filed on February 14, 1979 by a prospective employee of the Cmpany with the New Jersey Division of Civil Rights alleging unlawful discrimination for failure to meet required physical qualifications. Se proposed settlement of this emplaint has now been approved by the New Jersey Division of Civil Rights and the matter has been terminated. Item 5. Increase In Amount Outstanding Of Securities Or Indebtedness. On October 23, 1979 the Company issued and sold $47,500,000 aggre-gate principal amount of its First Mortgage Bonds, 11-5/8% Series due October 1, 1999. h e bonds were sold in a private transaction to fifteen institutional investors. S e bonds are subject to mandatory repurctiase by the Cmpany in certain circumstances and the supplemental indenture under which they were issued contains limitations on the payment of dividends on the Cmpany's canon stock. S e net proceeds of the sale ($47,500,000 before deduc-tion of estimated expenses) were applied to (a) pay at maturity, S25,000,000 First Mortgage Bonds, 12-3/8% Series due November 1, 1979 and (b) repay $22,500,000 of the Cmpany's outstanding indebtedness under its Revolving Credit Agreement with a group of 45 banks. S e issuance and sale of these bonds was not registered under the Securities Act of 1933 based upon the exemption contained in Section 4(2) of the Act. Reference is made to the Cmpany's 11/9/79 1472 9gg c
Certificate Pursuant to Rule 24 of Ccxrpletion of Transactions filed under the Public Utility Holding Cmpany Act of 1935 in SEC File No. 70-6354 for a mre cmplete description of this transaction. , Item 8. Other Materially Important Events. Reference is made to the Current Reports on Form 8-K for the m nths of August, September and October 1979, jointly filed by the Ccxrpany and its affiliates, for information con (nrning the
'IMI-2 nuclear accident and its aftermath, including, among other matters, the report of the President's Commission on the Acci-dent at t ree Mile Island and the status of various proceedings pending before the Pennsylvania Public Utility Ccrnmission (particularly the proceedings to revoke the franchise of the Company's affiliate, Metropolitan Edison Cmpany, and to remve the investment in and associated operating costs of t ree Mile Island Unit No.1 frm base rates of the Cmpany's affiliates) and the Nuclear Regulatory Commission. Copies of these reports are filed herewith as exhibits and incorporated herein by reference.
Item 9. Exhibits And Reports On Form 8-K (a) Exhibits (1) Current Report on Form 8-K, dated September 10, 1979, jointly filed by the Company and its affiliates. (2e exhibits to such report are incorporated herein by reference.) (2) Current Report on Form 8-K, dated October 9, 1979, jointly filed by the Cmpany and its affiliates. (2e exhibits to such report are incorporated herein by reference.) (3) Current Report on Form 8-K, dated November 9, 1979, jointly filed by the Cmpany and its affiliates. (2e exhibits to such repo~ L ure incorporated herein by reference.) (4) Bond Purchase Agreement, dated October 19, 1979, together with related Supplemental Indenture. (b) Reports on Form 8-K: (1) For the month of August 1979, dated September 10, 1979 (2) For the mnth of Septenber 1979, dated October 9,1979 (3) For the month of October 1979, dated November 9, 1979
\Y
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized. JERSEY CENTRAL POWER & LIGHT COMPANY By: 2 Shep p Bartnof'f, President By: j
- P. H. Preis, Comptroller (Principal Accounting Officer)
November 14, 1979. 7 1472 ;01
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7 2 _. I 72 - GENERAL l PUBLIC I UTILITIES
. b' b -
h' CORPORATION 100 Interpace Parkway Parsippany. New Jersey 07054 201 263-6500 TELEX 136-482 Wnter's Direct Dial Number. November 21, 1979 Securities and Exchange Commission 500 North Capital Street Washington, D. C. 20549
- Re: Declaration on Form U-l SEC File No. 70-6311 Gentlemen:
On behalf of General Public Utilities Corporation, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, we enclose three executed copies of Post-Effective Amendment No. 4 to the Declaration on Form U-l in SEC File No. 70-6311. Please acknowledge receipt of this letter and the accompanying material by stamping and returning the enclosed duplicate copies of this letter. Very truly yours, G. rah Agent-for-Service JGG/lc Enclosures cc: W. C. Weeden (3) 1472 02 Jersey Central Power & Light Company / Metropo.itan Edison Company / Pennsylvania Electnc Company
e-Post-Effective Amendment No. 4 to File No. 70-6311 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM U-l DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("ACT") GENERAL PUBLIC UTILITIES CORPORATION ("GPU") 260 Cherry Hill Road, Parsippany, New Jersey 07054 JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L") Madison Avenue at Punch Bowl Road Morristown, New Jersey ~ 07960 METROPOLITAN EDISON COMPANY (" Met-Ed") 2800 Pottsville Pike, Muhlenberg Township Berks County, Pennsylvania 19605 PENNSYLVANIA ELECTRIC COMPANY ("Penelec") 1001 Broad Street, Johnstown, Pennsylvania 15907 (Names of companies filing this statement and addresses of principal executive offices) John G. Graham, Treasurer James B. Liberman, Esq. General Public Utilities Corporation Berlack, Israels & Liberman 260 Cherry Hill Road 26 Broadway Parsippany, New Jersey 07054 New York, New York 10004 D. Baldassari, Secretary and Treasurer R.O. Brokaw, Esq. Jersey Central Power & Light Company Jersey Central Power & Light Company Madison Avenue at Punch Bowl Road Madison Avenue at Punch Bowl Road Morristown, New Jersey 07960 Morristown, New Jersey 07960 R.E. Gehman, Treasurer Samuel B. Russell, Esq. Metropolitan Edison Company Ryan, Russell & McConaghy P.O. Box 542 P.O. Box 699 Reading, Pennsylvania 19605 Reading, Pennsylvania 19603 E.R. Simmons, Secretary and Treasurer Henry N. Platt, Jr., Esq. Pennsylvania Electric Company Ballard, Spahr, Andrews & Ingersoll 1001 Broad Street 30 South 17th Street Johnstown, Pennsylvania 15907 Philadelphia, Pennsylvania 19103 (Names and addresses of agents for service) 1472
;03
GPU, JCP&L, Met-Ed and Penelec hereby post-effectively amend their Declaration on Form U-1, as heretofore amended, docketed in SEC File No. 70-6311, as follows: A. By Orders dated June 19, 1979 (Holding Company Act Release No. 21107) and October 30, 1979 (Holding Company Act Release No. 21276), the Commission authorized GPU, JCP&L, Met-Ed and Penelec to issue, sell and renew their respective promissory notes (the " Notes") having a maturity of not more than six months from the date of issue from time to time through October 1, 1981 pursuant to a revolving credit agreement with a syndicate of commercial banks (the
" Loan Agreement"). Aggregate borrowings under the Loan Agreement are limited to $500,000,000 and Met-Ed's indebted-ness thereunder is restricted to $125,000,000. The indebted-ness under the Loan Agreenent was to be secured by an unconditional guarantee given by GPU, as well as the pledge by GPU to the banks of the common stock of JCP&L, Met-Ed, Penelec and GPU Service Corporation, and, in the cases of JCP&L and Met-Ed, certain other collateral.
B. Met-Ed now proposes to issue and sell for cash to the banks participating in the Loan Agreement and requests an exemption from the competitive bidding requirements of Rule 50 under the Act for such issuance and sale, up to
$12,000,000 aggregate principal amount of additional first mortgage bonds (the "New Bonds"). The New Bonds would be issued under the Indenture, dated November 1, 1944, between 1472 '-04
a.
. Met-Ed and Guarenty Trust Company of New York (now Morgan Guaranty Trust Company of New York), Trustee, as heretofore supplemented and amended and as to be further supplemented and amended by a supplemental indenture.
C. The New Bonds will mature on or before December 31, 1981. The interest rate on the New Bonds will be computed in accordance with the formula for determining the interest rate on the notes issued by Met-Ed under the Loan Agreement - that is, ranging from 105% to 111% of the higher of (i) Citibank's base rate, as in effect from time to time, or (ii) 1/2 of 1% above the three-week moving average of offering rated for three-month certificates of deposit of major banks. In other words, the New Bonds will bear interest at a rate equal to the rate that the notes issued by Met-Ed under the Loan Agreement would have borne had they, and not the New Bonds, been issued. The aggregate principal amount of notes issued by Met-Ed under the Loan Agreement and the New Bonds outstanding at any one time shall not exceed $125,000,000. D. In all other respects the transactions as-heretofore authorized by the Commission would remain unchanged. E. The Pennsylvania Public Utility Commission has jurisdiction with respect to Met-Ed's proposed issunnce and sale of the New Bonds. No other state commission has jurisdiction with respect to the proposed transaction, .and, assuming your Commission authorizes and approves the transactions contemplated hereby (including the accounting therefor) no Federal commission, other than your commission, 1472 305
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s. has jurisdiction with respect thereto. ' F. It is respectfully requested that the Commission's Supplemental Order herein be granted as promptly as practicable and in any event not later than December 19, 1979. G. By filing the following exhibits in Item 6 thereof: (a' Exhibits: A-21 - Form of Supplemental Indenture for the New Bonds - to be filed by post-effective amendment. A-22 - Form of the New Bonds (Incorporated by reference to Exhibit A-21). D-5 - Cop-f of Securities Certificate of. Met-Ed relating to the proposed issuance and sale of the New Bonds - to be filed by post-effective amendment. D-5(a) - Copy of Order of the Pennsylvania Public Utility Commission register-ing Met-Ed's Securities Certificate - to be filed by post-effective amendment.
, F-1(b) - Opinion of Messrs. Berlack, israels &
Liberman - to be filed by post-effective amendment. F-3(b) - Opinion of Messrs. Ryan, Russell & McConaghy - to be filed by post-effective amendment. G-1(a) - Memorandum of Legal Services of Messrs. Berlack, Israels & Liberman - to be filed by post-effective amendment. G-3(a) - Memorandum of Legal Services of Messrs. Ryan, Russell & McConaghy - to be filed by post-effective amendment. L-1 - Statement showing computation of Met-Ed's ratio of carnings to fixed charges - Instruction 7, Item 6, Form S to be filed by post-effective amendment. 1472 06
L-2 - Statement showing computation i of Met-Ed's ratio of earnings to fixed charges based on Debenture Indentur, - to be filed by post-effective amendment. (b) Financial Statements: 1-B - GPU and Subsidiary Companies' Consolidated Balance Sheets, actual and pro forma, a e. at September 30, 1979, Consolidated Statements of Income, actual and pro forma, and Statement of Retained Earnings for the twelve months ended September 30, 1979; pro forma journal entries - to be filed by post-effective s.?endment. 1-E - Met-Ed Consolidated Balance Sheets, actual and pro forma, Consolidated Statements of Income, actual and pro forma, and Statement of Retained Earnings for the twelve months ended September 30, 1979; pro forma journal entries - to be filed by post-effective amendment. 1472 ;07
o-e SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. GENERAL PUBLIC UTILITIES CONPORATION JERSEY CENTRAL POWER & LIGHT COMPANY METROPOLITAN EDISON COMPANY PENNYSYLVANIA EL CT C OMPANY j,-- By ' \ ,' \ J. G. Graham, Attoyney-in-Fact , J ( -l Date : November 21, 3979 1472 y08
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