ML19344E140
| ML19344E140 | |
| Person / Time | |
|---|---|
| Site: | Three Mile Island  |
| Issue date: | 08/11/1980 |
| From: | PENNSYLVANIA, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML19344E137 | List: |
| References | |
| P-800702305, NUDOCS 8008270208 | |
| Download: ML19344E140 (178) | |
Text
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[! f I l 1 COMMONWEALTH OF PENNSYLVANIA i V 2 PUBLIC UTILITY COMMISSION
- 2. ----.-----------.-----x 4 I.! M etropolitan-I:dison Company Petition for : Docket No.
. .extracrdin.ary rais rM ieJ .:
s ! : P-BD07B235 ll .. Hearings. :
- r. ] *
.-----x Pages 199 through 376 8 liearing Roora no. 1 f'
North Office Building 9li Harrisburc, Pennsvlsania
*' nday, iugust 11, .980 to " Me t. , pursuant to adjournment, at 10:C0 a.m.
11 BEFORE: l . , , 12 JOSEPH P. MATUSCHAK, Administrative Law Judge Il )
- 13 SUSAN M. SHANAMAN, Chairman, PUC 14 APPEARANCES:
15 SAMUEL B. RUSSELL, Esquire ! ALAN M. SELTZER, Esquire 16 W. EDUIN OGDEN, Esquire Ryan, Russell & McConaghy i 17 530 Penn Square Center - Post Office Box 699 18
- Reading, Pennsylvania 19603-(for Metropolitan Edison Company) l 19 j
STEVEN A. McCLAREN, Esquire ! @ 20 BODHAM R. PANKIU, Esquire EDWARD MUNCE, Esquire' 21 G-19, North Office Building l Harrisburg, Pennsylvania 17120 l 22 (for-the Public Utility Commission Trial Staff) . 23 MAURICE A. FRATER, Esquire , i Post Office Box 1166
% 24 Harrisburg, Pennsylvania 17108 (for St. Regis Paper Co.; P. H. Glatfelter Co. and 25
. National Gypsum Corapany) l WEALTH REPORTING COMPANY (7171 761 7150 7
a, 00827 Q
I 200' f
)
1 APPEARANCES: (Cont'd) h 2 DAVID M. BARASCH, Esquire i 5 CRAIG R. BURGRAFF, Esquire ; I 2, MIMER W. COEEN, Esquire 1425 Strawberry Square 4 JIarrisburg , Pennsylvania 17108
-(for the Consumer Advocate)
S KENNETH A. WISE, Esquire i 6 213' North Front Street i Harrisburg, Pennsylvania 7 (for Senior Power Action in York) ROLAND MORRIS, Esquire 7, j c ROBERT KELLY, Esquire s" Duane Rorris & Heckscher Fourth Floor. 204 Pine Street in I Harris Savings & Loan Association ! Harrisburg, Pennsylvania ! 11 (for Victaulic Company of America) i
)
13 14 i I 15 ! 16 17 18 13 20 21 22 i i 23 A 25 l COMMONWEALTH REPORTING COMPANY (717i 761 7150
< . Il f 1r72 +
201 ',
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-.O C - _N _T _E _N _T _S 2 WITNESSES DIRECT CROSS REDIRECT RECROSS 3 , Jessee Caldwell 208 -- -- --
-4 ' Patricia A. Smith 209 - - - -
1 5 .212 ji Scott Hartman - - -- l' , 6 Laura Burger 216 -- -- - 4 7 Steven G. Margish 220 - -- -- ! 8 Harold Snyder 223 -- -- -- 5fI!ormaHewitt 4 224 -- -- -- i 10 Mary Ann Spang 226 -- -- --
;
11
- David L. Huff --
232 li 12 Herman.Dieckamp lg] (v 13 By Mr. Russell 272 -- -- -- 14 By Mr. Burgraff -- 282 -- -- i 15 By Mr. McClaren -- 284 -- -- 16 By Mr. Morris -- 285 -- -- 17 Edmund Newton, Jr. - I 18
- By Mr. Russell 290 -- -- --
i I8 l By Mr. Pankiw -- 293 -- --
'20 By Mr. Barasch --
294 -- -- 21 y By Mr. Morris -- 297 -- -- 2 By Mr. Frater -- 310 -- --
^3 fi F. D. Hafer 312 -- -- --
Q)) 24 25 COM,MONWEALTH REPORTING COMPANY 4717) 761-7150 ,
Ir23 2DI-A ( i CONTENTS (Continued): {) , 2 WITNESSES DIRECT CROSS REDIRECT RECROSS l 3 John G. Graham : a By Pa:. Russell .314 -- 342 '-- i s ; .By.Mr. Barasch - 315 - -- 6 Sy.Mr Morris - 328 - - 7 By Mr. Gornish -- 340 -- -- s By Mr. Pankiw -- 341 -- -- 9, Robert L. Packard . l 10 By Mr. McClaren 344 -- -- -- j i 11 By Mr. Barasch -- 355 -- -- i l 12 By Mr. Russell -- 361 -- -- 13 By Mr. Frater -- 374 -- -- 14 Exa1a1zS . i 15 FOR IN NUMBER IDENTIFICATION EVIDESCE WITHDRAWN 16 l Consumer Advocate's l 17 F-1 . 259 - 260 18 , 1 260 271 -- 19 Applicant's 23 J 272 -- -- 21 J-l 273 -- -- 22 bietropolitan Edison's 23 C-34 -- -- 290 Trial Staff's II>
) 24 Statement RPL-1 343 -- --
RPL-l.1 through 1.5 344 -- -- i COMMONWEALTH REPORTING COMPANY (7171 761-7150
ll 202 o i - a 1 PROCEEDINGS 2 JUDGE MATUSCHAK: On the record. 3 Arc va zcady to procooA? , 4 MR. BARASCH: Yes, Your Honor. 5 JUDGE fiATUSCHAK: Before we.get started, I want to s make a correction in the transcript of August 5th, on Page 133. 7 In connection with our oral order, it is stated this:
" Accord-l 8 ingly, the Petition of the Consumer Advocate is dismissed.
3 The petition of Metrepalitan J.dison r ,any is bereby denied."l 10 Now, that was not a correct transcription of what we 11 had said. I don't think Mr. Russell would be willing to stand -s 12 on that. 13 MR. RUSSELL: I don't think so. ' 14 JUDGE MATUSCHAK: The correction should be as . I i 15 follows: " Accordingly , the Petition of the Consumer Advocate i 16 to dismiss the petition of Metropolitan Edison Company is hereby 17 denied." 18 We have before us a petition of City Bank, to inter-19 vene, as Agent, and Chemical Bank as Co-Agent; is there any 20 obj ection to the Petition to Intervene? 21 MR. BARASCH: Your Honor, if I might -- 22 JUDGE MATUSCHAK: Just a moment. 23 MR. BARASCH: Yes, sir. 24 JUDGE MATUSCHAK: Do you have any objections to the 25 petition? W I COMMONWEALTH REPORTING COMPANY (7171 761-7150
.;
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1 MR. BARASCH: Not necessarily an objection, Your i 2 Honor, but I would like an opportunity to ask Mr. Gornish a l i* 3 , couple of questinns, if 1 could -- 4 JUDGE MATUSCHAK All right. 5 MR. BARASCH: -- perhaps, one. question regarding his 6 petition. l 7 JUDGE MATUSCRAK: Very well. l i 8 MR. EARASCH: I was wondering if Mr. Gornish could l 9 explain to the parties and-to the Co= mission and the ALJ I 20 the manner in w'hich his interests and the interests of his i 11 clients are not identical and coaxtensive with that of Metro-i ~, 12 politan. Edison Edison Company. in this proceeding? ll , 13 I've read the petition, and I was concerned about 14 the revolving credit agreement. It appears to me the banks 15 and the company have the same interests in its revolving credit,' i 16 agreement. 17 I would just like to get it clarified for the record 18 as to what Mr. Gornish's position in this proceeding is. 19 Well, I think the answer to that is MR. GORNISH: 20 probably seen from the last hearing, where I don't think our 21 position was always exactly the same as the company's. 22 The difference between our position in the revolving 23 credit agreement, of course, is that my clients are the credillh
) 24 tors and the utility's are the debtor, and insofar as we're 25 concerned about making sure that payments are -- the money is COMMONWEALTH REPORTING COMPANY (7171 761-7150
. . I 2 04 o i I there to repay the loans and they're concerned about having 2 the money to repay the loans and keep the revolving credit '
3I agreement in affect, the interests are the saac. 4 At some point or another, they may diverge, depend-5 ing on what will happen to the financial aspects of Met-Ed. I 6 JUDGE MATUSCHAK: Before we go further, for those 7 who may not .now her, I want to state that Chairman Shanaman I 8[ it with us here today, and we are pleased to have her sit in P 9 on this proceeding. 10 Do you have anything to say, Ms. Shanaman. 11 CHAIRMAN SEANAMAN: I ren1'y don't have any kind of
?
12 formal statement, other than.to say it certainly is a pleasurej 7 l' 13 to see all of you taking part in the proceedings, and that 14 you're showing the interest in this proceeding which I think, 15 rightfully, you should, and it's very good to see you this 16 morning. 17 We don't always get to sit in on all the cases, all 18 the time, but I thought it was important enough to come down 39 ' and sit here for at least part of the day, as much of it as I 20 l can. I nI
' l That's all. l l
n, Thank you, Judge. 23 MR. MORRIS: An additional application, Your Honor.
, 24 JUDGE MATUSCHAK: Well, let's dispose of this one 25 first.
COMMONWEALTH REPORTING COMPANY (7171 761-7150
ll 205'
. . .j 1 Do you have --
2 MR. BARASCH: I have no further questions, Your 3a Honor. 4 JUDGE MATUSCHAK: Very well. There being no objec- l t i 5 tion, the petition to intervene, on behalf of City Bank, .' 6 Agent and Chemical Bank, Co-Agent, is hereby gr. anted. i 7 Is there another petition to intervene? 8 MR. MORRTS: Your Ronor, I'd.like to make an appear-S ance for Duane Morris and Heckscher, by?Roland Morris and 10 Robert Kelly, Harrisburg, Pennsylvania, onbehalfofVictaulicl t i 11 Company of American. l 12 Our petition was filed on Thursday, on behalf of 13 Victaulic, and I have additional copies here. I 14 Victaulic is a major user of energy, in Easton, }
' l 15 penncylvania, and --
16 JUDGE MATUSCHAK: May we have a copy of your peti-II tion? 18 MR. MORRIS: Yes, Your Honor. 39 JUDGE MATUSCHAK: Does Counsel have copies? 20 MR. MORRIS: I don't know if anyone picked them up 21 from the office, but I'll put these here. , i i l 22 JUDGE MATUSCHAK: I note that the complaint has not l l 23 beennumberedbytheSecretary'sOffice;doyouhaveanumbeggg 24 on it? 25 We don't have a number yet, sir. It MR. MORRIS: ! CoMMoNWCALTH REPORTING COMPANY (7171 761 7150
{ 206 I was filed on Thursday. 2 JUDGE MATUSCHAK: Very well. 3 Any objection to the intPrvention or complaint in 4 this matter? 5 (No response. ) 6 - JUDGE MATUSCHAK: Very well. The templaiTIt of
. 7 Victaulic Company of America is hereby consolidated wi.th the E' proceedings in this matter.
3 MR. MORRIE: Thank you very much, sir. i 10 JUDGE MATUSCSAK: Before we get starred, I would l Il like to state that I've talked to some of you consumers in ; i 7, 12 the audience and I had stated to you that we wanted to have ; %.] i 13 an expression from the consumers, as well as the investors, , 14 but our time is limited in this proceeding. . 1 15 The Commission has to make a decision within 30 days 16 from the time the petition was . filed. II However, we want to give the consumer and the inves-18 I tor a chance to have an input in this proceeding. We would 19 ' appreciate, however, that you consider our position in this 20 matter, our time limitations, and we would suggest, ina smuch 91 as possible, you, among yourselves, select a number of people . 92
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to act as your spokesman, because we will not have time to hear! i 93 everybody that wants to come in. ' 9 -
"4 Now, before we get started, there are a few people 25 who have indicated a desire to . express themselves in this i COMMONWEALTH REPORTING COMPANY (717i 761 7150 l
r 207' s , 1 proceeding. We will permit very limited statements made by Q 2 these parties. 3" First, ua have Jessee Caldwell.
-4 MR. CARDWELL: Yes, sir.
t 3 JUDGE MATUSCHAK: You may come forward. I C Whereupon, . 7 JESSEE CALDWETA e 8 having been duly sworn, testified as follows: 9 JUDGE PJiTUSCHAK: W.ll you giJe us your name and 10 address, sir? l l i 11 THE WITNESS: My name is Jessee Caldwell. I'm from I? Mount Hope, or Mount Wolf, Pennsylvania. g i
)
13 JUDGE MATUSCHAK: Are you a customer of the Metro-l t 14 politan Edison Company? ; 15 THE WITNESS: I am. 16 JUDGE MATUSCHAK: Do you wish to make a statement l 17 in this proceeding? 18 ! THE WITNESS: I do. 19 JUDGE MATUSCHAK: Eefore I let you make a statement, 20 do you represent yourself, or represent a group? l 21 THE WITNESS: I represent a group of senior citi::e .s 22 from the Otterbein Center, at Mount Wolf, Pennsylvania. 23 JUDGE MATUSCHAK: Very well, you may make your sta
- i '. 24 ment.
25 THE WITNESS: Thank you. l t COMMQNWE AL9H RE90%IWG COM90W? Q190 Vr30 99P@ ____
] 2GB 1 DIRECT TESTIMONY
((^] v 2 THE WITNESS: It is our belief that Met-Ed.has over-3 charged us and is continuing to overcharge us, and that we t 4 cannot continue to pay these exorbitant prices that they are 5 now charging. . 6 Por example, on a recent bill, the electric hi11 i itself was $39, and when we had .to make the payment -- when 8 the person had to make the payment, it was S71. Some of it 9 was -- said " Deferred Charges." , t 10 I don't know what the deferred charges are. 11 The people cannot continue -- most of us people in 12 that center are on a very fixed income, and if the cheating
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13 keeps on going, we're going to have to do something else -- 14 and I don't know what we're going to be able to do -- to raise 15 the money to pay these exorbitant electric bills. , 16 It seems to us that a great many of the people work-17 ing ior the company are not doing anything. 18 When I was in business, if I made a mistake, I had 19 to pay.for it. 20 Met-Ed made a mistake, and now they want us to pay 21 for it. 22 General Public Utilities has come out and advocated 23 -that everybody in the United States make a contribution, by a
,- s
-1
% ,) 24 payment, to draw them out of the -- out of~ the works.
25 For all these years, the investors have been making COMMONWEALTH REPORTING COMPANY (7171 761-7150
2C9):
, r .
i j 1 a tremendous profit through Met-Ed and other utilities, andll 2 now, when they've come to the point where it's going to cost
. -3 -them some money, instead of them paying the money out, they
-4 vant us to. pay it.
-5 We feel that this is entirely wrong, and we hope 4 s that the Public Utility commission-here, which is mose to 7 regulate monopolies -- which Met-Ed is -- will do something ,
8 about it and continue to work for the benefit of the consumer, f ! il j and not for the producer. 10 JUDGE MATUSCHAK: Thank you. 11 THE WITNESS: Thank you. 12 (Whereup an, the Witness was excused.) g f
/
13 JUDGE MATUSCHAK: Patricia Smith? I 14 Whereupon, 15 PATRICIA A. SMITH 16 having been duly sworn, testified as follows: 17 JUDGE MATUSCHAK: Will you give us your name and 18 address? 19 THE WITNESS: My name is Patricia Smith and I'm a 20 Met-Ed customer and live in Newberry Township, Pennsylvania. 21 JUDGE MATUSCHAK: What is your address? , t 22 THE WITNESS: Route 1, Etters. l i 23 DIRECT TESTIMONY ') n4 THE WITNE3S: I intervened in the last Met-Ed rate 25 case, and I still have a continuing interest, as most of us do. COMMONWEALTH REPORTING COMPANY (7176 761 7150
. . I 210
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1 I am going to, as a humble rate payer, relate what'sl.! 2 happening to the rate payers to the Boston Tea Party. l 3 I feel the colonists were determined not to pay , 4 taxes on the tea to Britain -- we're the colonists and the PUC l. O is Britain. 8 'e Twice, citizens there . asked Governor Th:nas i Hutchinson not to allow tea to enter tlie Boston ports - aga.in,i 8 the Gmrernor is the PUC. C
"! The Governor refused to listen -- the PUC refuses i
10 to listen to us. j 11 There were 7,000 people gathered at the cid stone 12 church tha t day -- and we 're at the North ofdice Building -- 33 and which, through their frustration and anger, it cnly took i I4 40 or 50 of those citizens to dump the tea into the Harbor. I
- 5 Sir, I can relate Met-Ed's rate hikc and the PUC's 16 refusal to listen to us, to the Boston Tea Party, to my World 17 Book Encyclopedia, quote, "This was one of the incidents that 18 led to the Revolutionary War."
lo ' Frustration and anger are building, similar to the 90
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colonists. We learned from the infamous Middletown meeting 91
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that through only actions and anger will we be heard. on
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i Mainly, I'm here for two reasons: that someday I'll: 23 know I've gone through the legal system, honestly and sincerel , g
) 24 trying to be heard; Number Two, I feel I'm a symbol, a fore-l i
'5
~ i runner, the anger of a possible crises that is building through '
COMMONWEALTH REPORTING COMPANY (7171 761 7150 ! i
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l ( s 1 the anger and frustration -- and I'm saying, please, once lll1 2 more -- I've said it before -- listen to us. 3f I wish you could feel what we feel inside. 4 I've deducted 10 percent from my utility bill for 5 14 months now, and I'm going to urge customers, every time I ' I i G speak, to do the same thing, in protest. . 7 Many of we Met-Ed rate payers are eating . cheaper ; E cuts of meat. I wonder if Mr. Dieckamp is, or Mr. 7,oonz , or 9l Mr. Russell, who isn't in the room? ; I 10 Are we rate payers.now paying for the last case, i I s 11 which took four-and-a-half months, when, every rine, there were 12 six to 10 Met-Ed employees sitting in here doing absolutely g
) I 10 nothing?
14 And are we paying that S9,000 fine that was just 15 levied for Met-Ed? ! 16 Most disgusting of all, are we paying the $3,000 i 17 donation to Met-Ed, from Met-Ed, to Friends and Family of TMI, 18 a pro-nuclear group in Midcletown? 19 some of my neighbors can' t afford to evacuate -- 20 when they were inventing the krypton -- de you think they have 91
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the money to pay Met-Ed more money now? . 22 And what will happen to us this winter -- and, more 23 importantly, to the lower-income families? gg
) 24 Will our electricity be turned off if we can't meet 25 our higher bills, and choose to eat, instead?
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COMMONWEALTH REPORTING COMPANY (7171 761-7150 l
. . i 212
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I remember a statement that was made, there would i
) 1 2 be no blank checks written.
,i 3 li Thank you.
4 . JUDGE MATUSCHAK:- Thank you. ,
;
5 (Applause.) 5 (Whereupon, t'he Witness was excused.) ; i 7 JUDGE MATUSCHAK: Scott Hartman? ! . 8 Whereupon, 9 SCOTT HARTMA:, , 10 having been duly sworn, testified as follows: f i 11 JUDGE MATUSCHAK: What is your name and address? j 12 , THE WITNESS: My name is Sectt Eartman. I live at 13 Lot 316, Landola Avenue, Mount Wolf, Pennsylvania. 14 JUDGE MATUSCHAK: Are you a customer of Metropolitanj i
, '15 Edison Company?
i 16 THE WITNESS: Yes, sir, I am a customer. 17 JUDGE MATUSCHAK: Do you wish to make a statement in 18 this proceeding? l 19 THE WITNESS: Yes, I do, sir. l l 20 JUDGE MATUSCHAK: Will you make it, please, sir? I
- l 21 THE WITNESS: Yes.
22 JUDGE MATUSCHAK: Briefly as possible. j i I s'-s 23 THE WITNESS: Yes, sir. L) 24 DIRECT TESTIMONY - i 25 THE WITNESS: I am an advocate of the free enterprise t COMMONWEALTH REPORTING COMPANY (7171 761-7150
.g h 213
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1,, system. Along with God's blessing, that system -- and that ll I l 2 system, the United States of America has become a strong and 2 l prosperons nation. Industries have prospered greatly in the i 4 United States, more so than .any other country in this world. 5 ,i However, we -- and I speak of "we" as an entire t* I sI people - need certain 3:inds of energy to.be productive. itmong i i i i i these kinds of energy is electricity. l
'l1 Bf As I see it, the free enterprise system has been 90 d limited in its use to ef f ectively produce ar.d distribate this i
10 form of energy. The monopoly to produce and distribute elec- l 11 tricity is possible; therefore, a watchdo: must be set un to 12 ' control possible greed, howevermuchIdespiseGovernmentcorg 13[ trols.
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ll . !' 14 I don't believe greed is the issue here. l 15 ! A company that continually asks -- and I mean, spe-16 lcifically, four times within the past 16 months, according to 17 my information -- asks this watchdog to allow a rate increase, 18 has been drastically mismanaged. 19 Even with an inflationary economy as we now have, 20 management can control the need for rate increases. 21 ! Metropolitan Edison has now proven to me they are not, 22 ! capable to manage an enterprise of this magnitude. I , 1 23 1 Your Honor, as a customer of Met-Ed, I plead with g 24 you to not recommend to the Public Utility Commission a rate 25 ' increase for Met-Ed until Met-Ed is willing and capable of I COMMONWEALTH REPORTING COMPANY (7171 761-7150 l
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H 214 ! I 1 managing its interests properly. { 2 Thank you for your attention. 3 That's all I have to say. 4 (Applau se . ) l 1 5[ JUDGE MATUSCHAK: Thank you. . 6 (whereupon, the Witness uns excused.) , 7 JUDGE MATUSCHAK: Laura.Berger? ! 8:.. Whereupon, 9 LAURA BURGER . 10 having.been duly sworn, testified as follows: 11 l THE WITNESS: Before I have =y say, Your Honor -- 12 JUDGE MATUSCEAK: Just a minute, ~iust a minute. : 13 Please sit down. 14 Will you give us your name and address? j 15 THE WITNESS: Laura Burger, 2975 Erockston Lane, in i , 16 York. l l 17 JUDGE MATUSCHAK: Are you a customer of Metropolitan 16 Edison Company?- 19 THE UITNESS: Yes, sir, I am. 20 l JUDGE MATUSCHAK: Do you wish to make a statement in 21 this proceeding? ! 22 THE WITNESS: Yes, I do.
'3 l JUDGE MATUSCHAK: Will you make it, please?
Cw t THE WITNESS: Before I make my statement -- L
-n5 JUDGE MATUSCHAK: Briefly as possible, plea se , ma ' am?
l l '. - COMMONWEALTH REPORTING COMPANY 17176 761 7150 ; j
l 21=i o a . l 1 THE WITNESS: -- I do hope, intellingus"brieflyg 2 that the testimonies presented by Met-Ed would be as brief 3 ,! as we are wak.ing ours. l 4 (Applause.) Well, you understand -- l 5 JUDGE MATUSCHAK: 6 ! THE WITNESS: I have brought - 7 JUDGE MATUSCHAK: Just a minute -- you understand l 8 it's important that we establish the facts from both sides, N 0V the company's side and the Commissior's 2 Eli , 2-1 de Cor.sr.s: il 10 Advocate and other parties? It is very important that we get j i 11 i there facts into the record, so that we can make a proper and 12 informed recommendation to the Commission? 13 I (Witness nodding af firmatively. ) 14 JUDGE MATUSCHAK: You understand that. 15 Very well. 16 THE WITNESS: I certainly do understand that, a nd I } 17 do want you to understand that rate payers have not, until now, i IE " become as involved as they are and as they are becoming in-1 i 19 volved. I i 20 We have not had the expertise and polish in present !, i 21 ing our testimonies -- and in being told to make it as brief 22 as possible, makes me feel a little uneasy, on behalf of thesei l 23 l oeople, too -- 24 JUDGE MATUSCHAK: Well, we have other parties -- the; 25 Consumer Advocate, for instance, has been delegated by the ; COMMONWEALTH REPORTING COMPANY (7171 761 7150 '
216 () 1 Legislature to represent consumer interests in these matters; 2 so the consumers are not entirely unrepresented. 3I You may proceed and make your statement. 4 THE WITNESS: All right. l 3 DIRECT' TESTIMONY G 7HE WUNESS: What I have brought with T.c -today - 7 or, who I've brought with me today -- I have asked, mostly, E' retired people to come , because I don' t think that their ! 9 plight in the expense and the fight to stay alive in the world; 10 today has been really taken into consideration. l 11 We have low-income, limited-inccme and no-income l 12 people. . They still pay their bills -- and I don't think that's (~} N-/ , 13 taken into consideration regarding rate increases. 14 A reporter asked ne last week whether I was bringing 15 expert witnesses, and I asked him if he would tell me what an i 10 expert witness was, I certainly would be glad to send one here! 17 however, in my opinion, each and every person sitting in the la back here is as expert in their finances, in how far their 19 dollar will go, and how much that penny will bring in, as the 20 expert witnesses are that Met-Ed has lined up in fields of 21 Financial Consultants, Banker Consultants, Treasurer's 22 Reports, and so on. l 23 r~x These people have been trying to make ends meet, J) 24. as has Met-Ed tried to make their ends meet; the difference is 25 we have nowhere'to go to ask for increases in income, a s Met-Ed. COMMONWEALTH REPORTING COMPANY (7171 761 7150
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j 1 has with the PUC. lll 2 I was at a meeting one day and mentioned the plight 2 4 of the people. The meeting was 'ith some people representino f 4 Met-Ed -- and I was told they are not in the social service i 3 t l' business. c f ' I wasn't aware that -the Tate pycrs were put im the ! l 7 .secial service business, because where their concern for thosel s that cannot be paying their bill is nil, we are not in a posi ' 9 ll tion to pick up their expenditures. i 10 The S9,000 fine, which was already mentioned, is notl, i 11 to me, a matter of the S9,000 fine, ~but an invitation of the 12 concerns in business management as projected by the utility gg 13 company at this particular reint. l 14 After e"erything that has gone on, certainly, no ! I 15 businese can afford a continuous stream of mistakes and of I 16 errors. 17 There has been no public outreach to the public. 18 Met-Ed, in my estimation, was -- or at least I understood -- 19 to contact individual groups and discuss the rate situation 20 with them. 21 I must relate that as long ago as last September, 22 I attended a hearing, or a lay seminar , at Penn State. I 23 spoke to Mr. Dieckamp, who informed me that "Af ter Labor Day g .) 24 perhaps we can get together and discuss certain things." 25 That never happened. COMMONWEALTH REPORTING COMPANY 4717' 761-7150
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, n 1 Shortly after that, at another meeting, I met Mr.
2 Critz, who also said, " Laura, we've got to get together and ! I 3 talk about thi s . " i 4 That never happened. 5 ! And then , more recent'ly, at another.necting, smo++nr ! 6 l repmsentative and, again, that never happened. 7 Then, better than two weeks ago, I wrote to Mr. l 1 8 Dieckamp and I did ask, when he comes to York, I would like to! t 9j see him. , 10 I never got a reply. I 11 It would not be easy for Me:-Ed te reach the public,1 12 but it's high-time they did. Other utilit.y companies have i J 13 reached out to their rate payers. There has been a utility 14 company that decreased their dividends so rhat they can be j l'
;5 in a position to assist Met-Ed.
16 The offer of buying energy at cost was turned down, ; 17 originally, by Met-Ed, from another utility company that 18 offered to help. 19 And I don't feel, really, that as long as you ! 20 recommend and as long as you propose rate increases, will 2I Met-Ed ever, ever, really, put an honest effort into getting i I 1 eo help from other sources. l 23 As long as the rate increases come in, our Federal l 24 Government will not help, our state governments uill not help, 25 and we need financial help, f i. 1 CoMMoNWC ALTH REPORTING COMP ANY (717i 761-7150 l
219 o n . i I Wehadnochoiceintheutilitycompanysettinguplll I 2 a nuclear plant. We had no say in the operations. He cannot i 3 , and will not continue paying rate increases. 4 Perhaps Pat has spoken about 10 percent or 25 per-l 5, cent ho_ldbacks.
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I There m people that ure going to stop paying 6; r i their bills, entirely, in order to bring Federal attention to j i 8 this area. 9 Uhy must the ra te payer always -- why r.ust the con-10 sumer e1 ways be put in a position where they have to fight; il and then when they do, what happens? ( 12 People say, " Lock at them. Look how rowfy. Look gg i 13 what goes o- -- and no one stops to think that fcr years and 14 for month =, a,br eals have been made for assistance. . I 15 I would like to ask you -- I would like to plead i 16 with you, do not recommend this immediate $35 million rate j i 17 relief increase. l i ! 18 JUDGE MATUSCHAK: Thank you. 19 (Applause.) l
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20 (Whereupon, the Witness was excused.) 21 JUDGE MATUSCHAK: Reverend Margish? '
;
i i 22 Whereupon, ' i 23 REVEREND STEVEN G. MARGISH
) 24 having been duly sworn, testified as follows:
25 I'm Paster Steven G. Margish, Pastor THE WITNESS: i i CoMMoNWCALTH REPORTING COMPANY (7174 761 7150 ;
] 220 i
I {} 3 of the York -- 2 JUDGE MATUSCHAK: Give us your address, also? 3i THE WITNESS: -- Second Church of the Brethren, and I
- 4 I : represent, probably, 70 f amilies, or 80. I live at 1220 '
3 4 Lancer ~ Lane, York, " Pennsylvania , and .I am also ra user - of fl 6 Eetropolitan' Edison's service. i 7 JUDGE MATUSCHAK: Do you wish to male a-statement ini 8 this proceeding, on your behalf, or on behalf of the people 9 you represent? , 10 THE WITNESS: Yes, sir. 11 JUDGE MATUSCEAK: You may prceeed, t i 12 DIRECT. TESTIMONY O 13 THE WITNESS: Much of what has already besn said, i 14 I'd certainly agree with, and what Mrs. Burger has said, we l, 15 have talked about it. i 16 The problems that seem to exist in the community 17 that Med-Ed serves is lack of confidence in the leadership. 18 You know, as a Minister, as a Pastor, it's difficult' 19 for me to,.you know, to point out a person and say I don't , 20 like him, because I want to like everybody, but'the persons l 23
- behind the Met-Ed - represent a situation that is threatening 22 us.
I 23 I know this, that beyond the rate increases that
\
24 Met-Ed receives, I, as a taxpayer, need the support of senior j 25 citizens and people who do not have adequate income to meet i
. COMMoNWCALTH REPORTING COMPANY (7171 761-7150 l
11 i 221 I 1 their utility bills. That comes out of taxpayers' money. h i 2 I don.' t know how the Governor is going to do in the ' i - 4 O future with -the prob 1 cms that. we have with unemployment, but i 4 money has to come from somewhere. It can't all come from the i 5 b : Lottery-n i! 6 ll My p'lca is that the TUC, with its 1 bited nr. cunt of 7 resources that they have, and the unlimited -amount tha t Met-Ed 8l, seems to have -- if you could do like Met-Ed does, just simply a Sd ask for a rate increase frcm the taxpayers to pay fcr exper-10 tise, in terms of attorneys, et cetera, the probability is that 11 you would have the kind of a force that could combat, with a , 12 degree of equity, their particular forces. lll 13 l I'm not an expert witnsss, in terms of trying to 14 My problem is that I know that my qdealwiththespecifics. 33 dollar doesn't buy what it use to, and, also, when the rate 16 increase comes, I have to find some way to meet that, but I I cannot, you know, ask for a rate increase; it's impossible. ! i 38 My plea is that something needs to be done with this; i lo ~ industry that constantly seeks rate increases, rather than to 20 seek ways by which they, as a private enterprise, can operate
' l
; more efficiently and effectively and, above that, to have the on
~~
confidence of the people. i 3! I want to support somebody that I have confidence lll J n
~~
in, and I'm hoping that we can continue to have confidence in ! i
'5 yourself, Ms. Shanaman and all the PUC people and those -- !
t e CCMMoNWEALTH REPORTING COMPANY (7171 761 7150 ,
' il 8
222l. l 1 , _f 1- : including Met-Ed -- that we have an -honest evaluation and an 2i honest rate to pay; and if.that happens, I certainly would be 3' happy. 4 4 As a' Minister of the Gospel and as a representative I ' i '5 g of the people, my plea Kis that the rate increase ought to te i 5 carefully consi3ered and-throw back, mostly., into the lap of . , t II ,
. Net-Ed and say " Produce. If you don't produce, we.can't expect
' 8 rate payers and taxpayers to subsidize an industry that has 9' not proven itself to be profitable." 10 JUDGE MATUSCHAK: Thank you. I 11 ' THE WITNESS: Thank vou. I 12 (Applause.) 13 (Whereupon, the Witness was excused.) , 14 JUDGE MATUSCHAK: We have a couple more consumers ; a i 15 that we will hear. i 16 ' Harold Snyder? I7 Whereupon, 2 f I8 HAROLD SNYDER 19 having been duly sworn, testified as follows: 20-JUDGE MATUSCHAK: Will you give us your name and o, i
~'
address? 22 THE WITNESS: Harold Snyder, 928 Elm Street, York, I
"3 , Pennsylvania. ;
( i b JUDGE MATUSCHAK: Are you a consumer, or a user'of l
-25 Metropolitan Edison?-
COMMONWEALTH REPORTING COMPANY (7176 761 7150 f
l 223 o . . i I THE WITNESS: Yes, sir. l l 2, JUDGE MATUSCHAK: Do you -- l i
- 3. DIRECT TESTIMONY l
l' il 4 THE WITNESG: I'd like to speak, at this time, on t e i 2 h b2 half of the Scrur Cit _ir.crr M PA3P, an arn of the W.T2-CO. 11 G *; a f f i 15 at9S wi th the mt tional Senior Citi7. ens of T?ashington, I 7 l that have many people that have very low incomes and have no , O E way of getting a raise in their pensions or -- th e;. cnly get i El n raise in Social Security, which, in my cpinicn, does not i 10 I keep up with the cost of living -- for example, the rate of 11 , inflation was 18 percent and they got 14.3; so tha: leaves you, 12 just about 4 percent behind, to start with. (l) 13 Every time you go tc buy scmething, it is higher --
;
14 and then you come along with all these rate increases. I 15 I was always under the opinion that when anybody in 16 business made a blunder, they paid for it, not their customers II or -- not their customers. In this case, they are rate payers.; 18 That's about all I have to say. , 19 Thank you. l , 20 JUDGE MATUSCHAK: Thank you. 21 ( Applau se . ) t 1 22 - (Whereupon, the Witness was excused.)
". JUDGE MATUSCHAK: We'll hear one more.
l 24 Norma Hewitt?
"5 ~
I Whereupon, r l ' CoMMoNWCALTH REPORTING COMPANY (717' 761-7150 ;
~ - - -- .-. -
., . I 224, fb' a 1 NORMA HEWITT 2 having-been duly sworn, testified as follows:
3 JUDGE M TUSCHAK: Will you give.us your name and
-4 - orldre.ss, please?
5, 1
'THE I~n?ESS: Mf.name is 'Normb~Inewitt. 7 Jive 2 t
-G ~ York, Ei7, and Tr a rustomer rf Met-Ed's. .
t
'I JUDGE MATUSCHAK: Do you wish to make a statement in I t
8 this proceeding? 9 THE WITNESS: Yes, sir, I do.
,. i 10 JUDGE MATUSCHAK: Are you speaking on behalf of your--
11 self, or others? f 12 THE WITNESS: This is on behalf of myself, as an O, . 23 individual. 4 1 14 JUDGE MATUSCHAK: Very well. You may do so. I 15 DIRECT TESTIMONY
! 16 THE WITNESS: I became upset when our electric costs l
'17 went from-$8.34 to $2.39 -- $23.39, in a four-month period, is with the same amount of kilowatt hours being used.
l 19 Then Met-Ed added that insult to the injury we ,
;
i. 20 already had, by filing for a 17.2 percent base rate hike. We q 21
-became very energy concious.-
22 We.have a four-roc,m home, and my husband built a ! 23 A wood stove to completely heat it. 75 percent of all our week-1 (- 24 ends are spent out cutting trees for firewood, and this past i L 25 week and the past week before that, we cut wood -- and you know
- COMMONWEALTH RCPoRTING COMPANY - (7171761-7150
~ m.. - . _
.i ll 225l f
1 i how hot it was. lll 2 I do our laundry at the laundry mat. We watch a 3 hlack and white television set for, maybe, two hours a day, 4,. ra n tines less. We hardly .ever turn the . radio on, .and we .have v II uindow fans, no air conditierers. We J.nther vn_really well 3 ,d 6 il:' before we -turn on the shower. 4 7 Despite all of this, our electric bill is still j S averaging S60 per month. I t E h; What I'd lanc to know is when is Met-Ed going to 10 conserve a little bit? 11 JUDGE MATUSCEAK: Thank you. 12 THE WITNESS: Thank you. gg 13 (Applause.) ? 14 (Whereupon, the Witness was excused.) i i 15 JUDGE MATUSCHAK: The American Society of Utility 16 Investors has requested to make a statement. 17 Is Dr. Spang here? 18 MS. SPANG: I'm Mary Ann Spang, representing my 39 husband. 20 JUDGE MATUSCHAK: Very well. l l 21 Whereupon, 22 MARY ANN SPANG i 23 having been duly sworn, testified as follows: g .) 24 JUDGE MATUSCHAK: Will you give us your name and 25 address, and tell us who you're representing?
. I CoMMONWCA1.TH REPORTING COMP ANY (717 761-7150 l
I
. . Il 2 2 6 .! . i l.
i 1 THE WITNESS: My name is Mary Ann Spang. My Post i i l i 2 Office Box is 605, Camp Hill, Pennsylvania, and I represent - 3 , the American Society of Utility Investors. 4 iTUDGE 24ATUSCEM: I understand that yon .are 2nnear-1 I I i ing fiere :in subst3 tuti m nr proxy fnr ~ nr. Jane = 1. -3=ang, 2tw
-C b "tresident of-that group- is that correct?
'7 THE WITNESS: That is correct.
P 8 JUDGE MATUSCHAK: Very well. If you wish to make a S y sta tenent, you may do so. 10 THE UITNESS: Thank you.
'l l DIRECT TESTIMOhf 12 THE WITNESS: Judge Matuschah, distinguished counsel, i
i 22 Staff and fellow guests, my name is Mary Arn Spang. l 14 I am here today to represent the American Society of; i 15 Utility Investors. The Society is a Pennsylvania nonprofit 16 corporation organized for the purpose of representing and pro-l 37 tecting the interests of utility investors. l l 18 In the judgment of the Society, it is the investor 19 who has truly been victimized by this continuing interplay of 20 organizational giants which include the Nuclear Regulatory : 21 Commission, the Consumer Advocate, the Public Utility Commis-o,
~~
sion, the Environmental Protection Agency, the Department of i Energy, the Congress of the United States, the General Assembly ( l h *4
~
and assorted anti-nuclear groups.
'5
~
Let'me take a minute to describe the Society's ! i i COMMONWEALTH REPORTING COMPANY (7171 761 7150 l
i h 227 t 1 constituents, the typical investor in GPU, theholdingCompaggg 2 ij for Met-Ed. 11. 3 i The typical investor is a small investor who has . li
- ' invested in GPU stock, mainly, as a source of retirement in-i h = owe-t, UPU Tecords inSicate that 55 percent of their stock- -
4 I 90 percent own
-[ holders own less than 200 shares of stock. 4 1
Sl less than 600 shares. e S A majority of the s:cckholders are of retirement 10 1- age, or older, and another 15 percent are within five years i 11 of being 65. 12 In short, the stoc}; holders are generally elderly g
) i W
l 13 L and dependent on dividends. It is hardly the picture cf the I . 14 greedy, voracious prototype so well publicized by the press 15 and instilled in the general public. 16 In terms of public utilities -- and I emphasize the 17 word "public," the stockholders serve the general public by 15 providing the private capital necessary for alant ecuipment, , l, 19 fuel and personnel. 20 For this service and risk, the stockholders, as l 21 represented by the company, are permitted a modest return on 22 their investment that is in keeping with other heretofore
'3 saf e investments and the demands of the capital market.
i
) '4 Generally speaking, it makes no difference to the j ,5 ' stockholders whether the energy product is produced by some h i
COMMONWEALTH REPORTING COMPANY (717, 7G 1 7150 {
226
.s i-conventional method, such as oil,. gas, water, coal, and nuclear, /j~S \
2 or by some exotic means such as geothermal dynamics, the winds, l ' 2 g the tides, .or the sun. 4 The stockholder 's principal economic concern will 3, .always ..be whether 'there is reasonable assurance that the = cst ti it - 3 s1 of the: energy :will be acceptable to the ron=mmer., .in terms ci 4 fl h
; his willingness and ability to pay, and that the~PUC vill a permit a level cf charges to the consumers that will, in time, 9[ return the principal invested and a reasonable prcfit.
10 One of the major responsibilities of the' PCC is to 11 establish fair and reasonable rates that, in the final analy-
-12 sis, will provide capital, fuel, equipment and people.
- 13 This point is well preserved in law. Mcre than 35 14 years ago, the United States Supreme Ccurt established clear 15 and reaconable guidelines on utility earnings. Briefly, those 16 guidelines state that utility companies are legally entitled ,
'17 to earnings that are comparable to earnings of other enter-
;
18 prises with corresponding risks -- I 2 i j 19 JUDGE MATUSCHAK: Excuse me -- 20 THE WITNESS: Yes? 21 -JUDGE MATUSCHAK: -- is your statement very lengthy? l 22 THE WITNESS: Pardon? j i 23 JUDGE MATUSCHAK: Is the statement very lengthy? k 24 THE WITNESS: No. I'll be finished with it in a few' 25 minutes. l
' CoMMoNWE ALTH REPORTING COMPANY 17171 761 7150 i
I 229 a n
.l 1 JUDGE MATUSCHAK: Go ahead.
ll 2 THE WITNESS: The total is just about five minutes, 3; or less. 4 JUDGE MATUSCHAK: Very well. I 3 l THE WITNESS: - suP r-ient to allow the : monies I 6[ - to attrar t new capita 1, and snMir-icnt to 7naimtain -their i credit and assure confidence in the financial integrity of s the companies. 1 These guidelines have been and ccntinue to be 9{ 10 ignored, at least in a timely fashion. 11 Let me briefly review what has happened, in fact. l 12 Since the accident, power replacement costs have J 13 cost the utility about S27 million a mcnth. Ir ene sense, 14 this sum would be the cost of pcwer if TMI had never been i 15 "d built; at the same time, there would be no question that not i 16 only this amount, but an additional sum would have to be added i 17 o provide for profits and a reasonable return on investment. l l 18 The PUC would have to provide the appropriate rates. 19 In addition to these amounts, inflation that approached 20 20 percent for 1979 and is likely to be above 10 percent for 1 i 21 1980, would have to be accounted for and provided in the base on rates. 23 Even before the accident, GPU's two Pennsylvania ) 24 subsidiaries had requested and received more than S100 million 25 in rate relief, that was subsequently disallowed following the 1 COMMONWEALTH REPORTING COMPANY (717' 761-7150
. . y_
230
;m
( ) I accident. v 2 On September 20, 1979, the PUC ordered Met-Ed to 1 2 ! show cause why TMI Unit I shottld be considered used and useful-
't I I 4 .in the public service. t
,1, By-January 31, ~1980, unrecovered costs mf y 1 JAsec '
2 s f power'elea $80.7 inlion plus another '512. 7 Taillion im 7 !' energy costs deferred by the ~PUC in previous years. ; 4 8 If all this were not enough, on February 7, 1980 -- ll 9 ll JUDGE MATUSCHAK: Can you su..uarize your position 10 here? 11 THE WITNESS: Yes, all right -- all dividend pay-p '12 ments , for the first time in. history, had been suspended. L) 13 So to sum it up, the Society submits that this is 14 an intolerable situation; therefore, we respectfully ask that 15 the rate relief requested by the company be granted and that i 16 an immediate attempt be made to return the company to the ; 17 health demanded by the principles of equity and fair play, and 18 established by the United States Supreme Court. 19 In closing, let me thank you for the opportunity 20 of being heard. l 21 I will leave a copy of our testimony with your 22 clerk. 23 Thank you. 24 JUDGE MATUSCHAK: Very well. 25 (Whereupon, the Witness was excused.)
;
COMMONWEALTH REPORTING COMPANY (7171 761 7150 l
. e g l! 221'
- , . . i l
li 1 JUDGE MATUSCHAK: Let's get nowtothemoreformalQ
- " aspects o! this proceeding.
i 3i ~I want to- exp1nh to the people in the hearing room 4 that they are welcome to . stay M -hear some of ~ the f-1 pro , n 1 5 ( ecedimg of this 7 natter-4$ Row, -the ~ method that".s W _usea in -this .sv#M - t ti 7 il is that the company presents their position in their ati.wegi j fi j 8 il to show the need for the temporary - that extraordinary rate i e E' increase, and that i-s tested by the c oss-examination and , 10 . other testimony by the Commission's Staff, by the censumer
! l 11 llli Advocate and by other complainants in this proceeding. !
12 Is the company ready to proceed? i 13 l MR. OGDEN: Yes, Your Honcr. Befcre we call any i I4 witnesses, I have several exhibits, which I handed out this i 15 morning, and I'd like to have marked for identification at is this time.
\
II I JUDGE MATUSCHAK: Very well. I e 18 l MR. OGDEN: They would be Revised Exhibit C-1, 19 ; Exhibit A-3, Met-Ed Exhibit A-4, Met-Ed Exhibits. C-3 3, C-34, I
~O' ! E-23, E-24 and F-22.
I e
~t i JUDGE MATUSCHAK: Very well, they may be so marked i 22 [ for identif.ication.
n I
'3 'l
~
i g
) 2y 25 COMMONWEALTH REPORTING COMPANY (7171 761-7150 1
[ 232} I i I l 1 (Whereupon, the documents were 2 marked Applicant's Exhibits 3 No s . C-1, A-3 , A-4 , C-33, 4 C-34 , :I-23 ,- I-24 and .J-12 'for o Jadzm H Heation.) l 1 S' M. ~OUDEh
- Tour'Monor, h Iluff presented some 7 testimony last week, and he is available for cross-examination 8 this morning.
9 JUDGE MATUSCHAK: All right. 10 MR. OGDEN: I thought perhaps we could start with ; j 11 him. j p 12 . JUDGE MATUSCHAK: Very well. Lj l 13 Whereupon, , 14 DAVID L. HUFF ! l 15 having been previously duly sworn, testified as follows: 16 JUDGE MATUSCHAK: You may proceed. 17 MR. OGDEN: Mr. Huff is available for cross-18 examination. 19 Very well. JUDGE MATUSCHAK: 20 CROSS-EXAMINATION 21 BY MR. PANKIW: 22 Good morning, Mr. Huf# ! Q l 23
/- Does Met-Ed participate in a consolidated Federal
, (.s}:
) 24 Income Tax return?
A Yes. COMMONWEALTH REPORTING COMPANY (7176 761 7150
ll; 233',
. , i 1
i b, 1 Q That would be with GPU? h i 2 A That's correct. 3 Q .Did Met-Ed have a positive tax liability in 1979? 4 .h .1t's my reco'11e"+4 an that we had a tax . lass .for
- 3) W 3_
i
'6f 7 7 tow much w that -tznc loss'? ,
;
7 A I'm sorry, I do not 'have that Tiumber with ne. 'I j 8 can get that for 'fou. 9 , Q Could you tell un where in the filing that,informa-10 tion can be found? 11 JUDGE MATUSCHAK: I think he's said that he'11 12 supply it to you. g 13 THE WITNESS: Yes. , 14 JUDGE MATUSCHAK: Can you supply that, promptly, 15 Mr. Huff?
;
16 THE WITNESS: Yes, I can. ! i 17 JUDGE MATUSCHAK: Let's proceed further, and we'll 18 give you a chance to follow that up when we get that infor-19 mation. 20 THE WITNESS: If I may qualify, just one moment, 21 the 1979 tax returns will be filed September 15th, so the 22 return, itself, is in the process of being prepared. i 23 JUDGE MATUSCHAK: Can you, at this time, point to 24 where the informat. ton can be cbtained that the Commission's 25 Do you have it -- Staf f would like to look at? : COMMONWEALTH REPORTING COMPANY (717) 761 7150 fi
. ,1 234 1
O v 1 THE WITNESS: Well, they are not in my exhibits, f 2 Your Honor. I would have to look at the Form 1 and confirm : 7 the Tmmbers withim W PcIza 1 that we filed with the foamis-l
-4 : ..sion.
3 UUDGE 99CIUSCHEK- 'Very C . 6 M WITNESS- And i JUDGE MATUSCHAK: Let* s svM with~ cther matters, E and we'll give you an opportunity to have Jir. Hafer respond 9 when he checks his records. 10 BY MR. PANKIW: ! 11 Q Have you filed any amended returns for past years, 12 for past tax years? ,
- m. ,
13 A On a residual basis, for the last twc cr three 14 years, it's my recollection that we haven't filed amended 15 returns. We've been audited with the Internal Revenue Ser-16 vice, and settlements were made. I 17 Do you plan to file any amended returns that would Q 18 refl'ect the expenses associated with the TMI accident? 19 A Those returns would be filed, yes. 20 Specifically, what are your plans? Q 21 The tax losses resulting from 1979 would carry back A 22 into prior years, in accordance with tax law, and those i 23 ,q amended returns will be filed. U- 24 JUDGE MATUSCHAK: How far back will you go, Mr. 25 Huff? COMMONWEALTH REPORTING COMPANY (7171 761 7150
. .i 235 e . . , 1 THE WITNESS- Sir, thetaxlosscarry-backisaboug i
2 three years. : i 4 i 2 1 ~ 2mr:F. marudt HAK : All right. 4 3Y.MR. EANKIW: 3 , D' he 1.1-c expzmses -W ated :with-theM ew
+ ~-Bent uimuged, -in arry way, & uvailmhnW of
- tripesw nt
, 7 tax credit to Net-Id -or UPU?
E A Any tax loss carry-back to prior years would offset
- -j . any investment tax credits that we received at that time. The
- 10 investment tax credits themselves then would be pushed into ,
.I 11 the future, on a carry-forward basis.
12 O At what time do you expect to file these amended g
) W, 23 returns?
i 14 A Well, the amended returns, to my recollection, will , 15 have to be done by September 15th. ! 16 g of 19 __. 17 A 80. 18 0 -- 80. 19 A yes, 20 JUDGE MATUSCHAK: Do you have, at this time, any 21 idea what the consequence would be of amending your returns, 22 in dollars and cents? l
;
23 It's my recollection, in talking wit THE WITNESS:
) 24 the tax advisers, that for tax. loss carry-back, it would be 95 an exchange between the loss carry-back and the investment COMMONWEAL.TH REPORTING COMPANY (717s 761-7150
236;
- i b
V 1 tax credit. There would be no cash that would be either forth 2 coming or going to the Government. 3 - ,The m w=w a= rer.tainly could have an impact i
~
4 .in the future, in + hat I believe +%ere's' a..1 hait of .seven 3 ;- , tax *-v=rHt;; .:so di's years in rarrj furward dar duv -m
'6' entirely rumale that at' some h in h Iui.ua.r, A1.wi- h-
'l Edison and the GPU System would lose investment tax credits j 3 'if we continued in the loss position.
9 BY MR. PANKIW: 10 Q You mentioned that as a result of the expenses 11 associated with the TMI accident, you would have available to l 12 you los,s carry-backs for three years. 13 Would there also be loss carry-forwards available 14 to you, as well? ;' 15 A It's my recollection at this time that presently 16 the loss carry-back -- the amount.of taxable income in those l l i 17 In prior years would be enough for us at the current loss. 18 the subsequent year, then we would have loss carry-forward, f 19 yes, if we continued. l 20 Do you expect that Met-Ed, as a participant in the Q 21 consolidated tax return, would have a positive tax liability 22 in 1980? - 23
.m A No. !
( ) I
\') 24 Q 1981? l
)
~S A With rate relief in 1981, it is possible that we l 1 COMMONWEALTH REPORTING COMPANY (7176 761-7150 1
2 37 e . . t I would have a positive tax liability in 1981. It'sverysmalg i 2 according to the estimates I have seen. - l 3, Q- 'That 1smfM -be whMW full amount of rate 4 Te7 inf that the.MPqidias _rewM , i 1 3 .h *185. cI -g. ~ .And 6 -the 7 ; ; .g, 6 * **==mr=r97 ;- -- 7,an l i 7 ' September 1st, and the balance at the end.of the sev w mouth 8 period? 9 A I believe so, yes. , l 10 O Could you tell us what Met-Ed's income tax claim is j ' 11 the test year, for rate-making purposes? 12 A For state purposes, it's 6.9767 percent of the rat
,;
13 increase, and 4$ percent for Federal. 14 Q What would that be in terms of dollars, Federal tax i 15 expense dollars, approximately? - 16 I A It's approximately $35 million. 17 Is that figure contained on your basic test year Q is data summary sheet, which is Met-Ed Exhibit B-1, Part A, Page 19 l? 20 A Yes, sir. 21 And -- ! Q 22 A I stand corrected; it's$32millionoverthesettle-j 23 ment, for the Federal. 24 What line and column are you referring to, sir? 0 Q
'l 25 This would be Line 25, Column 6 of Met-Ed's Exhibit A l t
*l ,
l COMMONWEALTH REPORTING COMPANY (7171 761-7150 3
J 139.l 1 B-1, Part A, Page 1.
\'v) l 2 Q So overall, the company is planning $49 million, i 3 apprnrimately, in Meral -Income Tax expense?
4 ..A Yes, sir.
^3 ~Q ' Wl::att.Turverme _xvu >l 1M'-is associata3 Nith$bt i
s + -- .: : ar;y1
- -Le.ly j
~l A Our revenue requirement increase is $76.5 mi'llion.
1 JUDGE MATUSCHAK: 10o .he means .for the tax itself. , 9 THE WITNESS: Oh -- i 10 JUDGE MATUSCHAK: Is that what you mean? I 11 MR. PANKIW: Yes. t t 12 . BY MR. PANKIW: 13 What is the revenue requirement value of . hat test 0 i 14 year expense? l 15 A Well -- . I 16 JUDGE MATUSCHAK: What revenues do you have to 17 collect to pay that tax? 18 THE WITNESS: $49,041,000.. 19 JUDGE MATUSCHAK: It would be more than that, would 20 it? 21 THE WITNESS: The revenue requirement, Your Honor, 22 is based upon the return. The return then builds up the 23 requirements of which they would pay their income tax. A) 24 MR. PANKIW:- That's sufficient, Your Honor. 25 JUDGE MATUSCHAK: All right. . COMMONWEALTH REPORTING COMPANY (7171 761 7150
239!
. .I 1 ;
1 MR. PANKIW: That's all we have for this witness h I 2 at this time. ,,, I 3 *:TITfr2 3!DLTUSCBXE:' Very w rt_'- i 4- ~ Consumer Advocate?
'5 1ER.'.3ARKSCE: ~: Ma .we. go nff .* u a.h sne f
5 - _ vua, Tour h xva i
. 7 UUDGE MATUSCHAK: Tes.
8 (Discussion off the Tecord.-) l 9 JUDGE MATUEC,HAK: Let's get on the record. 10 Counsel wishes to view some of the data that has . l t 11 been submitted. 12 Other than the Consumer Advocate, does any other 13 party wish to cross-examine this witness? 14 Mr. Frater? 15 MR. FrMER: Yes. I have a couple of short ques- - l '.i tions, Your Honor. ! 17 JUDGE MATUSCHAK: Go right ahead. 18 BY MR. FRATER: 19 Hypothetically, in the case of the Metropolitan 0 20 profits during a tax year, does GPU bill Metropolitan Edison
- 21 for the full tax liability calculated for Metropolitan Edison, i
22 as if it were taxpayer? l i 23 A Yes. 24 Q Hypothetically, assuming a Metropolitan Edison loss 25 tax year, does GPU credit Metropolitan Edison, in any way, for COMMONWEALTH REPORTING COMPANY (7171 761-7150 a_
11 243, I the tax loss which Metropolitan Edison contributes to the
') I
- ~ 2 consolidated return? ,
a ~~ 3 .2ms 4 .Q 1anr1 esild youl =vn IMn-to ns how.:that z: rut .is
.-1 xmleulerted? .Istit ~7-7mteainn :an'itiltloss%6% wiis ait l
; i e . t:ailr-rnated tyn wui ib: L-s % h Trnnuolidated w a --- -: ar 8 l l
'l is .there some other method that it's ca'.lculated?
i i
.B -A W recollection is that the tax liability, or loss, 5 -vould be on the basis that is contributed to the consolidated, 10 as if it was a stand-alone corporation.
11 MR. FRATER: Thank you. l 1 l 12 Nothi.ng further, Your Honor.
-l e l 13 JUDGE M7TUSCHAK: Anything-further? l 14 MR. MORRIS: Morris.
i fl i' 15 BY MR. MORRIS: 16 Q Mr. Huff, first of all, do you sponsor, sir, the 17 materials which appear at Exhibit B-1, the summary of reasons 18 for bot,h the extraordinary petition and the rate relief? 19 A No. Mr. Hafer sponsored that particular part. , i 20 MR. MORRIS: Will he be returning to the Stand? 21 MR. RUSSELL: Yes. . 22 MR. MORRIS: Okay. m 23 BY MR. MORRIS: (b 24 Q Mr. Huff, if I ask you questions that someone else 25 has sponsored, if you'll let me know, we'll,just go on to the COMMONWEAL.TH REPORTING COMPANY (7171 761.7150_
241, ,
. = .
l 1 next part. I 2 A Certainly . l 3 -Q 1mi7TW.-fi rv1 'in :_+hi c fi' ling any attribution of 4 capital u,=G mf "IMI-Irand II,;1roken out? , 1
% uneasures rif.'rvalne,ca;<-h 'is.@urrt Xdets& i 3j .1 e <
5 1 --S Inoun.itw-32, m Tage1 anii1 an7 age '1 hthe ---- :nn
' 7 of TMI-I that's been set aside.
5 'O Can you give us, frota those exhibits, the attribu-9 1 tion of capital for those projects at the time it was acquired? 10 A Would you repeat that question, please? 11 Q Yes. Can you attribute the capital investment made 12 in those projects at the time it was acquired to them, from { 13 the material which you've just directed te my attention? l 14 A, The total investment in Three-Mile Island II, as on j 15 Page 1, is $355 millios plus $8 million, which is electric i 16 plant and service, or $363 million. That is Metropolitan [ 17 Edison's share. 18 Similarly, -- 19 Q Now, you're looking at Page 1 of " Measure of Value," 20 for book, or for budget? 21 For budget. A 22 Q Oh -- l i l 23 A Would you prefer to look at for book, sir? g
) 24 Q Yes. Why don't you do the same thing en that,
*5 9
-please? .
i COMMONWEALTH REPORTING COMPANY (7171 761 7150 _ _ _ , _ l
ll 242
,D 1 A Per book at March 31, 1980, I have on Exhibit B-1, ! 'w )
2 Part 3, Page 1, Column 4, electric plant and service of $353
-Y #41 H== fus:~SB =;Wnn for steam valvas . or S361 aillion.
-4 UDDGE JEATDSCHAK: "That's .TMI-II? u
.5 em-m -w4sr'THI-37
- 6 JUDGE 1MTUSCHKK: "And that?s the let-M 'mhmTwi?
7 THE WITNESS: That is Met-Ed's- share, which is 50
~8 m wut owned.
I 9 JUDGE MATUSCHAK: Okay. i 10 BY MR. MORRIS: 11 0 Right -- and for TMI-I? ! 12 A, For TMI-I, if one would turn to Page 2, Metropolitan u . 13 Edison's share, Line 1, is $208 million plus $3 mill cn, which _ 4 14 is contained Column 2 of Page 1, or S211 million -- ,
. l 15 i 0 To be --
i 16 A -- for the future test year. ! 17 To be clear, that is, again, per budget? 0 l 18 A Per budget, yes. 19 All right. 0 20 For the historical test year ending March 31, 1980, A , 21 Page 2, Part 3, $202 million, and we would have to add to that t 22 $3 million for the wind girders, and it would be $205 million, 23 total. , O So that the total investment in t hose facilities, i 25 according to your exhibit, is some $550 million-plus? COMMONWEALTH REPORTING COMPANY (717) 761 7150 - _ _ _ __t
- r. ,
243 e l
;
1 A Yes, sir. 2 O .Now, turning for a moment to your balance sheet, in e a
.2 -the- earMMt '.t. . .
--s ..A Xes. ,
1'
. r, < 9 - on Tage 2, you h .a etal Gu..g - 6 m ,1:rf 4 I m 4550 M ilion.
7 A Yes, sir, s I And you, T*m sure, would recall that you have 9 atributed a cost rate to that long-term debt, of some 7.7 or 10 7.8 percent? t 11 A Well -- 4 12 , Q, Do you have that in your recollection? 13 A -- the historical test rate is 7.7 percent, which , l 14 is found on Exhibit B-1, Part 3, Page 17. ; 15 Q Page 17, right. 16 A Yes. 17 Q During the construction of Three-Mile Island, did 18 you , at that time, through the debt. route, acquire additional 19 cap' ital by means of long-term debt? l 20 A Yes, sir, we did. i 21 Do your exhibits indicate the Serial costs of your ; Q 22 debt with respect to periods of time at which the debt was j ;
, 23 issued,.or the interest rates pertaining thereto, somewhere i j L.
.) 24 here?
25 A My exhibits did not -- . l , s. COMMONWEALTH REPORTING COMPANY (7171 761 7150
Il rr e Tb V 1 THE WITNESS: May -I have just one minute, please, 2 Your Honor.
'3 M N :.'.7es.
I
- a. -z tums9 an; a~mmentsn -
t
' .5 M N- < J 132'.Isespernae --tp h. ar ' ^ on :~.3tr- ' -
B" UntmMham, 'itiWs. erhi+dt2-3, 'has -H1*H the.h - - WE
.- 7 Edison annual report for 1979.
ll BY MR. MORRIE: l' 9 okay. 0 l 10 A And on Page 13, it does give the due dates and the 11 serials of the various issues.
/% 12 Now, some of those. are not recessarily 30-year bonds. ; '
C/ 13 It does not indicate the date in which it was -- 14 0 Issued. 15 A -- issued. 16 Are you able to do that, either on this exhibit or 0 17 separately? - 18 I would have to do that separately for you -- A 19 Well, let me make the question exact, so that we 0 20 don't spend undue time on it. 21 A All right. . l 22 Q Are you able to give us an approximate cost of 3 q 1ang-term capital acquired for the construction of Three-Mile k_/) Island? 25 g gi; __ . COMMONWEALTH REPORTING COMPANY (7171 761 7150
243 i
. I l
O Not necessarily now, but is it possible for you to
-j 1 1
2 do that? j n I 'A - auyulitaa % ima acquizes long-tera capital 1 i for :-things, mot. tmly Her liu.c Ji1e Tela na , ;but;5or n+hr -
'3 ,. Y tml,~mnd.We,did' Jot %quir , my-I- I M f*2% .11n .L-6 Mile rauna .
- . 7 Q However, with a total invested in it of $500-plus l E imillion, undoubtedly, certain capital acquisition costs can 9
,b e , in a time frame, attributed to the construction of Three-10 Mile Island? ?
one could make that allocation; however, there's ! 11 A 12 also common stock, capital contributions and future yield g 13 that is utilized in that process, also; so it's a total capital I f 14 market, not just restricted to long-term debt. , 15 Did GPU -- you have now $66 million in GPU stock, Q i 16 common? 17 A Well -- f 18 Am I right on that figure? Q 19 A Ye s , bu t -- 20 Q And $280 million in others; correct? 21 Paid-in capital, yes, sir. A l 22 Apart from the preferred? Q 23 A Yes, sir. g
) 24 Q Did GPU purchase additional common stock just prior 25 to or at the time Three-Mile Island was being constructed?
I NMONWEALTH REPORTING COMPANY (7171 761-7150 l
il m;
, e A GPU did make capital contributions to Metropolitan f 1 2 Edison during the mid-1970's, yes. ,
- 3 & -3s -that a'7 of the $28 0 million? , 4 i
- 4 -A .Tes, sir.
5 ' -D Tarn you"give.msh Wtemurmut? , I
- s. '
T m e -fM =--taime., - no.
'l Q Could 'Jod?
15 ' A Tes. ,
- 9 Q And, finally, did GPU market. additional preferred to prior to, immediately prior to, or at the time Three-Mile l 11 Island was being constructed?
12 A , The operating companies would issue the preferred. j b 13 I'm not clear as to whether GPU got some preferred or not, i 14 0 Would the -- when did the construction of Three-15 Mile Island commence, if you know? 16 A It would be -- it started, approximately, in 1969. 17 So did Met-Ed issue a balance sheet in 1968? Q 18 A Yes, sir. 19 0 It had its own balance sheet,.that's dated and could 20 he retrieved? 21 A Metropolitan always have -- they always have balance 22 sheets, every year. 23 Well, I would like to ask you, Mr. Huff -- at your 0 24 convenience, if it does not take too long; perhaps, by tomorrov 25 morning -- to give me at least in an~ order'of-magnitude , CoMMoNWEa.LTH REPORTING COMPANY (717) 761-7150
247: i l I
. I approximation, the cost of the capital acquired immediately Q
\ l 2 prior to and at the time that -- during the time that Met-Ed l
? ' aneus MS 20 -~ -- 4 W 'least JLa tezas of the Icsug-irrii 4 detyt? !
Joussean. L a N 3s' lana, sit?. l T A
' s Q I mean Wee ' Mile Is3nnd, 'yes; ala-1 say =c_ihing
?
7 else? I 8 3 You said 1eet-Ed. 9 0 I'm sorry -- TMI, Three-Mile Island? 10 A Could you be specific in the years? 11 Q I would -- l t 12 A Three-Mile Island I was completed in 1974 and Thre 13 Mile Island II was completed in 1978. i t 14 Q I would think the long-term capital acquired during : 15 ' the 10-year period 1968 -- 1969 through 1978. i 16 A Yes, sir. , 17 Now, the long-term debt which has been referred to 1 Q l 18 in at least one Metropolitan Edison release as embedded debt l i 19 is all reflected on your balance sheet in Exhibit B-1, is it 20 not? 21 A I'm sorry; my mind wandered for a minute. Would you ) 1 22 please -- ;l l 23 I'm sorry. The question was long; I don't blame Q , 24 your mind from wandering. i l 25 All of the long-term debt issued, whether or not in f _ COMMONWEA1.TH REPORTING COMPANY (7176 761 7150
. . ' : l 248'
, e
;
1 b V 1 support of TMI, is reflected on the balance sheet which is 2 part of Exhibit B-l? g I
'3 ' -
A Yes. l 4 .Q.
' .Is -that right? !
;
73 *A
, .Jes, c. sir. l
~
S -Q And, +%, with TW to N % b delbt, 7 the debt service requirements -in -terms, first, of interest, f 2 are included in your_ rest .cf operations? , 9 A Yes. ' l 10 Q And, also, your amortization requirements for depre-11 ciation -- to take the other side of the coin - are included? (K 12 A_ Yes, sir. kJ j 13 0 By the same token, if any preferred stock were 14 issued to raise capital, the same is true, inasmuch as you j 15 provide in your filing for the payment of a dividend on the ! 4 16 preferred? 17 A Yes. 18 Your filing allocation, $10 million -- 0 19 A Yes. 20 -- to the preferred dividend, annually. 0 21 That's the annual dividend requirements, yes. A , 22 Q Now, when you say " requirements," you don't mean i 23 requirements, do you? i Q- / 24 That's accumulative dividends? 25 . A That's our annual dividends.- ' i COMMONWEALTH REPORTING COMPANY (7171 761-7150 ]
(, 1 O Yes. It's not a requirement, thoug h? h 2 MR. RUSRELL: We would like to think of it as our i 1 ====7 - rmpii _.6 yes_ . . 1
-r . .;m :.suostrs: Ih -e- you -'a _
if 3rna h : =a * . si "5 { rit. , t 4; ~14R. ~. 6 = - h ,"n ' i MR. MORRIS: But " requirements
- is -the wrong word, i 15 is it not? It's acemmulative tiividends?
I 9 j. MR.PRUSSELL: Ec11, I don't think the quesrion is 10 clear. 11 MR. MORRIS: Well -- . . {>. 12 MR. RUSSELL: I think it's misleading- g 13 BY MR. MORRIS: 14 0 Is failure to pay the preferred dividend an act of , 15 default on any type condition, an event of default? 16 A well __ 17 0 If you know? i i is A -- I don't know the full import of the preferred , 6 19 stock, but failure to pay, I believe, in four consecutive 20 quarters is a nominal default; and,therefore, there's some ! 21 action that takes place. 22 All right. Perhaps your Counsel can provide us with ; Q 23 some -- 2e i MR. RUSSELL: Documentary evidence as to the charterI 3 i 25 agreement is already in the record. l l COMMONWEALTH REPORTING COMPANY (717) 761 7150 4 i
Il 2se! h~) 3 MR. MORRIS: If you can refer me to it, it would be V 2 helpful -- and I do apologize, but we have not had long to 3 .rev.Lew the NWg. 4 MR. 3rnnMTTT.- rnnld "I have hhmn*_s s -J W w ..:-j- N d l e MRJ 1tMRTTT- - It's'E-22. - 1; l
*/ MR. MORRIS: I presume a witness sil'1 be available i l
e who is - l 9 MR. RUSSELL: Mr. Graham is the witness who spon-10 sored that. !
~
11 MR. MORRIS:' And he will be -- p?.3 12 MR. RUSSELL: He'11 be here today. U 13 MR. MORRIS: Yes. , 14 BY MR. MORRIS: is Q Does your filing indicate the manner and timing 16 of acquisition of paid-in capital which, I assume, was attrib-17 uted by GPU? 18 A No. It's all been resolved, as of March. 19 Q Do you, by recollection, remember how that capital 20 was paid-in and when? 21 A The last, paid-in capital that brings to mind, this 22 being in the mide1970's, was probably in 19~13 or '74; that's 23 my recollection.
, 24 O Is there some easy way we can track the payment of 25 that capital? '
l l COMMONWEALTH REPORTING COMPANY (717, 761-7150
251
, 'i
;
, 1 A Well -- h l
2 O I suppose we em ld go to the balance sheet of Met- ) i
~1 Ia?
l
-4 .A . Hes.
5 Q Jtre -they-=nra3hw~3moei .without tyiiwwr,.. ; __4'o :s s lot of paper? 7 A They have been made available in past Troceedings, s p. 9 'Q. I mean, without tracking through that, do you happen 10 to have them here? i 11 A No, I do not. } l} 12 O You don't? . g t 13 A No, sir. ,
;
14 0 I thought you might have a book 'in which you kept 15 those. l 16 A I have many books -- : i 17 I'm sure you do. Q 18 A -- It's impossible to bring a million books of - l 19 information with me -- l , j 20 Q I'm sure you do -- I'm not critical -- 21 A If I can go back to one of your earlier questions, it 22 may help you? : 1 23 0 Yes. t
-..) 24 A I do have, in support of Part 3, Page 17 -- I have 25 a schedule here.of the debt that was issued,,the year that it CoMMONWEAATH REPORTING COMPANY (7171 761-7150
252, l % (v ) i was issued, and proceeds, et cetera, and this may be of some 2 help.
~ I 3i _- D 'And-
- -n ,
A 2% lis mat.W af theD 13w), . hut it's '-- - rs L:it-2 .j eviBenee that T _have-MW
- page that m12----
s Q 1sould this SmcInSe Oi.hs pid-in v-=TritaL w is 7 this only -- l 8 A This is only petwnal levied fines - 9 O The fines? 10 A Yes. I 11 Q The debentures? f L/ 12 A, -- debentures and preferred stock. i l' 13 0 I would like, at your convenience, to look at a 14 copy of those, so we don't waste the time -- l 15 A Yes. 16 MR. RUSSELL: I would also bring your attention to 17 a further exhibit, E-ll, which.does show the issuance dates 18 of the various long-term debt and preferred issues of Met-Ed. 19 MR. MORRIS: All right. 20 BY MR. MORRIS: 21 Mr. Huff, your filing indicates an increase in the O . 22 cost of purchased power during the year ending March 31, 1980, 23 O of $124 million. NJ _) 24 Is that figure in accordance with your recollection? 25 I think You will find it in your operating expenses. r ._. - - _ . - , _ _ CoMMONWEALTfLREPORTdG_COM P ANY (717L76h7150
l 1 2533
~
j 1 A Just a minute. j l l 2 (Witness perusing documents.) 7 ' W R-m
. --e .Q 1'Part..I2, Page.3.
;
5 3 : Pas:t)124 r. sir? -
-s 1 "Page 7, w a i inv 'LW, 'Pege 3 of M*W~B-3 7 (Witness perusing documents.)
S 'THE WITIESS: Tes. 9 ~BY MR. MORRIS: 10 0 And are you the witness that is familiar with the s 11 full power agreements under which the purchased power -- i l I 12 A No -- that would be Mr. Newton, who is availe.ble 13 for cross immediately after myself. , 14 0 In connection with your rate work, have you had , i 15 occasion to make or review projections of Met-Ed based on 16 alternate methods of calculating purchased power costs? 17 A No, I have not become involved in those projections. 18 0 Have there been some such projections? l 19 MR. RUSSELL: Alternate methods? Could you be more ' 20 specific? 21 All right. MR. MORRIS: 22 BY MR. MORRIS: 23 Q I guess, some method with respect to that power
~) 24 purchased during your split savings plan, which revises that 25 plan? ,
1 t __ , _, COMMONWEALTH REPORTING COMPANY (7171 761-7150
;! .m i i 1
OO 1 MR. RUSSELL: You mean the proposed revisions before
\
d 2 the FDIC's? l I
.3 - - ER.71erstRIS : Y% . sir.
;
_MR 1rn%T'TT f _.Mr Newton, . I4hivar, . r nn1 A -=+ 3m l a I
~ 5 y 1Jivepu initial 2:overagemf dhat
. f s.N -'71R ~1EDERIS- Okay. @ .
1
's- 'T MR.' RUSSELL: If you want to tJet cinto greater depth, 8 then we might have to tJo to an addititmal witness. l
;
u 9 MR. MORRIS: Well, then I'll -- purchased power l l 10 cost would generally be in Mr. Newton's field? ' 11 MR. RUSSELL: I think so, yes. 12 MR. MORF.IS: In any event, Mr. Enff will be available Li l , 13 if there's some questions of him? ! 14 BY MR. MORRIS: 15 0 You'll be available, will you not, Mr. Huff? 16 A Yes, sir. 9 17 0 Thank you. 18 Mr. Huff, to your knowledge, has Metropolitan Edison 19 internally done a projection which restructured its capital 20 organization, assuming that Three-Mile Island were not a 21 Metropolitan Edison property and that capital and expenses -- 22 well, capital was not a portion of the Met-Ed system? 23 - There is none, to my knowledge. A v) , 24 MR. MORRIS: Thank you, sir. 25 That's all. , , . ~ . , , . .... -.. , COMMONWEALTH REPORTING COMPANY (717) 761 7150 _
255: j 1 JUDGE MATUSCHAK: IstheConsumerAdvocateprepareh 2 to go forward? 11bclieve 30,, Tour 31rmnr. '
, 3 MR. BAltASCB:
i 4 317. wa r n1Trat:rst 5 -D - Good -- - ; 54 Br e- - . 4 -2 Good -uing,. sir - if .2 zany -take"tmeM j i 7 'Q Yes. , l 5 ' { Witness t:enferring.) 9 THE WITNESS: Thank you. 10 BY MR. BARASCH: ! 11 Q Mr. Huff, the company -- the cc:Lbination between 12 this pr_oceeding and the general rate increase that's been 13 filed -- is asking for something over S76 million in increased 14 rates; is that correct, sir? 15 A That is correct. I
~
16 0 And of that $76 million, the company's filing 17 categorizes approximately.541 millich as beint) TMI-I related? 18 Would that be accurate, $41 million? 19 A No -- I think it's closer to $44 million. I 20 0 Is it fair to categorize $35- to' $36 million of 21 that request as being non-TMI-I related? l . l 22 g well __ , I : 23 In other words, can we characterize the extraordin
. Q 24 rate relief as being non-TMI-I related?
25 A Well, in response -- ,
@MTOMEDL900 CEGr4Eb~ nrm 6 (d.PDDrs/ c5709n 9730.90cm
y 256 1
. s.
- 1 MR. MORRIS: I object to that question, Your Honor.
)
2 It's clear from his previous answer that it is TMI-I related 3 [ asad M= ,r+t-h M the,-rn* nf h imbeSded debt. It has to
-4 . servine that -cash 2 flow
! . JUDGE JUEFUSUDut:: -WMTl 2yywrrGe -the.4- ~"-- I
-3I ;
R. EERASCH- 7f .it would help,-3tr. %.. A ~I*H be -
-6 7 more than happy to frame the question with that in mind; I-
; ,
s would agree with that cat. w ization w eif. ! 9 j BY MR. BARASCH: 10 0 Aside from the cost of imbedded debt, which you 11 categorized $35- to S36 million'as being, basically, non-TMI-I f2s 12 related? l tj ; 13 MR. RUSSELL: Well, I object to the question. I
. t 14 think it's a compound question that asking a multiplicity of ,
15 answers. 16 Will you treat the subjects one at a tinte and ask 17 a fair question of the Witness? 18 JUDGE MATUSCHAK: Would you rephrase the question, 19 Mr. Barasch? 20 MR. BARASCH: I'd be happy to. I thought Your Honor 21 had already ruled on the question. I'm sorry. ! Ill ! 22 JUDGE MATUSCHAK: Break it up into parts. < 23 p BY MR. BARASCH: , U l
/
~
24 Would you categorize the extraordinary rate relief 0 25 portion of this request -- that being the S35- to $36, 1 l COMMONWEALTH RE PORTING COMPANY (71 761-7150
n i I
.257 46 1 million -- as being, basically, non-TMI related?
2 . A Yes, sir.
- 3 p w -t+=-nc you are the span =nr of the 4 - ent that I
A ds attached to-theWtion.7m2he3 eft 2pp= ruh P; .is
- hat:erwrar-t -
I
?h- '
- s. . : sir?
I
- 5. -A T zm. yes.
" ;f -
' " 7 0 And that document provides the calculation of extra-! 8 ordinary rate relief r%u=sted in this succMing, doesn't it, 8j sir? 30 A Yes, it does. f 11 Q And those calculations are based upon a future test 12 year ending March 31, 1981; is-that correct? ~$ {I 13 A That is correct. I 14 Q Now, then, at your corporate headquarters last week, ; 15 I believe, in the course of our discovery conversation, you 16 hadproducedadocumentwhichis,forallintentsandpurposes) 17 identical to Appendix F, except it states "Upon the historic i 18 test year ending March 31, 1980." 19 Is that correct?
- 20 That is correct. !
A 21 I wonder if 'it would ease the record, MR. BARASCH 22 Your Honor, if the company has a copy of this document, that ; 23 we could have identified as an exhibit in the proceeding? $ 24 MR. RUSSELL: If you'd like to identify it as an
' i
*5 exhibit, as yours, I think I have no problems with that, but l 98MNNWEALTH REPORTING COMPANY (7171 761-7150
258 it's not something we've prepared on our initiative; it was [']' b i 2 pursuant to .your request, .I. hal.ieve. 2l - UUIIE 'ENTUSCHKK: 'Do you Slave that? Has 'that sub-
, . e.a -to ,foo
~5 'ER. BMthSCB: " Wet:cpy that' l%na' tIid :ncrt .2nswe-time k
~
i
-E ' eihibit numbers on .it - -
7 JUDGE MATUSCHAK: Well, you can offer it. t s MR. BARASCH: WJell ~ . 9 JUDGE MATUSCHAK: If the company doesn't want to lo offer it, you can have it marked as your exhibit, if you wish? 11 MR. BARASCH: -- yes. I mis just trying to make 12 things ,a little simpler, Your Honor.
'{
;
' i 13 BY MR. BARASCH:
- i 14 O Mr. Iluff, you do have a copy of that document in !
I i 15 front of you, don't you? 16 A Yes, I do. 17 MR. BARASCH: If possible, Your Honor, I would like 18 to present copies of that to the Court Reporter and Your Honor 19 after the lunch break,.I guess, because I don't have -- 20 JUDGE MATUSCHAK: Very well. 21 MR. BARASCH: -- copies in front of me. 22 MR. RUSSELL: I don't either. 23 JUDGE MATUSCHAK: For the time being, let's mark it, v) 24 so that if you have reference to it, we can -- 25 MR. BARASCH: All right. . l l -._,._.m,-_c ~__ m . COj(MoNWEALTH REPORTING CO_MPANY ,7171 ( 7_61 7150 _ _ _ _
il . e
. M.$
(. 1 JUDGE MATUSCHAK: What do you want that as, Consum 2 Advocate Exhibit I? .
-3.l.
' ~
EEt I'BERASCH: I'd like -to Dhal it Consurser Advocate 4 e,rh4h4 t T 1 3~ . JUDGE BCrnuarWAY-ertM setil.L 6' - W.~EKRASCH: ~_since it h es h m % 7 exhibit labeled Appendix F. i 8 JUDGE MATUSCHAK: Tery well. i i S (Whereupon, the document was i 10 marked Consumer Advocate's ! i 11 Exhibit No. F-1 for identifi-I ~
)
12 , cation.) h l 13 MR. BARASCH: I'm sorry, Your Boncr; could we go g 14 off the record a minute? 15 JUDGE MATUSrHAK: Yes. . 16 (Discussior, off the record.) 17 JUDGE MATUSCHAK: 'Back on the record. 18 We will take a 10-minute recess. 19 (Recess.) 20 JUDGE MATUSCHAK: On the record. 21 Mr. Barasch, are you ready? 22 MR. BARASCH: Thank you, Your Honor. 23 Over the break, I had an opportunity to xerox the 24 document. Let's label that Office of Consumer Advocate Exhibif 25 It's a document entitled " Metropolitan Edison Number 1. cestmer2artsma crersesPea canmocmz so m vxaq si m l
. . p i 26TJ :
i l 1 fS V 1 Company, Twelve Months Ending 3/31/80, Calculation of Extra-' ! 2 ordinary Rate Relief Revenue Requirement Where Common Equity 3 Retur22 is 7 i*d tzi 13. 38 percent."
--4 2UDGE RIL 6 T- Tery we31 3 R*.BEtASCB:: 2.manri..ilu@ evydesi zf t -that -tio the j 4 rhi eis,mui tzne -to Torrr 1tonor, ani1T,rMalwthe W 7 parties copies. l a appcz ishTOSCHAX: Very well. -
' - 9 (Uhercupon, the document here-10 tofore marked for identifica-11 tion at Consumer Advocate's p.. 12 Exhihi t No. F-1 was withdrawn.)
> l 13 (Whereupon, the document was 14 marked Consumer Advocate's ,
15 Exhibit No. 1 for identifica- I 1 16 tion.) ) l 17 " BY MR. BARASCH: l 18 Q Mr. Huff, that document that you have in front of 19 you -- 20 JUDGE MATUSCHAK: That's Consumer Advocate's Exhibit 21 37 22 MR. BARASCH: Consumer Advocate's Exhibit 1. 23 JUDGE MATUSCHAK: Exhibit 1; okay.
") 24 BY MR.'BARASCH:
25 i 0 -- basically, it's the same historic representation ' -w r. ws.~,,---. . , . COMMONWEALTH REPORTING COMPANY (7171 761-7150
11 251!
. j j and the same materials that you provided to the Commission i y ur Appendix F; is that correct? I.
2 3 1 Ttuutis - ml 3 .- Ana -t-hn+ -arw runent asers .r e ' -> your - :-- vi- ,
- nw , . . . . _ :p 3 ,
6j A Tes, -it us. 7 Q Now, as I look at Consumer. Advocate's Exhibit 1, if i 3 I esere to take that and line .it up with Ayye_udis P ~ do you
- gj have that in .frcat of you, sir?
10 A Yes, sir. 11 Q About seven lines down the page, I see an item l i 12 labeled " Adjustment to Normalized Return to Reflect Payroll
, g
{~l and Other O&M of Levels Which Eliminate Post-TMI-II Accident 13 l 14 Related Deductions."~ , 1 15 Do you see.that, sir? l 16 A Yes, I do. 17 Q And that has a value of approximately $6.5 million; 18 is that correct? 19 A That is correct. 20 Q On income. ' 21 A Yes. 22 0 ~And if I were to gross that number up for revenue, 23 that would be worth about S13 million.
,) 24 Is that correct?
25 A That is correct. , COMMONWEALTH REPORTING COMPANY (7171 761-7150
- 262' I
1 Q As I look at Appendix F, there's no similar adjust-2' ment on AppendivE for the future test year. I
^ '
3h
~
Is -that currect, sir? l 4 2 That*.s morrect.
- 5 - ' .D 7 d r#if you can MhiWito me: aihy tle%i.muu L:
6 exhibit contaiEs this $6.3 d' lion income aGj -l-- 1-, whereas
- I l
~
7 the future test year does not? j s Primarily, the reason for it is because in the ! A
>' - 8 historica14estcyeurimo normalizing adjusuaents were made to )
l 10 bring the return and the expenses to a normal level. They 11 just reflect the level of expenses that were experience through f d 12 March 31, 1980, at a very depressed level, and in Part 9, where i 13 most of these numbers came from, of the normalized return, it 14 indicates a fairly large return to Met-Ed. I i 15 In this filing we did not normalize the historical 1 16 test year to a normal level because the future test year was 17 use as a basis of level of requested -- the return.and the 18 attendant revenue requirement. 18 For purposes of supporting your extraordinary rate Q 20 relief case? 21 A Well -- ; 22 I Q Is that correct? 23
. A -- it's the basis of our claim for the $76 million?
24 Q So if I were to make an adjustment to the data pro-25 vided by you in Consumer Advocate's Exhibit,1, to, quote, 1 COMMONWEALTH REPORTING COMPANY (7171 761 7150 ,
l .M3 !
}
b, 1 "un-normalize" that exhibit, I would end up with a claim of i 2 about $23 million. o l 2 - Isn 't +h=+ uzrrect? 4 1 4 2 men I 5 'O. 2nstead nf-time .535'=MHon? e 6 T Tf .the CDRSumer hte did2that,: p- theT=rmW 7 arrive at $23 million. s 0 Thant pu. 9 A' But I -do vish to caution that in doing that, the 10 level of expenses experienced in 1979.and 1980, through March,i ! 11 were at an extreme low level; we had many cuts in the expenses;i 12 we lost a couple hundred employees through attrition, who 13 diverted employees of the Three-Mile. Island's efferts off of i 14 the -- for the recovery effort; the tree trimming was cut back,
;
15 drastically. 16 Therefore, the return that's on Part 9 is not repre-17 Sentative of any normal yield. 18 0 So in other words, what you're saying is the reason 19 why you normalized up the historic test year would be to, 20 basically, factor back in the employees that were attrited
~
21 during 1979 and 1980 and to factor back in a level of tree . 22 trimming expenses that perhaps were cut during the ' 7 9 and '80 23 historit years? g
) 24 A That is, in part, yes, but-not nearly --
25 0 -In coming up with this $6.5 million income or $13 _ _, , CC!MMoNWEALT EPoRTIN G_CoM P A{{7171 761 -7150 , _
H , f5 1 million revenue a'djustment between the historic and the future U 2 test year, is this basically derived by merely taking the
.- 3 nnma-jnea %:_:..rir. test year ana subtracting the value shown 4 . imshn+. g r. nim +4nn draur -the anta - that - -- - -- u ;+h _ r ; .. . e
-l
- 3 1-test year plan, -in AppeniHT P-2, .e_ arrive at -the '513+mnn i ?
l 0 . number? 7 .A Perhaps I can explain it better by the actual calcula .- 8 tions I've used. Q All right. Sl 10 A In the historical test year, Part 9, I had a payroll 11 of $35,850,000 and Other O&M at $41,213,000. t p 12 In the future test > year -- I'n so:rf: I stand ; O
~
13 corrected. The numbers that I just gave was for the future ; 14 test year, Part 8. I 15 I Part 9, which is the historic test year, had com- i 16 parable numbers of $29,635,000 and $34,357. 17 This $13 million -- and the actual' is $13,071,000 -- 18 is the difference between those two numbers. 19 So, in effect, what I did was, for Payroll and Other 20
'O&M is to substitute the numbers that are in the historic test 21 year for those that are in the future test year.
22 O You mean the other way around? 23 A Well -- (m) l '/ 24 0 You substituted the future O&M and payroll expenses 25 to the historic figures? ., COMMONWEALTH REPORTING COMPANY (7171 761-7150
--sm-%v _
m- a , m .
3 265
.l g 1 A The numbers contained are the future test year, th I
2 final results. - l 3 .D .hnt p. 4 .T turn your at++ntirm to.3% ige 3,mf-AW4,r T..
-s- w1 - m - ,. ..
6 m VIT!sss: Yes. 7 BY MR. BARASCH: 3 O Take a look at Line 12 of that exhibit, sir? , 9 A Yes. 10 Q I see an item labeled, " Reserved Capacity." 11 A Yes, sir. 12 Q , With a value of $10.9 mill,nn. 13 A Yes. 14 Q I wonder if you could briefly explain to me what 15 that expense claim represents? 16 A Well, you're referring to the Exhibit F, or Appendix 17 that's in the petition for extraordinary rate relief? F, 18 g 7.m referring to Appendix F in the petition for 19 extraordinary rate relief. 20 (Witness perusing document.) 21 THE WITNESS: I'm sorry -- now, would you repeat 22 your question? 2 , BY MR. BARASCH: 24 Q I just wanted you to briefly describe for us what 25 that $10.9 million reserved capacity expense, represents. COMMONWEALTH REPORTING COMPANY (717) 761-7150
. . I 26E
- I e
- pp 1 A First, the $10.916,000 is a direct result of Mr.
O 2 Newton '.s _ compn +=
- i ann .and testimony. .
t 3 3 7ey @_, _ ; _ .s.g
.4 ^~A ~1ty . limited .hledge "A2f what.rearrved ' _- ;- ~ ;y .is and .its' effects, is.-that -the'5RLS.=MTinn'.is1that -mewart ht '
3 6' is associated with Three-71ile Island I, and -the effect it has
~
7 on the total reserved capacities that Met-Ed has to pay. s V I wonder isi there someplace in p wious exhibits f 9 il. number. that would represent the reserved capacity value of 10 TMI-II? 11 A Yes. That would be Part 8, Page 1. f 12 (Counsel perusirig document.)' i
~
N)s - : 13 THE WITNESS: That would be Line Number 12, Column 4,
- i 14 $12,187,000. Both of these numbers may be obtained from Mr. .
15 Newton's Exhibit F-6. 16 BY MR. BARASCH: 17 Q Mr. Huff, to the best of your knowledge, do these 18 reserved capacity expense adjustments represent a set of 19 expensesthatareactuallybeingpaidbythecompanyineitherj > 20 the historic or the future test year? i 21 A In terms of a response to that question, I'd prefer 1 22 to defer to Mr. Newton, who has intimate knowledge of the 23 reserved capacity and -- n 24 You, yourself, don't know whether those expenses are Q 25 actually being paid by the company or not? .
. 1 COMMONWEALTH REPORTING COMPANY (7176 761-7150
h 26-) '
;
i ! C* 1 A I know what the cash-ficw outlay is, but as to its h 2 effect on what's expense and what's credit, Mr. Newton might
'3 , h =h'e en =119 :- p .
-;
.Q Would. you tzrn your'-Wh. gense,rto'. Bet-2d
~3 , Trbhi t 53., Page z9? 3C M " -
6 I (Witness perusing . documents.)_ .;; ; 7 JUDGE MATUSCHAK: What exhiMt is 'this? l 2 ^MR. BA1DLSCH: Exhibit S-1, Part -9, Page 1. 8 JUDGE MATUSCHAK: Thank you. . I 10 THE WITNESS: Okay. . I i 11 BY MR. BARASCH: I 12 0. If you would direct your attention to Line 19, und 22 'g " Depreciation Accrual," Column 2? 14 A Yes. 15 I 0 I see proposed adjustments of approximately S1.8 16 P.illion to income. i 17 Do you see that, sir? 18 Yes, I do. A 19 Q I wonder if you could clarify a matter. . I 20 ! Does that adjustment. re. Late to an amortization of
~l a book reserve deficiency by the company?
22 A I'm not sure I can respond positively or negatively : i 23 to th'at question. 24 Mr. Garland has these in his exhibits as a result l l 25 of Adjustment Number 10, Page 29, which Mr. , Garland is 1 COMMONWEALTH REPORTING COMPANY (717) 761-7150
9
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a O 4
. 1 .. .
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[ ' M'.i r =a.- syyagande er-upporting. s in w s. > 33" .It 's my reco11cetion that we do not have an amortiza-3 s';;;L .- 4 ' eion . however, Mr. Garland certainly can clarify that. 3 '.:na.-~ 4 r-MDt - g 1328-- . .- Q - . Do .ycu know whether the company made a si -i inr . chim E -] . 3 f
.'~ N .....
-: him - ene ..in their .ta st rate c.,se , a t- R . I . D.. 626, M er the 2 . A=-
9eading of " Remaining Live Accruals?"
. " . . .TM
$
- AIn\S -..
~
s . J*. ~ t",. A Did we make a claim similar to this?
? M 5 ~=*
Q Yes? 5 t_m T T j 9.) A Yes-m ( E W Q Do you know whether or not the Cor. mission granted i .E!: s
! 2 that claim, in either the 626 case or the 434 case?
.*tw m
- 2. *. -
i 9
=.aamt . . .
A To my recollection, the order of the Co...iss.cn did
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.g h -not allow remaining live rates.
1 h .y v g xy c.. s -- w re. Q. And -- i e rm rm -
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- .9:
3 A That's my interpretation of the order.
- g. 1 '6.
., . x,:3g i r4'- -
Q -- just to clarify that, if you will turn to Section g asgr.,ai, =- d..gg : of B-1, Page 27, the revenue value of that adjustment is j { q'l'jpg:; #L i 4 .E 1PProximatelv $2.1 million --
% W 7
3
. . 'W uk u A
Yes. I j .#9 e l ~- . & '.; e: '
~
Q -- correct? 2.1, ...
. , A Yes, sir.
1 itt w. 0 . Now, could you turn your attention to Part 2 and C. I e 93 i-1 _3 -
.,Part 3 of Exhibit B-l?
fg (Witness perusing documents. )
, :,) '
i .'. "$.. . THE WITNESS: Yes. M i
I 260
. . l t
k 1 BY MR. BARASCHi ! i) v 2 E . Bar H ~h r ly,;,.Line .13 , in each of those sections.
- s. I 1 12 3.iame "I3u :M ,
4 i 4
.D ' Yes,. in _both h:2 3,wl Patrt'~3. !
1 3 .2 - Jes, : sir. 61 g- namswl 12pon histraric 1sest M, ."f shona the m ) 7 seeking measure of value treatment for the? deferred energy i a balance .bo the tone of $46 mi11 ion. 9 .- Iw.that correct,. sir? ,. 10 (Witness perusing document.) ;
;
11 THE WITNESS: Excuse me; I had the wrong section -- ! I
- 12 yes. '
BY MR. BARASCH: 13 14 O And if I look at the future test year, the company { 15 would be claiming approximately $20 million of measure of' 16 value treatment for the deferred energy balance, based upon l 17 the future test year. l l 18 A Yes. 19 Q Is that correct? 20 A That is correct. 1
- I 21 0 So, basically, we see a situation where, in the last 22 year, the deferred energy balance, by the company's admission, 23 is coming down substantially.
('- 24 Would that be correct, sir? 25 - A As a direct result of the $7.4 million that the COMMONWEALTH REPORTING COMPANY (717 761 7150 (. ---,,,n- ... .~~n l
f 270' o l d s , 1 Commission granted in the last order. h I 2 O And that the company, in this rate case, is seeking j 3 Jor' this Cannaission to give a returza on that deferred energy a wamr-=_ .ds -that mrrect, . sit?
.s :A :Ses,'that .is , u nL;Wmse'itZis& that M n.- .,.
6 baen expenaed. . : 7 Q And under that May order, is'it your understanding 8 that the entire deferred energy balance will be gone by the i 9 end of 1981? c t to A Well -- 11 Q Since they will be recovering these monies through {) 12 a special surcharge in the energy cost? g 6 13 A That may be a reasonable characteri::ation of the 14 time frame. It may be late 1981, maybe early 1982, or there-15 abouts, yes. 16 MR. BARASCH: I have no further questions of the 17 Witness. 18 JUDGE MATUSCHAK: Any other cross-examination of 19 this witness? 20 MR. BARASCH: Your Honor, perhaps since Mr.' Huff is 21 about to get off the stand, it would be sufficient to the [ 22 record that I would request we move for Consumer Advocate's l l 23 Exhibit 1 into the record now? g
) 24 JUDGE MATUSCHAK: Any objections to admission of 25 Consumer Advocate's Exhibit 1 into the record?
MO7 WEALTH REPONG COM90099 fri20 R m 0522Fre)______ _._ _ _ _ _ _ _ _ _ _ _
I< '271:
. . ;
i i l (r^ ') 1 MR. RUSSELL: I don't think we have any objections. V 2 J11DGE JdATIIseIIAK:. Very well. Consumer Advocate's
-1:!: Tschi2xit 3 ds h iTato evidemce.
4 .w . m.y..,e -t$e h here- ! 3 tofore marked :for: EhNa-I E tion as Consumer .Mvocate* s
- 7 Exhibit No. 1 was received in l s evidence.)
9 MR. BARASCH: Thank you, Your Eonor. 10 THE WITNESS: May I have one moment? There was a 11 question asked of me earlier; I may have an answer. p1 1 12 JUDGE MATUSCHAS: All right.
%J ~
13 (Witness conferring.) , 14 THE WITNESS: I stand corrected, Your Honcr; we do 15 not have the answer, at'this time, but expect it momentarily. 16 JUDGE MATUSCHAK: Very well. 17 Any redirect? I i i l 18 MR. RUSSELL: No. l l 19 JUDGE MATUSCHAK: All right, you're excused, for the ' 20 time being, Mr. Huff. 21 THE WITNESS: Thank you, Your Honor. 22 (Whereupon, the Witness was excused.) 23 MR. RUSSELL: Your Honor, may we be off the record 24 for a moment? l 25 JUDGE MATUSCHAK: Yes. , CoMMONWCALTH REPORTING COMPANY (7171 761-7150 ?
. - - - ...,_,n-.... - - . . - . . . _ - - .._. --. _s l
g 222 n l Inic,n-4 = af.f the. record.) ([ 1
.2 ,..mDGE - .~,c u' + h e = = e n e d - .
2 i-s
- '2 ~ ,-u m n , .
l
-4 HERMA37myr n7m I
5 havistg been duly surn, testified as follows: _ 4 L
^f: 'MR. RUSSELL: If Your Tonor pleaTu, I -havn Med A -to-O e Reporter three copies of a document which I'ask be '
4 marked for iden+Mir ation as Met-Ed Statement J? 9 JUDGE MATUSCHAK: Very well. 10 (Whereupon, the document was 11
. marked Applicant's Exhibit No.ll 12 J for identification.)
(~ , 13 DIRECT EXAMINATION i 14 BY MR. RUSSELL:
;
15 Q Do you have a copy of that document before you, Mr. i 16 Dieckamp? 17 A Yes, I do. 18 Q And was it prepared by you or under your supervision? 19 A Yes, it was. 20 Does this represent testimony being presented and Q 21 sponsored by you in this proceeding? . 22 A Yes, sir. I 23 Could you briefly -- Q
) 24 JUDGE MATUSCHAK: Do you want to identify Mr.
25 Dieckamp, first? ' I e COMMONWEALTH REPORTING COMPANY (7171 761-7150
] 273f MR. RUSSELL: I'm sorry.
(3 x / 1 2 BY MR. RUSSELL: 3i .T irtuo mye- yrsn42 :*6==n? 3;
-4 A 3ty .zrarme .is.hWor% fa: arm hivkrrt_nf
.3 General -PnbMc Cities; Tam-the'4_ ^ ' m hidesst:23f N f
6 1mlitan Edi30727 I n President of the GPU Service Cum u.yg I'm 7 a member of the Board of Directors of each"of-the GPU subsidi-l 1 1B aries. , 9 Q Could you summarize, briefly, Jir. Dieckamp, the 10 substance of the testimony in Met-Ed Statement J - ; ; 11 MR. RUSSELL: I'm sorry -- if Your Honor please, I l 12 also ask to have marked for identification Met-Ed Exhibit J-1.- v/ i 13 JUDGE MATUSCHAK:, All right.
\
14 (Whereupon, the document was 1 25 marked Applicant's Exhibit'No.! 16 J-l for identification.) 17 BY MR. RUSSELL: 18 Was that prepared by you or under your supervision, Q 19 Mr. Dieckamp? 20 A Yes, it was. l 2: Q Could you briefly characterize the substance of 22 l your stat. ament and of Exhibit J-l? ; i 23 A Okay. In making our emergency rate relief request, (',
-) 24 it was our belief that the already abnormally low levels of 25 Met-Ed's operatic,ns and maintenance expenditures in recent a.: _,; - , - - -
COMMoNWCALTH REPORTING COMPANY (717) 761 7150
f 274
* , I o
l 1 years -- and in particular, the period following the TMI acc 2 dent -- coupled with the precarious financial conditions of l T ', & wnmpwny.. -M be rmare +han %te to comrince the 4 hi* inn-that. Met-Edwas3n mecB;nf an: sit 3ocally M+1ed :to 5 wwi.. - ; - m,cdinary rate relief. - I 6 In the smsiedings before the tonnaission which .were
'l concluded in May 1980, we clearly indicated that Met-Ed's B cxpenditures for ccw12uction, operation and Taaintenance, and 9 its level of employment were below desirable normal levels.
10 He believe that the evidence of this fact is clear 11 and compelling, and we have hoped that it would not have to 12 create ,he t public anxiety that can result from addressing in 13 detail the specific cutbacks that the absence of energency 14 rate relief will precipitate. 15 It is apparent from the proceedings, however, that 16 not all of the parties to the proceeding necessarily share our 17 views or understand Met-Ed's precarious condition. 18 Therefore, the purpose of this testimony is to 19 identify the basis for the prioritization of Met-Ed's expen-l 20 ditures and to discuss the cutbacks that will have to be made l 21 if Met-Ed is denied the $35 in extraordinary rate relief that l i 22 it has requested. l 23 In Met-Ed's case, reductions below the existing g 24 emergency level will. withou t a doubt, adversely impact our 25 customers and our service territory. , COMMONWEALTH REPORTING COMPANY (7171 761-7150
275 8 i b') v 1 During these difficult times, Met-Ed has worked to 2 allocate its available resources in accordance with the follow-I
- < ing nrinri+ies: Y1rstly..to wa wtmin TMY-II in a safe, stable' i
4 T-rmaitirm anr1 rto rhan up 2.he unit. cin an .. order.ly mwlv ! 5" 34+4num yiw , ;ln c.arwwvrdance with -the JNI<C:reguirc:asmtm,
- a. S rensistent with the ' schedule that NRC and other; agency approvals i
7 will permit. ! 8 Public health and safety demands that this be our 9 first priorit7 10 We strongly believe that it would not be sound public 11 policy to place Met-Ed in the position where, as a result of ', 12 insufficient funds, it must delay clean-up activities. ' V i 13 As another priority, to maintain the electric supply 14 system in a state of reliability, consistent with the needs of 15 our customers; also, to support the economic aspirations of 16 our service territory with service to new customers, and to 17 make the system reinforcements necessary to provide that ser-la vice; beyond that, to contihue progress toward. meeting the I8 requirements for the restart of TMI-I. , 20 The return to service of TMI-I can decrease energy 21 costs to Met-Ed's customers by about $6 million per month. 22 All of these things must be done while making only i 23 essential expenditures, while keeping Met-Ed's bank borrowings 24 within the limits of credit available to it af ter the above 25 priorities are taken are taken care of and as our cash and _, _ _ _ _ , _ _ _ cop.MONWEALTH REPOdTING CoMPA NY (717 761 7150
9 9 275' c a o (, , 1 ,! as our cash and credit resources allow, to make expenditures h l 2 for the restoration of- normal operation and maintenance pro-
.:: U qs. ass. -to acm=w wision of conHM adequate service to '
4 2 n e r m s r<:. 3 Met-26's 2% L for. uw mai -x y rate WW h t I aR -mt -seek : revenues to aver any TII-2 or w-II msts- it is 7 based solely on the costs in related revenues that Met-Ed must
- s. achieve if it is to continue to wide adequate service to I
S its customers. ; 10 However, the fact that TMI-I and TMI-II costs are 11 not being provided for in rates charged to customers does not 12 change the fact that those costs are being experienced and thg 13 to the extent the costs are not currently ecvered by insurance,
;
14 they require cash from Met-Ed's available cash resources. 15 Met-Ed currently has no external source of funds 16 other than the revolving credit. agreement to cover the short-17 fall between the revenues being received from customers and 18 the expenditures it must make. It is this fact which gives 19 rise to the need for extraordinary rate relief. 20 In the immediately following months, financial 21 stability will be determined by the availability of cash to 22 pay essential costs. True financial stability will require a 23 level of credit worthiness and earnings that can assure the q g 24 availability of credit and access the credit markets. 25 Although every effort has been made to reduce costs [ COMMONWEALTH REPORTING COMPANY (7171 761 7150
*
- l I
;j 277'
'N 1 to the absolute minimum levels, continuation of these budgeted
[~J
\
2 spending levels is projected to require cash in excess of that i I
- 1., muailable from customer reve inr-luding those resulting
- -A _h the _TapiB'1'isferred mnergy tusst. amortizatitmagTzmted _in
;
5, -the Nission's my *.Tirrl ' order - ! S 'As a result, met-Ed's huuwings under . revolving 7 credit agreements are forecast to exceed the S105' million
;
8 currently available % Met-Ed under that agreement. 9 If the requested emergency relief is granted on 10 September 1, the level of Met-Ed borrowings are forecast to i 11 just slightly stay under the existing limits. l f 12 Restoration of more normal O&M levels must await
.( ,}-
' ~_/ 13 the _elimina tion of the cash constraint which our proj ections 14 indicate can only occur after the granting of the balance of 15 the request. 16 Even with emergency relief, Met-Ed will have to i 17 work diligently to remain within the limit, and must also 18 work to attempt to effect savings so as to be able to accommo-1 i 19 date unforeseen cash demands. I i i 20 The ability to forecast a cash safety margin does ! l 21 ' not come into view until after permanent relief beyond the , 22 emergency level is granted. 23 We should also not lose site of the fact that the 24
$105 million for Met-Ed, under the revolving credit agreement,
*5 9
is not guaranteed. , COMMONWEALTH REPORTING COMPANY (7178 761-7150
.__.______.I
U i 27, ) ;, I l. r
, 1 If Met-Ed does not receive extraordinary rate reli ,
2 it will have no c.hoice but to reduce even further its operating a" and unht- <ncpenditures and its 'already sharply curtailed
+ s+% =-+ ion'&ndhre; . Ant-h .zR = irms are M-rNA '
t
.s , b L1. M as an Mternative "to unacivwcy-xate-relief My 1 l
4 wuld severely endanger' Met;Ed's ability -to ymuvide safe and 7 reliable service. l 1; ' Assmning, A, that the requested emergency rate relief 9 is denied, and, B, that Met-Ed's S105 million credit limit is
^
10 not reduced, the following actions would have to be promptly 11 taken, Theinitialreductionsdonotinvolvethelayoffof$
; 12 ,
) l 13 Met-Ed employees. Included are such things as reduction coal l
t 14 inventories to a 25-day supply, a further reduction in tree ! 15 trimming and a deferral of maintenance at coal-fired stations 10 which currently supply about 50 percent of Met-Ed's energy. I. 17 The second group involves personnel-related deduc-18 tions. The results of this cutback would include a 40 per-19 cent reduction in new customer connection, limiting new hook-20 ups to customers who do not need line extensions and to those 21 who use electricity only for very basic needs. 22 These two reductions would seriously undermine the l 23 reliability of Met-Ed's system, reduce non-TMI employment
.) 24 levels by about 20 percent, from a level that is already 25 depressed; leave the company vulnerable to a, prolonged coal 1
5
@@N0Kdfs@K2OILTFP,0 CTIP@Eh70fXKB NPANT7 099Pl 9X3fl-99 50 ! !
f 279!,
* ;
h 1 strike, and provide for only one emergency crew for tree trim-l v i, l 2 .;. ming in each division, thereby almost ensuring that Met-Ed's
.I 3 '.r[l -=tr=ers 2aoula suffer severe ana pro 16agca outages in* ;
I L even nf,aMons 9 m -
~.3 .no +hrrB -set mf reanctions the comparryW'I-Jurve 6 to inake - is related to M-I. The met .hffect snould be a '
7 reduction at TMI of approximately 280':-jobs and would seriously E undermine the schedule of the company's eIIw.i.s to wim.u
~
9 TMI-I to service. 10 This action could also adversely impact the schedule i 11 ! of the ASLB hearings. t 12 This would force continued higher costs of inflation. ; U 13 power for the consumers of Met-Ed, Penelec and Jersey Central.' I4 The fourth category of cutbacks involve TMI-II 15 expenditures. Consequences of cutbacks at TMI-II would, of 16 course, be that the clean-up and decontamination effort would ' 17 be delayed. 18 This level of reduction at TMI-II will result in to" the elimination of approximately 350 jobs. 20 It is estimated that in the aggregate, these cut-91
~
backs would reduce Met-Ed's case expenditures between September 22 1980 and March 1981 by approximately $24 million. i This reduction in expenditures would be accompanied , 24 by a reduction in the level of Met-Ed's non-TMI employees, of 25 approximately 400 people, and a reduction in employment at COMMONWEALTH REPORTING COMPANY (7171 761-7150
k 2s],
. . .-i i
I , 1 TMI-I and II of some 280 and 350 people, respectively.- h 1 2 A1+ % h+ not all of these terminations would be 3 aiver+ ===p1nymes of 6. -the rubiions would result in 1 i l
-4 2 -total loss _of approxiamartely 1, OD0.-jobs.
3 Nhile-the four : areas of_v-n=t reauction have -the 6 4)enefit of someMDr 'p'Lanning, theh lugmci wuld be so
'~
7 drastic that prior -to implementation, it would be mandatory ! E to review and evaluate them 'further.
- 9 In our judgment, the Commission would have to be 10 involved in the final determination.
11 In its order of May 23, 1980, the Commission set l i 12 { forth1.tsdeterminationthat. Met-Edshouldcontinuetooperag t 13 as a public utility and should recover financially, forcing 14 Met-Ed now to take the steps which will further reduce main-l 15 tenance, construction, clean-up, operation, service and employd 16 ment, that cannot be consistent with the intention of the l 17 Commission's decision. 18 I hope that this information, coupled with the l 39 financial and other testimony presented previously is con-20 vincing evidence of the severity of Met-Ed's financial situa-21 tion and that it clearly shows that Met-Ed meets the standards: 1 22 for extraordinary rate relief. 23 Thank you. g
) 24 MR. RUSSELL: That's all we have for Mr. Dieckamp.
25 He will be available this afternoon. COMMONWEALTH REPORTING COMPANY (7176 761 7150 l
i g m;
, . }
1 JUDGE MATUSCHAK: Very well. We will recess until 2 1:30 this afternoon. l 31 ,{3Iharumapan, at 12:27 p.m., the bearing nans ad.,.=rhe: I li l 4 ;! ro - ;at 2:30m = +hh _same # ara i l 3 1 6 i j l
; i 7 . I t
t 3 , ! 9{ 1 10 , 11 i e 19~ ' 13 14 l 15 16 17 18 19 I 20 } l e l 21 ~ 22 1 23 +
) 24 l
25 COMMONWEALTH REPORTING COMPANY (7176 761 7150 1
;282 ,
.pl j 1 AFTERNOON SESSION (1: 35 p.m. )
l
~2 .
JUDGE EATDSCHAK: .ls the. Consumer. Advocate ready ! 3 , t.o 1:ross-memniw thi s witness? i I 4
- 2R EDgtGimFF "Yes, '! dour hmerr.
3 ! JUDGE 4ERTESCEDt: -W wiH sproM - G Whereupon, r 7 . I HERMAN DIECKAMP , S having previously been duly sworn testified fcrther as follows: 9 CROSS-EXAMINATION ' 10 BY MR. BURGRAFF: i 11 Q Mr. Dieckamp, in reference to your Statement J 12 ,
) which you gave a summary of earlier this morning, from your 13 point of view does it make any difference as to the contingency 14 ,
plan and its various cutbacks that are outlined therein as to l whether or not the extraordinary rate relief requested is 16 , granted in earnings or in cash? ! 17 A Well, as a first approximation, I think that the 18 requirement is to be able to have a sufficient amount of cash l to conduct the programs that are set forth in the budgets; and 20 because of the limited cash resources available we are 21 22 restricted to beyond customer revenues to only that available { , in the revolving credit agreement. It is the cash component 23 () . 24 that is limiting as far as just being able to do the work th is outlined in the budgets. 25 On the other hand, there does come'a time when the COMMONWEALTH REPORTING COMPANY (7171 761-7150 _ _ _ _ _ _ - - - - - - U
p2 283 f G I continued availability of that credit and the further reduction (v') . 2 Jt:n dependence on that credit requires earnings and credit 3 , wortliiness so .that we can get back snore nearly to the lind L.cf.iinancial..s+nhi 1-ity .that ds.xecuired:-tn-serve.the J::nstresern 3 .D Yes, . but insofar as +h==.. par +4 <-niments - arc
'S concerned, .as 'l tunderstand what you are saying, you are saying
~~l that cash is a- prerecpHMte.
i E A The immediate impact of the cuts, should they have ; 9 to be taken, is to reduce cash requirements, and thus reduce ! 10 the demand on the revolving credit agreement. 11 Again, I want to emphasize that thati presumes that f t; 12 even in,the presence of those cuts and in the presence of 13 no extraordinary rate relief, the S105 million of credit 14 continues to be available. I think that is a very large
.15 assumption. !
16 Q Mr. Dieckamp, it is my understanding that according 17 to the company's projections the last act, shall we say, that 18 puts the company beyond $105 million in the revolving credit 19 agreement borrowings is a State tax payment that is due; is 20 that correct? l l 21 A I am told that that is a major obligation in that ! l 22 April time period that causes the sharp rise there. 23 Q H ;s the company contacted and/or bargained with the 24 State of Pennsylvania as to a possible deferral of that tax? 25 A I am not aware that we have. I would defer though to COMMONWEALTH REPORTING COMPANY (71M 761-7150 F
93 } ' 284 ' l
. 1 I
h 1 Mr. Graham for a definitive statement on that. 2 O Thank you. 3 MR. BURGRAFF: .That is all we have for- Mr. Dieckamp. I
'4 JUDGE 31LTUSCHAK: Pr==i cmi rm ntaff?
3 '
~ 3ER. :34C' CEAREN: ~ Jetst aJnosnenQ " Tour monor .;
I 6 - (Pause.) , 1 7 CROSS-EXAMINATION ! 8 BY MR. MC CLAREN: ! 8 Mr. Dieckamp, just one question: you stress in
, O 10 several places in your testimony that the $105 million credit 11 limit for Med Ed is not guaranteed, and we must be concerned 12 -
that it. is not reduced. 13 Is it your testimony that a principal purpose of 14 the extraordinary rate relief which the company is requesting 15 is to maintain Met Ed's credit limit.under the revolving 16 credit agreement? I7 A I am not sure exactly, Mr. McClaren, in terms of the 18 word, " principal," but certainly a major objective, as we see 19 it, is to provide the evidence of return or at least initiating , 20 the return to some degree :of financial help that encourages 21 the banks to believe that their lendings are ultimately l l 22 repayable or receverable; and so while I could not tell ypu 23 exactly what is a one-to-one correspondence between extra- g, 24
- ordinary rate relief and that level of credit, I think there is certainly a lot of indication of a connec. tion between those.,i l
COMMONWEALTH REPORTING COMPANY (717) 761-7150
285 l P4 - Il 4 I think the banks' letter that was put on the s
') 1
.J ra-d somewhere toward the end of the last rate case is a
'3 bI pa^.f M 3 nite h air ~mH nn.of.that ennmoeH ne-
-4 . MR 25C CIJmM::- ..I.have.mo.Im - har. , questions 4^.2 cur e ,
.5 . Manor 5 UUDGE MATUSCIIAK: 'Mr. Morris? -
7 CROSS-EXAMINATION 1 BY MR. MORRIS: l 9 Q Mr. Dieckamp,.as I understand it, you are the chief 10 operating officer of the company, and you have an expert, 11 Mr. Graham, who will testify on the details of your capital i I 12 structure and your capital plans; is that essentially correct? f)s 13 A Yes, I think that is correct. 14 Q As the chief operating officer, have you caused to 15 be made or instructed your staff to make plans for a capital 16 restructuring of the company as a spin-off of TMI-l or TMI-2? 17 A I have given no such instructions and have initiated is no such planning. I think Mr. Graham would be better able to 19 talk to that issue, if he returns to the stand. I 20 0 Perhaps my question was too specific, and I will look 21 to him for the details. 'But let me ask you if you have had I 22 any contingency plans made internally by your staff involving l 23 capital restructuring under any circumstances not limited to ( ) l
~,/)
- 24 TMI? l 25 A I am not aware that we have progressed to anything
;
,_~_ CoMM_oNWEALTH REPORTING COMPANY (7171 761 7150 _
286 l PS ! 1
., c ,
j l p 1 like plans. I think that the people that have come closest 2 to that are the ones that have looked into the question of i
"3 .. bankruptcy; for.cxampic, the testimony of the ' Theodore Barry I
4 .w enprand :.es.per-hlly 2 rom :.Dewey, Jr .;.in. Ihec .1 ant casemiar? 2T' etc, 3 think, st- least:getesomc unsight dato theo - 1 Nations , i G uf' . bankruptcy, and 2 am wre that they xeviewed .the degree to j l 7 which the indentures and various lega1' requirements and various 4 aspects of the bankruptcy law would influence or control or 9 perhaps even prevent the ability to really recapitalize or 10 restructure the obligations of the company. I I i 11 Q Without pressing you for details, as the chief i 12 operating officer, has that analysis been carried forward { 13 since those hearings, to your knowledge? 14 A No, it has not. 15 Q Or Mr. Graham would know? 16 A Again, I think you can ask Mr. Graham about that. 17 I am not aware that we have carried that analysis any further. 18 One last' question: in testimony which may be offered Q 19 by the Commission staff, the conclusion is reached -- and I 20 assume it is on a short-term basis -- that Met Ed's current 21 financial problems boil down to a lack of adequate earnings 22 rather than a lack of cash flow. 23 As the chief operating officer, have you projected 24 the cash flow problem out further than a year or two? 25 A Well, . the cash flow problem is for,ecasted in Mr. COMMONWEALTH REPORTING COMPANY (717) 761 7150
Pf , 287 { 1 Graham's testimony out through the end of 1981. (h / . 2 cQ ' llecomheir, 1981?
~3 .~.n Tes. ;
4 ' If you ..are .xah Lgt_o.Jer - Pa=M '.s v=*iwmy, 15 2 think. this projection pgoestiar Jaeyana the;rnhs.-that'he S cites in that testimony, which, as I. recall,. go only Lluvugh i the end of this calendar year, and thus do not reach'out into 8
, the time period of diffienity with respect to credit ,
8 availability. 4 10 0 Have you made any application of funds analysis 11 in terms of capital which goes on out beyond Dece=ber of 1981,. i 12 to say the mid '80's? 13 . A Well, we have budgets and we have spending plans j 14 and we have various and sundry construction needs, and those
.15 all are factored into a-total program that tends to forecast 16 our needs. T would have to hasten to say that the inherent 17 , nature of many of the assumptions that have to be made and 18 the inherent uncertainties in the economy and the price of oil 18 and all kinds of things that impact that kind of analysis 20 certainly should cause one to be somewhat concerned about the absolute accurr.cy as you get too far out of time.
22 Q Have these analyses been presented to you, at least 23 in a preliminary form? 24 A Yes, I routinely see analyses of that sort. 25 Q And they make assumptions, I assume, with respect to COMMONWEALTH REPORTING COMPANY (7171 761 7150
P7 288 *l c 1 various funding sources and application of funds with respecth
. 2 .to TMI-1..and l : suppose with respect to TMI-2?
Tes, and they also ,nnise assumptions TcTative to I 1 A
- -4 . m+-king so .as tn preserve .the viability.oI>the many, 23~ and we ,o1.1.wt -thrnugh such ana' lysis . mot:nnly-to m- - -;=in 1
-5 vhat we ran afford under .assumea mtinuatinn of the enrrent 7 ratemaking principles-that were most recently enunciated, as 8 veil as trying to assess the importance of suodifications in S- ratemaking treatment.
10 0 And I would assume that as the chief operating ; i 11 officer you have these made on the basis of alternative 12 assumptions in several of these areas? 13 A In general, that is true, but, as I say, we have to , I i 14 look at a range of spending programs and a range of ratemakingi l 15 assumptions and try to make a judgment about the reasonable ! 16 match between those two so as to maintain the programs within 11 a region of control, so that we are not initiating programs 18 that we would not be able to carry forward, for example. 19 Fortunately, in the case of Metropolitan Edison, 20 the capital spending programs,in particular, are rather modest 21 with the exception of the TMI-2 obligations after the insurance 22 is exhausted. 23 O Howfarforwarddidthemostrecentanalysiswhichg j 24 you have reviewed take Metropolitan Edison and perhaps GPU in 25 terms of years? , D COMMONWEALTH REPORTING COMPANY (717b 761-7150
98 . { 229 "
'N, (w,, 1 A I have seen an analysis, I think, that goes out for E --- J Juni mt sutre .if it is .five .or ten years.
'D
. MOLild that bc 31mI'1 Ahic 11ere? ,
' - 2 A32n_&J , -r-p Mag e 6: we .zto .ds ==meie :tn -
3~ l ! h 7rnceeda.ngs.
;
6 MR., MORRIS:: Lf it wouldn't Be too%uch trouble, ; 7 I would like to ask Mr. Russell if I could have a copy of that. l I 8 MR. RUSSEL'L- I have Tio idea whether it is available i 8 here today. We will have to check with Mr. Graham. 10 MR. MORRIS : Will you tale that up with him, and 11 if not today, perhaps tomorrow. 4 _ i i
/m, 12 . MR. RUSSELL: All right.
L ), 13 MR. MORRIS: Thank you. 14 That is all. 15 JUDGE MATUSCHAK: Mr. Frater, do you have any 16 cross-examination of this witness? 17 MR. FRATER: No cross-examination. 18 JUDGE MATUSCHAK: Do any other counsel have any 8 cross-examination of this witness? 20 (No response.) 21 JUDGE MATUSCHAK: Is there any redirect? 22 MR. RUSSELL: I have no redirect. 23 Can Mr. Dieckamp be excused? 9} i 4 JUDGE MATUSCHAK: Yes. 25 (Witness excused.)
?.
s
~#
e- ..-_ - CoMMoNWEAt.TH REPORTING COMPANY (7171 761-7150 _
99
.29C' O I e 1
I I MR. RUSSELL: Mr. Newton. 2 Mr. Newton -has previously been sworn. 3 While he i's reming .up, 2-hie anorni ng we .had marked l
~
~4 h JWrrH fi naHrmaset m .mvhihit:_C-34cMir-h p:idaAmame
' Bata whicMhad -bcnn requestc6:in the.H T~ -a1 vnnnwr+'m~c utth e
8' the staff 2.am advised that the staff-has mo purpose for l 7 having the matter in the record, so at this time we would ask t 8 to withdraw' Met T,6 Exhibit C-34. 8 (Whereupon, the docu ent marked as Met Ed Exhibit C-34 was 10 withdrawn.) i 11 It has not been admitted 2:rjway. JUDGE MATUSCHAK: 12 Whereupon, 13 EDMUND NEWTON, JR. . l I4 having previously been duly sworn testified further as follows:i JUDGE MATUSCHAK: Would you identify the witness on 16 the record please? I DIRECT EXAMINATION BY MR. RUSSELL: I8 State your name and address please. Q j l i 20 A My name is Edmund Newton, Jr. My address is Box 21 1018, Reading, Pennsylvania. , 22 Q Have you previously been sworn in this proceeding?
'3 A Yes, I have. g
~) 24 Q Do you have before you a document which has been :
25 marked for identification as Met Ed Exhibit 7-22 and Appendix COMMONWEALTH REPORTING COMPANY (7171 761-7150 m--. - _ . _ _ _ , _ , - , - _ . . . . - - - -
.- , _ _ . - - . _ _ - - -- . _ , . . ~ _
Pka . 1 291
= -
I 1 C-1 revised to Exhibit A-3? 2j A Yes ~I do. 3 .fD Nere they yrep=roa .byp vr. ==ler your myruisica? 4, . ,A. .~the3 naarc-
- '5 T M yrm e:xpAwin M-fly.ht .is 2,+.z a.rrn 6 those several documents? '.S 7 A On Appendix C to the petition for extraordinary 8 . rate relief we merely changed the horizontal scale to bring 8 it in line with the actual data that was plotted. There was i
;
10 a slippage of one year inadvertently in the original plotting, 11 so we corrected that.
,h
- 12 . I mentioned this in the hearing last week, and we
\_) 18 said that we would revise it.
14 Exhibit F-22 is an attempt to further amplify my
.15 testimony on the O&M expenses, specifically dealing with 16 tree trimming, and to show'the degree to which our tree 17 trimming effort -has diminished over the last few years until 18 in 1980 we are at the lowest level of tree trimming effort 18 at the present time in our history. Our 1980 effort is about 20 63,000 man hours of effort, and we have never been down that 21 close before_.
22 That is in our present budget. It is a level at 23 p V which we cannot keep things going. The data shown on page 2 l
- 24
- is the numerical data plotted. The resulting effect is 25 shown on page 3, and that shows that as the . tree trimming COMMONWEALTH REPORTING COMPANY (717) 761 7150
p1.1 292 1 J (,' 1 effort has diminished over the last couple of years, the i J M m tions caused by trees in minutes per customer has
-3i' h u 3 W ir=M y_ ,
-4 _In 3.978 they we at .the level ,of nt 49tly .over ten '
) \
3- mtinsrtes pr : customer-ha-in+- 9 Arms mai!M l 1
8 ~dncluding any of themjor storms ,
i ,
~
7 In l'980, based on six months of actual, and ] 2 projecting that for the balance of the year, we expect to be 9 somewhere around 44 minutes per customer for tree-caused L. 10 interruptions; that is on the average. l' I 11 Page 4 shows that same data nunierically, and the 12 bottom line, line 9, shows the 44 minutes per customer that
^
)
13 , I mentioned. t I 14 One thing that would be rather startling or is
'15 rather startling is shown on line 8, and that is the total 16 tree-caused interruptions including major storms.
17 In 1980 we expect 265 minutes. That does.not fore- ) 18 cast any storms in the future. It does include the July l 19 storm and the earlier storms in the year; but 265 minutes per - 1 20 customer is a startling number, very unacceptable. 21 Although we don't expect to have the same level of 22 storms in the future, it does show the inevitable result of 23 cutting back on our tree trimming efforts, where we are now; e 24 and if we cut any more, as was referred to in Mr. Dieckamp's 25 testimony, the customer interruption in minutes will naturally 1 COMMONWEALTH REPORTING COMPANY (7171 761-7150 __ -- _ l __ . _ , , _ m . _ _ . .r..
912 . 293 ? [) V. 1 increase. 2 ~ -
.Thm+_is al1 I have to say on that exhibit.
I
~
3l- JdR. ynRREI:L: ht is alt -we have for Mr Newton
-4 at +hia +4w .
c3 JUDGE ' 3RATf'KrHAY- Staff? c MR ~MIW: 'fhank pn. Yes,. Tour w r ,
~
7 CROSS-EXAMINATION S BY MR. PANKIW: , 9 Q Mr. Newton, is it a correct statement that the GPU 10 system as a member of the PJM interr-h mge is required to l 11 maintain a certain level of reserve capacity pursuant to the Q 12 PJM agreement? i (u,) \ 13 A That is correct. I 14 Q What is that reserve capacity? l 1 15 A Well, it varies. We determine a forecast capacity 16 l obligation in advance, and it varies based on forced outage 17 experience, forecast loads, etcetera; but basically it is 18 the forecast load plus a reserve of about 25 percent. That i l 19 is an oversimplification. 20 If a system such as the GPU system falls below the 0 l 21 reserve capacity, what happens then under the agreement? 22 JUDGE MATUSCHAK: Falls beyond or below? 23 MR. PANKIW: Below. l 24
- THE WITNESS: Payments are made to PJM based on the 25 amount of deficiency below the obligation, assuming that the m
COMMONWEALTH REPORTING COMPANY (717) 761-7150 f^
pl3 .294 .; i o ' 1 other companies have sufficient capacity to maintain their 2 obl i gm +-_ hns and still, sell to GPU.
~1 , -
~19e pay the vi Mr companies to . bring ourselves up 4 % the system level, .
I i 3 -
-Q h omven-h -the 'EPU system, dar WM, is 4 .ubove the Teserve capacity Awaiwwai2 i 7 7 A In the event that anybody else is deficient, there 1
8 will be a sale to that other enspany. j l 8 Q Could you tell us if the PJM is presently recognizing 1 10 TMI-l and TMI-2 as GPU contribution to PJM overall installed 11 capacity? {;~. 12 A , TMI-l and TMI-2 are both being recognized as g 13 installed capacity in the PJM capacity accounting. Their 14 absence is being recognized as forced outage.under the 15 accounted-for part of the PJM capacity calculations; so tha't 16 there is a partial recognition at the moment which will become 17 a full recognition in the future. 18 MR. PANKIW: Thank you. That is all we have of this 19 witness. 20 JUDGE MATUSCHAK: The Consumer Advocate? 21 CROSS-EXAMINATION 22 BY MR. BARASCH: 23 Good afternoon, Mr. Newton. I would like to pick Q
*) .
24 up where Mr. Pankiw left off. 25 As I understand it, Appendix F of the company's COMMONWEALTH REPORTING COMPANY (717) 761-7150
p14 ,295
;
;:
(m) I extraordinary rate relief petition on page 3 of that appendix. v
-2 .A Appenr*4v E, page 37 I
2 ! it 'Nt -is r-arrect. .Speifir ally looking.at 1h 12, 4 ,fou are the person :Inspnn=4blerfor the".adj
- a m shrwarums 1
3~ .m $1D.9 million adjustmentMePM nnWA Teserve !
& capacity I:laim; is that t.orrect, sir? cS*
2 7 A That is correct. That is shown'on my Exhibit F-6, 8 by the way. 9 O Fine. . 10 Now as I understand your testimony, at the moment 11 TMI-l and 2's~ forced outage is not affecting Met Ed in terms h L) 12 of installed capacity payments, but is showing up as 13 increasing the large forced outage adjustment on the books , 14 of PJM; would that be correct? ! 15 A That is correct, yes. 16 Q That $10.9 million expense claim that is shown on 17 there for future test years, does' that represent funds that 18 would actually have to be paid by Met Ed during the future 19 test year to account for the outage of TMI-l to PJM? 20 A In the event that PJM no longer recognized TMI-l 21 capacity, that indeed is an amount that would have to be paid. 22 Q But at the present time in terms of what could be 23 expected from PJM, the company will not be, in fact, incurring 24 a future test year obligation of $10.9 million to PJM, as 25 indicated on that exhibit; isn't that correc,t? 1 1 t
- i. Em-7
,__, CoMMoNWCALTH REPORTING COMPANY (7171 701-7150
p15 y 195 I
.= * ,
1 1 ( ; 1 A As a very practical matter, no. The actual 1 0 5 obligation would.be somewhat less. l l l
^
' 'J
- S 7bsd :if .I were to take a look at the figures that l 1
-4 are shown for 'n[I-2 cn -the ;my's is I a% . zand reserve -
i I 1 '1 ~ capm- 4ty expenses mbourn Tilated to'MI ,2, vn1d your -answer
~4 be the same'? -
f. 7 A As a very practical matter, yes. That is true. 8 As a theoretical 1 natter, that is an entirely different thing. 0 Fine. 8[ 10 A Theoretically, it is completely correct. 11 0 As I understand the way the PJM agreement works, 12 the experienced outage of TMI-l and 2 will gradually work 13 itself into a three-year average forced outage rate for 14 Metropolitan Edison or GPU, which therefore as some date in 15 the future will, in' fact, show up in terms of a forced outage I i 16 payment or capacity deficiency payment to PJM; is that correct? 17 A That is correct; yes. 18 It is now entering the average, by the way, for 18 at least a full year. 20 0 I understand that. 21 If I understand this, this represents an attempt 22 by the company to place its rates, its expenses that the 23 company in fact will be incurring in the future in this thre
.) 24 year average to develop its quota, and ratepayers will be 25 paying -- the company will actually be paying the money at som e COMMONWEALTH REPORTING COMPANY (7171 761 7150
x1, , l 197 1l 1 fk I point two or three years down the road; is that correct, sir? U)
.1 ..'.I would have characterized it as being an attempt 7 l' do _show the .ather :ide -of tho . coin, of the cnon-recognition of 4 the ainit , both in its .capitti -ffus ..all .DsM 7ec .and L -so un. -
8 0 ..But precisely, sir, .it reflects a. set of expenses 7 that the company expected to actually incur and need to lay 8 out -to TJM at such time in the future as the .three-year j 8 average of the forced outage rate from TMI-1 hegins to fully l 10 show itself in the PJM Agreement; is that correct? 11 A That is correct. It may well be that in 19 - well, 1 h d-12 the end of the present planning period, which ends June o#
)
23 ! 1980, it may well be that if we review tlutt, we.may find that . 1 14 there has been some impact there caused by the forced outage
'15 effect and that there may be some liability.
18 O So, there may be some liability as we go on into 17 the future providing these plants remain in service? 18 A That is correct. I8 MR. BURGRAFF: That is all the questions we have for 20 Mr. Newton. 21 JUDGE MATUSCHAK: Mr. Morris? l 22 CROSS-EXAMINATION l 23 BY MR. MORRIS: ( O) 24 Q Mr. Newton, I may have the wrong man. I am not yet i l 25 as familiar with this filing assome others. Are you the COMMONWEALTH REPORTING COMPANY (717 761-7150
x2 298 j
;
( ', 2 purchased Power man or is that somebody else? g
-.2 .x4 _I Aave:.a gr. eat deal to do with it. I am responsible 2~ fur the ,ma=in3strat5mmi.an5% placing into effect of -the !-
-4 ~ contracts ei ch are,'.in. Tact . m : -:=.+,714 e- soumeone e3mse , .iart l
~3 ' O. azn uguite well +=7 +ar with +h=n-8~ ~Q Your filing, as >you are-h aware,7.shows m
"~
7 increase of some $124 million on the year in question over the e prior year. Are you f==iliar with that? You could find it in 8 your O&M. 10 A You are referring to the energy cost? l 11 Q The line, I think, was po_rehn=ed power. ( 12 A- (Witness perusing document.)
-. 3 13 0 I am looking at B-1, Part 12, " Operating Expenses,"
i 14 page 3. l
\
15 A I don't have a copy of B-1 with me. i' 16 Q I am not sure you need it. I will show it to him. 17 (Document handed to witness.) 18 A Yes. 19 Q That is the FERC line, I think, 555. Is all of that 20 purchased power bough _ according to the same formula, and I 21 refer to split savings calculations? 22 A Not at all. There is a great deal of that that is 23 . bought under entirely different arrangements.
> 24 0 Your filings have several agreements, do they not?
25 A They do indeed. , COMMONWEALTH REPORTING COMPANY (7171 761-7150
. -- m= . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -_ _ _ _ _
. r3 299
(~') 1 Q Can you give us a brief basis for the general types v 2, of formula used and attribute the amount of power purchased I 3 h.under seas 4a type-of fnrmnla? , 4 A %in covers .an,hr-ly.". broad - -~gwdnzt very
.s *,mn *ly,* pm,-bscs amcyng -the EPUacampanies - m 2y tme W s' the'GFD companies, Met Ea specifically, ; fall into three I
~
7 categories: purchases from other GPU companies which are done 3 at a purely cost basis; cost of generation plus a wheeling ; 9 charge of one-half mill per kilowatt hour. 10 That, generally speaking, is the lowest cost source
'.1 of energy to any of the companies.
[5 12 0 , This is all under the GPU agreement; correct? l (._) I ~ 23 A The GPU power pooling agreenent, r.y Diibit T/.r.ber
~
14 F .1:, I believe. 15 The second part of our total purchase this year at -- 16 and it is unique to the period following the TMI accident -- 17 is the short-term purchase' power, we call it, and that is a ver:r is major part of Met Ed's purchase in this past year and in these ' 19 test years. 20 Then the third part is purchased from PJM. Now, 1 21 the short-term purchase requires us to reserve capacity in 22 order to get access to low cost coal-fired energy.
~
23 That is done on a weekly basis, and we reserve a.give n i 24
. amount depending on what is available and how much we need and 25 our estimates of the cost advantage of it. ,
COMMONWEALTH REPORTING COMPANY (717) 761-7150
14 '< 300 .
. a . ,
1 i 1 We} rgserve the capacity. We must: pay for that; plus 2 a- transmission use charge; plus losses; plus, generally 2 r M g -the w 7 cost oY 3rzoaccing -the energy Trom the 4 wmrree pins 2-ten pereent-s .
.1~ - Minn am'! *,-
.s . 'D ' fen wwnl. .of +63ewJ .I e
e costs? ~
'7 A After all costs are in, those purchases we are s making .from a variety of companies. Allegheny lN>wer Syster7 9 Cleveland Electric,'in turn, sells us, in many cases, energy 10 that they buy from the Allegheny Electric Power Company from 11 ths west and various companies in that area.
12 , We also buy from Ontario Hydro and a small municipa { . 13 in New York State, through Niagara-Mohawk, generally on the 14 same basis: 15 Then we buy from PP&L. We also recently e~ffected 16 an arrangement whereby we buy 200 megawatts on a unit purchase, 17 a proportional purchase from a group of units out in the 18 Allegheny Electric Power System, some percentage of the total. 19 loutput and capacity of the units; and we pay those charges. I 20 Virtually all of those arrangements require us to 21 have the capacity for payment beforehand. 22 O These are all under the short term? 23 A Yes. Then the third category with PJM is $ Nore we, l 24 at the present time, buy on a split saving basis on an as-needed 25 basis. , COMMONWEALTH REPORTING COMPANY (7171 761-7150 _ ,, , ,
r5 .
. . , N' Then the capacity arrangements are those that I was h) '\.;
1
.2 xafarring to earlier,which are the reserve obligations, which
~
, -is et .a M lesser rate-+h the'zate on the short -tern. 1 4 So, --those e the La hds - _ -- u - . .hner
-3 { the73M -Agreemetrt W3nry wa:. cast-"plus :_h+=mn= ton-the '
e 3tighest cost.cf mil- e 7 O Cost-plus is.what? s A Split savings- the cost to the . buyer, plus half of 9 the difference between replacement costs, unless we don't 10 have any replacement; and then it becomes emergency and it 11 is cost-plus ten. 12 0, We are looking at .the year ending Earch 31, 1980, O V 13 under $134 million of purchased power. Can you quantify , i a 14 the amounts purchased under each of the plans for us? Perhaps! I i 15 you have done this in the filing, and I missed it. ! 16 A The $134 million,.is'that as incremental. cost.-- I 17 just recall you -- incremental amount? 18 Q That is line 555. 19 A From Exhibit B-1 again? 20 Q From B-1, yes. 21 (Document handed to witness by Counsel Russell.) 22 MR. RUSSELL: This is the historical data for 23 March 31, 1980 as against March 31, 1979. 24 THE WITNESS: In my Exhibit F-7 25 COMMONWEALTH REPORTING COMPANY (7171 761-7150 3
16
' 302 ' l e .<
F 1 BY MR. MORRIS: i 2 .O _l.will.have.to look over your shoulder, because I
~
- ilon't .havc all nf +he .fil3mgs . ,
4 ~A My whihi+ F-3.shtms-the212-ths--e=H=g:iiarr-h 3.1, a J . 1930, and thuse are h . _gwLa-gm chasea :vmderwar-h of ! i 6 -the three general T:ategories'I Teferred]to. i The only problem is that these are purchased and I 6 received only. The figure that you wer* referring to was a S net figure. 10 In this particul.ar exhibit,'I chose to. deal only 11 with the incoming energy. 12 0 The witnes's.and I are discussing F-7, the second { 13 page. Are the totals on that page expressed in hours or in 14 dollars?
'15 A Well, megawatt hours are shown there. So, during ,
i 16 that 12 months. Met-Ed purchased almost 3.2.million niegawatt 17 hours .from . purchased ' power.. The interchange received -- 18 Or $97 million worth, approximately? Q 19 A That's correct. P 20 Q And_that is purchased on which of the plans you 21 described? 22 A That was under the short-term. ; 23 Short-term purchase plan? Q
-) 24 A The second one down here is 1,160,000 megawatt hours 25 from PJM, a cost of almost $53 million.
I ,IIS .. i l '.'*tn* l i -' C@MMeNWBA%T00 7 cdp @RTINS Ccf6MPANY @171 721 -71 P@ l
r7 3D3 l e O e 1 Then the internal GPU purchase was only about 2 418,004. 2 total cost of $10 mi11 ion 2' Those ,annarenumbers there include the reserve 4 .r.apacity.as well. .g
- 5. D .: .The 'v_@y rharge lis 9iwy = set
- d ?in *
- M E l column .of-that second page- right?
7 A That is correct. I E Q And the 410 million purchase for the 12 months endingi
]
9 d gMarch 31, 1980..was what you expressed to be on the most to advantageous possible basis? 11 A That is correct. 12 0 . And I assume the' reason for the balance of the 13 dollar investment being approximately~S150 million is as a i 14 result of lack of capacity to provide more in the GPU system 15 on that basis? l 16 A That is correct. l l 17 0 -I wasn't clear from your answer whether in terms 18 of cost efficiency, the short-term purchases with the ten 39 percent upcharge, to- summarize briefly, or the' split saving 20 purchasesJwere.nore advantageous in~. terms of cost.. efficiency. l 21 Would you identify which one you regard as most advantageous? 22 A The internal GPU purchase is generally more 23 advantageous. 24 The two that I directed your Q I left that one out. 25 attention to were short-term purchases and split saving
. . . _ _ . _ . . , _ _ _ _ . _ . . COMMONWEALTH _ REPORTING CO_MPANY (717) 76,1-7150 , _
,304 r8 .
, 9 .
( 1 purchases from PJM. 2 A 2. . beg your_ pardon. The short-term purchases are 1 3 the muore advantageous. 4 ,. <
~4 Q Jind ithe split savings Insv r hamnt:, tschir4i .are-the 'least 3- ,iial-muhus, 'I take:_ite Ithe 3:tnesithat theTR Amb-L ,
.1 mas referring to in the newspaper when they-tew .th, to 7 low key the phrase, " disadvantageous to Met-Ed customers"?
i s A That would be correct, yes. . 9 0 You are familiar with the releases that were made? o lo A I am not' familiar with that particular, specific 11 term. 12 Q , Thes' I take'it, your PR Department's commen' 13 on your FERC filing? The word " gouge" is not mine, but that 14 is the word that was used there. 15 (Newspaper handed to witness.) 16 JUDGE MATUSCHAK: Do you want to identify what 17 you are showing the witness? 18 MR. MORRIS: I was going to ask the witness to l 19 describe the release. 20 THE WITNESS: The relief is from the " Bulletin 21 Business Bonus," Friday, July 11, 1980, from the " Bulletin" 22 Washington Bureau. "TMI Woes Threaten Utility Price Structure" 23 is the title of the report.
) 24 BY MR. MORRIS:
25 Q Without engaging in rhetoric of the newspaper, it is COMMONWEALTH REPORTING COMPANY (717) 761-7150
r9 305 . l i
\
-d 1 fair, is it not, to conclude, too, Mr. Newton, that absent (v3 2 your problems with TMI-2 and TMI-1, you would not have had to ym a mayiLing like the hnd of Power N you ha1pe t ,
I 4 . . . -u =,.a?
-: s ' .A That is . correct. -
ll e O ~ In -fact, y eld, ,maer vrdinary mw .have l 7 been able to sell power, would you not?
.s A We would be in a selling inode, I think, barely, not ,
l 9 heavily; but we would be just about on balance. Would you be on balance _within each of those l 10 0 11 systems of sales; that is on balance on sales at costs within 12 GPU, on balance with respect. to short-term purchases on sales, f( _ G) 13 and on balance with respect to split. savings purchases on i I 14 sales? 15 A If we had both units in, it is very doubtful that 16 we would be buying short term. It has never been done before, 17 and it is kind of a deviation from the spirit of the PJM 18 contract. 19 We didn't have the luxury of doing anything else. 20 We had to go and get it at the lowest cost no matter how much 21 difficulty that might cause other people. 22 So, we went outside. At the same time, we very 23 aggressively tried to get the PJM members to recognize that,
/~T 24 under an emergency situation, the split saving concept was l
25 not appropriate for the price that it should be on a cost-plus COMMoNWEI. TH REPORTING COMPANY (7176 761-7150
r10 ; 306-l
. o 4
j 1 basis. 2 Q It would be appropriate if the purchases and sales i l' 3 , were balanced, would it not?
<j i
.a ,- .
A .ses: ,most . --.; w =r
. _..z 1=eively v%, in t
5 J v34 ation -with ' the=ir -e----- Ity.;arnd need, and there inst *t a 1
< exceunderance of oil-fired w-i. ion in one area or =rwww. !
7 The split savings is eminently fair, ' accessful and 1
- 2 has worked and served :-yLudy very well over the years.
'2 The'Teference in this article right here is to the 10 fact that applying the split saving concept to a situation that!
' i
~
g 11 the GPU companies are in and Met-Ed is in is to the disadvantage i ~ 12 of- the' company. 13 Q So, that in your testimony'. covering the shared power 14 pooling agreements, where the split savings method is referred 15 to as a fair and acceptabla way of pricing power, you were l 16 referring to an ordinary circumstance and not the circumstance 17 in which you find yourself with TMI-l and 2 down? . 18 A That is correct. l 19 Q Have you computed whether or not if you had i 20 purchased your power at cost from whatever sources, including, 21 if you will, reserve capacity, what the savings would have i 22 been? 23 A You are referring to, I take it, the PJM portion
) 24 of it?
25 Q To both the savings portion and the short-term l COMMONWEALTH REPORTING COMPANY (7171 761 7150 {
. Fil ; i 1
307 1 i f3 1 portion, which includes an upcharge. U 2 A .The differential between the PJM costs level and "c Lvhat we are buying on bhuri.-l.cm purchase is such that I doubt
-4 a. change An the pricing wr h:m4 =m with 'EJM would havennaae In wh effeet, ~1Y uany, on .our:-h1-term - L .30, . ; '-- m l To would k no change there. + -
7 I have not seen a calculation of how m ch reduction t 8 to .a cost basis from -the split saving basis would affect this S- against the back3 mnad of the purchased power that we have
- 10 actually been able to achieve. l 11 About a year ago or slightly more, before the 12 short-term purchase had come.in:o the picture, a great deal of ,
^
i (Vl i 13 work was done that went into the initial negotiation with 14 PJM, and I think finally manifested itself in the FERC filing , I i 15 totheeffectthatgoingfromthe.splitsavingtothecost-plusl 16 basis for GPU would have achieved a savings of about $32 17 million for the year. la And that is included in the FERC filing, which you Q 19 have made? 20 A Yes, that is correct. 21 Would it be fair to take in the other category, that Q l 22 is the short-term sales, a ten percent savings factor? 23 Do you mean the purchases we have made A Excuse me. 24 on the short term? 25 Yes, if you bought them at cost, because that is what Q CoMMONWEAt.TH REPORTING COMPANY (7176 761-7150
rl2 - 3DB
;I ?
(, 1 I understood your testimony to be. g I 2 A We buy them at cost, plus ten percent. 3 Q So, yon rodla take tesi preent off?' Tf you were 4 . buying that at most, .your savings.wnn1a .be.. ten nam? J d
^5 .LA If -+ hat arere Wle,.J.but the meu.u =s W l
S Wich those pools operate is that they do charge ten peu.=ui._ - t 7 Q I understand. We are in the context of a rate a pia & ding in which the question is: who will. bear the ! 9 expenses attendant to the TMI-1 accident? So, that is why I f 10 asked the question, so there would be clarity between the two 11 of us.
< 12 Now, which of the three categories of figures, to -
)
13 which you averted, $97 million, S50-some million, and S10-some 14 million; would you go into each of those categories again? 15 A The purchsed power was the S97 million, approximately. IG Q Purchased power being what? 17 A Short-term purchase. 18 That is ten percent? Q 19 A Yes. 20 So, that is some $9.7 million above cost? 0 21 A No, sir; that is not correct, because there is no 22 ten percent rider on the capacity charge. The ten percent l 23 only goes on the energy portion of it.
) 24 O
l , Q Strip that out for me and give me the savings. 25 A I don't have that. COMMONWEALTH REPORTING COMPANY (7171 761-7150
. .m... .m _ _
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- O O I think you do. Didn't you state the capacity V 1 2 r.hargc separaWly? ',
- 'A Ed1Lnif pn wt . ten percent out o'f that, that 5 4 mrun a ..be about .43 '=i7hn, . SB 2 ' nil 14 rm-3 .1) K And I:thhilt p wiier gave. the figure 'nf -
I c 332 million on the split savings side? i 7 A I'should clarify that. The $32 million was a number 1 a calculated in the total absence .of any shud-term ym.duase, or l s:: virtual total absence of it. 10 So, that figure would be much diminished in the l 11 face of the short-term purchase, and I really don't know how 1 i t f C/ 12 far down that would be. i i 13 0 We don't know. - 14 A And that $32 million is on a GPU basis, of which , 15 only a part would be attributable to. Met-Ed. Offhand, I don't 16 have those filings with me to know what the proportion is that l 17 is related to Met-Ed. l 18 MR. MORRIS: Perhaps, His Ilonor can tell me whether 19 the FERC filings or any part of it have been incorporated in 20 this record. 21 JUDGE MATUSCHAK: Not yet. 22 BY MR. MORRIS: 23 O Are they available here; do you have them with you? y,)) 24 A I don't have them with me, no, sir. 25 0 Are they available?
- COMMONWEALTH REPORTING COMPANY (717n 761-7150 ,
Il4 - 310
.i i
t bj 1 A Certainly. 2 O liere?. j
~3 < ~MR OGDEll: We have to check.
A THE W.EENESS: . l .am sure that ropies .have.been .
~3 del.ivered' to h Ecnnmis=9nn stnIf,3ut exact 3y who M 6 6 to, I don't.know. - - 1C, 7 MR. MORRIS: Excuse me for asking. I simply have 8 not had that much time to look at the file.
9 MR. OGDEN: We will see if we can locate them. 10 I think we can find them here in the building. f 11 MR. MORRIS: Thank you. l
. 12 I think that is all I have.
v) 13 JUDGE MATkJSCHAK: Mr. Frater? !t i 14 CROSS-EXAMINATION i l 15 BY MR. FRATER: 16 Mr. Newton, would you refer to your Exhibit F-22, Q 37 please, page l? There is a graph depicting man-hours and 18 thousands of man-hours; is that correct? 19 A Thatis correct, yes. 1 20 Q Does that include both the company employees and 21 contract . abor? l
'2 A We use almost no company employees in any tree 23 trimming, except on an emergency basis. This is entirely g
) 24 ontractor effort.
25 0 By expressing this graph in terms of man-hours, COMMONWEALTH REPORTING COMPANY (717e 761-7150
r15 311' t I ( 1 there appears to be no reporting of any mechanization or 2 product change that have occurred between 1958 and 1980; is 2 that xorrect? A ^A ' Dat is ' uuu cuL. s - . "Q . Carnp qnanHfy h us in any -% Tail M time 5 i-u.w -ima -productivity of a inatt-hour m 3.,000 N M= 3 , 7 that period of time? - It A 'At this point, I can't, I am sorry to say. There f' 9 would be some; I am not sure how large it would be. But, 10 basically, they are working the same kind' of equipment. , 11 Q So, in a 20-year period of time, there has been no-C:q 12 significant productivity improvement in tree-trirmng 13 activities; is that correct? i 14 A None that I am specifically aware of, nothing 15 spectacular. I am sure that there have been continuous small 16 improvements in productivity. Basically, these are three-man l 17 crews working with a bucket truck and mechanized saws, et 18 cetera. 19 MR. FRATER: I have nothing further, Your Honor. !
)
20 JUDGE MATUSCHAK: Any further cross-examination of 1 1 21 this witness? 22 (No response.) 23 JUDGE MATUSCHAK: Any redirect?
/G, i t ") 24 MR. RUSSELL: No redirect. Thank you, Mr. Newton.
25 (Witness excused.) CoMMoNWEA1.TH REPORTING COMPANY (7171 761 7150
l r16 312 <j
, e .;
h 1 MR. RUSSELL: Mr. Hafer? 2 Whereupon, 7 F. D. HAFER I 8
-4 having previously beenMuly sworn, . testified fstr+her .as 5
fcolltyws - 1
.c NNTItyle ' '
i 7 BY MR. RUSSELL: I a' Q Mr.11afer?
- 9. j! A Yes, sir.
10 Q Were you previously sworn and testified in this i 11 hearing? i i 12 'A , Yes, I.have. 13 Q Do you have pe_ fore you a copy of the dccument which i 14 has been marked for identification as Met Ed Exhibit A-4? l i 15 A Yes, I do. 16 Q Was that prepared by you or under your supervision? ; 17 A Yes, it was. 18 Q Could you identify briefly what is represented on 19 that exhibit? 20 A Yes; Exhibit A-4 is a two-page exhibit, which was 21 prepared in response to some questioning that Mr. McClaren t 22 had directed at me the last time I was testifying. 23 Basically, what it is is a statement of the
) 24 interest coverage ratios, and the outstanding short-term 25 indebtedness of Met Ed under the alternative assumption that i
COMMONWEALTH REPORTING COMPANY (7171 761-7150
,rl7 313; I i r 1 Met Ed receives no extraordinary rate relief and, secondly, i j
J that.r. hey ra-aive.t.he full rate relief we have requested, l l
" ,1 zaarmely. W,' T76 =1&n effective May 1, ~.1931.
I 4 n . m m m :r.- w.is an = w -mor e -wer .at ,' l
- l
'5 }l{ Min, time,
+
e JoDas mem, nut- . starn l
. 7 MR. MC CLAREN: No questions, Your Honor. l
'l s JUDGE MATUSCHAK.- -Consumer Advocate?
9 'MR. BURGRAFF: No questions. 10 JUDGE MATUSCHAK: Mr. Frater? l i 11 MR. FRATER: No questions. i i
,;, 12 JUDGE MATUSCHAK: Mr. Morris?
13 MR. MORRIS: No questions. I 14 JUDGE MATUSCHAK: Is there any cross-examination by ' 15 any counsel? { 16 (No response.) i 17 MR. RUSSELL:'. Thank you, Mr. Hafer. 18 (Witness excused.) 19 MR. RUSSELL: Mr. Graham? 20 Whereupon, 21 JOHN G. GRAHAM l t i i 22 having previously been duly sworn, testified further as i 23 follows:
~) 24 25 COMMONWEALTH REPORTING COMPANY (7176 761-7150
___7-
r18 314.i I 1 DIRECT EXAMINATION 2 BY MR. RUSSELL: f
. -V '~ Tom ere 3o4m W4raham?
4 2 Yes , -sir.
-3' ;D .You m wz- -- fly .1saetrrn c=mr1 finaye , ; -; ; rbd in 6 **W -N? E 7 A Yes, sir.
a Q Do you have before you copies of two doc-ts s which have been m.arked for identifica:icn as Met Ed Exhibits 10 E-23 and E-24? 11 A I do. 12 O Were they prepared by you or under your supervision 13 A They were. 14 Q Could you identify briefly what is represented on i I 15 those two respective documents? 16 A Exhibit E-23 is the backup sheets behind Appendix A l 17 to the Petition. It is the sources and applications of funds 18 exhibit with and without rate relief from Metropolitan Edison 19 Company, which produced the short-term debt figures shown on l ! 20 Appendix A to the Petition. l 21 Exhibit E-24 was a response to Mr. McClaren's question l 22 with respect to the cost of short-term debt to Metropolitan i 23 Edison Company under the revolving credit agreement during th
) 24 first six months of 1980.
25 MR. RUSSELL: That is all we have for Mr. Graham at COMMONWEALTH REPORTING COMPANY (7171 761-7150
, r).9 315 s
. . j .
l ! n ( 1 this time. 2 JUDGE MATUSCHAK: Commission staff? b 3 , 1tR. E CLAREN: liiith lfour fionor's permission, we
-4 would like to Befer. the questioning until .after; other . counsel; litw rsave +imacif they ;ask.wrg.- _=1%. '
. 5 }.
i
.s JUDGE WATUSCHAlb h Conss-s r Advm-**~P i t
*/ MR. BARASCH: Thank you, Your Bonor. l
- CROSS-EOLMINATION 2
9 BY MR. BARASCH: 10 Q Just a few questions, Mr. Graham. Mr. Graham, would , 11 it be fair to summarize the company's situation,vis-a-vis the l l 1 us, 12 extraordinary rate relief request, that the company is in need ' I , t ; 13 of an infusion of cash in the near future in order to avoid i 14 running up against a short-term debt limit problem in April? ; 15 A I think that is an oversimplification of the 16 problem. The difficulty is that the short-term debt limit of ' 17 $105 million, in my view, will not be there to get to in A'pril. 18 We need rate relief to both provide the cash necessar y 19 to stay within the limit and to give a level of assurance 20 that a limit like the $105 million will be available to us. 21 Q Are you stating, in your opinion, you don't believe 22 that the company will be permitted to continue to draw down 23 funds up to the $105 million level between now and April? ()
%.4 24
/ A I already testified to that last week, Mr. Barasch.
25 There is no question in my mind that we will not have $105. COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
r20 .316* i i I s million. l 2 So, in short...in terms of the assumption that Mr. O l
~J
. niechamp spote -of a little earlier today that the $105 1
4 pi1 Hon' creBit. line vauld -m +he% ,it is -your.-terstmnny 5 hat you don't Arnisnre what that is a nMA. ass- f*nn~* y
'8[ A 2 +hink there was 41so a statement in m ?i-km=p's 7 testimony that there can be no guarantee that the 5105 million 8' will be available.
8 O' I understand that. Are you saying that you don't 10 believe that that is a likely prospect? ! 11 A Without extraordinary rate relief, it is my opinion s 12 thattherewillnotbe$105millionofcredittoMetropolitang .') : I3 - Edison Company. I4 Mr. Graham, if the company were to be granted, for Q 15 example, the $35 million that has been requested, would it make 16 any difference to the company, in terms of their planning, 17 whether the money given would be in the form of cash or in 18 earnings? 39 A I don't know how you give cash in the same sense 20 that was accomplished in the May order, because the deferred 21 energy balance is already being amortized at a very rapid rate. 22 From the company's point of view, I would have two 23 reactions to your question. Firstofall,MetEdisandwil.lg
) 24 It is very difficult to convince banks be in a loss position.
25 to fund into a loss. . COMMONWEALTH REPORTING COMPANY (717) 761-7150
. .r21 ll
, J.17 1
. . i f5 1 So, if there was an additional cach" generation d
2 N.without any elimination of the deficit on the base rate side, i . 7 jl3 7Wh we .asodla :continneh hame great difficulty in obtaining! A hanh credit. 3 [ con W of:+h=+< -if the : cash rinfus, ion w Mm=rwr* S rapia .u.i.ization of aeferred ersg, ourgrHfficn1ty today is 7 that the deferred energy balance is going away, and that is the! 3' asset that the banks saw as the basis for their being repaid, ! 8l but the short-term debt is not coming down at anything like 10 the same rate; and, in fact, the short-term debt is increasing. 11 Therefore, I have doubt as to whether a further
.;g 12 infusion of cash without doin_g someth m g to deal with the ;
V 13 l deficit problem would be satisfactory. to raake it possible to + 14 obtain the credit we need. 15 Q So, to summarize, you are saying that without an 16 increase in earnings -- and that could be stated either in 17 a reduction of your earnings deficit or their actual 18 earnings position -- without an improvement in the earnings 19 posture, you don't believe that the company would be able to 20 continue to borrow money from the banks? 21 A I think .that you have somewhat restated my answer in 22 a way to put some absolutes on that I would have difficulty 23 stating. D,,
'f 24 It is not a question of being able to borrow money 25 from the banks; it is a question of how much. ,
COMMONWEAL.TH REPORTING COMPANY (7171 768-7150
r22 31E 'l g
. i I
(, 1 O Up to the S105 million 'aniount presently available 9
; w.it hnnt TondificatJan .
JJ '2 - ~O:uala you znsetnie the entire question with that in A it 2tr.~ Barascli? 'I wou1P.I.like -to*3make sure 1 anB"=A :all i T Mf your ainnumpi.ionE .. I e 9 2 am 6ybg e understand your tesi ;- uy. . Incstn=ary; 7 isit your testimony here today that a mere infusion of cash 1 alone will 7 tot be sufficient to solve the concerns of the ! 9 banks, vis-a-vis extending credit up_to S105 million limit? 10 In other words, if you don't have an improvement j 11 in the earnings position of the company, is it your testimony I q 12 that the company will not be permitted to draw down the full g 13 $105 million in the short-term credit agreement? u i 14 A I think I would answer that question "yes," with the ! 15 qualification that if it is not an improvement in earnings, l l 16 it is at least an elimination of the deficit which the banks 17 are being required to fund at the present time. 18 Q Thank you. . 19 Mr. Graham, that deficit you Just spoke of, was that 20 about $9 million as projected for 1980? 21 A Yes. On a going forward basis, I believe it is about 22 $12 million annually. I think for the last half of 1980, it is 23 about $9 million. g
) 24 To change the topic slightly, Mr. Graham, I believe Q
25 the company has taken the position that the extraordinary rate i
@@cT7EfSWWNLTrD0 R7PRRTIN8 62@MPANY f/797) 700-719YO
r23 ) 319 :
? ,
4 q 1 relief and the overall rate relief requested and the rate v 2 increase petition will be necessary in order for the company
- , t-to prre. nee earnings Micient D produce m ~2:wo -times coverugh i
4 i 'let".s w.c :by? the cend of :3.9B1 .cis M. hat 2:orrect? '- ' s ~A .Tesi: sir. s Q ltr. Grahma,
- you =see a way in 1Which this hi=sion' I
7 could provide two times coverage or the potential of a two i i a ths coverage earning position by the end of 1981 without
- 9 reintroducing TMI-l or TMI-2 back into the base rate of 10 Metropolitan Edison?
11 A Yes, sir.
;
12 JUDGE MATUSCHAK: What was t'.at answer? (m .
'w) 13 THE WITNESS: Yes, sir.
;
14 BY MR. BARASCH. , 15 Q Mr. Graham, is the method by which that company would' I 16 get the two times coverage without TMI-l and 2 a matter of l 17 escalating the rate of return by 100 percent? l l 18 A Not necessarily. I 19 Q I wonder if you could tell us how you see this 1 20 eventuality materializing without a huge escalation in the l l l 21 ' allowed rate of return for the company or introduction of 22 TMI-l or 2 into base rates? l 23 A There is no question in my mind that the combination f) V 24 of a cost of equity that reflects the market cost of equity 25 today and the added risks associated with Metropolitan Edison COMMoNWEALTei REPORTING COMPANY (7171 761-7150
~ ~ - - .a n . _ ,
r24 u ' t '323 1 t
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i ( ) Company and attrition or erosion adjustment, avaluingoftheg 2 properties to reflect their current fair value and a realistic :
;
3 ' allcmance for the operating costs of the company that are i 4 being ~ incurred..and ought ~.to lae inr urrea,xould ".be snWi r-icnt 3 - to instify the.in1'1 rate Waf asting of 3 haHm'374 -
-s inillion without attributing any portirm of that.-to M-1.
7 - I would be happy to design such an exhibit if you j 2 jwould like. 9 0 I am sure you would be happy to do so. 10 When you speak of some of the operating expenses l 11 being incurred, are you indirectly referring to the cespany's i '- 12 present set of insured cleanup. costs that the company is y 13 incurring? 14 A No. I didn't have that in mind, but I did have in 15 mind the fact that we are spending ve y substantial dollars 16 to protect the public safety with things like the guard force l i 17 at TMI that are not reflected on our rates. 18 I would consider including that, but I don't even 19 think I would have to go that fsr in order to justify the i 20 $74 million. I am told it is $76 million; I am sorry. 21 Q Just to make sure I understand your answer, Mr. ! 22 Graham, under the hypothetical situation as you just set forth,' 23 would an allowance of $76 million in increase revenue require 1 24 ments for that set of expenses be sufficient to produce two 25 times earnings, earnings of two times? .
-w 2 .m, m__ w .m
, ,r25 321 ;
e . i A As I recall, the full rate relief would, by the end (")s
\m 2 of 1981, produce sufficient coverage to sell approximately
> 1.'520 ini'11 ion of ~' bonds .at 13 percent.
} !
a .50., gnu muld .bc, ahone: wo :tirxs -coverage.zt the
.end :.nf
- 1981 s - -
"O 3 would terrn p 1sttentier. 2 another matter, JJtr e
I 7 Graham. As you may recall, when we were all gathered here ' 11 together back in the spring, there was a lot of discussion of 9 insurance payments or advances from the insurance carriers for 10 the cleanup costs. Do you recall that, Mr. Graham? 11 A I remember being questioned about it in the spring, - g_; 12 yes, sir. J 13 0 I wonder if you could advise us as to what the 14 present situation is in terms of advances from the insurance 15 carriers for claims that you have submitted for cleaning up' 16 TMI-27 , 17 A The last time I looked, which was just a few weeks 18 ago, the amount spent for the cleanup since the accident . 19 was $144 million. 20 I have recovered against that $130 million. We 21 received $20 million last -- a year ago,' June. We then began 6 22 receiving substantial dollars last December and have been i 23 bringing money in since that time at the rate of between () 24
$2.5 million and $3 million a week.
25 We have in place now a system by which, on a I' i l COMMONWEALTH REPORTING COMPANY (7171 761-7150 j
r26 y .322.! *
- e .
6 I i 1 quarterlybasis,approximately60percentofcashexpenditurg 2 for c3 aanup will be reimbursed with an af ter-the-fact auditing i 7 .cf the exact nature of the expenses to see which were and l
'A I ~ which :were mot .covsmad -
M -cash Terecasts Juve Pt. hat.rfstem i I
~huilt iinto % . -
;
-5 I t) - ltr. Grahma, T harve a Wiem with your'lnst : answer. .
7 You talked about recovering on a relatively current basis , t 8 60 percent of the cash outlays. ; t 8j I believe you say that the company has expended to
;
3 10 date S144 million; that you say that you have recovered S130
?
11 million. Perhaps I am not understanding what you are j 12 testifying to today.
-)
13 - A The difference in that set.of figures app.'.icable to h 14 what we have already spent and already received is that we 15 have received an amount equal to most of the current value 16 of the nuclear fuel core. I believe that was testified to 17 in the proceedings last winter and last spring; and that is 18 included in the $130 million. 19 I see, so, basically, you recovered dollar for 0 : l 20 dollar on the fuel core and the remainder of the account;is thdt 21 how we might arrive at a 60 percent value? 22 A It is not dollar for dollar on the fuel core. The 1 l 23 So, I fuel ccre actually is insured at replacement value. l w l
) 2'.
received an amount equivalent to the replacement value with ! ll 25 the insurance company holding back a little under $5 million; CoMMONWCALTH REPORTING COMPANY (7176 761-7150 _n. -. .- . - . - - - ___ n . , _ . w _ ---n .
f p1G* l .323{ h v 3 but if you factor that out you then do get to the kind of 2 60 percent figure 1.nat.we have talked about.
~3 -
_L 3-nw.is the ' remaining 40 percent of your cash outlay 4 egoimag -2:o:.be dealt with? - i
- h of it-is . h%gMuaryed -to :mxpense N37: i 1,h TA 4 .: en amount equal to about $15 Milien per9mel The Twmmini5er 1
~
7 ]1is being put into a deferred account and is on the balance 6 q sheet of the company. 8 ij '
- Q Tir. Graham, when would tho' remaininc 40 percent to for which you are not receiving payment from the insurance 11 carriers tcday be resolved between you and the insurance y 12 carriers?
\ .
,J - 23 , A I don't know that all of that ever will be. That 14 includes some things that are insurable in our opinion and is not in the opinion of the insurance company. It includes 16 So I don't some things that we recognize are not insurable. 17 know just when we will be able to respond to all of those. 18 Q Assuming that you didn' t get it all, is there some 19 judgment day when you expect to resolve that outstanding 20 I amount with the insurance companies, albeit you might lose l 21 some of it. 22 A I doubt that that day will ever come to pass. I 23 q think that we will spend enough that is clearly insurable that k~'I 24 we will collect the full $300 million without necessarily
*s getting down to the last dollars to fight out with them in the COMMONWEALTH REPORTING COMPANY (7171 761-7150
32A 912 ll e
= a .
i
! deferred account.
2 JUDGE 11AT11SCnAK: As time goes on, some of that 40
~3 percent will tmane 2 gain, and then you will 2acazr aMM f tional 4 j expenses and you vi11 sH17 have the 40 prr-=mt mist.arnding-25 -Am* t"-that: sort rof .a . step .prrw nrhre?
I
-6 M NITm:SS: Tes, sir Iaw runosit1sfJ=== ,'
7 the cost of cleanup becomes -- 3 JUDGE MATUSCBAK: Up to that tine, some of that 9 4 40 percent you will be getting from time to time, and yet i i 10 you will have other expense where you will again have 40 11 percent withheld, so it is sort of a progressing thinc. I 12 THE WITNESS: It is.. 13 BY E't. BARASCH- i 14 Q Is it your testimony, Mr. Graham, that during the 15 next 18-month period that the company has no reason to expect l l 16 any further escalation in the rate of recovery on insured 17 cleanup reemery from the insurance carriers? 18 A I have no reason to expect it, Mr. Barasch, but I 19 want to make it quite clear that with the announcement last 20 week of a higher cost of cleanup it is my intention to press 21 with the insurance companies for a recognition by them that 22 it is a total loss. 23 I do know that at this tin tney have reserved an
) 24 amount which is less than that whica would be represented by O
25 a total loss. The first thing that has to happen is for the' COMMONWEALTH REPORTING COMPANY (717 761-7150
.P18 l 325 I ,b 3 insurance companies and the insurance pools to recognize to V
2 themselves that it is a total- loss. That will take a long time. 1 Then .Lwill lm .pra "imf with Jhm= and vith our l
" I hmirars do .act _im ouWh= M.dn -+h,c. matter- to..at+T to
} t
'3 " either get-a" full mash-- m.y n:tr some kind of. a set
~
6 1 established pattern for the recovery of .tihe15o11ars. - 7 l I do not believe-that that can beeaccomplished in 8 l the next six months or eight months. ; O Mr. Graham, I believe someplace in your testir.ony 18 you refer to a substantial State tax payment that the company i 11 has coming due in April of 1981, is that correct, sir? II- A, I believe it is April 15 that the State taxes that f c) 33 we withhold are due from us to the St-ate.
;
i 14 0 Am I correct that the value of that payment is some g 15 thing in the vicinity of $24 million? 16 A I don't have that number before me, but it does 17 sound correct. 18 0 Have you as treasurer of the company made any 18 attempts to discuss the possibility of deferring that State 0 tax payment to the State for any period of time? 21 A I have not pursued the 1981 payment, but I did
^
"2 I
. pursue the 1980 payment which was due last April'for what I l l 93 think would be obvious reasons to the participants here. I ' V 24 know of no change in the law since that time. 25 We were advised by our counsel who, represents us in COMMONWEALTH REPORTING COMPANY (7171 761 7150 , g_ .. __ . . , _ _ _ _ . . . .
)
p19 b T324 *
. e .
( e 1 State tax matters in Pennsylvanie that we would not be able g 2 not pay that tax, and at the same time not be in default of l 3 l a -tax pa -wmt that was then due. ce tried to -see whether -there 4 fr was .any my to putenif, _the:.payraent for some per3ndM *%- l 3 'Ido tnar that;mur counsel,"Mr.ylis.miewed.h 8 inatter with tTie Division of 'raxation or whatever the name is, 7 and it may have also been explored with the Attorney General's , 8" office, and we were advised that under Pennsylvania law we 9 could not avoid making tnat tex payment. 10 I know of no reason why the exact same situation , I 4 11 would not apply in 1981. ( 12 Q-But to the best of.your knowledge, no attempt has wy 13 been made by the company to again get a second censideration 14 by the State regarding your upcoming tax payment for 1981 15 due to your present extraordinary condition? 16 A Mr. Barasch, I don't think it was a question of ; l 17 grace; although I am sure it is testifying to a legal 18 conclusion, I believe it is a matter of Pennsylvania law as 19 to the ability of the State government to have allowed non-20 payment, and I think it would take a change in the statutes 21 to accomplish that. ' 22 O Have you sought opinion from your tax counsel as l i 23 to the consequences, practical consequences to GPU and 24 Metropolitan Edison of failure to pay that tax as due? l 25 A That is not an opinion I would seek from my tax
. 1 COMMONWEALTH REPORTING COMPANY h171 761 -7150
p2D !! 327 ; t
.t l
h V 1 counsel, but I have discussed it with our general counsel
;
and received an opinion in that matter in the spring of this 2l 3' j year.
-4 3 Bon't know that.it laas ever .put-iTrto wr.iting, l 1
' but:2-did --thrwooghlyEar mus tit withR..I.itzerman wnd his l 3l C".. partner, Mr. Jolles.
1'
# 7 What is the advice that GPU is operating on regarding O
8 the likely wcquexes of a failure to make that payment? l 8 jj A It would be a default under the first mortgage 10 bond indenture; it would be a default under the debenture 11 indenture and a default under the revolving credit agreement. . r 12 JUDGE MATUSCliAK: Would there be further cenalties j'
~
O 13 attached? . 14 THE WITNESS: There are abilities to cure defaults , 15 in certain of those documents with different time frames 16 attached to them depending on the kind of default that it is. 17 For instance, in the case of the debenture indenture, as I l l 18 recall, there is a 60 day time to cure the default. I 18 believe it is a much shorter time under the first mortgage ) 20 bond indenture, and I don't believe that there is any grace 21 period under the revolving credit agreement for that kind of 22 default. 23 Of course, if the default is not cured under the ym
~, 24 first mortgage bond indenture and the debenture indenture, 25 all of that outstanding debt becomes due; and until it is paid,I ,
COMMONWEALTH REPORTING COMPANY (7176 761 7150 - m -- um. _ .v > _ . m .r - _ + e--- ~- -
p2.1 ll . 328. ' c a , l ( l l as I recall, it carries an interest cost of the highest rate $ 6 27 M any barratanriing debt. i l
~3
'JIIIMT N FAK: You may proceed. .
l 4 _MR. 3ARASCB: 4._I .have mo tsrther questians urf the 3 wit 2tess, Totzr '. honor. q 8
, ' UDDGE MATrmr'TUm: Mr. Morris? l 7 '
MR. MORRIS: Thank you, sir. s CROSS-13 AMINATION 8 BY MR. MORRIS: 1 10 Q Mr. Graham, I earlier discussed with Mr. Hafer, who j i 11 referred me to you, the conditions attached ro the payment of i
- 12 "I
your preferred stock dividend. Am I right as I now look at g 33 your indentures that if you fail to make four cuarterly 14 payments the preferred shareholders have a right to control I the Board of Directors at Met Ed? 16 A That is correct. O It is not an event of default, is it, as you have I8 described the other events of default in your indenture, I8 debenture indenture and mortgage bonds?
'O
~
l A That is correct. f i 21 1 Q Perhaps you could explain to me one entry in your i 22 l applications of source and applications of funds exhibit as l ' 23 l most recently'being cast. You have a sinking fund obligati i 24 I take it that comes due in September of 1981. 25 A In September of 1981 that would not be a sinking COMMONWEALTH REPORTING COMPANY (7171 761 7150 _ _ _- - -- - . . -- -,- _ - -- l
922 329 I ll e e 3 fund obligation. 2 What is that obligation? Q.
' .A IT here is $13 million oT?first mortgage bonds that' will 4 ' be riesued .to :the banks smaar the revolving undit ary--E
. i i
J- They mature -en 4k-tober 1:'1931 -when 1+he entire Tewn.tring . I
- creait agree-mt Jaatures. They are treated.as ~1ong-1 u.m debt 7
- for purposes of these exhibits.
' 8 I see. Let lue go .back to November of 1980. What O
8 is the application of S5.7 million under refinancing which 10 you are seeking? II There is I believe $5.25 million of a verj small A , i p; 12 bond issue that was issued several years ago that matures. b I3 There is also $400,000 of sinking funds that are due under 14 other issues that must be satisfied in November. 15 O Mortgage issues or debentures? I0 A That is a first mortgage bond issue that matures 17 in November. I don't know whether the sinking funds .e 18 associated with bonds or deNotures. 19 Q That doe s not again recur in 1981 at all? , 20 In November of 1981 you see A Yes, sir; it does. 21
$400,000 that is sinking funds. Of course the maturing ;
o,
~~
issue does not recur. 23 Q Would this statement then include all sinking 24 funds or like funds through which your debentures or your
*5 9
mortgage bonds ar'e amortized? , I COMMONWEALTH REPORTING COMPANY (7171 761 7150
i p23
'l *330*'
i
- a ,
;
l (; ! A All that occur in the period between now and the llh I 2 end of 1981, either as sinking funds or as maturing issues, l 3 l are TeJ1ceted there. l 4 0 -What JJ am tanring trouble .understanaing and- weh== J you can telp mu= torunderstana .it - is _ bow , yon Jurve.mo-litGe 5 in terms of sinling Yund obligations and/omamortization 7 obligations given your capital debt structure which has long- l E term debt on the crder of S5D9 willion. 9 A The sinking funds associated with rost of that debt 10 are very small. They were issued in the public markets; 11 typically the sinking fund obligations associated with k-4 12 privately placed debt are much higher. g . 13 If you look at the period of 1983 through 1985 you 14 will see very substantial figures in this column coming out , 15 of the period of 1973 to 1975 when Met Ed was forced to issue 16 fa! .y short-term debt. 17 Q And that comes up in the 1983 to 1985 range rather 18 than 1980 to 1983? 19 A That is correct. 20 And this obviously would be included in the analysis Q 21 to which Mr. Dieckamp referred, your long-term analysis, , l 22 which I assume we will get a copy of tomorrow, or shortly? l 23 A I wasn't here for Mr. Dieckamp's testimony, but an'
'-, 24 i projection of sources and applications of funds going out 25 another three or four years would have those, maturing issues COMMONWEALTH REPORTING COMPANY (7171 761 7150
, , p24 l 331 .
t i .
, o l i
l r i 3 and those sinking fund requirements in them. l 2 Just so you know, he spoke of having revie ed
-Q
- seve ral and more or Icss currently . longer term projections, l
4 riive or . ten year projections.cof finae4=1 requi. adm.and *
- '~* capital -straccame. 42 m 2. hat you .pmWirspated.inp ^ %
i 5 l those together -for him. 7 A I am responsible for that, yes. ' E ' O What is the 1nost current one that you have done 8l for him that you know of, as I assume rhis is what we .-ill 10 get to look at? 11 A We did a projection for Metropolitan Edison Ocmpany j i 12 fs looking,at the higher cost of cleanup, and making very b 13 minimal rate assumptions looking at the next decade. I4 Q Through 1989? 15 A Yes. I8 That, I guess, with your assistance, I would like O I7 i to look at as soon as you can let me look at it. Would I8 you let me have it as soon as.you can, Mr. Graham? 18 A Sure. 20 I 0 Thank you. l I Now let me ask you a question so that I understand l 22 I your coverage computations. I would like to direct your i i 23 I attention to the interest coverage under the test of your j
)
24 debentures for March of 1980, which is stated to be 1.73 i
,5
~
in Exhibit B-13. I don't know if that has been amended or not,' i CoMMoNWEA1.TH REPORTING COMPANY (717) 761-7150
- 1. _ - - . - __ __ _ _a
,p25 ll 332 j
't C *
;
i { 3 but I assume that is how your coverage tests came out. h l 2l A I don't have that exhibit before me, but that soundsj 3
., about right.
4 O What 3 zaally mant :to Jtnow ds what 'the test;is, i 3 s,rnd ~I .am.just :== Mag ynn to _save one *the;trrmble since've -:turve
.s" so 'little + imp to Tacik:: art +hh fil.ing,.cf.what t_be martio in.
7 A It is -- 3 I assume that ,jou start with your revenues and 0 . 8 you take your O&M out of it; then where do you go? , 10 A No. You come down to earnings available. j II Q After.-- ' 12 A I am sorry; I don't understand your cuestion. g I3 Earnings available after what? Q I4 A After provision for all of your expenses. ; i 15 Q Earnings less O&M? 16 A Revenues less O&M, less depreciation, less State 17 taxes; so you have earnings before federal income taxes and 18 I before preferred stock dividends, and add back.long-term I8 interest and divide by long-term interest. 20 Q Divide by long-term interest? 21 A Essentially there are some adjustments to be made i 22 for thingr.; like allowance for funds used in construction. i 23 O But they are relatively minor, I take it, in terms kl 24 of the aggregate figures that we are going to have in revenues? i 2~" A Well -- , l l COMMONWEALTH REPORTING COMPANY (717n 7617150 l
p26 !! 333.
. e r' 1 Q Walk me through if you will with the 1.73, because
('v; l 2 I think you can use B-l to do that. p I want to make sure that l . 3 1 am zight- ' i 4 2 .Would it. he morer convenient if we dust.tosak .a 3 I-g mainatie, tend a .will uk _W. 3nff.--asn3 wean 'probablyWmim
*} it.
1 7 JUDGE MATUSCHAK: This would be a good cime to 8 take a short recess. I (Recess.) 10 JUDGE MATUSCHAK: We will proceed. 11 MR. MORRIS: Your Honor, during the break, with C3 12 referen,ce to B-lll the witness was able to provide r.e with G 13 the figures and coverage which I was seeking, so I have that 14 and I am done with that line of inquiry. 15 JUDGE MATUSCHAK: Do you want to put his response 1 16 i on the record so that we have it also? 17 BY MR. MORRIS: 18 0 Would you respond? The question was: what adjust-I8 ments to the O&M and revenues accounted for or were requisite 50 to making coverage calculations? 21 A Perhaps to make the record clear, if I refer to o, ,
. Exhibit E-3, which is the 1979 annual report of Metropolitan ,
I 23 g Edison Company, operating revenues were $338 million,
' 24 operating expenses'which include fuel, purchased power, a credit for deferred energy, payroll, other O&M, depreciation, COMMONWEALTH REPORTING COMPANY 17176 761 7150 l g
p27 334 '
. o .;
{ El 'x 1N and taxes other than income taxes, for $259 million, leaving i 2: operating in .befone taxes of S79 million. 2' One then . adds .to. that figure up to ten pchent of 4 .it _for other income -and .the allouance inr ..fnnrk.2ased Anring
~3- m ei.x .: inn- On :thetase af . Met ~IS .in '1979 'those -tum we 4, less than ten percent, so one would ada.the full- mit; that T Adding the $4.9 million to S79 million f was $4.9 million.
8 gives SS3.9 inillion. 8 The cnnual interest expense in 1979 fpr Metropolitan 30 Edison Company on long-term debt was about $42 million. To ' 11 do the coverage exactly, one would annualize that, but as l (- H 12 a rough, approximation, if one divides the S83.9 million by & W 13 I think
$42 million, you come up with just under two times.
14 it actually works out to be 1.99 times, and I think that that 15 is the figure that is shown on Mr. Huff's' exhibit as to the 16 debenture coverage of Metropolitan Edison Company at that time: 17 JUDGE MATUSCHAK: Very well. 18 Do you have anything further, Mr. Morris? I9 MR. MORRIS: Yes, one other question on coverage 20 and then one other line that I would like to inquire on with 21 Mr. Graham. I 22 BY hR. MORRIS: 23 g Q Mr. Graham, in your capacity as treasurer, are you (1 24 familiar with the coverage requirements experienced by other 25 utilities issuing paper of this sort, and ca,n you give us a COMMONWEALTH REPORTING COMPANY (7171 761 7150 I-
n28 .
; 335
;'
. m I, I range?
[h U 2, A I am not sure what you mean by " paper of this sort." t 7 R - Your coverage requirements govern your conduct under 4 -
' indentures. 2 .am talbg about other utilities..U Do ot-her 5 mH1 ;+-in imame long-term aa'ht in this form, and, .are tyspo -rw f i ,
6'. of -the Tange of coverage 21squirements applicable-to+1w=? ! 7 A The general standard for legal requirements is two 8 times. There are a few that have slightly higher or .slightly 9 lower requirements, and some that have slightly different 10 calculations, but the two times standard as the legal minimum l i 11 i is what I would describe as a generally prevailing requirement ,- 12 for electric utilities, i 13 Are you telling me that coverage of 2.0 is a legal O l 14 requirement? ' 15 A Yes, sir. I 16 Under what? Q 17 A Under the debenture indenture. 18 Q Yes, it is a legal requirement in the sense that 19 once it is in the indenture, you are forced to follow it, but 20 there is no law that says the underwriters have to require 21 2.0 or 1.5 or 2.5. 22 A Yes, there is in the sense that there is a ster. ment 23 _ of policy under the Public Utility Holding Company Act of
'3 (O 24 1935 of the Division of Corporate Regulation of the Securities 25 Exchange Commission which does essentially mandate the COMMONWEALTH REPORTING COMPANY 17171 761-7150 !
f
p29 .' 336 d
;
e 'l l l 1 1 incorparation of the minimum of two times coverage for registered holihng m=ies and their subsidiaries into the q intenturcs. I f
.* :Does that .. apply 1;o sagLc.at11is wc athat m .not .
-Q I
4 , part nf a 41olding ramuny? I il J i 6E A It -applies to . companies that -are subject to thn 7 Holding Company Act. l 8 Such as GPU. ! Q 8 I A And its subsidieries; yes 10 But there are some that are not; is that correct? Q 11 There are many that are not; there are many that A 12 obtained exemptions from the- Holding Company Act by satisfyirh I3 the statements of policy that would have been applicable to 14 companies if they did not receive that exemption; and that is is one of the reasons why so many companies'have the two times: 1 I6 requirement in their indentures. I7 Is there an industry source book which summarizes 0 18 this, Standard and Poor's or something like that? I9 A That summarizes legal minimums? l l 20 Q Summarizes outstanding issues and coverage require-21 ments attendant thereto. i
*2 9
There are many many analysts who put out data as A
- to what the coverage of all of the major electric utilities $
24 at any given moment in time. 15 25 9 I am not asking with respect to what the coverage COMMONWEALTH REPORT 1NM f*n M P A N Y f* 171 7R 1 71 Mn
p3D 337 ( a 1j may be based on your statements; I am asking based on what
w,
)
2 s their. indentures require. Is there a source book you use for li
? d h t?
4< ! TA 3 W .that J-.havc. r 3 :O .14 r, wh== , .letrsae:ast you =mme ty+irwm Imihich s Mr . ' Ruff suggested shoulti probably te Ai rected to,you. :3ie
;
7 indicated that there was an exhibit in the filing -- and ! 8 he had a backup sheet which gave a chronological order of the 8 acquisition of your long-term debt. The one that we looked 10 ' at that we had showed your mortgage notes and your debentures.! II If you could tell me what formal part of the filing
~
. ,, 12 would indicate that, that would be helpful.
!v) 13 a A Exhibit E-3 shows the various series of long-term ,
14 debt, both mortgage bonds and debentures and the duc dates. 15 It does not include the issue dates. 16 ' If you will just give me one minute. 17 MR. RUSSELL: I gave you a reference this morning 18 to an exhibit that had that. 18 MR. MORRIS: Yes, you did. - t 20 (Discussion off the record.) !
;
21 MR. MORRIS:- Mr. Graham has very kindly directed i 22 my attention to that part of the Exhibit B-ll which would 23 answer my question with respect to the chronology of the 24 acquisition of long-term debt, with the exception'of capital 25 contributed, and he indicated to w; that he .can provide for COMMONWEALTH REPORTING CCMPANY (7171 761 7150
p31 . 338* { l { the record either on a piece of paper or by reading it into
.2 , . the. rerd the chronology of capital contributed.
1 3i r R 3rwgmq:. - i-
~4 1Q ,1 assume by EPD,.. miW "3 A .Yes, sir '
.s Q 'Whichever way you choose to tuucccd. .
7 JUDGE MATUSCHAK: You may read it into the record, a THE WITNESS: Por the last ten years, from 1970 , S
.to . the end of 1979,-the scuity dollars-that have either been 10 contributed in the form of actual contributions from GPU or ;
i 11 in the form of retained earnings tor.a1 S215 million. j g i 12 BY MR. MORRIS: g 13 Q The period was? { 14 A 1970 to 1979. . i 15 Q Would you clarify what you mean in that context + 16 by " contributed in the form of retained earnings"? 17 A Metropolitan Edison Company is a wholly owned 18 subsidiary. Generally the policy is that the company pays 19 up all of its earnings to the parent and then receives capital 20 contributions back from the parent. 21 In some instances, particularly in 1979 because of 22 Met Ed's cash needs, that transaction did hot take place. 23 Q So you simply left $10 million, which accounts forg ') 24 the increased retainsd earnings on your balance sheet for that 25 year? COMMONWEALTH REPORTING COMPANY ("P17176 8 7150
. 932
- 339e
.. , i I l 1t A That is correct. -
( t 2 O Using the $251 million figure which you gave me,
'3 o .would some S240 millitm of that have been contributed b*r Met I:6 l{
4 after .paydag alividends? , a arwmrh my*npc? . . . 4 i
- 6 '3ER NORRIS- Tes. 'fhani you. ,
7 THE WITNESS: I think the number is about $219 l I think there may have 8 ] million rather than $240 million. 9 been some other years where there was an increase in retained 10 earnings. ! I 11 I also have the figure of what the dividends paid l 12 by Met,Ed to the parent in the same time frame were, if that V : 13 would be of use to you. l 14 BY MR. MORRIS: 1 15 I think that is in the statement, sir; is it not? Q 16 A I+ don't know. I don't recall. 17 I believe that is in the annual report. Q 18 That, as I understand your answer, accounted for 19 $250 million of other paid-in capital. Your balance sheet 20 as of' March 31, 1980 shows some S280 million worth. What is 21 the other $30 million? 22 A I assume that it is capital that was contributed 23
,m prior to 1970.
I 6
%.4i 24 Q I see.
25 A (Witness perusing document.) . .. _ - , , _ ~ , . . COMMONWEALTH REPORTING COMPANY (7176 761-7150
p33 340 ; q l f 's 1 O Were you looking to see if that was correct? h l l J . . .A -That is my answer. I was just looking at the book. I 7 ~WR. MORRIS: 'That is all, sir. Thank you. b l
- 4 'l - MR. Funvr'n- ~2io.x3nestions. . Tour.wrmrsr.
+
Y JUDGE JEATUSCHKK- 'Mr. Cornish? ) I 6 CRDSS-T!XAMINATIUN 7 BY MR. GORNISH: f 8f Q Mr. Grahant, you talked about certain tax payments *
*~~ 9 due in April of S981,.and I think you-used the term " withheld."
10 Hould you explain what these taxes are for and why you used l 11 the term " withheld"? { 12 A, They are not withholding taxes in the sense of a g 13 federal income tax, but rather they are State taxes that are ; 14 included in our billings to customers that we collect and ; 15 then pay to the State I believe more than once during the l 16 course of the year, but I am not exactly sure of the dates; 17 and the major time when those taxes come due is in the spring. 18 These are taxes that are passed on to the consumers 0 19 and you are collecting them and remitting them to the 20 Commonwealth? 21 A Tliat is correct. 22 That is all. MR. GORNISH: 93 Does the staff have questions? g JUDGE MATUSCHAK: MR. PANKIW: Yes. 25 COMMONWEALTH REPORTING COMPANY 17171 761 7150 l
p34 , H 341 l 13 i f *
. . j k
i /^M 1 CROSS-EXAMINATION I 't/ j 2 BY MR. pal'WJU: . 3 3 ~ 3tr Erahami I wala'like to ask you specifically 4 l* s-hat: State +avas am these. CouId you +c'il as what they.M
\
'3 _ A 1 know h enrn=s Receipts tav iscincluded I w=N ;
6 have to check as to -exactly which .other-taxes are f.tue on April' , 1 7 ! 15, and I can supply that information to you. l 8 0 I would like to direct your attention to your 8 exhibit E-23, page 3 of.5. 4 10 A Yes, sir; I have that available. t l 11 In April of 1981 you show a decrease in working Q 12 (41 capital of $26.7 million. Is that caused by the State taxes ( % ,a 13 that come due in the spring? 14 A Yes, sir. You will notice that in any conth there 15 are swings in working capital, but the thing that causes the - 16 very big change is the tax payment that is made at that time. i l 17 Q And you will provide to us the specific taxes that 18 are due and their amounts for April of 19817 19 A If I can just have one minute to talk with Mr. Huff 20 perhaps I can just tell you the answer right now. 21 The Gross Receipts Tax is 4.5 percent, and if I , l 22 had the 1980 revenues we mcy be able to come up with a 23 numer that is very close to the number at that point. 24 (Discussion off the record.) 25 THE WITNESS: I can supply the information to you COMMONWEALTH REPORTING COMPANY (7176 761-7150 I
P35 ,1 342 ,i
# yl 4 .I
( 1 tomorrow. We are not sure if there are PURTA taxes in there . 2 or whether there may,be.other - =11 taxes. The overwhelminely
- 3 h r .i..part is -the~ Gross ~~ReccMs Tax.
4 -1 In :+ hat . case, J4r Graham r - that..will. .be.s*M e'nt - i
'3 response. 'l S A All rirJht. .
7 We have no further questions. ! MR. PANKIW: i 8 Is there any further cross-
. JUDGE MATUSCHAK:
examination of this simness? 10 (No response.) 11 Is there any redirect? j JUDGE MATUSCHAK: 1 12 MR. RUSSELL: One further cuestion. v) 1
- 13 REDIRECT EXAMINATION :
14 BY MR. RUSSELL: ; I
'15 In connection with the insurance recovery with Q l 6
respect to the TMI accident you made reference to a term of 17
" total loss." Were you referring to it in an insurance sense 18 or a physical equipment sense, or could you identify a little 19 more clearly the reference that you made?
l 9
~0 t A The amount of insurance that is available, which was
! the maximum amount then available was $300 million. I was 22 l referring to it as a total loss for purposes of the insurance "3 policy, meaning that in my view the recoverable cost of ' ) 24 cleanup will exceed the $300 million, and for that purpose, 25 from the point of view of the insurance company, it is a total 1 COMMONWEALTH REPORTING COMPANY (7171 761-7150
,p36, 343 1 (b,
w J' 1 loss.
;
2l '4R . RUSSELL: That is all we have.
"3 -JUEEE N Thank you.
4
- tWitness .ca m:,ed.') -
3 2PJMELL: 'May ase p nff the --- 2",fter.a-ummmut7 l 4 3DDGE MATUSCHAK: 'Yes. - 7 (Discussion off the record.) . 4 JUDGE NATUSCHAK: If you have a witness, we vill 9 continue. - 10 MR. MC CLAREN: I would like to state for the 11 record that we have distribned to the parties and to Your i
,e 12 Honor and to the reporter for the record copies of the direct (Q J 13 testimony of Robert L. Packard. It contains ten numbered pages l
14 of direct testimony, plus an Appendix A. I would recuest ; 4
. I 15 '
that that be marked for identification as Trial Staff 16 Statement RLP-1. f 17 JUDGE MATUSCHAK: Very well. 18 (Whereupon, the document was marked as Trial Staff Statement 19 RPL-1 for identification. ) l 20 MR. MC CLAREN: In addition, we have distributed 21 to the parties and to the reporter for the record and to 1 22 Your Honor four single-page exhibits which are numbered 23 consecutively 1.1, 1.2, 1.3, l 4 and 1.5. Could we have those (a ) 24 marked for identification as Trial Staff Exhibits'RLP-1.1 25 through 1.5? COMMONWEALTH REPORTING COMPANY (717) 761 7150
p37 p 344 j i' *\
. , g o 1
(~ 1 JUDGE MATUSCHAK: Very well. h
.2 . 5 AWhereupon, the documents were l ,
_ m, r k a ri as _ Trial . m f f. Pvh i bi + a i I
~3 ~Nos. RLP-1.1 th' rough'1.5 for ! l
, i a n+ i f i ca t irm . )
-4 w J5E' w a rm 7 r nTr.tr Pac-bra - !
~5 !
w. 5 ROBERT L. PACKARD ' 7 having been duly sworn testified as follows: ; E
~
_'u I llE C T ' I.X A M I I G T I C S S BY fir. IlC CLAREN: 10 Q Would you state your full name and business address? 11 A ' Robert L. Packard; my business address is Post 12 {J s 13 Office Box 3265, Harrisburg, Pennsylvania. Q By whom are you employed and in what capacity? 14 A I am employed by the Pennsylvania Public Utility Commission as the Director of the Bureau of Rates. j 16 i Q Mr. Packard, do you have a document that has been 17 marked for identification as Trial Staff Statement RLP-1 18 before you? 19 A I do. 20 0 Is that testimony the testimony that you have 21 prepared for these proceedings? 22 A Yes, it is. 93 Q Are there any changes or corrections that you wish
) 24 to make at this time?
25 COMMONWEALTH REPORTING COMPANY (717) 761-7150 ,
.p3B ,
}l 345 '
;
p a 1 A On page 7 under a paragraph 1, the last number should 2 be S31. 2 million. . I 7 ^^DnSer . paragraph =miher ~3, ~ the 'last muna,cx should 1 I
. .he R_~7 mil 1 ion .
4 I
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5 ~)GL N * ~ 1s Whi,c page 7 inf your.3t*%-tTurmy'? i 1 ~THE WIDIESS:~ -Page ~1- both -61. inns. f; 7 JUDGE MATUSCHAK: What is the!. change to be made? l E THE' WITNESS: Under the paragraph which is Trumbered
]
1 S 1, the very last number in that paragraph, instead of 10 $62,329,000, it should be S31.2 million, half that amount. l 11 Under the paragraph which is numbered 3, the very , 1 C 12 last number in that paragraph,.instead of 55,311,800, it (m) 13 should read $2.7 million. 14 BY MR. MC CLAREN: 15 Q Mr. Packard, was the purpose of those changes to 16 make the numbers consistent with the exhibits which you will l 1 1 17 also sponsor in this proceeding? l 18 A Yes, that is so. 19 Q If I asked you the questions contained in your l 20 testimony at this time, would the' answers be the same as 21 presented therein? 22 A Yes, they would. 23 Do you also have before you the Trial Staff Exhibits Q 24 numbered 1.1 through 1.5? 25 A I do. COMMONWEALTH REPORTING COMPANY (7171 761-7150
J46 o p39 ti li
- q o I
i
, i i O Were those prepared by you or under your direct g
.2 supervision?
3 ' 'A tea 'they w re. I 4 0 'Do you wish to mike .any.rhanges nr.:ccrrections :.in (
'5, othose whibits JLt -this-tw? ,
5 A lio,-they have 'the corrected mannunts in h l 7 Q Is the information contained therein true and l e! correct to the best of your knowledge, information and belief?l 9y _ -A Yes, it is. I 10 Q Mr. Packard, would you very briefly summarize your l l 11 direct testimony? 12 A, The Commission should deny Metropolitan Ediscn
)
13 Company's petition for extraordinary rate relief because Met l 14 Ed is financially solvent, stable and in a condition totally 15 consistent with the Commission's May 23rd order; and because l i 16 potential staff adjustments to Met Ed's claim would require 17 subsequent refunds; and because Met Ed's proposal for uniforni 18 increases per KWH fails to correct inequities in the existing 19 rate structure and fails to encourage energy conservation in 20 any specific way. 21 However, the Commission should also set an expedited 22 schedule for the completion of the general rate increase 23 investigation so as to issue its order by year end. O
I
-) 24 Q Mr. Packard, your written direct testimony contains 1 25 the conclusion that Med Ed is not faced with,a financial 1
L _ _ _ _ _ _ _ _ _ _ . COMMONWEAL.TH REPORTING COMPANY (7171 761 7150
P4D . G 34 7 e t i b; q s 1 emergency and that the Commission should not grant extra- i
,, i
- l
.hmrtinaryraterelief. Do those conclusions imply a legal ;
7 .analysas suf +he. grounds f.nr .ertraordinary rate ral M? 4! a <216 ,. n o t ,a r..a n __ -:2 am .zrot an mttorney. _er 2 I
- y inve read Lwivu 1303.(e) W--the Siihl ir-mtility Tode -as :a 6i j layman, .and I would point-out that that section refers to I
7 ! relief that is immediately necessary; and in that time frame 3 I do not see any need. Fur +.her, I think that Met .Ed's request for extra-8[I 10 ordinary rate relief must be viewed prirarily in the context II of the Commission's May 23rd order. The arc.is sion , itself I2 h'T very re.cently considered Met Ed's financial condition after V 33 months of hearings and granted substantial rate relief. I4 One would expect that something drastic would have 15 I to have occurred to require additional rate relief so soon. 16 Otherwise -- and I believe this to be the case - 'ied Ed is I7 simply asking the commission to reconsider its May 23rd ! 18 decision. 18 Q Again,. with respect to your conclusion that there is 90 no financial emergency that Met Ed is facing at this time, ; i I is it crucial to that conclusion that Met Ed was not able to l 22 j present definite plans for service, maintenance and employment 23 reductions in the absence of extraordinary rate relief? 24 A Well, last week we listened to Mr. Hafer testify 25 that there were no such plans, and earlier tpday we listened i COMMONWEALTH REPORTING COMPANY (7171 761 7150 } ]
P41 , 348 ' o 4 o 1 I I C, I to general statements by Mr. Dieckamp to the effect that the !
#. .were r. plans. I think a far more persuasive showing would have
' I -heen the mriaterce of such plans even -before filing for rate 4 ,,1iof.
- 5 E a true e # ywcy awm, ,mmnar-r -1.mornild e 4- .hann forced to ' develop, :a r i Aa .upon and even levin -to I
implement reductions in services, maintenance and employment. . 1 3 .A substantial part of pur -testimony and your 0 j Txhibits 1.1 through7.4 are devoted to describing issues l IU the staff is raising with respect to Met Ed's revenue require-II ment claims. Are you taking the position in this proceeding j 12 that' Met.Ed is not entitled to any rare relief? 13 The point here is that there are A No. Not at all. 14 major issues which must be addressed before Met Ed's revenue i 15 requirements can properly be determined, and that those i issues cannot be resolved under the time constraints of these 17 emergency rate relief proceedings. 18 The four exhibits, 1.1, 1.2, 1.3 and 1.4,are just l I8 four of the potential adjustments which staff have identified ! 20 and to which we have already assigned people that will be i 21 ' testifying in the main case. 92 Stated another way, the staff is calling into ; question the propriety of granting Me't Ed even the $34.1 1 j 24 million of jurisdictional revenues. That $34.1 million is notl 25 a minimum uncontested amount which will certainly be granted
.} NA6TH REPORTIN'B @RMPANY - @99 TIM.RD@ b
.p4 2 , 349 I after full hearings.
[] w/ , . O Er P=r+ a rd , would you ordinarily be the witness 3* faar +1m irtaff for each of the i===ws prarn=e-d on thn=c
;
4 ...-wni+=?
^3 :A cana_ 'Hm -Yar+ , my -=rvraal soleuisanne.mfenn 8 l*
administrator; 3 m't be. testifying,las.I ?indicateA en any 7 of those particular adjustments. I will be-testifying on 8 other snatters and other adjustments ir. this case. 8 Q Can you summarize then briefly the purpose of 10 presenting these specific issues that the staff may raise 11 with respect to Met Ed's revenue requirements? - 12 A, Well, we are far along enough in the analysis of (O 13 these particular adjustments that we have identified that we I* already have the witnesses that will be sconsoring them. We 15 i have the approximate revenue requirement effects,and they ' I6 are substantial enough that they bring into question the I claim by the corhpany ~or its author to refund with interest 18 any amounts that subsequently were not granted. I 19 Q Mr. Packard, the company has agreed to refund with . I 20 interest any revenues collected in excess of final rates. If 21 l extraordinary' rate relief is granted, doesn't that agreement ; i 22 ' by the company answer all of these concerns? l 23 ! A Not at all. First of all, I think that is a hollow b
%/ 24 offer, and I don't know;if they seriously have cash problems or earnings problems, I fail to see where th.2 money would come P
COMMONWEALTH REPORTING COMPANY (7171 761-7150
p43 J 350 <
'.l
- 4 *
]
il . b 1l from for refunds. 2' At the point in time when that would occur, they 2 [ w n1a ne a u innre.additinnal short-term debt. ~I doubt _ 4 ,pvery much that mm=hr .bnkR JQf the I: evolving MAi t.agr M1 l ' 4 1sould . issue .ory alcog 1rith dmsning additinnal _shnv+-4:erm
- 6 debt for the purpose of refunds with interest to- ratepayers. ,
7 It is not a likely event. i i 8 D Nr. Packard, in your written direct testimony you 9 ' advocate the improvement of Met Ed'-s earnings, and at the 10 same time recommend that Met Ed's request for extraordinary 11 rate relief be denied.
~
12 Aren't you then advocating helping Met Ed by not v) 13 granting rate relief? 14 A That is correct for the short run, and that is 15 really the time frame that the statute speaks of. Certainly 16 from Met Ed's own projections for the balance of 1980 17 nothing can really be gained for Met Ed by granting the is They still will be totally proposed emergency rate relief. 19 unable to issue long-term debt. They still would be restricted i 20 to the revolving credit agreement as their sole source of i l 1 21 exterital financing. 22 Any cash that was granted to them on an interim 23 basis, particularly cash that was subject to refund with I 24 interest, really could not be brought down to the earnings statement without at least a footnote to the effee t that it 1 i l COMMONWEALTH REPORTING COMPANY (717 761-7150 i u i
.P44 . 11 .351
- i r
[] v 1 was all subject to refund with interest. 2 What Met Ed really needs is permanent improvement
'3
- ja earnings which it can present in its.finanr im1 utatements 4 wi+hnn+ fcfr.,um, ,.ri+htig=1 i+icatior . Tor + hat-wic 8
-3. ' reason _, 2 'think;-itiat 35et 2d x@ :a - full linal M=ian of !
6 ;the Commission before the end o'f this Calendar ' fear, and that 7 is what I recommend. 8 And a final question, Mr. Packard: "I believe you Q 8 were here when Mr. Dieckamp testified, and that you have also 10 reviewed his direct testimony, have you not? 11 A Yes, I have. ! t 12 { Q_ Do you have comments with respect to that testimony? ; 13 MR. RUSSELL: I would say that I object to this t 14 question as being leading, and, secondly, if you want to
.15 get to any comments on it I would like to have you be l 16 sufficiently specific that I can pass judgment on whether I7 the questions are proper or not in the first instance.
18 I don't think, Your Honor, that MR. MC CLAREN: 19 the question is leading in an objectionable sense, but if 20 Mr. Russell would like the question asked more specifically 21 I think I can do that. I 22 JUDGE MATUSCHAK: Rephrase your question. 23 MR. MC CLAREN: All right. l L., 24 BY MR. MC CLAREN: 25 Q On page 8 of Mr. Dieckamp's testimony, the COMMONWEALTH REPORTING COMPANY (7171 761 7150
945 !! 352 >
, c .j I summarization in short paragraphs with small letters, would $
l 2 P Tead -the . summarized materials under (a) and (b) and , 3 ,rmamrmr: - to ++n=a
- 4 .A _ln summnry, *.la) .. Met Jii'_s . dim and xvmetrnet-icn i
3- d4ei.s are - currently at the nith 3.evels - y; shle. dor a 6 short period." _ 4 7 My comment is that in the short period that is ! contemplated, as I understand the statute, there is no
~
8 8 particular problem. There would be no cuts. There is no 10 need in the short run, if I understand his testimony, to_do , i 11 anything other than what is currently occuring. ! I i ( 12 (b) Cash needs to succort these minimal budgets () - 33 exceed customer revenues such that Met Ed's RCA limit of 14 S105 million is forecast to be exceeded in April of 1981 15 absent rate relief." l 16 My comment is that that is totally' consistent with I7 the projections that we have, and I would point out that that la is not a kind of emergency that needs immediate action by 19 this ^,mmission in the time frame of within 30 days. 20 Certainly that is cause for concern for some kind 21 of appropriate regulatory response prior to April of 1981, f 2' which is what I recommend.
"3 4
~
, Q Mr. Packard, would you briefly describe what your l
) 24 Exhibit 1.5 purports to show?
25 A 1.5 is a graphic illustration of the comparative
, l 1
;
1 COMMONWEALTH REPORTING COMPANY (7171 761 7150 i
. p46 " 353 l
- l l
b I advantage to Met Ed of the recommended expedited rate V . , B 2 yrw hg. .3b. keep the numbers totally comparable, I have
~1 .aasea 3tet TiP.s .mumber Tor hth the'*mergency rate reilief and 1
I 4 for-the full: request.
'5 As pu can see, whr ;ast 26et15'simundwrr,- +n 6 requested relief, if the entire proceeding were over .in time 7 for the new rates to be in effect for January, February, l 8' March and April, they muld actually collect Taore under their S i clain -or 'uncer the'ir request under that scenario than under i
lo l the scenario which they have requested under the extraordinary; i 11 rate relief. ! 12 Those columns are cumulative, so the incremental 13 amounts of revenue are added each month. 14 Do you have any further comments that you wish to Q i 15 offer at this time? 16 -A Not at this time. 17 MR. MC CLAREN: Mr. Packard is available for cross-18 examination, Your Honor. 18 JUDGE MATUSCHAK: Mr. Russell. 20 MR. RUSSELL: I would say at the outset that we 21 did, as indicated, get Mr. Packard's testimony sometime in , 22 the latter part of the morning. We haven't had a chance to - 23 I would propose to engage in a little g analyze it thoroughly. 'w] 24 preliminary cross-examination and reserve the right to finish 25 it tomorrow. . COMMONWEALTH REPORTING COMPANY (7171 761 7150
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241 y 354
- 4
. 4 .
[, 1 JUDGE MATUSCHAK: Very well. h I
.2 _MR .BARASCE: Perhaps before Mr. Russell proceeds, 1
;
'I have one matter concerning Mr. Packard's testiinony that
-4 .dt miight. .be. va_1=M o -to . clear _ q -Acro n +har . thaw = m 4+hg 1
.5 ~nntil xross-ewamim=+4cn is rD1tc1mina.
6 I have reviewed Mr. Tackard's testiinony and 2 f 7 noticed a reference to rate design inequities, and I would' i
- a ! like .to inquire of the witness as to whether he is going to t
e _ 8 t hold himself out as a rate design expert in this proceeding 10 because I think it has a lot to do with what wsit;ht, if 11 any, can be put on certain nortions of his testimonv. j i 12 MR. MC CLAREN: Your Honor, I think that is nore v) 13 appropriately dealt with on cross-examination. If the 14 Consumer Advocate so wishes to phrase it in the form of a , 15 motion to strike, he can challenge it if he wishes. 16 MR. BARASCH: What I would like to do is avoid ! i 17 a motion to strike by finding out what Mr. Packard holds himseif 18 out to be. l 38 Do you want to respond to that? JUDGE MATUSCHAK: l 20 Do you want an admission that he is not a rate design expert?
'l I
~
MR. MC CLAREN: I wonder if it might satisfy the problun that we seem to be facing now to question Mr. Packard directly as to the purpose in presenting that statement. Perhaps that
') 24 will avoid the objection. l, i
l 25 MR. BARASCH: I don't have an objection at this ! I COMMoNWEAt.TH REPORTING COMPANY (717 761-7150
J.r1 Y 355
. 's .. g
, '1 1l moment. I would like to make a simple inquiry of the witness.; (_/ ! l 2 JUDGE MATUW MAK: You may inquire of the witness. , 3 ' CROSS" EXAMINATION 4 . .BY MR. 3RRASCH-
;
s .D 2Mr. Pm-kard, .2 :no+M -in pur testiwmy .an m s unnumbered.page, which.is the second page. .act=nally the
- 7 first page of the text, the summary oft-the gestimony under s the third recommendation or explanation for why the petition 9I should be denied.
10 Did you state that Het Ed's proposal for uniform 11 j increase fails to correct inequities in the existing rate
;
Q 12 ' structure; and then again on,pages 9 and 10 of your testimony, k) l 13 ,. again you make refe,rence to the existing inequities in Met Ed's 14 rate structure, and I am wondering uhether or not first off i 15 you are purporting to hold yourself out as a rate design 16 expert in these proceedings. l i 17 A I have no intentions of testifying on rate structure 18 unless I have to as a rate structure witness. Actually I 19 think I am qualified, but that would not be my point. i J 1 20 The other adjustments which I have identified as l 21 p potential staff adjustments I am also not going to be ,
'l 22 testifying on.
23 The point of putting it in this summary is simply
) 24 that it indicates the magnitude and the reasons why I am 25 denying the magnitude of the adjustments or the ist.ues and COMMONWFALTH REPORTING COMPANY (7171 761 7150
1r2 ; 356 5 c 4 .
. 1 the nature and character of the issues, and it goes to the 2 reason why I am recommending -denial of Met Ed's petition for s extraordinary rarte Te' lief.
i 4 O As preparation for this testiraony.that you have 3 preaented 3nere -today., ' did you ronduct any. analysis af StetE's
<; cost of serv 1mt 7 A Yes. .
8 Q Have you performed an analysis of - and by these s I statements, do you wish to present your purpor.tedly expert u 10 opinion as to whether or not the present cost of service ! l 11 study on rates proposed by the company are. reproduced en 12 just and reasonable rates?
')
13 A Let me state it a slightly different way. I don't g i 14 intend to be the witness,. On all of the work that is done 15 under my supervision that I would not sponsor we will have an : 16 appropriate rate structure witness. 17 I have reviewed the cost of service study. I am 18 convinced that there are inequities. I do think that they 19 should be corrected. 20 Q Is the purpose of your testimony, particularly as
~
21 it relates to rate structure here, a matter of trying to 22 bring to the Commission's attention that there are ccmplex 23 issues that need to be looked at, ordoyouactuallywishtog
) 24 state today a substantive opinion upon an outcome of such an i
25 analysis? . e COMMONWCOLW CT7 PORTING COMPANY (7171 760 7050
I 1r3 357
, e p i A I little of both. I would say that the substantive U
2 issues need to lae looked at. I think they need to be { s fully esaminea in-the generarrate increase proceeding. 4 ,%e guyv=al by the n ~.;-mi to ahply .the. ime-rease s cin the fnre of ;a mmi+nr= 3er 3tets fr-harge 46es: net 2:m.-its h s .adinst -any nf the -evi=+4=g proib1 ms. I am not~f&a _=ing 7 the solution to the problems. l 8 I fully recognize that my staff .and the Consumer S Advocate and other- m ies to this case will need additional 10 time for discovery, for analysis, and for full development , 11 on the record of the general rate proceeding. l 12 Q Mr. Packard,.in the. time that you have been in 1 . h. i 13 Pennsyl,vania, have you ever testified as to rate cesign ' 14 issues in the Pennsylvania utility proceedings? ! I j 15 A Yes.
16 Q In an electric proceeding, sir? 17 A Yes. 18 Q What was the case? 19 A The previous I.D. of this company. , 20 Q I'm sorry. Could you clarify your answer? 21 A The proceeding that we just finished when the 22 Commission issued an order of May 23rd. 23 MR. BARASCH: May we go off the record for a moment,
.# g i
b) 24 Your Honor? 25 JUDGE MATUSCHAK: Yes. COMMONWEAL.TH REPORTING COMPANY (7171 761-7150
= . . - - _ - - - - - .
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, I (Discussion off the record.)
i 2 MR., BARASCH: Your Honor, I am at a bit of a loss. l 3 .2 guess I will .forza a men to. strike certain phrases in 4' :this testhny. ~2t .tas has 4 dally.erMed sto 'the .confnsn nn 3 . as to' exactly ht h P=rhra is -testifying -to. 6 Mr. Packard-is stating that the company -has wtm+T ib 7 equities in the cost of service study -- not the cost of a service study, but the Taanner in which the rates would be S odistributed. It -does not appear to be fruitf ul to pursue 10 a substantive discussion as issued with Mr. Packard. 11 I place the question as to whether'it is a matter 12 that th.e staff has discovered is a complicated matter that g (l) I 13 deserves further study, and Mr. Packard said nc, it is more 14 than that. It goes to the -substance. 15 I don't know whether or not I should be pursuing 16 further cross-examination with him on the details of the 17 cost of service analysis or a motion to strike. 18 So, absent any further clarification from staff, ! 19 I would move to strike those phrases in Mr. Packard's 20 testimony that characterize Met Ed's proposal and on how n l 21 to distribute the proposed rate increase as inequitable, as 22 containing inequitles, as being inappropriate testimony 23 because I do not believe that Mr. Packard is qualified or () 24 prepared to testi#y as an expert on those matters. 25 MR. MORRIS: I would like to oppos.e that motian, t-nuumMwr Al Ta4 RF~ PORTING COMPANY (7171 7A 1 7150
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[-) ( / 3 sir, that has just been made at the appropriate time. 2 JUDGE .EA'1'numA r..,You oppose the motion? 3 MR. MORRIS: ~.I oppose that nion, yes, sir. I eMR.- N: *:huld w.9 oft .the _- --_. a.M t:rr f 4 gy : a ummmmt ,-df- you galease? . l
, 3UDGE MATUSr* RAY- Yes. -
7 (Discussion off the record.) 3 :MR. .NC CLAREN- Is there any objection to me 9j conferring with the witness at this time? t 10 JUDGE MATUSCHAK: No. 11 (Counsel McClaren, Counsel Pankiw and witness confer, ) r 12' , JUDGE MATUSCHAK: pe.will proceed. (
. 13 MR. MC CLAREN: Your Honor, in response to the 14 Consumer Advocate's motion, I would like to make three points 15 or respond in three ways.
16 . First of all, I think that procedurally it is 17 premature and out of order. Mr. Packard was presented for 18 cross-examination, and you had indicated that Mr. Russell 19 was going to cross-examine; further, that if the Consumer 20 Advocate wishes to raise such a motion, it should be done 21 after properly developed cross-examination, which I don't 22 think has been done at this point. 23 Second, the witness has stated at least initially 24 his qualifications as an expert in rate structure, and I 25 think the weight of that is to be decided by Your Honor. It COMMONWEALTH REPORTING COMPANY (7171 761-7150
t 226 360
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{ 1 isn't properly the subject of a motion to strike. 2 Further, the third point is that the Consumer
, .a Advocate's. argument is really circular. They seem to be e'4 suggesting :that itt is -enough for the staff-to may there is g .a anzablemi7and their.Iux. ese .are gohrg to '. loot at lit, int
.g that ine . nan *t ar+nally state -2 hat the .wi+swas ramT17 ~4w W =es i there -is a problem.
s While the staff has raised this issue, we really l
. 9 believe there is a problem, and I think, as Mr. Packard has 10 indicated, it is simply not possible at this time to be 11 more specific than he has; that he has testified that there 12 are inequities, and that he believes that there are inequitie la from his own analysis, i
14 JUDGE MATUSCHAK: This is an expedited procedura. l
' l l
15 While a motion may merit some other consideration in a full-- f 16 blown hearing, this is an expedited procedure. ! i l 17 .Mr.'Packard comes here before us as the Director !
. )
18 of the Bureau of Rates. We assume that he has before him 19 people who are experts in the field of rate structure and 20 rate design. 21 We are not going to require in this proceeding 22 the in-depth examination of this witness that we would 23 ordinarily require in a full-blown hearing. l l L') ., 24 We think that at least for our purposes in this 25 expedited hearing, by reason of his past experience in this COMMONWEALTH REPORTING COMPANY (717) 761-7150
. . l 1r7 361 /^', 1 Proceeding, the proceedi.ig preceding this, and by reason of V .
2 his experience and occupation as Director of Rates, we think 3
- for .our purposes at least tht he has shown enongh laJuuoed 1 4
- jsadg'aent at least for.12nr 4aLion. - _ .
3 ~.'The # %.that w vill z;Five to .hishi 7----y 1Eill l-6 -.3)e determined after full r.ross-.eramrination. .If the. h I 7 Advocate wishes to ascertain the foundation of that summary, they will h free to cross-evatnne the witness at that time. s { 3 The motion to dismiss that portion ofrthe testimony 3o is denied. Mr.' Russell? I, 13 l J' 12 CROSS-EXAMINATION i n , s . 13 BY MR. RUSSELL: i Q Mr. Packard, on the summary of your testimony, you 34 l
. I 15 make the statement that Met Ed is financially solvent. Could 16 yoP. give us your definition of that terminology as you have 17 used it?
18 A By that, I refer to the fact that Met Ed pays its 19 bills as they come due. 20 Q And nothing more or less than that? 21 A That is a simple way of putting it. I can go on. 22 Q Do. Give us all the ramifications of the definition 23 as you have used that term. 24 A " Solvency," as I have used it there, refers to 25 basically a cash position and ability in the short run to COMMONWEALTH REPORTING COMPANY (7171 761 7150
Ir8 3E2
- 4 ..
i 1 l, Pay all of its bills as they come due; the continuation of $ l
.2 corporate activities and responsibilities, fulfilling those J. responsih114+i==. .
e 4 13 rnMT 2W _ ] ,,dD 3Dt agapan thg 1 f3mwi a 1
.5 g 3rositic: ur.. ahiMty~or-iTrah33ity of. Met 2dc.to raise WhirmM1 I 4
1 5 langd erm financing. ,E-l
*l O What assumptions, if any, did you consider in using B the term as you have? What assumptions with respect to cash 5- sources of Met TI2 did you embody in using that definition and 10 applying it to Met Ed? !
11 A Basically I have assumed that Met Ed has only 7 12 one external source of financing, and that would be under the D . 13 RCA, the revolving credit agreement. l 14 Q What assumptions did you make as to availability of i 15 credit to Met Ed under that agreement? , 1 1 1 16 A I assume that it would be no more than the $105 17 million limit, and, in the practical sense, sotewhat less 1 18 perhaps. l 19 Q Do you know how much less you considered? l 20 A I don't have a firm figure. I am aware of statements; 21 by utility representatives to that effect. I don't have a i l 22 firm number.
, 23 The impression that I have is that there is a
) 24 reluctance on the part.of the banks to grant additional sums, ,
i 1 l 25 even though the limit is $105 million. l l l CoMMONWEA1.TH REPORTING COMPANY (7171 761 7150
. . I 1r9 363 1 Q You also described Met Ed on page 1 as " stable,"
(V3
- 2 .and on page 4 of.your statement, I believe it is, you say that s~ there are +nMmt.icns of arma,%ble financial stability * .on 4 .its part:for the M nuce of .1930.
;
.5 > Pnnla you (ve the da++nitions of those tenus s as you .have used -them and the asswagilons that yon -have. impa i
7 in connection with the application of those definitions? j E A You are again. referring to the term " stability"? 9 Q " Stable," " remarkable financial stability." 10 A On page 4, I do indicate the short-term debt 11 balances which'were projecte'd by Met Ed. I note that there A 12 is very,little fluctuation from month to month. . U 13 It is in that sense and for that relatively short I 14 period of time that I am referring.to Met Ed's financial 15 condition as being " stable" or " remarkable financial stabilityl" 16 I would point out that it is in the context of 17 an extraordinary rate proceeding that I am making these 18 statements. 19 If the question or the issue is in the context of 20 a general rate increase filing in which the rates were 21 anticipated to be in effect for some time, I would not use ( 22 those terms for those kinds of issues. l l l l 23 Q Could you give us your definition of " stable" as l _/ 24 you have used it here? l l 25 A Well, if I remember correctly, the June 30 balance COMMONWEALTH REPORTING COMPANY (717) 761 7150
Ir10 3 64 o 9 '
)
l {} 3 was S94.1 million in short-term debt balances, and you can g 2 see that all of these other nr.nbers are less than $94.1 milliob, 3 ' and -they don't fluctuate a great deal, and that is the way i' 4 'in which I 'used the term " stable " i 3-Nee is 20_ sudden steed to a.u.asup: .or nMs .l 3 a mH+1nnal eide h=r-ing of a large '=="nitude.that ds 7 not well within an amount that they have already had out-i standing mular the revolving credit agreement, s let ne contrast that with what occurs according 10 to the company's projection in April of 1981. In April they 11 have an amount which they have projected which will be 12 greater than the S105 million debt limit.
)
13 If I were testifying in March and all of the same { 14 numbers were present, I would not characterize it as a l 15 financially stable situation. 16 Q Correct me if I am wrong. Is it your testimony 17 that the term " stable," as you have applied it to Met Ed la in your testimony, is directed to its level of short-term 19 debt and the characteristic of that debt as not fluctuating 20 significantly from where it was last May? 21 A Let me correct it to this extent: that is a 22 symptom that is one indicator; .in the other numbers that 23 were supplied by the company in that exhibit, I didn't see () 24 any signs of big swings in dollar amounts either under the 25 sources or applications. 4 CoMMONWCALTH REPORTING COMPANY (7171 761-7150
N 1r11 .365 s s (J, 1 The condition for this period of time at this 2 point.in time to me ds remarkably stable. That won't continue 3 :- .indafini+a_1y, ..but .for..the short period .cf . time, as 2 have . 4 -4 =ai,-m+nd,,.2 - m *i dar. it _to ibe uresta'+2hly =+=hla.
-5 0 1sould.:it 'bc
- n'wn-t.-to say-+hn+:-inwa=-% 2
~4 condlnr.i rwt .as .to Jeet T.d's nMW ThrN=MahN+y, you 7 have disregarded its earnings posture? - .
8 A 'v o. In fact, I am probably mtore troncerned about 5 Met Ed's earnings than perhaps Met Ed is, if that is possible. I 10 I think that is the real issue, and I think that that is the 11 real need of Met I:d at this point in th. l 12 - The problem, as I see it, is that the extraordinary , , p/) t l-13 rate relief request will not address'nor aid Met Id's .
. i 14 serious earning problems at all. ;
, I i
15 Q You say it will not address the earnings problem? j 16 A No. I do'n't think the interim rate relief'of ! I l 17 $35 million or $34.1 million #n jurisdictional revenues can 18 be translated into an increase in its earnings without a 19 substantial footnote and qualifier in its. statements. 20 Something that is subject to refund with interest, 21 something that is being fully litigated is not anywhere . car 22 a permanent increase in earnings, which is what Met Ed's 23 real needs are, uJ,
./ 24 Q As you see it, over what period of time does one 25 look at earnings in order to determine financial capability?
COMMONWEALTH REPORTING COMPANY (7171 761 7150
- j. *l 3E6 1r12 o 4 ,
; 1 A Certainly the period of a year is a norm, a year )
2 or longer, although you can get readings in less than a year. l 1 '7 re9vik na: years the standard that I would apply. 4 'V 1s it your view -that aa M5+4 nnal.ha mate urevenues by ;way of interim rate whet tolietMhrri=i=%- - t--
- 3. l 3
l a would -be of mo value to it in germoi.ing a more favorable l i 7 earnings posture, but in the fall of 1981? 8 A The problem I have is t'at the general rate pro-9 Ceeding Nill..be over. byrt}dit time. If.the only proceeding to before us was one for $35 million, subject to investigation l 11 and refund-with interest, and if that investigation was not , 1 12 going to be concluded in the. time frame that you refer to,
~ ') l 13 then all you have is cash with a cloud over it. You don't 'l 14 know whether that can be translated into permanent earnings 15 or not, !
16 The way you have phrased the question takes l 17 it beyond that time frame, and I don't have any way of 18 answering at this time wh'at will be the probable outcome of 19 the general rate proceeding. 20 0 Wouldn't any cloud over earnings generated by 21 interim rate relief be dissipated by September of next year? , 22 A Certainly. A final rate order by this Commission 23 would remove whatever cloud. However, I would again point
.) 24 out that my in my last exhibit, Met Ed can actually finan-25 cially come out better by an expedited rate proceeding than COMMONWEALTH REPORTING COMPANY (7171 761-7150
r .
; 367 Ir13
- 3
;
. 3 9 I
) it can in a two-stage proc.ess, which it has proposed.
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= .- 0 1.. Me haven't had a chance to analyze that exhibit,
.2 :am21 m will .z::rnss-Pxmnine you'with respect to it tomorrow.
.: 12sntt lt .a lact,3tr 3?ackard, that ane 2.hc hngs
~
1
- 5 .at Investigation 3 1 -; 308, aihich'leil .to -the .1emy '23, ~3.330 ' i s order, .that the commission v2.y1 e ssly stated in an 4=td - '
I 7 order in that proceeding that the appropriate level of Met I s Ed's . base rate was mot an issue before it in that proceeding? 9 A I don't have the document in front of me. I would 10 answer that it speaks for itself, whatever it says. l 11 Q You have indicated that the May 23rd order panted ps 12 the rat,e relief to Meu Id; is that correct? d 13 A Yes, it did, in the sense that -- it did a number 14 of things. It also made some downward adjustments in its 15 base rates. 16 Q Would it be correct to say that that order permitted 17 the current recovery of current energy costs and permitted 18 more rapid amortization of deferred energy costs on the part 19 of Met Ed? : 1 20 A Yes, it did. 21 Q And the current collection of current energy costs . 22 was via the energy clause, was it not? l 23 A Yes; that was levelized. It was via that mechanism.I l O) 24 Q And the amortization of deferred energy costs was 25 via a surcharge, was it not? COMMONWEALTH REPORTING COMPANY (717) 761 7150
.;
Ar13 P 3 - I 1 A Yes. 2 0 What action did that May 23rd order take with I L ! mpar-t to M'IlB's >>-cin- base rates? 4 A 13 ell, it awasvea Q2G _1drnrn Wumr mates :as. e_1.1..as
'3, M-2, whin-h Chad .been previonsly w=ceed
~8 So, in effect, -it ream-na the base sate tuuynmrmt
< D 7 of Met Ed's revenues by $20-soma million on an annual basis? ,
8 A I have frankly forgotten the number, but it was S reduced. , 10 0 As you would review it, what would be the impact ! 11 of that latter portion of the order upon Met Ed's prospective l 1 ( 12 earnings? 13 A i Well, if I can refer ycur attention to the hct:Or 14 of my testimony on page 4, starting with (b), I think the i 15 direct impact is essentially that overall earnings would i i 16 barely cover fixed finnncial obligations. I t 37 I also continue on page 5. I think that all of 18 those flow from that May 23rd order. It is a necessary l ! l9 consequence of taking such a large portion as both TMI-l 20 and TMI-2 out of rate base and the associated expenses. 21 There is not enough asset bsse upon which to have anywhere 1 l ,,
-- i l near an adequate level of earnings. l l
23 Q Is it that situation that led you to the conclusio l
-) at that Met'Ed is financially solvent and stable?
A Well, the solvency has more to do with -- that was q! l COMMONWCALTH REPORTING COMPANY (7176 761-7150
'l !
1r15 369 I
. s h') I really that grew out of the changes in the energy clause v
i 2 which you were just referring to of allowing a fully current 2 energy cost _ mum _y and an 18-month amortizatien of deferred . A energy costs. "Thar agave 2det .~ES 2:1!1 east.in.the ~ 6 i m
.3 'hancial.'_solm JindW7 ity 'tD ,ylity' itS M W *R Ect hE"y N G due 'and cont 3mne on prDviding Service to the 'public 7 MR. RUSSELL: I believe that is all I would have l
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8 at this time, if Your Honor please. As I indicated,'we - 9 would have further cross-examination when we complete our 10 analysis for Mr. Packard in the morning. ! 11 JUDGE MATUSCHAK: Mr. Packard, there is one thing j
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12 that bothers me. You indicated your assumptions in your 'wi . 13 statement are that the general rate proceeding could be I 14 concluded by the end of the year.. 15 If this proceeding operates under the full allowable 16 suspension period, it will not be completed by the end of this;I i 17 year. 18 THE WITNESS: That is correct. 19 JUDGE MATUSCHAK: In that event, in the event that 20 it is not completed by the end of the year -- and the company 21 has indicated that around April it will need some $24 million 22 or $25 million for State taxes -- what remedy does the 23 company have in view of the fact that the Act itself provides 24 that only one such emergency petition can be filed? 25 THE WITNESS: If I can make three points, Your COMMONWEALTH REPORTING COMPANY (7171 761 7150
1x16 po , i
, i Honor. One is that I wish.the company had filed the general $
2 . rate increase soonor-:. e
.2 - JUDGE ~MATUSC m : We are beyond that now.
4 m wrmm:' 2 mnaavstand that, and Ibegx2 int .is . s : simply .-so that the :m'1 Tate case could have.been completed
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s even with .a nine-month stai ui.viy limit prior.to April 15 or 7 whatever the due date is. s Secondly, the second paint I would make is my 9 reason for year end is not only is it prior to April, 1981, 10 ibut it would be in sufficient time for the ec=pany to include 11 the results of the general rate increase in its earnings i
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12 statements and so forth in a form that would be without g 13 footnote and without cualification.
,i14 Whatever that final rate relief would be, they 15 could include it in its reports to stockholders and financial i
16 analysts. 17 JUDGE MATUSCHAK: We have to take the situation as 18 it is. We are beyond that now. l 19 THE WITNESS: As it is, if the general rate 20 proceeding is not concluded prior to the April 15 deadline ! l l l 21 or the credit limit problem, I think there is a very serious 22 problem in terms of where they are going to obtain the money l 1 23 to make those payments.
) 24 The most serious aspect of that is if this extra-25 ord,inary rate relief petition is granted, we have absolutely S
COMMONWEALTH fiFiP4XUiPFN9 (PRMPANY 07991 Slag.99 era i
6
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1r17 i 371 t
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O no assurance that even with that $34.1 million in additional l (J I l 2 money, that come April E.. they will be in a position to make i i 1 thJpay:sents-0- , , 4 '?Timt ..is yrhaps 'the liggesti 'A3NN7ty 71 he 1
- -- .-;5 H huse J .am Iully aware'ibat they nnnat;yet.tanre.W
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6 emergency rate relief petition. i 7 JUDGE MATUSCHAK: You still haven't answered my E question. t; hat remedy would the company have, in your 9
) opinion, in the event that the case is not concluded unril 10 the normal suspension period, and come April 15 it needs 11 this additional money? What remedy are you suggesting in f
(_s e a 12 this ca.se? LJ . 13 THE WI'INESS: There are basically three rer.edies 14 One is that they can raise additional capital through their 15 RCA. I am not at all sure the banks would be willing to do 16 i that. 17 JUDGE MATUSCHAK: All right. 18 THE WITNESS: Secondly, they can reduce costs to 19 a point where they can meet those payments. Thirdly, they 20 can -- 21 JUDGE MATUSCHAK: Even at the expense of jeopardizing i 22 their service to its customers? r 23 THE WITNESS: I don't know where they would make bl 24 My guess is that they would do it in a all of the cuts. l , 25 number of areas; tree trimming. I think the,y would also cut L COMMONWEALTH REPORTING COMPANY (717) 761 7150
u .- g;' 1r16 = 372 u , e
' back on their cleanup of TMI-2.
s , 3
; _ The ta eimany we have already heard indicates that 3 they wuld have a 'large mumber of areas. If you spread
; 435 '2nillion or any other zwih across. Met .Ed, ,fon r.an . cut 5 'back a .little bit in 2 20t of ' areas and m 2rp-with the e $24 m2.llion or whatever it is to Tay State taxes.
7 I doubt that we would be in 'a position to identify ,
;
3 .any specific cutback in the level of service. We-probably i s could identify a, specific de. lay in the cleanup of TMI-2, as 10 an example. j 11 Some things you could be quite specific in 12 identifying. Other things you just would not be able ro.
)
13 JUDGE MATUSCHAK: I-think that is two. I think you ; i 14 said you had three alternatives. I ii 15 THE WITNESS: The basic source -- it is really two 2 16 is the revenue, the existing level of rates from the customer. 17 JUDGE MATUSCHAK: And you indicated that while
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18 the company may be willing to refund any. portion of the 1 19 extraordinary rate relief in the event it is found to be not 20 merited, are you indicating that you have some reservation 21 about their ability toccomply with that? 22 THE WITNESS: P.bsolutely. If I understand the 23 position of the banks -- and I am not totally sure that I
,) 24 do; they haven't heard from the banks yet -- they would like e
25 to reduce the amount of credit outstanding. COMMONWEALTH REPORTING COMPANY C17) 761-7150 y.___.. , _ . . _ _ _ _
q 1r10 , 373 3 (n 1 They apparently saw the deferred energy amounts as , v g 2 what they were loaning. money against.- That was the asset !
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3 against :ashich _they :were loanimg money, and that is one of . 4 athe reasons -for my mnc-e' n_ 'rha t m anM ng .:af _:53u ,=iTH nn
. r, jurisdicHa==T.irw-mane an _an ~ rm 'he = -enar M 1 1
s~ serve to -simply reduce at least in 'part the: amount of . 7 outstanding credit. 6 If you then came to April 15, and you wanted to S go. hack up to ~a large- amount, which is even greater than the 10 $105 million of the credit limit, I am not sure that the : i 11 banks would be willing to-extent the.t additional amount, 12 certainly not to go'over the.$105 million in April. E.) CJ ,_
- 1 13 The concern I have is that ~ whether -or. not you .
14 grant the $35 million and the banks put pressure on Met Ed , i 15 to take down its amounts outstanding or whether Met Ed i 16 simply spends that additional money to expedite the cleanup 17 of TMI-2, as an example, or to increase its tree trimming 18 activities, 19 Under either scenario, you still don?t have i i 20 revenue available or cash available to make the payment on 21 April 15. 22 JUDGE MATUSCHAK: Do any other parties wish to e., 23 cross-examine this witnese, at this time? k 24 MR. FRATER: Your Honor, I would like to put one 25 question to Mr. Packard at this time. , CoMMCNWEALTH REPORTING COMPANY (7171 761-7150
-.--w , - . . - . - = - - . -. . .1r2D '
c74 ,
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r NJ l JUDGE MATUSCHAK: Very well.. O 2 f* M 4TXAMINATION ,. 3 BY.MR. TRATER: . l
-4
.0 Er Tackard, _are. yon -crris anesther .=+=M =-- ' =r E PMoring or -Tel'Ji ngy M2'.Ed Mhit "C-33 .orsC-31? -
8 A 1 bolinve C-34 was wi2hdrawn. C-33 'I have lost in my memory what is C-33. I 8 (Document banded to witness by Counsel McClaren.)
.I 8 il -
7 don't recall whether Ret Ed withdrew this or not, 10 but let me explain very briefly how these came about. I 11 Q I don' t believe that is the question that I have j 12 {) 13 before you at this cint. I don't want to be picky, but could you completely answer the question that I have before
+
14 you: are you or is another staff member going to rely on i is either of these exhibits? 16 A Not in the identical form '.hev are because if we I 17 do such a thing we will sponsor our own exhibit. I don't 18 want to play a game, but if~we were going to do it, we 19 would have our own exhibit. 20 The numbers may be identical. I can't know at 21 this time. l 22 MR. MC CLAREN: Mr. Frater, do you mean in this 23 phase of the proceedings? s .) '4 MR. FRATER: Yes.
"5 THE WITNESS: I'm sorry. I misunderstood you. No, I
s
' > g 1r21 375
. v i not in this phase of the proceeding. I was thinking of the i (m;
.2 general zate incre== ,
3 M. PRATER: c Thave mothing further, Nur Ponor-
+
_ .M M * - h ;Gorni2? 4
.3 - - M . ED WTRH: ~I have some 4uc i.h'523r Nr GPar+myd.
g Can 'I defer them until.i.umorrow m ing?
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7 JUDGE MATUSCHAK: I am trying to get as much out e of the way as we can today. .If anybody else is prepared to 9 cross-examine; Mr. Morris, do you have questions at this time? i 10 MR. MORRIS: We would like to defer it until the 11 o
' ther parties are throuc,h with this witness.
JUDGE MATUSCHAK: It is nearly 5:00 anyway. We 7- s 12 ('1 - will adjourn until tomor:.aw morning.at 10:00, with t*e la 14 understanding that we are going to complete this proceeding i 15 tomorrow. 16 The parties are willing to expedite this proceeding, 17 and, if necessary, we will continue until it is completed 18 tomorrow. The parties should be made available and be prepared l 19 to go as long as we have to go. 20 MR. GORNISH: Your' Honor, would you wish to make - l 21 a tentative order of the witnesses for tomorrow? 22 JUDGE MATUSCHAK: I suggest that counsel get ! i le g 23 together among yourse]"es and arrange for that. , V) 24 (Whereupon, at 4:57 p.m., the hearing was adjourned, 25 to be reconvened at 10:00 a.m. on Tuesday, August 12, 1980, in Harrisburg, Pennsylvania.) COMMONWEALTH REPORTING COMPANY _ (717 761-7150 _
i
- I I
, 273
- l 1
1 g g & I 1 F_ 1 g A_ I g l
/ 1 2
3- - I _hrn~hy certify, as the Stenographic Reporter,
. I la ethat' Abe "foregoingpwiy were $atan rstenograrM muy..ty
- l si 1ne and thereafter .Teancea-to typewriting 4 w mr .under any
.y -
1 . I s'T direction; -and that this transcript:is a true and accurate j 7 record '.o the best of my ability. 8 COMMONWEALTP 70PTD;G . 7,INC. :
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s , ; / / \
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